THIS DOCUMENT IS A COPY OF THE QUARTERLY REPORT ON FORM 10-Q OF OBSIDIAN
ENTERPRISES, INC. FILED ON JUNE 15, 2005 PURSUANT TO A RULE 201 HARDSHIP
EXEMPTION

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q

| | (Mark One)
| | ----------

| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2005; OR
| | -----------------------------------------------------------------------------------------------------------------------------------------

| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM _____________________________ TO
___________________________
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

0-17430
Commission File Number

|OBSIDIAN ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
|---------------------------------------------------------------------------------

|DELAWARE
(State or other jurisdiction of
incorporation or organization) | 35-2154335
(I.R.S. Employer Identification No.)
|----------------------------------------------------------------------- | -----------------------------------------------

|111 MONUMENT CIRCLE, SUITE 4800
INDIANAPOLIS, INDIANA
(Address of principal executive offices) | 46204
(Zip code)
|---------------------------------------------------------------------------------------------- | ----------------

|(317) 237-4122
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
|------------------------------------------------------------------------------------------------------------------------------------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes  
    No

Indicate by checkmark whether the registrant is an accelerated filer (as defined
by Rule 12b-2 of the Exchange Act).
    Yes  
     No

Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date.

|Common Stock
$.0001 par value | Outstanding at
June 10, 2005
3,109,333 shares
|----------------------------- | ---------------------------------------------

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
INDEX

|                                                                                               | PAGE(S)
|---------------------------------------------------------------------------------------------- | -------
|PART I  FINANCIAL INFORMATION:                                                                |        
|                                                                                              
|Item 1  Condensed Consolidated Financial Statements:                                         
|                                                                                              
|Condensed Consolidated Balance Sheets  April 30, 2005 and October 31, 2004                    | 3-4    
|                                                                                              
|Condensed Consolidated Statements of Operations                                               
|Three Months Ended April 30, 2005 and 2004                                                     | 5      
|                                                                                              
|Condensed Consolidated Statement of Changes of Stockholders Deficit                           | 6      
|                                                                                              
|Condensed Consolidated Statements of Cash Flows                                               
|Three Months Ended April 30, 2005 and 2004                                                     | 7-8    
|                                                                                              
|Notes to Condensed Consolidated Financial Statements                                           | 9-22   
|                                                                                              
|Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations | 23-38  
|                                                                                              
|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 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     

2

PART I  FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

|                                                                    | April 30,
2005
(unaudited) | October 31,
2004
|------------------------------------------------------------------- | -------------------------- | ----------------
|Assets                                                              |                            |                 
|                                                                   
|Current assets:                                                     |                            |                 
|Cash and cash equivalents                                           |                            |                 
|Marketable securities                                               |                            |                 
|Accounts receivable, net of allowance for doubtful accounts         |                            |                 
|of $715 for 2005 and $494 for 2004                                  |                            |                 
|Accounts receivable, related parties (Note 8)                       |                            |                 
|Inventories, net (Note 2)                                           |                            |                 
|Prepaid expenses and other assets                                   |                            |                 
|Deferred income tax assets                                          |                            |                 
|                                                                    |                            |                 
|                                                                   
|Total current assets                                                |                            |                 
|                                                                   
|Property, plant and equipment, net                                  |                            |                 
|                                                                   
|Other assets:                                                       |                            |                 
|Intangible assets:                                                  |                            |                 
|Goodwill not subject to amortization                                |                            |                 
|Noncompete agreements, less accumulated amortization of $945        |                            |                 
|for 2005 and $783 for 2004                                          |                            |                 
|Trade name and customer relations, less accumulated amortization    |                            |                 
|of $449 for 2005 and $390 for 2004                                  |                            |                 
|Deferred debt costs, less accumulated amortization of $349 for 2005 |                            |                 
|and $289 for 2004                                                   |                            |                 
|Idle equipment                                                      |                            |                 
|Other                                                               |                            |                 
|                                                                    |                            |                 
|                                                                   
|                                                                    |                            |                 
|                                                                    |                            |                 

The accompanying notes are an integral part of the condensed consolidated
financial statements.

3

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

|                                                                        | April 30,
2005
(unaudited) | October 31,
2004
|----------------------------------------------------------------------- | -------------------------- | ----------------
|Liabilities and Stockholders Deficit                                   |                            |                 
|                                                                       
|Current liabilities:                                                    |                            |                 
|Current portion of long-term debt                                       |                            |                 
|Accounts payable, trade                                                 |                            |                 
|Accounts payable, related parties (Note 8)                              |                            |                 
|Accrued compensation                                                    |                            |                 
|Accrued expenses and customer deposits                                  |                            |                 
|                                                                        |                            |                 
|                                                                       
|Total current liabilities                                               |                            |                 
|                                                                       
|Accounts payable, related parties                                       |                            |                 
|                                                                       
|Long-term debt, net of current portion                                  |                            |                 
|                                                                       
|Long-term debt, related parties (Note 8)                                |                            |                 
|                                                                       
|Deferred income tax liabilities                                         |                            |                 
|                                                                       
|Commitments and contingencies:                                          |                            |                 
|                                                                       
|Minority interest                                                       |                            |                 
|                                                                       
|Redeemable stock:                                                       |                            |                 
|Common stock, 324,933 shares outstanding for 2005 and 2004              |                            |                 
|                                                                       
|Stockholders equity (deficit):                                         |                            |                 
|Common stock, par value $.0001 per share; 10,000,000 shares authorized; |                            |                 
|3,109,333 in 2005 and 2004                                              |                            |                 
|Preferred stock, 5,000,000 shares authorized, no shares outstanding     |                            |                 
|Additional paid-in capital                                              |                            |                 
|Accumulated other comprehensive loss                                    |                            |                 
|Accumulated deficit                                                     |                            |                 
|                                                                        |                            |                 
|                                                                       
|Total stockholders deficit                                             |                            |                 
|                                                                        |                            |                 
|                                                                       
|                                                                        |                            |                 
|                                                                        |                            |                 

The accompanying notes are an integral part of the condensed consolidated
financial statements.

4

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share and share data)
(unaudited)

|                                                        | Three Months Ended | Six Months Ended
|------------------------------------------------------- | ------------------ | ----------------
|
|                                                       
|Net sales                                               |                    |                 
|                                                       
|Cost of sales                                           |                    |                 
|                                                        |                    |                 
|                                                       
|Gross profit                                            |                    |                 
|                                                       
|Selling, general and administrative expenses            |                    |                 
|                                                        |                    |                 
|                                                       
|Loss from operations                                    |                    |                 
|                                                       
|Other income (expense):                                 |                    |                 
|Interest expense, net                                   |                    |                 
|Other income                                            |                    |                 
|                                                        |                    |                 
|                                                       
|Loss before income taxes                                |                    |                 
|                                                       
|Income tax expense                                      |                    |                 
|                                                        |                    |                 
|                                                       
|Loss before minority interest                           |                    |                 
|                                                       
|Minority interest                                       |                    |                 
|                                                        |                    |                 
|                                                       
|Net loss                                                |                    |                 
|                                                        |                    |                 
|                                                       
|Basic and diluted loss per share attributable to common |                    |                 
|shareholders from continuing operations:                |                    |                 
|                                                        |                    |                 
|                                                       
|Weighted average common and common equivalent shares    |                    |                 
|outstanding, basic and diluted:                         |                    |                 
|                                                        |                    |                 

The accompanying notes are an integral part of the condensed consolidated
financial statements.

5

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
(dollars in thousands)
(unaudited)

|                                                    | ComprehensiveLoss | Common Stock
 Shares      Amount | AdditionalPaid-inCapital | AccumulatedOtherComprehensiveLoss | AccumulatedDeficit | Total
|--------------------------------------------------- | ----------------- | -------------------------------- | ------------------------ | --------------------------------- | ------------------ | -----
|                                                   
|Balance at October 31, 2004                         |                   |                                  |                          |                                   |                    |      
|                                                   
|Gain on available-for-sale
marketable securities    |                   |                                  | $                        | 6                                 |                    |      
|                                                   
|Fair value adjustment on
redeemable Preferred Stock |                   |                                  |                          |                                   |                    |      
|                                                   
|Net loss                                            |                   |                                  |                          | (5,193                            | )                  |      
|                                                    |                  
|                                                   
|Total comprehensive loss                            |                   |                                  | $                        | (5,187                            | )                 
|                                                    |                  
|                                                   
|Balance at April 30, 2005                           |                   |                                  |                          |                                   |                    |      
|                                                    |                  

The accompanying notes are an integral part of the condensed consolidated
financial statements.

6

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

|                                                                             | Six Months Ended
|---------------------------------------------------------------------------- | ----------------
|
|Cash flow from operating activities:                                         |                 
|Loss from continuing operations                                              |                 
|Adjustments to reconcile loss from continuing operations to net cash used in |                 
|operating activities:                                                        |                 
|Depreciation and amortization                                                |                 
|Other                                                                        |                 
|Changes in operating assets and liabilities:                                 |                 
|Accounts receivable, net                                                     |                 
|Inventories, net                                                             |                 
|Other                                                                        |                 
|                                                                             |                 
|                                                                            
|Net cash used in operating activities                                        |                 
|                                                                             |                 
|                                                                            
|Cash flows from investing activities:                                        |                 
|Capital expenditures                                                         |                 
|Proceeds from sale of equipment                                              |                 
|                                                                             |                 
|                                                                            
|Net cash used in investing activities                                        |                 
|                                                                             |                 
|                                                                            
|Cash flows from financing activities:                                        |                 
|Advances from related parties, net                                           |                 
|Net repayments on lines of credit                                            |                 
|Net borrowings on long-term debt, including related parties                  |                 
|                                                                             |                 
|                                                                            
|Net cash provided by financing activities                                    |                 
|                                                                            
|Decrease in cash and cash equivalents                                        |                 
|                                                                            
|Cash and cash equivalents, beginning of period                               |                 
|                                                                             |                 
|                                                                            
|Cash and cash equivalents, end of period                                     |                 
|                                                                             |                 
|                                                                            
|Interest paid                                                                |                 
|                                                                            
|Taxes paid                                                                   |                 
|                                                                             |                 

The accompanying notes are an integral part of the condensed consolidated
financial statements.

7

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

|                                                                          | Six Months Ended
|------------------------------------------------------------------------- | ----------------
|
|Supplemental disclosure of noncash operating, investing and financing     |                 
|activities:                                                               |                 
|Fair value change on mandatory redeemable preferred stock                 |                 
|Assignment and assumption of mandatory redeemable preferred stock to Fair |                 
|Holdings                                                                  |                 

The accompanying notes are an integral part of the condensed consolidated
financial statements.

8

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and share data)
(unaudited)

1.        BASIS OF PRESENTATION,
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

DESCRIPTION OF BUSINESS:
Obsidian Enterprises, Inc. (Obsidian Enterprises or the
Company), formerly Danzer Corporation, was reorganized through an
acquisition with U.S. Rubber Reclaiming, Inc. and Related Entities (U.S.
Rubber Companies), which was consummated on June 21, 2001 (the
Effective Date). The reorganization of Obsidian Enterprises and U.S.
Rubber Companies was accounted for as a reverse merger as the shareholders of
the U.S. Rubber Companies owned a majority of the outstanding stock of Obsidian
Enterprises subsequent to the acquisition. For accounting purposes, U.S. Rubber
Reclaiming, Inc. (U.S. Rubber) is deemed to have acquired Obsidian
Enterprises.

The resulting entities, considered accounting subsidiaries of U.S. Rubber (the
accounting acquirer) and legal subsidiaries of Obsidian Enterprises (formerly
Danzer) after the reorganization are as follows:

Obsidian
Enterprises, Inc. (Obsidian Enterprises, formerly Danzer, the legal
acquirer), a holding company.

