**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-Q**




(Mark
      One)


x
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934





For
      the
      quarterly period ended September 30, 2008





or





o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934





For
      the
      transition period from ___________to ____________





Commission
      file number: 000-51426










**FORTRESS
      INTERNATIONAL GROUP, INC.**


(Exact name of registrant as specified in its charter)





**Delaware**
            
            **20-2027651**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer Identification No.)**7226
                Lee DeForest Drive, Suite 203**
              **Columbia,
                MD 21046**
            
            **21046**(Address
                of principal executive offices)
            
            (Zip
                Code)





**(410)
      423-7438**


(Registrant's
      telephone number, including area code)





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





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer, or a smaller reporting company.
      See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.




Large
                accelerated filero
            Accelerated
                fileroNon-accelerated
                filero(Do not check if a smaller reporting company)
            Smaller
                reporting companyx




Indicated
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  Yes o No x




Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.




**Common
      Stock, par value $0.0001 per share, as of October 31,
      2008                12,557,669**












**FORTRESS
      INTERNATIONAL GROUP, INC.**


**Table
      of Contents**





**Page****PART
                I - FINANCIAL INFORMATION****Item
                1.     Financial
                Statements**Consolidated
                Balance Sheets as of September 30, 2008 (unaudited) and as of December
                31,
                2007
            1Consolidated
                Statements of Operations (unaudited) for the three and nine months
                ended
                September 30, 2008 and September 30, 2007 (successor) and for the
                period
                from January 1, 2007 to January 19, 2007 (predecessor)
            2Consolidated
                Statements of Cash Flows (unaudited) for the nine months ended September
                30, 2008 and September 30, 2007 (successor) and for the period from
                January 1, 2007 to January 19, 2007 (predecessor)
            3Notes
                to Consolidated Financial Statements
            4**Item
                2.      Management’s Discussion and Analysis of
                Financial Condition and Results of Operations**
            14**Item
                3.      Quantitative and Qualitative Disclosures
                about Market Risk**
            22**Item
                4T.   Controls and Procedures**
            22**PART
                II - OTHER INFORMATION****Item
                1.      Legal
                Proceedings**
            22**Item
                1A.   Risk Factors**
            22**Item
                2.      Unregistered Sales of Equity Securities
                and Use of Proceeds**
            22**Item
                3.      Defaults upon Senior
                Securities**
            23**Item
                4.      Submission of Matters to a Vote of
                Security Holders**
            23**Item
                5.      Other
                Information**
            23**Item
                6.      Exhibits**
            23**SIGNATURES**
            24










**PART
      I - FINANCIAL INFORMATION**


**Item
      1. Financial Statements**





FORTRESS
      INTERNATIONAL GROUP, INC.


CONSOLIDATED
      BALANCE SHEETS





September 30,
            
            December 31,2008
            
            2007(unaudited)
            
            (audited)*Current
                Assets*Cash
                and cash equivalents
            
            $
            6,856,253
            
            $
            13,172,210Contract
                and other receivables, net
            
            
            20,932,470
            
            
            18,349,140Costs
                and estimated earnings in excess of billings on uncompleted
                contracts
            
            
            4,721,578
            
            
            1,322,254Prepaid
                expenses and other current assets
            
            
            499,497
            
            
            301,487Income
                taxes receivable
            
            
            893,322
            
            
            893,322Total
                current assets
            
            
            33,903,120
            
            
            34,038,413Property
                and equipment, net
            
            
            903,669
            
            
            1,044,545Goodwill
            
            
            18,813,509
            
            
            20,714,967Intangible
                assets, net
            
            
            19,838,552
            
            
            21,089,136Other
                assets
            
            
            150,973
            
            
            512,000Total
                assets
            
            $
            73,609,823
            
            $
            77,399,061*Liabilities
                and Stockholders’ Equity*Current
                LiabilitiesNotes
                payable, current portion
            