Butyl-Rubber Reclaiming

| | >> | U.S. Rubber Reclaiming, Inc. ("U.S. Rubber", the accounting acquirer), which is
engaged in reclaiming scrap butyl rubber into butyl reclaim for resale to
manufacturers of rubber products.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Coach Leasing

| | >> | Pyramid Coach, Inc. (Pyramid), which is engaged in the leasing of coaches,
designed and fitted out for use for travel by country, rock bands and other business
enterprises, primarily on weekly to monthly leases. The coach leasing segment also
includes the assets, liabilities, equity and results of operations of DW Leasing, LLC
(DW Leasing), formed December 1, 2002, Obsidian Leasing Company, Inc.
(Obsidian Leasing), formed November 1, 2001, and DC Investments Leasing, LLC
(DC Investments Leasing), formed December 13, 2002. DW Leasing and DC Investments
Leasing are controlled by individuals who are also controlling shareholders of Obsidian
Enterprises and, accordingly, Pyramid. In addition, these entities meet the requirements
for consolidation under FASB Interpretation No. 46 (FIN No. 46), Consolidation of Variable
Interest Entities, an interpretation of Accounting Research Bulletin No. 51. DW Leasing,
Obsidian Leasing and DC Investments Leasing also own the majority of the coaches operated
by Pyramid. All intercompany transactions are eliminated in consolidation.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Trailer and Related Transportation Equipment Manufacturing

| | >> | United Acquisition, Inc., which we operate as United Expressline, Inc.
("United"), manufactures and sells general use cargo trailers and specialty
trailers used in the racing industry and for other special
purposes.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | Danzer Industries, Inc. ("Danzer"), which is principally engaged in the design,
manufacture and sale of truck bodies and cargo trailers.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------

| | >> | Classic Manufacturing, Inc. ("Classic") was acquired in May 2004. Classic
manufactures steel-framed cargo, fifth wheel, gooseneck, motorcycle, race,
snowmobile and stacker/lift trailers and open trailers used in the landscape
industry.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and share data)
(unaudited)

1.    BASIS OF PRESENTATION,
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES CONTINUED

The
accompanying financial data for the three months ended April 30, 2005 and 2004
and for the six months ended April 30, 2005 and 2004 has been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations. The
October 31, 2004 consolidated balance sheet was derived from audited financial
statements, but does not include all disclosures required by accounting
principles generally accepted in the United States of America. However, the
Company believes that the disclosures are adequate to make the information
presented not misleading. These consolidated financial statements should be read
in conjunction with the consolidated financial statements and the notes thereto
included in the Companys Annual Report on Form 10-K for the period ended
October 31, 2004. The Company follows the same accounting policies in
preparation of interim reports.

In the
opinion of management, all adjustments (which include normal recurring
adjustments except as disclosed herein) necessary to present a fair statement of
financial position as of April 30, 2005 and results of operations, cash flows
and stockholders deficit for the three and six months ended April 30, 2005
have been made. The results of operations for the three and six months ended
April 30, 2005 are not necessarily indicative of the operating results for the
full fiscal year or any future periods.

BASIS OF PRESENTATION:

The
Companys financial statements have been presented on the basis that it is
a going concern, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. In the period since June 2001,
Obsidian Enterprises and its subsidiaries have incurred losses and reductions in
equity on a consolidated basis. Certain subsidiaries of the Company are in
violation of certain financial covenants in their respective credit agreements
as of April 30, 2005 (as discussed in Note 3 below). All amounts outstanding as
of April 30, 2005 under these credit agreements have been classified as current
on our balance sheet. We are currently negotiating to amend or refinance the
credit agreements where covenant violations exist and debt has matured and we do
not expect these violations to impair our ability to fund current and future
obligations of the Company. Historically, losses and certain third-party debt
repayments have been financed through loans from DC Investments and its
subsidiary Fair Holdings, Inc. (Fair Holdings), entities controlled
by the Companys Chairman, on terms that may not have been available from
other sources. As of April 30, 2005, total debt outstanding to DC Investments
and Fair Holdings was $27,166.

In view of
these matters, realization of assets and satisfaction of liabilities in the
ordinary course of business is dependent on the Companys ability to
generate sufficient cash flow to satisfy its obligations on a timely basis,
maintain compliance with its financing agreements and continue to receive
financing support from Fair Holdings to provide liquidity if needed.

Management,
as a part of its plan towards resolving these issues has taken actions as
described below. Although management believes these actions will improve
operations and liquidity, there can be no assurance that these actions will
improve operations or liquidity, or occur on terms acceptable to the
Company.

10

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and share data)
(unaudited)

1.    BASIS OF PRESENTATION,
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES CONTINUED

| | >> | Obsidian Enterprises has secured a financial commitment from Fair Holdings to provide
additional borrowings under a $15,000 line of credit agreement, which expires on January
1, 2007. Approximately $4,656 is currently available under the agreement.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | United, U.S. Rubber, and Pyramid traditionally had borrowing agreements with Obsidian
Enterprises which was funded using Obsidian Enterprises agreement with Fair Holdings
discussed above. During the quarter ended April 30, 2005, these agreements were
redocumented between Fair Holdings and United, U.S. Rubber, and Pyramid which allowed for
borrowings up to $3,000, $3,700, and $750, respectively, and expire on April 15, 2012.
Approximate availability under these agreements are $267, $817, and $170, respectively.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | Uniteds existing line of credit and term loan with First Indiana has matured and the
Company is currently in negotiations with a new lender to replace these loans. The Company
has received a commitment letter from the new lender and management expects to complete
the refinancing of this debt in the third quarter of fiscal 2005. Under the terms of the
new commitment, the maximum borrowing availability will increase by $3,550. Upon
completion of this refinancing as it is currently contemplated, management believes that
Uniteds working capital will improve by approximately $8,100, as that amount of the
debt will be reclassified from current to long-term, less the current portion.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | In November 2004, Obsidian Leasings credit facility with Old National Bank matured
and Obsidian Leasing now has current debt obligations due of $3,165. The Company obtained
a forbearance agreement with Old National Bank, which expired April 30, 2005, and is in
the process of negotiating an amendment to the forbearance agreement which would extend
the expiration date for 90 days, increase the interest rate on the outstanding balance to
15% and require that Obsidian Leasing sell additional coaches. Management is actively
working to refinance this debt with other banks in the last half of fiscal 2005.
Additionally, in November 2004, management sold two older coaches, reducing Obsidian
Leasings debt by $209. Management is also in negotiations to sell two additional
coaches, which will further reduce debt by an estimated $224.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | U.S. Rubber has a balloon payment on its debt which will be due October 24, 2005.
Management is in the initial stages of negotiating and refinancing this debt prior to
October 2005.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | Classic received an amendment to its credit facility to temporarily increase the borrowing
base on its line of credit by $250 through April 2005.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | Management is actively working to restructure or refinance portions of its high interest
rate debt on more favorable terms. Approximately $20,100 of our debt bears interest from
rates ranging from 10% to 15%.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | Obsidian Enterprises has an agreement with the investors of Obsidian Capital
Partners, a significant shareholder of Obsidian Enterprises, that gives Obsidian
Enterprises the right to mandate capital contributions if the lenders to U.S.
Rubber or United were to declare a default. In either of those events, the
Company has the right to enforce a capital contribution agreement up to $1,370
on U.S. Rubber and $1,000 on United to fund the respective subsidiarys
shortfall. These payments, if any, would be applied directly to reduce the
respective subsidiarys debt obligations to the lender.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and share data)
(unaudited)

1.    BASIS OF PRESENTATION,
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES CONTINUED

| | >> | Cost reduction and other initiatives are being put in place at various Obsidian
subsidiaries including the use of alternative materials and additional discounts through
volume purchasing by pooling purchasing power from all affiliated companies. Any
additional increases in raw material costs are expected to be passed through to customers
through price increase surcharges.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | Management also continues to look for ways to strengthen liquidity, equity and working
capital through ongoing evaluations of merger and acquisition candidates and other
recapitalization methods.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our high level of debt
creates liquidity issues for us and the stringent financial covenants that are common for
this type of debt increase the probability that our subsidiaries may from time to time be
in technical default under these loans. These risks are mitigated, in part, for our United
and U.S. Rubber subsidiaries by the right described under Guarantees of Obsidian
Capital Partners.

Significant financial
covenants in our credit agreements are the maintenance of minimum ratios, levels of
earnings to funded debt and fixed charge coverage rate. We did not meet requirements and
covenants in certain debt agreements as further discussed in Note 3.

SIGNIFICANT ACCOUNTING POLICIES:

Use of Estimates

The preparation of the
financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect
reported amounts of assets, liabilities, revenues and expenses and the related disclosures
of contingent assets and liabilities. Significant items subject to such estimates and
assumptions include valuation allowances for accounts receivable, inventories and deferred
tax assets, the fair values of assets and liabilities when allocating the purchase price
of acquisitions, and the carrying value of property and equipment and goodwill. Actual
results may differ from those estimates.

Guarantees of Obsidian Capital Partners

We have an agreement
with Obsidian Capital Partners that gives us the right to mandate a capital contribution
from the Partners if the lenders to U.S. Rubber or United were to declare a default. In
either of those events, the Company has the right to enforce a capital contribution
agreement with Obsidian Capital Partners up to $1,370 on U.S. Rubber and $1,000 on United
to fund the respective subsidiarys shortfall. These payments, if any, would be
applied directly to reduce the respective subsidiarys debt obligations to the
lender.

12

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and share data)
(unaudited)

1.    BASIS OF PRESENTATION,
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES CONTINUED

Recently Issued Accounting Pronouncements

In December 2004,
the Financial Accounting Standards Board (FASB) issued Statement No. 123R,
Share-Based Payment, requiring that the compensation cost relating to stock options and
other share-based compensation transactions be recognized at fair value in financial
statements. Statement No. 123R is effective for the Company for its quarter ending
January 31, 2006. The Company will then be required to record any compensation expense
using the fair value method in connection with option grants to employees that have an
exercise price at or above fair market value at the grant date and for shares issued under
its employee stock purchase plan. Management is still evaluating but does not believe that
its adoption will have a material impact on the Companys results of operations or
financial position.

In March 2005, the
Securities Exchange Commission (SEC) issued Staff Accounting Bulletin No. 107,
Share-Based Payment (SAB 107). SAB 107 provides the SECs
view on the interaction between SFAS 123R and certain SEC rules and regulations.
Specifically, SAB 107 provides guidance on share-based payment transactions with
non-employees, valuation methods, accounting for certain redeemable financial instruments
issued under share-based payment arrangements, the classification of compensation expense,
non GAAP financial measures, capitalization of compensation costs related to share-based
payment arrangements, the accounting for income tax effects of share-based payment
arrangements upon adoption of SFAS 123R, the modification of employee share options prior
to adoption of SFAS 123R and disclosures in Managements Discussion and Analysis
subsequent to adoption of SFAS 123R. The adoption of SAB 107 will not have a material
impact on our implementation of SFAS 123R.

Insurance Recovery

On December 1, 2004,
U.S. Rubber had an electrical fire which damaged its equipment and facilities. The
Companys claims, which included business interruption losses, did not result in a
material gain or loss on involuntary conversion or business interruption as a result of
this fire.

Earnings per Share

Basic per-share amounts
are computed, generally, by dividing net income or loss attributable to common
shareholders by the weighted-average number of common shares outstanding. Diluted
per-share amounts are computed similar to basic per-share amounts except that the
weighted-average shares outstanding are increased to include additional shares for the
assumed exercise of stock options and warrants, if dilutive.

All references in the
financial statements related to share amounts, per share amounts and average shares
outstanding have been adjusted retroactively to reflect the Companys 1-to-50 reverse
stock split of its common stock effective February 16, 2004.

The Company has a note
payable agreement which is convertible by the holder to common stock totaling 100,000
shares at a conversion rate of $5.00 per share. However, because the Company incurred a
loss for the periods ended April 30, 2005 and 2004, respectively, the inclusion of those
potential common shares in the calculation of diluted loss per share would have an
antidilutive effect.

Our Series C
Preferred Stock and Series D Preferred Stock, which have all the rights and
privileges of our common stock, were convertible into common stock at rates of
..40-to-1 and 3.50-to-1, respectively. Following the effective date of the
50to-1 reverse split of the common stock, on February 18, 2004, these
shares were converted to common stock, and such shares are included in the
weighted average common shares outstanding from the date of conversion. There
were no shares of preferred stock outstanding as of April 30, 2005.

13

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and share data)
(unaudited)

1.    BASIS OF PRESENTATION,
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES CONTINUED

Basic and diluted loss
per share have been computed as follows:

|                                       | Three Months Ended | Six Months Ended
|-------------------------------------- | ------------------ | ----------------
|
|Loss before discontinued operations    |                    |                 
|Change in fair value of mandatory      |                    |                 
|redeemable preferred stock             |                    |                 
|                                       |                    |                 
|Net loss attributable to common        |                    |                 
|shareholders                           |                    |                 
|                                       |                    |                 
|Weighted average common and common     |                    |                 
|equivalent shares outstanding, basic   |                    |                 
|and diluted                            |                    |                 
|                                       |                    |                 
|Net loss per share, basic and diluted, |                    |                 
|attributable to common shareholders    |                    |                 
|from continuing operations:            |                    |                 
|                                       |                    |                 

Stock Options

The Company accounts
for stock-based compensation under the provisions of APB No. 25. The Company has adopted
the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation.
Accordingly, no compensation expense is recognized if the exercise price of stock options
equals the fair market value of the underlying stock at the date of grant. Had
compensation expense for the Companys stock option plans been determined based on
the fair value at the grant date for awards consistent with the provisions of SFAS No.
123, the Companys basic and diluted net loss per share would remain the same. The
fair value of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model. There were no stock options issued for the three and six months
ended April 30, 2005 and 2004. During fiscal 2004, certain options were extended. Their
effect on pro forma net income was immaterial.

14

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and share data)
(unaudited)

2.    INVENTORIES

Inventories are stated
at the lower-of-cost (first-in, first-out method) or market and are comprised of the
following components:

|                  | Apri1 30,
2005 | October 31,
2004
|----------------- | -------------- | ----------------
|Raw materials     |                |                 
|Work-in-process   |                |                 
|Finished goods    |                |                 
|Valuation reserve |                |                 
|                  |                |                 
|                 
|Total             |                |                 
|                  |               

3.        FINANCING
ARRANGEMENTS

United

Uniteds existing
line of credit and term loan with First Indiana has matured and the Company is currently
working with the bank on a short-term extension until a refinancing is completed. The
Company is in negotiations with a new lender to replace these loans. The Company has
received a commitment letter from the new lender and management expects to complete the
refinancing of this debt in the third quarter of fiscal 2005. During the three months
ended April 30, 2005, the Company paid down the line of credit by $1,650 and the maximum
availability was reduced to $1,950. The total amount of this debt is classified as
current.

Additionally, at April
30, 2005, United did not meet financial covenants under the terms of its term note with
Huntington Capital Investment Company. Specifically, United did not meet its EBITDA and
fixed charge coverage ratios. Huntington Capital Investment Company waived these covenant
violations as of April, 2005. All amounts under the term note are classified as current
until the Company and Huntington Capital Investment Company enter into an amendment to the
term note. The Company is currently negotiating this amendment in conjunction with the
refinancing with Uniteds Senior Bank lender.

Obsidian Leasing

The Company obtained a
forbearance agreement with Old National Bank, which expired April 30, 2005, and is in the
process of negotiating an amendment to the forbearance agreement which would extend the
expiration date for 90 days, increase the interest rate on the outstanding balance to 15%
and require that Obsidian Leasing sell additional coaches. The total related debt of
$3,165 is classified as current. Management is currently exploring options with regard to
refinancing the outstanding debt. Should refinancing or an extension of the current
agreement not be obtained by the expiration date of the forbearance agreement, the debt
will be repaid through current sources of availability including borrowings under the
Companys line of credit and agreements with Fair Holdings. In March 2005, the line
of credit with Fair Holdings was amended to increase the limit to $1,000. In addition,
Fair Holdings has informally indicated that it would make available additional financial
support if necessary, although we currently do not have any commitment for such support.

15

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and share data)
(unaudited)

3.    FINANCING ARRANGEMENTS, CONTINUED

Guarantees Of Obsidian Capital Partners

We have an agreement
with Obsidian Capital Partners that gives us the right to mandate a capital contribution
from Obsidian Capital Partners if the lenders to U.S. Rubber or United were to declare a
default. In either of those events, the Company has the right to enforce a capital
contribution agreement with Obsidian Capital Partners up to $1,370 on U.S. Rubber and
$1,000 on United to fund the respective subsidiarys shortfall. These payments, if
any, would be applied directly to reduce the respective subsidiarys debt obligations
to the lender.

4.        MINORITY INTEREST
IN AFFILIATE

As discussed
in Note 1, DW Leasing and DC Investments Leasing, entities controlled by the
Companys Chairman are included in consolidated financial statements and
are subject to the provisions of FIN No. 46. Historically, these entities
generated negative operating results and the operating model did not anticipate
income in excess of losses previously recognized in the consolidated financial
statements. During the six month period ended April 30, 2005, DC Investments
Leasing reported negative operating results. As a result, minority interest
related to the loss of DC Investments Leasing in the amount of $42 has been
recorded as a benefit in the April 30, 2005 statement of operations and has been
recognized on the balance sheet. Future operating results of DC Investments
Leasing, if positive, will continue to be charged to minority interest. In
addition, should DW Leasing generate future income in excess of previously
recognized losses, such amounts would be charged to minority interest in the
consolidated statement of operations and recognized as minority interest on the
consolidated balance sheet. During the quarter ended and the six months ended
April 30, 2005, DW Leasing recorded a loss of $14 and $30, respectively. As of
April 30, 2005, accumulated losses of DW Leasing recognized in consolidated
statements of operations exceeded income by approximately $391.

5.        REDEEMABLE STOCK

In conjunction with
financing of the acquisition of United in fiscal 2001, the Company issued 154,482 shares
of common stock to Huntington Capital Investment Corporation (Huntington). The
note purchase agreement includes a provision that gives Huntington the option to require
the Company to repurchase these shares at 90% of market value upon the earlier of: a) the
fifth anniversary of issuance of such shares, b) Uniteds default under the
subordinated debt agreement, or c) other factors related to a sale of substantially all
assets of the Company as defined in the agreement. Increases in the value of the
Companys stock will result in a corresponding increase to this repurchase
requirement. At April 30, 2005, the Company had violated certain financial covenants
defined in the subordinated debt agreement with Huntington. The Company received a waiver
of these violations as of April 30, 2005.

On May 1, 2004, the
Company issued 170,451 shares of common stock as part of the acquisition of
Classic. These shares are classified as redeemable stock. The purchase agreement
for Classic included a provision that gives the sellers the right to have the
Company redeem these shares at a price of $6.5970 per share within five years of
the date of issuance of the shares. The sellers have the right to partially
redeem these shares in increments of 10,000 or more shares per transaction. The
agreement also has an automatic termination provision if the Companys
shares have traded at a closing price of greater than $7.33 per share for any
consecutive period of 60 trading days during the period of time commencing on
the date there are no restrictions on the sellers sale of shares and
ending on the fifth anniversary of the agreement.

6.        STOCKHOLDERS
DEFICIT

The
Companys stockholders and Board of Directors approved a 50-to-1 reverse
stock split. The reverse stock split was effective for trading purposes as of
February 18, 2004. As a result, approximately 3,109,333 shares of common stock
are now outstanding and the number of authorized shares of common stock has been
reduced to 10,000,000.

16

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and share data)
(unaudited)

6.        STOCKHOLDERS
DEFICIT CONTINUED

On March 12,
2004, the preferred shares for Series C and D were converted to common, which
increased common stock outstanding by 2,218,725 shares including 154,482 shares
classified as redeemable stock. Preferred shares authorized remain five million
shares with no preferred shares issued or outstanding as of April 30,
2005.

On December
31, 2003, the Companys Board of Directors approved the extension of the
expiration date of 4,000 fixed stock options, exercisable at $2.50. The original
expiration date of December 31, 2003 was extended to June 30, 2004. The Company
recognized $40 of compensation expense related to the extension of the options
during the three months ended January 31, 2004. The stock options were not
exercised and expired June 30, 2004.

7.        BUSINESS SEGMENT DATA AND
GEOGRAPHIC DATA

The Company
operates in three industry segments comprised of trailer and related
transportation equipment manufacturing (trailer manufacturing); coach leasing;
and butyl rubber reclaiming. All sales are in North and South America primarily
in the United States, Canada and Brazil. Selected information by segment
follows:

|                           | Three Months Ended April 30, 2005
|-------------------------- | ---------------------------------
|
|                          
|Sales:                     |                                  
|Domestic                   |                                  
|Foreign                    |                                  
|                           |                                  
|                          
|Total                      |                                  
|                          
|Cost of goods sold         |                                  
|                          
|Income (loss) before taxes |                                  
|and minority interest      |                                  
|                          
|Identifiable assets        |                                  
|                          
|Depreciation and           |                                  
|amortization expense       |                                  
|                          
|Interest expense           |                                  

17

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and share data)
(unaudited)

7.        BUSINESS SEGMENT DATA AND
GEOGRAPHIC DATA CONTINUED

|                      | Three Months Ended April 30, 2004
|--------------------- | ---------------------------------
|
|                     
|Sales:                |                                  
|Domestic              |                                  
|Foreign               |                                  
|                      |                                  
|                     
|Total                 |                                  
|                     
|Cost of goods sold    |                                  
|                     
|Loss before taxes and |                                  
|minority interest     |                                  
|                     
|Identifiable assets   |                                  
|                     
|Depreciation and      |                                  
|amortization expense  |                                  
|                     
|Interest expense      |                                  
|                     
|
|
|                     
|Sales:                |                                  
|Domestic              |                                  
|Foreign               |                                  
|                      |                                  
|                     
|Total                 |                                  
|                     
|Cost of goods sold    |                                  
|                     
|Loss before taxes and |                                  
|minority interest     |                                  
|                     
|Identifiable assets   |                                  
|                     
|Depreciation and      |                                  
|amortization expense  |                                  
|                     
|Interest expense      |                                  

18

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and share data)
(unaudited)

7.        BUSINESS SEGMENT DATA AND
GEOGRAPHIC DATA CONTINUED

|                      | Six Months Ended April 30, 2004
|--------------------- | -------------------------------
|
|                     
|Sales:                |                                
|Domestic              |                                
|Foreign               |                                
|                      |                                
|                     
|Total                 |                                
|                     
|Cost of goods sold    |                                
|                     
|Loss before taxes and |                                
|minority interest     |                                
|                     
|Identifiable assets   |                                
|                     
|Depreciation and      |                                
|amortization expense  |                                
|                     
|Interest expense      |                                
|                      |                                

Obsidian Enterprises,
Inc. (legal parent) allocates selling, general and administrative expenses to the
respective companies primarily based on a percentage of sales. For the three and six
months ended April 30, 2005 and 2004, allocated corporate expenses by segment were as
follows:

|                        | Three Months Ended | Six Months Ended
|----------------------- | ------------------ | ----------------
|
|Trailer manufacturing   |                    |                 
|Coach leasing           |                    |                 
|Butyl rubber reclaiming |                    |                 
|                        |                    |                 
|                        |                    |                 
|                        |                    |                 

19

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and share data)
(unaudited)