            $
            182,384
            
            $
            1,650,306Accounts
                payable and accrued expenses
            
            
            16,266,264
            
            
            16,121,492Billings
                in excess of costs and estimated earnings on uncompleted
                contracts
            
            
            11,145,410
            
            
            3,880,279Total
                current liabilities
            
            
            27,594,058
            
            
            21,652,077Notes
                payable, less current portion
            
            
            4,230,013
            
            
            7,848,661Other
                liabilities
            
            
            59,960
            
            
            44,648Total
                liabilities
            
            
            31,884,031
            
            
            29,545,386Commitments
                and Contingencies
            
            
            -
            
            
            -Stockholders’
                EquityPreferred
                stock- $.0001 par value; 1,000,000 shares authorized; no shares issued
                or
                outstanding
            
            
            -
            
            
            -Common
                stock—$.0001 par value, 100,000,000 shares authorized; 12,730,629 and
                12,150,400 issued; 12,557,669 and 11,992,325 outstanding at September
                30,
                2008 and December 31, 2007, respectively
            
            
            1,273
            
            
            1,214Additional
                paid-in capital
            
            
            60,699,980
            
            
            55,268,012Treasury
                stock, 172,960 and 158,075 shares at cost at September 30, 2008 and
                December 31, 2007, respectively
            
            
            (861,663
            )
            
            (814,198
            )Accumulated
                deficit
            
            
            (18,113,798
            )
            
            (6,601,353
            )Total
                stockholders’ equity
            
            
            41,725,792
            
            
            47,853,675Total
                liabilities and stockholders’ equity
            
            $
            73,609,823
            
            $
            77,399,061





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


1





FORTRESS
      INTERNATIONAL GROUP, INC.


CONSOLIDATED
      STATEMENTS OF OPERATIONS






PredecessorSuccessor (Fortress International Group, Inc.)
            
            (TSS/Vortech)For the periodJanuary 1,Three Months Ended
            
            Nine Months Ended
            
            throughSeptember 30, 2008
            
            September 30,2007
            
            September 30, 2008
            
            September 30,2007
            
            January 19, 2007(unaudited)
            
            (unaudited)
            
            (unaudited)
            
            (unaudited)
            
            (audited)Results
                of Operations:Revenue
            
            $
            25,781,523
            
            $
            12,692,772
            
            $
            65,363,481
            
            $
            32,232,016
            
            $
            1,412,137Cost
                of revenue
            
            
            20,660,103
            
            
            10,749,331
            
            
            54,719,170
            
            
            27,378,926
            
            
            1,108,276Gross
                profit
            
            
            5,121,420
            
            
            1,943,441
            
            
            10,644,311
            
            
            4,853,090
            
            
            303,861Operating
                expenses:Selling,
                general and administrative
            
            
            4,838,291
            
            
            3,964,468
            
            
            15,275,116
            
            
            10,026,448
            
            
            555,103Depreciation
            
            
            125,716
            
            
            137,032
            
            
            355,810
            
            
            289,708
            
            
            33,660Amortization
                of intangibles
            
            
            702,569
            
            
            567,109
            
            
            2,104,067
            
            
            1,574,671
            
            
            -Impairment
                loss on goodwill
            
            
            2,973,000
            
            
            -
            
            
            4,190,000
            
            
            -
            
            
            -Total
                operating costs
            
            
            8,639,576
            
            
            4,668,609
            
            
            21,924,993
            
            
            11,890,827
            
            
            588,763Operating
                loss
            
            
            (3,518,156
            )
            
            (2,725,168
            )
            
            (11,280,682
            )
            
            (7,037,737
            )
            
            (284,902
            )Interest
                income (expense), net
            
            
            (49,653
            )
            
            104,116
            
            
            (194,661
            )
            
            476,388
            
            
            3,749Loss
                from operations before income taxes
            
            
            (3,567,809
            )
            
            (2,621,052
            )
            
            (11,475,343
            )
            
            (6,561,349
            )
            
            (281,153
            )Income
                tax expense (benefit)
            
            
            (349,898
            )
            