8.        RELATED PARTIES

The Company makes
advances, receives loans and conducts other business transactions with affiliates
resulting in the following amounts for the periods ended:

|                                                      | April 30, 2005 | October 31, 2004
|----------------------------------------------------- | -------------- | ----------------
|Balance sheet:                                        |                |                 
|Current assets:                                       |                |                 
|Accounts receivable, Obsidian Capital Company(2)      |                |                 
|Accounts receivable, stockholders                     |                |                 
|Accounts receivable, other affiliated entities        |                |                 
|                                                      |                |                 
|Total assets                                          |                |                 
|                                                      |                |                 
|                                                     
|Current liabilities:                                  |                |                 
|Accounts payable, Obsidian Capital Company(2)         |                |                 
|Accounts payable, stockholders                        |                |                 
|Accounts payable, DC Investments and Fair Holdings(2) |                |                 
|Accounts payable, other affiliated entities           |                |                 
|Long-term portion:                                    |                |                 
|Accounts payable, Obsidian Capital Company(2)         |                |                 
|Accounts payable, stockholders                        |                |                 
|Notes payable, DC Investments(2)                      |                |                 
|Notes payable, Fair Holdings(2)                       |                |                 
|Line of credit, Fair Holdings(2)                      |                |                 
|                                                      |                |                 
|                                                     
|Total liabilities                                     |                |                 
|                                                      |                |                 

|                                                         | Three Months Ended | Six Months Ended
|-------------------------------------------------------- | ------------------ | ----------------
|
|Statement of operations:                                 |                    |                 
|Interest  expense,  DC Investments  and Fair Holdings(2) |                    |                 
|                                                         |                    |                 
|Rent expense, Fair Holdings(2)                           |                    |                 
|                                                         |                    |                 
|                                                         |                    |                 
|Sales to Champion Trailer, Inc.(2)                       |                    |                 
|                                                         |                    |                 
|Purchases from Champion Trailer, Inc.(2)                 |                    |                 
|                                                         |                    |                 
|Rent expense, Roost Leasing(1)                           |                    |                 
|                                                         |                    |                 
|Purchased from CCG, Parma(2)                             |                    |                 
|                                                         |                    |                 

(1)    A leasing company owned by the former owners of
Classic(2)    An entity controlled by Tim Durham, the Chairman of
Obsidian Enterprises

Related-party
amounts classified as current reflect those portions of the total receivable or
payable that were currently due in accordance with the terms. Amounts classified
as long term represent amounts not currently due.

20

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and share data)
(unaudited)

9.        ACQUISITION OF CLASSIC
MANUFACTURING, INC.

In May 2004, Obsidian
Enterprises acquired all of the outstanding shares of capital stock of Classic, a
Michigan-based manufacturer of open and enclosed trailers. The purchase was a strategic
acquisition to complement other subsidiaries that manufacture similar trailers. The
purchase price totaled $3,598 of which $2,348 consisted of cash and $1,250 in Obsidian
common stock or 170,451 shares. The value of the stock was determined by the average share
price over the latest 30 days prior to closing.

The purchase price and
purchase accounting was allocated to the assets and liabilities of Classic based on their
fair values. The allocation to tangible assets included $2,767 and liabilities assumed of
$963. The excess of the purchase price over the fair value of the identifiable tangible
net assets of $1,794 was allocated to goodwill and identifiable intangible assets. The
allocation of purchase price to intangibles includes existing brand name and customer
base, noncompete, and the backlog. Intangibles included $354 for brand name and customer
base, $118 for noncompete, and $51 for the backlog. The remaining $1,271 was allocated to
goodwill none of which is expected to be deductible for tax purposes.

Intangible assets,
other than goodwill are amortized over their estimated useful lives, ranging from three
months for the backlog, five years for non-compete and ten years for brand name and
customer base, using the straight-line method and are reviewed for potential impairment
whenever events or circumstances indicate that carrying amounts may not be recoverable.

The period for which
the results of operations of Classic are included in the consolidated income statement is
for the three and six months ended April 30, 2005.

The following schedule
is a description of acquisition costs of Classic and the purchase price allocation (in
thousands):

|                                                          | 
|--------------------------------------------------------- | 
|
|Purchase Price:                                           | 
|Common stock                                              | 
|Cash to seller                                            | 
|Acquisition costs                                         | 
|                                                          | 
|                                                          | 
|Total purchase price                                      | 
|                                                          | 
|Purchase Price Allocation:                                | 
|Current assets, including accounts receivable and         | 
|inventory                                                 | 
|Machinery and equipment                                   | 
|Goodwill                                                  | 
|Intangibles                                               | 
|Liabilities assumed                                       | 
|                                                          | 
|Total                                                     | 
|                                                          | 
|Supplemental cash flow disclosure related to acquisition: | 
|Net assets acquired                                       | 
|Less: Common stock issued                                 | 
|Less: Cash acquired                                       | 
|                                                          | 
|Total cash paid                                           | 
|                                                          | 

21

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and share data)
(unaudited)

PRO FORMA INFORMATION:

The unaudited
condensed consolidated results of operations shown below are presented on a pro
forma basis and represent the results of Classic as if the business combinations
of these entities occurred at the beginning of the periods presented.

|                                                                                                   | Three Months Ended | Six Months Ended
|-------------------------------------------------------------------------------------------------- | ------------------ | ----------------
|
|Net sales                                                                                          |                    |                 
|                                                                                                  
|Net loss                                                                                           |                    |                 
|                                                                                                   |                    |                 
|Loss per share, basic and diluted,
attributable to common shareholders from
continuing operations: |                    |                 
|                                                                                                   |                    |                 

The pro forma financial
information is presented for informational purposes only and is not indicative of the
operating results that would have occurred had the acquisition been consummated as of the
above dates, nor are they necessarily indicative of future operating results.

10.        COMMITMENTS AND
CONTINGENCIES

In the normal course of
business, the Company is liable for contract completion and product performance. In the
opinion of management, such obligations will not significantly affect the Companys
financial position or results of operations.

22

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

ITEM 2    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

IMPORTANT NOTE ABOUT FORWARD-LOOKING STATEMENTS.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. The Company and its representatives may from time to
time make written or oral forward-looking statements, including statements
included in or incorporated by reference into this Quarterly Report on Form 10-Q
and the Companys other filings made with the Securities and Exchange
Commission. These forward-looking statements are based on managements
views and assumptions and involve risks, uncertainties and other important
factors, some of which may be beyond the control of the Company, that could
cause actual results to differ materially from those expressed or implied in the
forward-looking statements. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed in this Item 2.
Readers should carefully review the risks described in this and other documents
that the Company files from time to time with the Securities and Exchange
Commission and the risks described under Risk Factors at the end of
this Item 2. The forward-looking statements speak only as of the date that they
are made and the Company undertakes no obligation to update or revise any of the
forward-looking statements.

OVERVIEW

Obsidian Enterprises is a holding company headquartered in Indianapolis,
Indiana. We conduct business through our subsidiaries, which
operate in three principle segments:

Butyl Rubber Reclaiming

| | >> | U.S. Rubber., acquired in fiscal 2001, owns and operates butyl rubber reclaiming
facilities;
| | -- | --------------------------------------------------------------------------------------------

Coach Leasing

| | >> | Pyramid, acquired in fiscal 2001, provides luxury coach leases for corporations
and the entertainment industry;
| | -- | ---------------------------------------------------------------------------------------------------------------

| | >> | Obsidian Leasing, formed in fiscal 2002, owns some of the coaches operated by
Pyramid;
| | -- | --------------------------------------------------------------------------------------

| | >> | DW Leasing, LLC and DC Investments Leasing, formed in fiscal 2003, are
controlled by individuals who are also controlling shareholders of Obsidian
Enterprises and, accordingly, Pyramid. In addition, these entities meet the
requirements for consolidation under FASB Interpretation No. 46 (FIN No. 46),
Consolidation of Variable Interest Entities, an interpretation of Accounting
Research Bulletin No. 51.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Trailer and Related Transportation Equipment Manufacturing

| | >> | United, acquired in fiscal 2001, manufactures steel-framed cargo, racing and
specialty trailers;
| | -- | ------------------------------------------------------------------------------------------------

| | >> | Danzer, the only subsidiary of the Company until fiscal 2001, manufactures metal parts and
truck bodies for the service and utilities markets; and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | Classic, acquired in May 2004, manufactures steel-framed cargo, fifth wheel, gooseneck,
motorcycle, race, snowmobile and stacker/lift trailers and open trailers used in the
landscape industry.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

While each of the
subsidiaries markets its products or services independently, our emphasis is to provide
high quality products and services by taking advantage of cross-selling opportunities, and
manufacturing and other operational efficiencies through each of the subsidiaries.

23

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

Results Of Operations

Overview

The Companys
financial statements have been presented on the basis that it is a going concern which
contemplates the realization of assets and satisfaction of liabilities in the normal
course of business. In the period since June 2001, Obsidian Enterprises and its
subsidiaries have incurred losses and reductions in equity on a consolidated basis.
Certain subsidiaries of the Company are in violation of certain financial covenants in
their respective credit agreements as of April 30, 2005 (as discussed in Financial
Covenant Waivers below). All amounts outstanding as of April 30, 2005 under these
credit agreements have been classified as current on our balance sheet. We are currently
negotiating to amend or refinance the credit agreements where covenant violations exist
and we do not expect these violations to impair our ability to fund current and future
obligations of the Company. Historically, losses and certain third-party debt repayments
have been financed with DC Investments and its subsidiary Fair Holdings, Inc. (Fair
Holdings), entities controlled by the Companys Chairman, on terms that may not
have been available from other sources. As of April 30, 2005, total debt outstanding to DC
Investments and Fair Holdings was $27,166.

In view of these
matters, realization of assets and satisfaction of liabilities in the ordinary course of
business is dependent on the Companys ability to generate sufficient cash flow to
satisfy its obligations on a timely basis, maintain compliance with its financing
agreements and continue to receive financing support from Fair Holdings to provide
liquidity, if needed.

Our results of
operations for the three and six months ended April 30, 2005 were negatively impacted by
various events discussed below.  During the first half of fiscal 2005 we have, and we
intend to continue, to focus our efforts on generating positive cash flow and increasing
our working capital through improved operations and pursuing significant strategic
initiatives. Although management believes these actions will improve operations and
liquidity, there can be no assurance that such actions will sufficiently improve
operations or liquidity.

| | >> | In the trailer and related transportation equipment manufacturing segment we successfully
completed the acquisition of Classic in Sturgis, Michigan in fiscal 2004. The addition of
Classic enabled us to add synergistic products to our trailer line. The addition of
Classic added revenues to this segment of $2,651 and $4,736 for the three and six months
ended April 30, 2005, respectively, resulting in an increase of 18%, and helped improve
our gross margins in this segment by having a gross margin of 16.2% and 15.4% for the
three and six months ended April 30, 2005, respectively, compared to the segments
gross margin of 10.3% and 8.7% for the three and six months ended April 30, 2005,
respectively. The segment was negatively affected by the significant increases in raw
material prices during fiscal 2004 and the three and six months ended April 30, 2005,
which reduced our gross margins. We were able to pass some of the increases through to our
customers through price increases of approximately 12% beginning in April 2004. Additional
surcharges, ranging from 4% to 6%, have been implemented during the second quarter of
fiscal 2005 to further pass some of the raw material price increases to our customers. Our
price increases lagged behind the raw material price increases, which reduced our overall
gross margins.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We expect market conditions to remain very competitive and raw material prices
to remain somewhat volatile in this segment. As raw material prices begin to
level off, we expect our price increases to return our margins to a profitable
level. During the three months ended April 30, 2005, we began to see the
improvement in gross margin which were reflective of our price increases. We are
also implementing programs with a goal of reducing the costs of raw material.
Our cost of materials percentage historically has been above the industry
average. Our cost reduction initiatives for fiscal 2005 include combining the
purchasing power of all our subsidiaries to negotiate better pricing through
higher volume purchases. We also expect to be able to take advantage of purchase
discounts with additional available working capital through a new line of
credit. Additional strategies in the trailer and related transportation segment
include: building sales growth through market expansion, cross selling and
additional geographical production with Classic. We continue to evaluate
strategic acquisitions to determine whether they can improve the performance of
this segment.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

24

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

| | >> | In our butyl rubber reclaiming segment we continue to search for new market sources of
butyl raw material. We are continuing to expand our recycling program with the chapters of
The National FFA Organization. We implemented a new fine grind process that increases our
ability to use other types of rubber in our butyl reclaim process. Additional costs were
incurred to maintain the equipment in this very capital intensive operation. We also
incurred significant increases in energy costs. During January 2005, we implemented a five
percent price increase as our cost to obtain raw materials and maintain equipment
increased. The Company implemented an additional five percent increase during May 2005.
However, during the second quarter, the Company began experiencing the effects of price
competition as it began losing customers to a competitor due to lower pricing. The total
impact is unknown at this time. For fiscal 2005 we expect the market demand for our
product to be high due to our current order backlog. The availability of raw material for
butyl rubber reclaiming to meet the market demands continues to be a concern. We expect
our continued participation with The National FFA Organization will improve our ability to
recover and process additional butyl materials. In addition we will continue to modify our
fine grind operation to increase our rubber resource utilization of existing material.
Also during the fourth quarter of fiscal 2004 we started the design and implementation of
a cryogenic process. This process will enable the Company to expand its product lines of
natural rubber in new markets. Full implementation is expected to be completed in the last
half of fiscal 2005.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | Our luxury coach leasing segment was negatively affected by a decrease in sales from a
lower utilization of our fleet. The lower utilization is due to increased market
competition in the industry and a significant decrease in the number of entertainers
touring. Utilization of our fleet decreased approximately 18% for the three and six months
ended April 30, 2005 as compared to the three and six months ended April 30, 2004 which in
turn had a significant negative impact on the earnings of this segment. As noted in Part
II, Item 1 of this report, the Company filed a law suit in December 2004 against the
former owners of Pyramid for violation of their non-compete agreement. This segment was
also negatively affected by the turnover in management. During the three months ended
April 30, 2005, certain improprieties were revealed on behalf of the segment management.
The total estimated loss is approximately $165,000. Collection of this loss is not known
at this time and no accounts receivable has been recorded.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | We will continue to pursue strategic acquisition opportunities that include targets
both in our traditional, basic industries and manufacturing sectors, as well as targets
that possess assets (including cash) that are outside our traditional areas of focus, and
available on terms that our management believes to be attractive. This strategy
resulted in a traditional acquisition of Classic effective May 1, 2004. While no material
negotiations are currently active with respect to any targets, we anticipate that
over the course of fiscal 2005 we will pursue acquisition opportunities that we deem
attractive in a variety of industry sectors. Ultimately, these acquisitions may (but
cannot be guaranteed to) result in our having increased financial resources and
potentially a broader asset base and more diversified sources of revenue.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

25

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

The following
table shows net sales by product segment:

|                        | Three Months Ended | Six Months Ended
|----------------------- | ------------------ | ----------------
|
|Trailer manufacturing   |                    |                 
|Coach leasing           |                    |                 
|Butyl rubber reclaiming |                    |                 
|                        |                    |                 
|                       
|Net Sales               |                    |                 
|                        |                    |                 

The following
is a discussion of the major elements impacting the Companys operating
results by segment for the three and six months ended April 30, 2005 compared to
the three and six months ended April 30, 2004. The comments that follow should
be read in conjunction with the Companys condensed consolidated financial
statements and related notes contained in this Form 10-Q.

TRAILER AND RELATED TRANSPORTATION EQUIPMENT MANUFACTURING

The following
table shows sales, cost of sales and gross profit for this segment for the
periods indicated:

|                               | Three Months Ended | Six Months Ended
|------------------------------ | ------------------ | ----------------
|
|Net Sales                      |                    |                 
|Cost of Sales                  |                    |                 
|                               |                    |                 
|                              
|Gross Profit                   |                    |                 
|                               |                    |                 
|                              
|Gross Profit %                 |                    |                 
|                               |                    |                 
|                              
|Income (loss) before taxes and |                    |                 
|minority interest              |                    |                 
|                               |                    |                 

Three Months Ended April 30, 2005 Compared to Three Months Ended April 30,
2004

Sales

Net sales in
this segment for the three months ended April 30, 2005 increased $2,878 or 23.0%
compared to the three months ended April 30, 2004. The increase was primarily
due to the acquisition of Classic, which increased our sales for the three
months ended April 30, 2005 by $2,651. Sales of United products decreased for
the three months ended April 30, 2005 by $647, primarily due to the increased
sales of the economy line trailers, which sell at a lower price and a slow start
to the race trailer season. The decrease in sales at United was partially offset
by an increase in Danzers sales of $803 for cargo trailers and $203 for
truck bodies, which was due the addition of new customers on the East coast for
cargo trailers and a modest increase in orders from the telecommunications
industry.

26

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

Gross Profit

The gross profit in
this segment for the three months ended April 30, 2005 increased by 4.9% to 10.3% of
revenues as compared to 5.4% of revenues for the same period in fiscal 2004. The
acquisition of Classic in May 2004 contributed to the improvement of the segments
gross profit by enabling us to add synergistic products to our trailer line product line
which, historically, have had higher gross margins than our comparable products. During
the three months ended April 30, 2005, additional price increases, ranging from 4% to 6%,
were implemented to further pass some of the raw material price increases to our
customers, which helped to improve our gross margins.

Loss before taxes and minority interest

For the three months
ended April 30, 2005, loss before taxes and minority interest was $506, an improvement of
$1,229 when compared to the three months ended April 30, 2004 where the loss before taxes
and minority interest was $1,735. The positive trend is primarily due to the acquisition
of Classic and our price increases as further described in our gross profit analysis.

Six Months Ended April 30, 2005 Compared to Six Months Ended April 30, 2004

Sales

Net sales in this
segment for the six months ended April 30, 2005 increased $4,921 or 23.4% compared to the
six months ended April 30, 2004. The increase was primarily due to the acquisition of
Classic, which increased our sales for the six months ended April 30, 2005 by $4,736.
Sales of United products decreased for the six months ended April 30, 2005 by $1,273,
primarily due to the increased sales of the economy line trailers, which sell at a lower
price and a slow start to the race trailer season. The decrease in sales at United was
partially offset by an increase in Danzers sales of $1,315 for cargo trailers and
$342 for truck bodies, which was due the addition of new customers on the East coast for
cargo trailers and a modest increase in orders from the telecommunications industry.

Gross Profit

The gross profit in
this segment for the six months ended April 30, 2005 increased slightly by 2.7% to 8.7% of
revenues as compared to 6.0% for the same period in fiscal 2004. The acquisition of
Classic in May 2004 contributed to the improvement of the segments gross profit by
enabling us to add synergistic products to our trailer line product line which,
historically, have had higher gross margins than our comparable products. This increase is
offset by the cost of plywood and steel, major components of our cargo trailers, which
increased significantly during fiscal 2004 and the first quarter of fiscal 2005. Although
material cost surcharges were initiated in April 2004 to offset the significant price
increases we incurred from our vendors, which somewhat improved our gross margins, we were
unable to pass all the cost increases through to our customers during either fiscal 2004
or the first quarter of fiscal 2005. However, during second quarter of fiscal 2005,
additional surcharges, ranging from 4% to 6%, were implemented to further pass some of the
raw material price increases to our customers, which improved our gross margins.

Loss before taxes and
minority interest

For the six months
ended April 30, 2005, loss before taxes and minority interest was $2,140, an improvement
of $867 when compared to the six months ended April 30, 2004 where the loss before taxes
and minority interest was $3,007. The positive trend is primarily due to the acquisition
of Classic and our price increases as further described in our gross profit analysis.

27

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

Future improvement in
this segment will depend on our ability to continue to pass through our raw material cost
increases to our customers. We also expect the addition of Classic will continue to
improve our gross margin as Classics product line historically had higher gross
margins than our comparable products. We are also implementing a process to pool all of
our related purchasing together for our trailer manufacturing subsidiaries to increase our
purchasing power and obtain volume discounts. Refinancing efforts and a related increase
in our working capital lines of credit, if they can be obtained, will enable us to take
advantage of lost vendor discounts and save one to one and a half percent on our raw
material purchases.

BUTYL RUBBER RECLAIMING

The following
table shows sales, cost of sales and gross profit for this segment for the
periods indicated:

|                                        | Three Months Ended | Six Months Ended
|--------------------------------------- | ------------------ | ----------------
|
|Net Sales                               |                    |                 
|Cost of Sales                           |                    |                 
|                                        |                    |                 
|                                       
|Gross Profit                            |                    |                 
|                                        |                    |                 
|                                       
|Gross Profit %                          |                    |                 
|                                        |                    |                 
|                                       
|Loss before taxes and minority interest |                    |                 
|                                        |                    |                 

Three Months Ended April 30, 2005 Compared To Three Months Ended April 30,
2004

Sales

Net sales in this
segment for the three months ended April 30, 2005 as compared to the three months ended
April 30, 2004 have increased by $70 or 2.5% which is primarily due to price increases.
Sales in this segment remain relatively flat due to the limited availability of raw
materials; additional increases in sales will depend on finding new sources of butyl inner
tubes and developing other natural rubber products. We continue to work with the National
FFA Association to implement a reclamation program to increase our resources in the
agricultural industries. As noted above, management has been testing other materials
including butyl pad scrap as a replacement material with some success. In addition,
alternative sources of material, including overseas sources, are being pursued to provide
a consistent supply of material. We continue to utilize our fine grind and other processes
to increase our ability to process other types of products for our butyl reclaim process
as well as other natural rubber products.

Gross Profit

Gross profit as a
percentage of sales decreased by 2% for three months ended April 30, 2005 as compared to
the three months ended April 30, 2004. The primary reason for this decrease is due to
lower production because a major piece of production equipment was taken out of commission
for a maintenance overhaul and production was performed on backup equipment which
increased our cost to produce material and reduced our throughput efficiency.  As
a result of having to use less than optimum raw material mix in the reclaiming process,
additional processing time was incurred to ensure delivery of quality product. Our
processes require significant amounts of natural gas and electricity, the cost of which
increased significantly during the three months ended April 30, 2005. During January 2005,
we initiated price increases of 5% to partially offset increasing costs of production and
materials.

28

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

Loss before taxes and minority interest

For the three months
ended April 30, 2005, the loss before taxes and minority interest increased by $5 as
compared to the three months ended April 30, 2004 where the loss before taxes and minority
interest was $571. The decrease in profitability and negative trend as noted above has
been primarily due to the lower production due to inefficiencies in production due to the
maintenance of equipment.

Six months Ended April 30, 2005 Compared to Six months Ended April 30,
2004

Sales

Net sales in this
segment for the six months ended April 30, 2005 as compared to the six months ended April
30, 2004 have increased by $28 or 0.5%. Sales in this segment remain relatively flat due
to the limited availability of raw materials. The same factors as described above will
effect our ability to find new sources of raw materials.

Gross Profit

Gross profit as a
percentage of sales decreased by 3.5% for six months ended April 30, 2005 as compared to
the six months ended April 30, 2004. The primary reason for this decrease is due to lower
production because of an electrical fire that closed the plant for seven days in December
2004. In addition, the maintenance of a major piece of production equipment and
requirements for significant amounts of natural gas and electricity, each as described in
further detail above, effected gross profit.

Loss before taxes and minority interest

For the six months
ended April 30, 2005, the loss before taxes and minority interest increased by $199 as
compared to the six months ended April 30, 2004 where the loss before taxes and minority
interest was $988. The decrease in profitability and negative trend as noted above has
been primarily due to the lower production due to the plant fire and inefficiencies in
production due to the maintenance of equipment and increases in the prices of natural gas
and electricity.