            -
            
            
            37,102
            
            
            (349,325
            )
            
            -Net
                loss
            
            $
            (3,217,911
            )
            $
            (2,621,052
            )
            $
            (11,512,445
            )
            $
            (6,212,024
            )
            $
            (281,153
            )Per
                Common Share (Basic and Diluted):Basic
                and diluted net loss
            
            $
            (0.26
            )
            $
            (0.22
            )
            $
            (0.95
            )
            $
            (0.53
            )
            $
            -Weighted
                average common shares outstanding-basic and diluted
            
            
            12,326,397
            
            
            11,715,512
            
            
            12,164,454
            
            
            11,743,186
            
            
            -




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


2





FORTRESS
      INTERNATIONAL GROUP, INC.


CONSOLIDATED
      STATEMENTS OF CASH FLOWS




Successor (Fortress International Group, Inc.)
            
            Predecessor(TSS/Vortech)For the periodJanuary 1,Nine Months Ended
            
            throughSeptember 30, 2008
            
            September 30, 2007
            
            January 19, 2007Cash
                Flows from Operating Activities:Net
                loss
            
            $
            (11,512,445
            )
            $
            (6,212,024
            )
            $
            (281,153
            )Adjustments
                to reconcile net loss to net cash provided by(used
                in) operating activities:Depreciation
                and amortization
            
            
            355,810
            
            
            289,708
            
            
            33,660Amortization
                of intangibles
            
            
            2,491,477
            
            
            1,891,419
            
            
            -Impairment
                loss on goodwill
            
            
            4,190,000
            
            
            -
            
            
            -Allowance
                for doubtful accounts
            
            
            119,728
            
            
            -
            
            
            -Stock
                and warrant-based compensation
            
            
            1,469,252
            
            
            999,196
            
            
            -Benefit
                from income taxes
            
            
            -
            
            
            490,675
            
            
            -Other
                non-cash income, net
            
            
            15,312
            
            
            -
            
            
            -Changes
                in operating assets and liabilities, net of the effects from acquisitions:Contracts
                and other receivables
            
            
            (2,315,446
            )
            
            (2,293,228
            )
            
            3,698,863Costs
                  and estimated earnings in excess of billings on uncompletedcontracts
            
            
            (3,399,324
            )
            
            (2,443,158
            )
            
            (1,078,505
            )Prepaid
                expenses
            
            
            (197,902
            )
            
            (294,911
            )
            
            (108,618
            )Due
                from affiliates
            
            
            -
            
            
            -
            
            
            519,923Other
                assets
            
            
            256,571
            
            
            (1,076,125
            )
            
            (42,968
            )Accounts
                payable and accrued expenses
            
            
            (124,199
            )
            
            3,464,210
            
            
            (1,861,306
            )Billings
                in excess of costs and estimated earnings onuncompleted
                contracts
            
            
            6,755,014
            
            
            151,894
            
            
            419,676Other
                liabilities
            
            
            -
            
            
            (586,283
            )
            
            (643,571
            )Net
                cash provided by (used in) operating activities
            
            
            (1,896,152
            )
            
            (5,618,627
            )
            
            656,001Cash
                Flows from Investing Activities:Purchase
                of property and equipment
            
            
            (214,935
            )
            
            (338,547
            )
            
            (127,602
            )Sale
                of investments held in trust
            
            
            -
            
            
            44,673,994
            
            
            -Purchase
                of TSS/Vortech, net of cash acquired
            
            
            -
            
            
            (9,677,683
            )
            
            -Purchase
                of SMLB, net of cash acquired
            
            
            (2,094,561
            )
            
            -
            
            
            -Purchase
                of Comm Site of South Florida, Inc, net of cash acquired
            
            
            -
            
            
            (135,000
            )
            
            -Purchase
                of Innovative Power Solutions
            
            
            -
            
            
            (1,502,032
            )
            
            -Deferred
                acquistion costs
            
            
            (21,785
            )
            
            (1,031,472
            )
            
            -Net
                cash provided by (used in) investing activities
            
            
            (2,331,281
            )
            