Looking ahead, sales
are expected to increase moderately. Sales growth will depend on the successful
implementation of our recycling program with the chapters of The National FFA Organization
and finding other sources of material. In addition, the continued implementation of our
fine grind and Cryogenic grinding processes will increase the ability to utilize some
additional rubber products in our Butyl reclaim process and add new products. Gross profit
improvement will depend greatly on the success of finding consistent sources of raw
material and improved efficiencies in our operations through our new cryogenic and fine
grind processes.

29

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

COACH LEASING

The following
table shows sales, cost of sales and gross profit for this segment for the
periods indicated:

|                                        | Three Months Ended | Six Months Ended
|--------------------------------------- | ------------------ | ----------------
|
|Net Sales                               |                    |                 
|Cost of Sales                           |                    |                 
|                                        |                    |                 
|                                       
|Gross Profit                            |                    |                 
|                                        |                    |                 
|                                       
|Gross Profit %                          |                    |                 
|                                        |                    |                 
|                                       
|Loss before taxes and minority interest |                    |                 
|                                        |                    |                 

Three Months Ended April 30, 2005 Compared to Three Months Ended April 30,
2004

Sales

Net sales for the three
months ended April 30, 2005 decreased by $296 or 30.4% compared to the three
months ended April 30, 2004. The decrease in sales relates to a lower
utilization of our fleet. Management believes the lower utilization is due to
increased market competition in the industry and to a significant decrease in
the number of professional acts touring. We also experienced turnover in
management which also contributed to the loss of several tours. Utilization of
our fleet decreased 18% for the three months ended April 30, 2005 as compared to
the three months ended April 30, 2004 which had a negative impact on our
operations. At this time, we cannot estimate when tours for the entertainment
industry will return to previous historical levels. As noted in Part II, Item 1
Legal Proceedings, the Company filed a lawsuit in December 2004
against the former owners of Pyramid for violation of their non-compete
agreement.

Gross Profit

Gross profit
percentage for this segment was 36.1% for the three months ended April 30, 2005
compared to 45.8% for the three months ended April 30, 2004. The decrease is
attributable to the same factors as discussed above.

Loss before taxes and minority interest

For the three
months ended April 30, 2005, the loss before taxes and minority interest
increased $290 from the three months ended April 30, 2004 where the loss before
taxes and minority interest was $421. The decrease in profitability and negative
trend as noted above has been primarily due to increased market competition and
to the significant decrease in the number of professional acts touring. The
touring industry in general decreased 30% in fiscal 2004 and the decrease has
continued for the three months ended April 30, 2005, which in turn reduced the
utilization of our coaches. We also operated a larger fleet than prior years,
which increased our depreciation and interest costs.

30

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

Six months Ended April 30, 2005 Compared to Six months Ended April 30,
2004

Sales

Net sales for the six
months ended April 30, 2005 decreased by $698 or 34.7% compared to the six months ended
April 30, 2004. Utilization of our fleet decreased 18% for the six months ended April 30,
2005 as compared to the six months ended April 30, 2004 which had a negative impact on our
operations. The same factors addressed above effected sales in this period.

Gross Profit

Gross profit percentage
for this segment was 38.2% for the six months ended April 30, 2005 compared to 44.6% for
the six months ended April 30, 2004. The decrease is attributable primarily to the
increase of costs for maintaining a larger fleet while revenues per coach have decreased.
In addition, some of our increased costs as a percentage of revenue were offset by the mix
of utilization of the coaches owned in our fleet and the need to sublease additional buses
from third parties to meet demand. Coaches which we must sublease from third parties are
typically leased to our customers at lower gross margins for us. As demand has decreased,
our need for third party coaches has also decreased. In November 2004 we sold two of our
older coaches at no material gain or loss. In February 2005, we sold an additional coach
at no material gain or loss. We also plan to sell two other older coaches in the last half
of fiscal 2005 pursuant to the terms of the amended forbearance agreement with Old
National Bank. The sale of our older coaches is expected to reduce our fleet maintenance
expenses as the older coaches require a higher level of maintenance. This segment was also
negatively affected by the turnover in management. During the six months ended April 30,
2005, certain improprieties were revealed on behalf of the segment management. The total
estimated loss is approximately $165,000. Collection of this loss is not known at this
time and no accounts receivable has been recorded.

Loss before taxes and
minority interest

The Companys loss
before taxes and minority interest increased $508 for the six months ended April 30, 2005
compared to the six months ended April 30, 2004 where the loss before taxes and minority
interest was $823. The decrease in profitability and negative trend as noted above has
been primarily due to increased market competition and to the significant decrease in the
number of professional acts touring. The touring industry in general decreased 30% in
fiscal 2004 and the decrease has continued for the six months ended April 30, 2005, which
in turn reduced the utilization of our coaches. We also operated a larger fleet than prior
years, which increased our depreciation and interest costs.

Looking ahead, segment
sales, gross profits and segment profitability in fiscal 2005 will depend on the industry
market conditions and a continued effort to upgrade the management of this segment. We are
continually working to improve our utilization of our owned coaches to increase our
revenues and minimize additional costs from leasing third party buses. In addition, we
continue to explore other non-traditional uses for our coaches to improve the utilization
and therefore increase our cash flow and working capital in this segment. We are also
evaluating our coaches and as noted above selling the older coaches in our fleet to reduce
our costs.

Selling, General And Administrative (SG&A) Expenses

The Companys
SG&A expenses decreased $377 or 12.5% for the three months ended April 30, 2005
compared to the three months ended April 30, 2004 primarily due to the decrease in
professional fees and other expenses related to the unsuccessful exchange offer for Net
Perceptions, Inc. during the period ended April 30, 2004 of $577, a decrease in other
general and administrative expenses, offset by the inclusion of Classic with SG&A of
$248. The Companys SG&A expenses increased $14 or 0.3% for the six months ended
April 30, 2005 compared to the six months ended April 30, 2004 primarily due to the
inclusion of Classic with SG&A of $478, an increase in compensation and other general
and administrative expenses, offset by the decrease in professional fees as discussed
above.

31

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

INTEREST EXPENSE

Interest expense for
the three months ended April 30, 2005 as a percentage of average debt borrowings of
$50,364 was 2.5% (10.0% on an annual basis). Interest expense for the three months ended
April 30, 2004 as a percentage of average debt borrowings of $41,960 was 2.3% (9.4% on an
annual basis). The increase is primarily due to additional borrowings from Fair Holdings
at higher interest rates. Interest expense for the six months ended April 30, 2005 as a
percentage of average debt borrowings of $49,227 was 5.0% (10.0% on an annual basis).
Interest expense for the six months ended April 30, 2004 as a percentage of average debt
borrowings of $41,663 was 4.7% (9.4% on an annual basis). The increase is primarily due to
additional borrowings from Fair Holdings at higher interest rates.

INCOME TAX PROVISION

Income tax expense for
the three months ended April 30, 2005 and 2004 was $18 and none, respectively. Income tax
expense for the six months ended April 30, 2005 and 2004 was $36 and none, respectively.
There was no federal income tax benefit recorded for the three or six months ended April
30, 2005 and 2004. Income tax benefits are created primarily through NOL carry forwards
recognized to the extent they are available to offset the Companys net deferred tax
liability. Operating losses during the three and six months ended April 30, 2005 have been
reserved with a valuation allowance. Any quarterly tax benefits are based on the estimated
effective tax rate for the full year.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

As discussed in
Results of Operations  Overview, above, the Companys financial
statements have been presented on the basis that it is a going concern which contemplates
the realization of assets and satisfaction of liabilities in the normal course of
business. The Companys realization of its assets and satisfaction of its liabilities
in the normal course of business is dependent upon our ability to generate sufficient cash
flow to meet our financial obligations, to comply with the terms of our debt financing
agreements, to obtain refinancing of certain obligations and to continue to receive
financial support under its line of credit with Fair Holdings.

We are continuing to
address our liquidity and working capital issues through various means including
operational changes and financing matters which are discussed below. During fiscal 2005,
we expect to refinance current debt of $10,250 on a long-term basis. We also expect to
generate approximately $5,200 in cash from operations which will be used to satisfy
current obligations. Any potential cash shortage is expected to be supported through our
existing lines of credit and other agreements with Fair Holdings. In addition, Fair
Holdings has informally indicated that it would make available additional financial
support if necessary, although we currently do not have any commitment for such support.

WORKING CAPITAL

Our businesses are
working capital intensive and require funding for purchases of production inventory,
capital expenditures and expansion and upgrading of facilities. Each of our subsidiaries
has a separate revolving credit agreement and term loan borrowings through which the
subsidiary finances its operations together with cash generated from operations. Our
consolidated working capital position (current assets over current liabilities) was
negative at April 30, 2005 by $8,020. For the fiscal year ended October 31, 2004 our
working capital position was negative by $10,504. The increase in working capital is
primarily attributable to the pay down of the Companys debt during the six-month
period ended April 30, 2005. We are currently working to refinance loans for United in the
amount of $1,950, Obsidian Leasing in the amount of $3,200 and U.S. Rubber in the amount
of $5,100, as noted in further detail below. The successful refinancing of these
obligations will improve our working capital to a positive position upon completion.

32

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

We continue to address
liquidity and working capital issues in a number of ways. At April 30, 2005, net cash used
in continuing operations was $3,942 compared to $929 at October 31, 2004. The use of cash
and working capital was primarily related to funding operating losses and business
seasonality. For fiscal 2005, we expect our operations to begin to generate positive cash
and expect to increase our overall working capital through improved operations as follows:

| | >> | We secured a financial commitment from Fair Holdings to provide, additional borrowings
under a $15,000 line of credit agreement, which expires on January 1, 2007. Approximately
$4,656 is currently available to us under the agreement.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | United, U.S. Rubber, and Pyramid traditionally had borrowing agreements with Obsidian
Enterprises which was funded using Obsidian Enterprises agreement with Fair Holdings
discussed above. During the quarter ended April 30, 2005, these agreements were
redocumented between Fair Holdings and United, U.S. Rubber, and Pyramid which allowed for
borrowings up to $3,000, $3,700, and $750, respectively, and expire on April 15, 2012.
Approximate availability under these agreements are $817, $267, and $170, respectively.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | Uniteds existing line of credit and term loan with First Indiana has matured and the
Company is currently in negotiations with a new lender to replace these loans. The Company
has received a commitment letter from the new lender and management expects to complete
the refinancing of this debt in the third quarter of fiscal 2005. Under the terms of the
new commitment, the maximum borrowing availability will increase by $3,550. Upon
completions of this refinancing, Uniteds working capital will improve by
approximately $8,100, as that amount of the debt will be reclassified from current to
long-term, less the current portion.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | In November 2004, Obsidian Leasings credit facility with Old National Bank matured
and Obsidian Leasing now has current debt obligations due of $3,165. The Company obtained
a forbearance agreement with Old National Bank, which expired April 30, 2005, and is in
the process of negotiating an amendment to the forbearance agreement which would extend
the expiration date for 90 days, increase the interest rate on the outstanding balance to
15% and require that Obsidian Leasing sell additional coaches. Management is actively
working to refinance this debt with other banks in the last half of fiscal 2005.
Additionally, in November 2004, management sold two older coaches, reducing Obsidian
Leasings debt by $209. Management is also in negotiations to sell two additional
coaches, which will further reduce debt by an estimated $224.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | US Rubber has a balloon payment on its debt which will be due October 24, 2005, which is
our fourth fiscal quarter. We are in the initial stages of preparing to negotiate and
refinance this debt prior to October 2005.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | Classic received an amendment to its credit facility to temporarily increase the borrowing
base on its line of credit by $250 through April 2005.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | We are actively working to restructure or refinance our high interest rate debt on more
favorable terms. Approximately $20,100 of our debt bears interest from rates ranging from
10% to 15%.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

33

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

| | >> | As fully described under Guarantees of Obsidian Capital Partners, we have an
agreement that gives us the right to mandate a capital contribution if the lenders to U.S.
Rubber or United were to declare a default. In either of those events, the Company has the
right to enforce a capital contribution agreement up to $1,370 on U.S. Rubber and $1,000
on United to fund the respective subsidiarys shortfall. These payments, if any,
would be applied directly to reduce the respective subsidiarys debt obligations to
the lender.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | Cost reduction and other initiatives are being put in place for raw materials in the
trailer and related transportation manufacturing segment, with the use of alternative
materials and additional discounts through volume purchasing by pooling our purchasing
power from all affiliated companies. We have passed through increases in raw material
costs to our customers through price increase surcharges and expect to continue to do so
with future significant increases in raw material costs
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | We continue to look for ways to strengthen our liquidity, equity and working capital
through ongoing evaluations of merger and acquisition candidates and other
recapitalization methods. In 2004 we purchased Classic, which provided positive cash from
operations, additional working capital and additional liquidity under its line of credit.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Management believes the
steps taken to improve operations will positively impact our liquidity and working capital
for fiscal 2005. However, success is dependent on our ability to restore gross profits and
capitalize on new markets in the trailer and related transportation manufacturing segment,
obtain consistent material supply in the butyl rubber reclaiming segment and restore our
market share in the coach leasing segment. Moreover, improvement in our liquidity and
working capital position is substantially dependent upon our ability to successfully
refinance approximately $10,250 of debt at United, Obsidian Leasing, and U.S. Rubber.
Failure to complete the refinancing on a timely basis could have a material adverse effect
on our liquidity and working capital position and could impair the ability of our
subsidiaries to continue operations.

FINANCIAL COVENANT WAIVERS

Significant financial
covenants in our credit agreements include the maintenance of minimum financial ratios,
such as levels of earnings to funded debt and fixed charge coverage ratios. We did not
meet requirements and covenants in certain debt agreements.

At April 30, 2005,
United did not meet certain financial covenants relating to minimum levels of EBITDA and
fixed charge coverage ratios in its agreements with Huntington Capital Investment Company.
Huntington Capital Investment Company waived its covenant violations as of April 30, 2005.
The amount is classified as current upon completion of an amendment to cure future
violations. Uniteds existing line of credit and term loan with First Indiana has
matured and the Company is currently working with the bank on a short-term extension until
a refinancing is completed. The Company is in negotiations with a new lender to replace
these loans. Management expects to complete the refinancing of this debt in the third
quarter of fiscal 2005. During the six months ended April 30, 2005, the Company paid down
the line of credit by $2,050 and the maximum availability was reduced to $1,950. The total
amount of this debt is classified as current.

In November 2004,
Obsidian Leasings credit facility with Old National Bank matured and Obsidian
Leasing now has current debt obligations due of $3,165. The Company obtained a forbearance
agreement with Old National Bank, which expired April 30, 2005, and is in the process of
negotiating an amendment to the forbearance agreement which would extend the expiration
date for 90 days, increase the interest rate on the outstanding balance to 15% and require
that Obsidian Leasing sell additional coaches. Management is actively working to refinance
this debt with other banks in the last half of fiscal 2005.

Our high level of debt
creates liquidity issues for us and the stringent financial covenants that are common for
this type of debt increase the probability that our subsidiaries may from time to time be
in default under these loans. These risks are mitigated, in part, for our United and U.S.
Rubber subsidiaries by the right described below under Guarantees of Obsidian
Capital Partners.

34

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

FUNDS AVAILABILITY

On a consolidated
basis, as of April 30, 2005, the Company had approximately $548 of cash and cash
equivalents. Danzer Industries, U.S. Rubber, United, Obsidian Enterprises and Classic each
have revolving credit lines available for working capital at each individual entity.
Borrowings under the credit facilities are available to the lesser of the maximum amount
or the borrowing base as defined in the credit agreement. At April 30, 2005, additional
current availability under these credit lines and maximum availability if supported by
their individual borrowing base are:

|Company                 | Current Availability | Maximum Availability
|----------------------- | -------------------- | --------------------
|
|Danzer Industries(1)    |                      |                     
|U.S. Rubber(1)          |                      |                     
|United(1)               |                      |                     
|Obsidian Enterprises(1) |                      |                     
|Classic Manufacturing   |                      |                     
|Pyramid(1)              |                      |                     

(1)  Additional borrowings through Fair Holdings, a Related
Party, under existing lines of credit.

The Company incurred
negative net cash flow of $3,942 from operations during the six months ended April 30,
2005. Cash used in operations during the six month period ended April 30, 2005 is
primarily due to operating losses and increases in inventories offset by increases in
accounts payable. The Company has increased inventories during the first half of fiscal
2005 primarily in the trailer and related transportation equipment manufacturing segment.
The first half of the year is historically the lowest volume period in this segment due to
seasonality of this business. Inventories were increased during this period to provide an
increase in the Companys ability to deliver orders during the third quarter when
sales have historically been higher than in the first half of the fiscal year. Funding
during the quarter was provided through borrowings on lines of credit and from related
parties.

We have commercial
commitments as described below:

|Commercial Commitments        | Total Amount Committed | Outstanding at April 30,
2005 | Date of Expiration
|----------------------------- | ---------------------- | ----------------------------- | ------------------
|
|Line of credit, related party |                        |                               | $                 
|Line of credit                |                        |                               |                   
|Line of credit                |                        |                               |                   
|Line of credit, related party |                        |                               |                   
|Line of credit                |                        |                               |                   
|Line of credit, related party |                        |                               |                   
|Line of credit, related party |                        |                               |                   
|Line of credit, related party |                        |                               |                   

(1)  The bank extended the maturity date of the line of
credit to February 28, 2005 and continues to work with the Company on a short
term extension. United has obtained a commitment letter and is in negotiations
with another lender to refinance its line of credit and term loan. Management
expects to complete the refinancing of this debt during the third quarter of
fiscal 2005.

Our net cash
used in continuing operations for the six months ended April 30, 2005 was
$3,942. This is comprised of a loss from continuing operations of $5,193, offset
by noncash depreciation and amortization of $1,689, increases in inventories of
$1,240, accounts receivable of $9, other assets of $514, accrued expenses of $75
and accounts payable of $1,048 and decreases in customer deposits of $27. In
addition, we had minority interest of $42, and accretion of interest of
$186.

35

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

Net cash flow provided
from financing activities for the six months ended April 30, 2005 was $4,304. This is
comprised of borrowings of long-term debt of $3,138 and related parties of $2,903, offset
by repayments on lines of credit of $1,737.

Cash flow was used in
investing activities for the six months ended April 30, 2005 of $502. This is comprised of
purchases of equipment of $929 offset by proceeds from the sale of equipment of $427.

The total decrease in
cash is summarized as follows:

|                                                 | Six Months Ended
|------------------------------------------------ | ----------------
|
|Net cash used in operations                      |                 
|Net cash used in investing activities            |                 
|Net cash provided by financing activities        |                 
|                                                
|Increase (Decrease) in cash and cash equivalents |                 
|                                                 |                 

CRITICAL ACCOUNTING POLICIES

Our significant
accounting policies are summarized in Note 2 to the consolidated financial statements in
the Annual Report on Form 10-K for the fiscal year ended October 31, 2004 and describe the
significant accounting policies and methods used in the preparation of the consolidated
financial statements. Some of the most critical policies are also discussed below.

As a matter of policy,
we review our major assets for impairment. Our major operating assets are accounts
receivable, inventory, intangible assets and property and equipment. We have not
historically experienced significant bad debts expense, although the filing of Chapter 11
bankruptcy during fiscal 2002 of a customer resulted in a bad debt charge of $379.
However, we believe our reserve for doubtful accounts of $715 should be adequate for any
exposure to loss in our April 30, 2005 accounts receivable. We have also established
reserves for slow-moving and obsolete inventories and believe the reserve of $277 is
adequate. We depreciate our property and equipment and amortize intangible assets (except
for goodwill) over their estimated useful lives. Property and equipment are reviewed for
impairment when events and circumstances indicate impairment factors may be present.
During fiscal 2004, certain equipment became idle due to the realignment of the plant at
U.S. Rubber. The equipment will be used in the future for replacement of existing
equipment as needed. Due to the uniqueness of the equipment and the high cost to buy new
similar pieces, the net book value of $353 was transferred to other assets under idle
equipment and is subject to impairment valuation. Accordingly, we continue to analyze the
Danzer and US Rubber assets for impairment in conjunction with our analysis of the
continuing operations of these facilities. In assessing the recoverability of our property
and equipment, we must make various assumptions regarding estimated future cash flows and
other factors in determining the fair values of the respective assets. If these estimates
or related assumptions change in the future, we may be required to record impairment
charges for these assets in future periods. Any such resulting impairment charges could be
material to our results of operations. As of April 30, 2005 we determined there is no
impairment of our property and equipment.

Goodwill and
intangibles are reviewed annually for impairment as of the first day of the fourth quarter
or more frequently when events and circumstances indicate potential impairment factors are
present. The realization of goodwill of $7,055 is primarily dependent on the future
operations of the operating entities where the goodwill is allocated. Historical operating
results, current product demand and estimated future results indicate the results of
operations should be adequate to continue to realize this amount. However, future results
may not meet expectations due to economic or other factors, including the ability to pass
through material cost increases to our customers, to maintain revenues and to improve
gross margins. Failure to meet expectations may result in the goodwill not being fully
realizable and accordingly result in impairment charge which could be material to our
operating results.

36

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

The initial cost of
coaches acquired is depreciated over a straight-line basis to a salvage value of 38% of
original cost. Subsequent enhancements and refurbishments of coaches are depreciated over
five years using the straight-line method. The age of coaches in our fleet range from less
than one year to ten years, with an average age of approximately five years. Actual value
of coaches after 15 years is dependent on several factors including the level of
maintenance and the market conditions at the time of disposal. We recently disposed of two
coaches that did not result in a material gain or loss. We continue to evaluate our
estimates with respect to the actual depreciation of such vehicles based on market
conditions and our experience in disposals when they occur. Should future factors indicate
the current depreciation policy is not adequate, we will adjust the depreciation rates,
and such adjustments may have an adverse impact on our results of operations.

In conjunction with
financing of the acquisition of United, the Company issued 154,482 shares of common stock
to Huntington Capital Investment Corporation (Huntington). The note purchase
agreement includes a provision that gives Huntington the option to require the Company to
repurchase these shares at 90% of market value upon the earlier of: a) fifth anniversary
of issuance of such shares, b) default under the subordinated debt agreement, c) other
factors related to a sale of substantially all assets of the Company as defined in the
agreement. Increases in the value of the Companys stock will result in a
corresponding increase to this repurchase requirement. Accordingly, a substantial increase
in stock price at the repurchase date may have an adverse impact on the Companys
liquidity. At April 30, 2005, the Company violated certain financial covenants and did not
meet its EBITDA and fixed charge coverage ratios defined in the subordinated debt
agreement with Huntington. The Company received a waiver of these violations as of April
30, 2005.

With the acquisition of
Classic effective May 1, 2004, we issued 170,451 shares of our common stock to the former
owners of Classic. The purchase agreement for Classic included a provision that gives the
sellers the right to have us redeem these shares at a price of $6.5970 per share within
five years of the date of issuance of the shares. The sellers have the right to partially
redeem these shares in increments of 10,000 or more shares per transaction. The agreement
also has an automatic termination provision if the Companys shares have traded at a
closing price of greater than $7.33 per share for any consecutive period of 60 trading
days during the period of time commencing on the date there are no restrictions on the
sellers sale of shares and ending on the fifth anniversary of the agreement.