            31,989,260
            
            
            (127,602
            )Cash
                Flows from Financing Activities:Payments
                on notes payable
            
            
            (84,065
            )
            
            (51,494
            )
            
            (6,281
            )Payments
                on Rubicon seller notes
            
            
            (1,956,994
            )
            
            -
            
            
            -Payment
                on promissory note payable to officer
            
            
            -
            
            
            (2,000,000
            )
            
            -Payment
                on shareholder advance
            
            
            -
            
            
            (20,000
            )
            
            -Payment
                to shareholders electing to redeem their shares inconnection
                with the TSS/Vortech acquisition
            
            
            -
            
            
            (4,340,013
            )
            
            -Repurchase
                of treasury stock
            
            
            (47,465
            )
            
            (2,036,015
            )
            
            -Members'
                distributions
            
            
            -
            
            
            -
            
            
            (1,561,639
            )Net
                cash used in financing activities
            
            
            (2,088,524
            )
            
            (8,447,522
            )
            
            (1,567,920
            )Net
                increase (decrease) in cash
            
            
            (6,315,957
            )
            
            17,923,111
            
            
            (1,039,521
            )Cash,
                beginning of period
            
            
            13,172,210
            
            
            7,347
            
            
            2,361,838Cash,
                end of period
            
            $
            6,856,253
            
            $
            17,930,458
            
            $
            1,322,317Supplemental
                disclosure of cash flow information:Cash
                paid for interest
            
            $
            377,196
            
            $
            416,417
            
            $
            368Cash
                paid for taxes
            
            
            24,602
            
            
            593,166
            
            
            -Supplemental
                disclosure of non-cash investing activities:Issuance
                of common stock in connection with the acquisition of SMLB
            
            
            500,000
            
            
            -
            
            
            -Issuance
                of common stock in connection with the acquistion of TSS/Vortech
            
            
            -
            
            
            14,211,359
            
            
            -Issuance
                of common stock in connection with the acquistion of
                Innovative
            
            
            -
            
            
            150,000Promissory
                notes payable issued in connection with the acquistion of SMLB
            
            
            15,248
            
            
            -
            
            
            -Promissory
                notes payable issued in connection with the acquistion of Rubicon
            
            
            439,241
            
            
            -
            
            
            -Promissory
                notes payable issued in connection with the acquistion of TSS/Vortech
            
            
            -
            
            
            10,000,000
            
            
            -Prommissory
                notes payable issued in connection with the acquistion of
                Innovative
            
            
            -
            
            
            300,000
            
            
            -Supplemental
                disclosure of non-cash financing activities:Promissory
                notes payable issued to officers converted to common stock
            
            
            3,500,000
            
            
            -
            
            
            -Discount
                received on note repayment from officer
            
            
            -
            
            
            500,000
            
            
            -




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




3




FORTRESS
      INTERNATIONAL GROUP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS




**(1)**
            **Basis
                of Presentation**




The
      consolidated financial statements are for the three and nine months ended
      September 30, 2008 and 2007 for Fortress International Group, Inc. (the
“Successor Company,” “Fortress” or the “Company”) and are for the period from
      January 1, 2007 to January 19, 2007 (the “Acquisition Date”) for VTC, L.L.C. t/a
      Total Site Solutions and Vortech, L.L.C. (collectively the “Predecessor Company”
or “TSS/Vortech”).  The results of operations attributable to each
      acquisition are included in the consolidated financial statements from the
      Acquisition Date.





Except
      for the balance sheet of the Company as of December 31, 2007 and the
      results of operations of our Predecessor Company for the period from January
      1,
      2007 through January 19, 2007, which are derived from audited financial
      statements, the accompanying consolidated financial statements are unaudited.
      In
      the opinion of management, all adjustments necessary for a fair statement of
      such financial position and results of operations have been included. All such
      adjustments are of a normal recurring nature. Interim results are not
      necessarily indicative of results for a full year.




The
      consolidated financial statements and notes are presented in accordance with
      instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities
      and
      Exchange Commission (“SEC”) and do not contain certain information included in
      the Company’s annual financial statements and notes. These financial statements
      should be read in conjunction with the Company’s audited financial statements
      and the notes thereto filed with the SEC in the Company’s Annual Report on Form
      10-K for the year ended December 31, 2007, as amended.





***Nature
      of Business and Organization***




The
      Company provides a single source solution for highly technical mission-critical
      facilities such as data centers, operations centers, network facilities, server
      rooms, security operations centers, communications facilities and the
      infrastructure systems that are critical to their function. The Company’s
      services consist of technology consulting, design and engineering, construction
      management, systems installation and facilities management.





The
      Company was incorporated in Delaware on December 20, 2004 under the name
“Fortress America Acquisition Corporation” as a special purpose acquisition
      company for the purpose of acquiring an operating business that performs
      services in the homeland security industry.





On
      July
      20, 2005, we closed our initial public offering (“IPO”) of 7,800,000 units,
      including an over-allotment option of 800,000 units, with each unit consisting
      of one share of our common stock and two warrants (each to purchase one share
      of
      common stock at $5.00). Of the total IPO proceeds of $43,183,521, net of
      issuance costs, $41,964,000 were placed into a trust fund (“Trust”)
      and the remaining $1,219,521 were available to fund operations in the pursuit
      of
      acquiring a company.





On
      January 19, 2007, the Company acquired all of the outstanding interest in
      TSS/Vortech in exchange for a combination of cash, the Company’s common stock,
      and issuance of two convertible notes (See Note 10). The acquisition
      fundamentally transformed the Company from a firm primarily investing capital
      to
      an operating business. Concurrent with the acquisition, the Company changed
      its
      name to Fortress International Group, Inc.




After
      acquiring TSS/Vortech during 2007, the Company continued its expansion through
      the acquisitions of  Comm Site of South Florida, Inc. (“Comm Site”),
      Innovative Power Systems, Inc. and Quality Power Systems, Inc. (“Innovative”)
      and Rubicon Integration, LLC. (“Rubicon”). On January 2, 2008, the Company
      acquired SMLB, Ltd. to continue its footprint expansion with complementary
      service offerings. As applicable, the Company also acquired these companies’
operating subsidiaries. The results of operations, cash flows and financial
      position attributable to these acquisitions are included in the consolidated
      financial statements from the respective dates of their acquisition (See
      Note 4). All intercompany transactions have been eliminated in
      consolidation.




***Recently
      Issued Accounting Pronouncements***




In
      October 2008, the FASB issued FASB Staff Position 157-3, “Determining the Fair
      Value of a Financial Asset When the Market of that Asset is not Active” (“FSP
      157-3”). FSP 157-3 provides an example that clarifies and reiterates certain
      provisions of the existing fair value standard, including basing fair value
      on
      orderly transactions and usage of management and broker inputs. FSP 157-3 is
      effective immediately but is not expected to have a material impact on our
      financial position or results of operations.





In
      May
      2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      163, “Accounting for Financial Guarantee Insurance Contracts” (“SFAS 163”). SFAS
      163 requires recognition of a claim liability prior to an event of default
      when
      there is evidence that credit deterioration has occurred in an insured financial
      obligation. SFAS 163 clarifies how FAS 60 applies to financial guarantee
      insurance contracts, including the recognition and measurement to be used to
      account for premium revenue and claim liabilities and requires expanded
      disclosures about financial guarantee insurance contracts. SFAS 163 is
      effective January 1, 2009. The Company does not expect the adoption of SFAS
      163 to have a material effect on its consolidated results of operations and
      financial condition.