RISK FACTORS

There are a number of
risk factors related to the future results of the Company. The Company wishes to caution
readers that the following important factors among others, in some cases have affected,
and in the future could affect, the Companys actual results and could differ
materially from those expressed in any forward-looking statements made by, or on behalf of
the Company:

|1. | Our financial statements have been presented on the basis that the Company will
          continue as a going concern, which contemplates the realization of assets and
          satisfaction of liabilities in the normal course of business. The Companys
          independent auditor has included a going concern qualification in its audit
          report relating to the Companys audited financial statements for the
          fiscal year ended October 31, 2004, based on concerns regarding debt covenant
          violations, working capital deficit and losses from operations. The
          Companys realization of its assets and satisfaction of its liabilities in
          the normal course of business is dependent upon the Companys ability to
          generate sufficient cash flow to meet its financial obligations, to comply with
          the terms of its debt financing agreements, to obtain refinancing of certain
          obligations and to continue to receive financial support under its line of
          credit with Fair Holdings.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

37

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

|2. | Our inability to obtain additional financing may prevent additional expansion
          in our current business or acquiring new businesses. Additional financing may
          not be available to us on advantageous terms or at all, if, for example the
          interest rates are unattractive or we do not have sufficient collateral
          available to secure the desired increase in debt. Currently all of our assets
          are being used to secure outstanding debt, so unless we acquire unsecured assets
          or obtain a partial release from our secured creditors of their security
          interests, we will not have available additional collateral to pledge to new
          debtors.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | We may issue equity to finance any future acquisitions or refinance existing
          debt. This would dilute the proportionate ownership of our current shareholders
          and may reduce per share value. Acquisitions may also lead to increased levels
          of borrowing. This would result in increased interest expense. Acquisitions are
          also likely to increase our depreciation and amortization expense. These factors
          may incur losses or reduced profits in the future.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The prices of the raw materials we utilize are subject to fluctuation, as
          occurred in fiscal 2004 and the three and six months ended April 30, 2005. We
          may not be able to pass along any or all of these increases to our customers. As
          a result, increases in the price of raw materials may decrease the profit margin
          from sales of our products.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | Our overall strategy includes increasing revenue and reducing/controlling
          operating expenses. We have concentrated our efforts in ongoing, company-wide
          efficiency activities intended to increase productivity and reduce costs,
          including personnel reductions, reduction or elimination of non-personnel
          expenses and realigning and streamlining operations. We cannot assure that our
          efforts will result in increased profitability for any meaningful period of
          time.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | We face significant competition in connection with the products and services we
          provide. The level of competition has increased recently and is expected to
          continue at increasing levels in the future. There are many other companies
          engaged in the manufacture of cargo trailers, luxury coach leasing and butyl
          rubber reclaiming, and many of these companies have greater financial and other
          business resources than those possessed by us. Furthermore, other companies may
          enter the our area of business in the future. If competition increases, our
          sales and profits are likely to decline.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | We may have difficulty receiving our requirements for butyl rubber tubes, our
          principle raw material in this segment. In recent years, the number of sources
          of supply has been reduced. We continue to search for additional sources and to
          make purchases from foreign suppliers. However, if the number of suppliers is
          further reduced, or if we are otherwise unable to obtain butyl raw material
          requirements on a timely basis and on favorable terms, our operations may be
          harmed.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | There is a limited market for our Common Stock. There can be no assurance that
          a broader market for the Common Stock will develop. Selling shares of the Common
          Stock may be difficult because smaller quantities of shares are bought and sold
          and security analysts and news media coverage about the Company is
          limited. These factors could result in lower prices and larger spreads in the
          bid and asked prices for the shares of Common Stock.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | Recently, there have been significant regulatory changes, including the
          Sarbanes-Oxley Act of 2002, and there may be new accounting pronouncements or
          regulatory rulings that will have an impact on our future consolidated financial
          position and results of operations. The Sarbanes-Oxley Act of 2002 and other
          rule changes and proposed legislative initiatives following several highly
          publicized corporate accounting and corporate governance failures are likely to
          increase general and administrative costs.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

38

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

ITEM 3    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK

The Company is exposed
to market risk related to interest rate changes. Approximately 60% of our primary debt at
April 30, 2005 bore interest at a variable rate. An interest rate increase of one
percentage point would increase our interest expense over a one-year period by
approximately $224,000 at current debt levels.

ITEM 4    CONTROLS AND
PROCEDURES

The Company maintains
disclosure controls and procedures that are designed to ensure that information required
to be disclosed in the reports we file pursuant to the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms. The Companys management recognizes that, because the
design of any system of controls is based in part upon certain assumptions about the
likelihood of future events and also is subject to other inherent limitations, disclosure
controls and procedures, no matter how well designed and operated, can provide only
reasonable, and not absolute, assurance of achieving the desired objectives.

Under the supervision
and with the participation of the Companys management, including the Companys
Chief Executive Officer and Chief Financial Officer, the Company has evaluated the
effectiveness of the Companys disclosure controls and procedures as of April 30,
2005. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer
have concluded that, for the reasons more fully set forth below, the Companys
disclosure controls and procedures were not effective on April 30, 2005 in providing
reasonable assurance that information required to be disclosed in the reports we file
pursuant to the Securities Exchange Act of 1934 was recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms.

More specifically, the
Companys management has concluded that (i) additional accounting personnel were
needed both at the parent company level and at certain subsidiaries at April 30, 2005 to
ensure that certain disclosure controls and procedures were operating effectively; (ii)
greater segregation of duties was needed in the accounting functions; and (iii) certain
procedures should be documented to ensure that personnel turnover does not result in a
failure of those procedures. In fiscal 2004 the Company hired two additional employees to
join the accounting staff and is evaluating how best to utilize the time of these new
employees. The Company will continue to evaluate the need for additional staff at the
parent and subsidiary levels, but given the size and location of the Companys
subsidiaries the Company believes it will continue to face challenges in attracting and
retaining qualified personnel. Additionally, the Company is also in the process of
evaluating ways in which the impact of personnel turnover on the implementation of
disclosure controls and procedures can be reduced. Finally, as discussed below, the
Company believes that the implementation of its new accounting system has enhanced the
segregation of duties of accounting personnel, although management continues to evaluate
the effectiveness of this segregation and the need for additional enhancements, including,
but not limited to, the addition of accounting personnel.

In fiscal 2004, the
Company implemented an enterprise wide, integrated accounting system that replaced the
separate accounting systems previously maintained by the several subsidiaries and since
that date has implemented an enhanced segregation of duties of various accounting
personnel. There have been no other significant changes in the Companys internal
controls or in other factors that could significantly affect internal controls subsequent
to the date of the April 30, 2005 evaluation.

39

OBSIDIAN ENTERPRISES, INC. AND SUBSIDIARIES

PART II  OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Pyramid and its parent,
Obsidian Enterprises, and other affiliated companies and members filed suit against the
former owners of Pyramid for violation of the terms of non-compete agreements. The lawsuit
was filed against various individuals and operating entities that are directly competing
with the Company and the Company is seeking punitive and compensatory damages.

The Company is also
party to ordinary litigation incidental to its business. No current pending litigation is
expected to have a material adverse effect on results of operations, financial condition
or cash flows.

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

None.

ITEM 3.    DEFAULTS UPON
SENIOR SECURITIES

In November
2004, Obsidian Leasings credit facility with Old National Bank matured and
Obsidian Leasing now has current debt obligations due of $3,165. The Company is
in the process of negotiating a forbearance agreement with Old National Bank,
and management is actively working to refinance this debt with other banks in
the last half of fiscal 2005. Should refinancing or an extension of the current
agreement not be obtained by the expiration date of the forbearance agreement,
the debt will be repaid through current sources of availability including
borrowings under the Companys line of credit and agreements with Fair
Holdings. In addition, Fair Holdings has informally indicated that it would make
available additional financial support if necessary, although we currently do
not have any commitment for such support. Additionally, in November 2004,
management sold two older coaches, reducing Obsidian Leasings debt by
$209. Management is also in negotiations to sell two additional coaches, which
will further reduce debt by an estimated $224.

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

No matters were
submitted to a vote of our stockholders during the second quarter of fiscal 2005.

ITEM 5.    OTHER INFORMATION

None.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K



EXHIBITS
The exhibits filed as part of this Form 10-Q are listed in the Exhibit Index,
which is incorporated herein by reference.

40

SIGNATURES

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

|June 14, 2005
Date | OBSIDIAN ENTERPRISES, INC.

By:  /s/  Timothy S. Durham
Timothy S. Durham, Chairman and Chief Executive Officer
|------------------ | ---------------------------------------------------------------------------------------------------------------

|June 14, 2005
Date | By:  /s/  Rick D. Snow
Rick D. Snow, Executive Vice President/Chief Financial Officer
|------------------ | -------------------------------------------------------------------------------------

41

EXHIBIT INDEX

|Exhibit No. | Description | 
|----------- | ----------- | 

|3.1 | Articles of Incorporation | Incorporated by reference to Exhibit 3.3 to Amendment No. 1 to the Registration
Statement on Form S-4 filed on December 17, 2003
|--- | ------------------------- | --------------------------------------------------------------------------------------------------------------------------------

|3.2 | By-laws | Incorporated by reference to Exhibit 3.1 to the Registrant's Annual
Report on Form 10K for the Year Ended October 31, 2002
|--- | ------- | --------------------------------------------------------------------------------------------------------------------------

|31.1 | Sarbanes-Oxley Act Section 302 Certification | Attached - CE
|---- | -------------------------------------------- | -------------

|31.2 | Sarbanes-Oxley Act Section 302 Certification | Attached - CE
|---- | -------------------------------------------- | -------------

|32 | Sarbanes-Oxley Act Section 906 Certification | Attached - CE
|-- | -------------------------------------------- | -------------

|10.1 | Third Amended Promissory Note (Line of Credit) by and between
Obsidian Leasing Company, Inc. and Fair Holdings, Inc. dated
March 31, 2005 | Attached - CE
|---- | ----------------------------------------------------------------------------------------------------------------------------------------- | -------------

|10.2 | Credit Agreement by and between U.S. Rubber Reclaiming, Inc.
and Fair Holdings, Inc. dated April 15, 2005 | Attached - CE
|---- | --------------------------------------------------------------------------------------------------------- | -------------

|10.3 | Security Agreement by and between U.S. Rubber Reclaiming,
Inc. and Fair Holdings, Inc. dated April 15, 2005 | Attached - CE
|---- | ----------------------------------------------------------------------------------------------------------- | -------------

|10.4 | Revolving Note by and between U.S. Rubber Reclaiming, Inc.
and Fair Holdings, Inc. dated April 15, 2005 | Attached - CE
|---- | ------------------------------------------------------------------------------------------------------- | -------------

|10.5 | Credit Agreement by and between United Expressline, Inc. and
Fair Holdings dated April 15, 2005 | Attached - CE
|---- | ----------------------------------------------------------------------------------------------- | -------------

|10.6 | Security Agreement by and between United Expressline, Inc.
and Fair Holdings, Inc. dated April 15, 2005 | Attached - CE
|---- | ------------------------------------------------------------------------------------------------------- | -------------

42

|10.7 | Revolving Note by and between United Expressline, Inc. and
Fair Holdings, Inc. dated April 15, 2005 | Attached - CE
|---- | --------------------------------------------------------------------------------------------------- | -------------

|10.8 | Credit Agreement by and between Pyramid Coach, Inc. and Fair
Holdings, Inc. dated April 15, 2005 | Attached - CE
|---- | ------------------------------------------------------------------------------------------------ | -------------

|10.9 | Security Agreement by and between Pyramid Coach, Inc. and
Fair Holdings, Inc. dated April 15, 2005 | Attached - CE
|---- | -------------------------------------------------------------------------------------------------- | -------------

|10.10 | Revolving Note by and between Pyramid Coach, Inc. and Fair
Holdings, Inc. dated April 15, 2005 | Attached - CE
|----- | ---------------------------------------------------------------------------------------------- | -------------

|10.11 | Forbearance Agreement by and between Old National Bank,
Obsidian Leasing Company, Inc., Obsidian Enterprises, Inc.,
Pyramid Coach, Inc., Timothy S. Durham, Terry Whitesell and
Julia Whitesell effective as of December 1, 2004 | Attached - CE
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------

43