4




FORTRESS
      INTERNATIONAL GROUP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS




In
      May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
      Accepted Accounting Principles” (“SFAS 162”). SFAS 162 identifies the
      sources of accounting principles and the framework for selecting the principles
      used in the preparation of financial statements of nongovernmental entities
      that
      are presented in conformity with generally accepted accounting principles (the
      GAAP hierarchy). SFAS No. 162 will become effective 60 days
      following the SEC’s approval of the Public Company Accounting Oversight Board
      amendments to AU Section 411, “The Meaning of Present Fairly in
      Conformity With Generally Accepted Accounting Principles.” The Company does not
      expect the adoption of SFAS 162 to have a material effect on its
      consolidated results of operations and financial condition.




In April
      2008, FASB issued a Staff Position (“FSP”) No. FAS 142-3, “Determination of the
      Useful Life of Intangible Assets,” (“FSP 142-3”) which amends the factors a
      company should consider when developing renewal assumptions used to determine
      the useful life of an intangible asset under SFAS 142. FSP 142-3 replaces the
      previous useful life criteria with a new requirement-that an entity consider
      its
      own historical experience in renewing similar arrangements. In issuing FSP
      142-3, the FASB hopes to improve the consistency between the useful life of
      a
      recognized intangible asset and the period of expected cash flows used to
      measure the fair value of the asset. FAS 142-3 is effective January 1, 2009.
      The
      Company is currently assessing the potential impact that adoption of FAS 142-3
      may have on its financial statements.




In
      March
      2008, the FASB issued Statement of Financial Accounting Standards SFAS
      No. 161, “ Disclosures about Derivative Instruments and Hedging Activities,
      an amendment of FASB Statement No. 133,” (“SFAS No. 161”) which requires
      additional disclosures about the objectives of the derivative instruments and
      hedging activities, the method of accounting for such instruments under SFAS
      No. 133 and its related interpretations, and a tabular disclosure of the
      effects of such instruments and related hedged items on our financial position,
      financial performance, and cash flows. SFAS No. 161 is effective beginning
      January 1, 2009. The Company is currently assessing the potential impact
      that adoption of SFAS No. 161 may have on its financial statements. **





In
      December 2007, the FASB issued SFAS No. 160, “ Noncontrolling Interests in
      Consolidated Financial Statements, an amendment of ARB No. 51,” (“SFAS No.
      160”) which changes the accounting and reporting for minority interests.
      Minority interests will be recharacterized as noncontrolling interests and
      will
      be reported as a component of equity separate from the parent’s equity, and
      purchases or sales of equity interests that do not result in a change in control
      will be accounted for as equity transactions. In addition, net income
      attributable to the noncontrolling interest will be included in consolidated
      net
      income on the face of the income statement and, upon a loss of control, the
      interest sold, as well as any interest retained, will be recorded at fair value
      with any gain or loss recognized in earnings. SFAS No. 160 is effective for
      us beginning January 1, 2009 and will apply prospectively, except for the
      presentation and disclosure requirements, which will apply retrospectively.
      The
      Company does not expect the adoption of SFAS No. 160 to have a material effect
      on its consolidated results of operation of financial condition.





In
      December 2007, the FASB issued SFAS No. 141R, “Business Combinations,”
(“SFAS No. 141R”) which replaces SFAS No. 141. The statement retains the
      purchase method of accounting for acquisitions, but requires a number of
      changes, including changes in the way assets and liabilities are recognized
      in
      the purchase accounting. It also changes the recognition of assets acquired
      and
      liabilities assumed arising from contingencies, requires the capitalization
      of
      in-process research and development at fair value, and requires the expensing
      of
      acquisition-related costs as incurred. SFAS No. 141R is effective for the
      Company beginning January 1, 2009 and will apply prospectively to business
      combinations completed on or after that date.


5




FORTRESS
      INTERNATIONAL GROUP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





**(2)**
            **Accounts
                Receivable**




During
      the second quarter 2008 and included in the nine months ended September 30,
      2008, the Company recognized a $0.7 million loss on customer contract due to
      concerns as to whether the amounts were collectible. As such, the Company has
      not recorded any revenue related to this contract and we will recognize revenue
      for this customer based on cash collections. The Company is owed $1.3 million
      from this customer of which $0.8 million will be recognized upon cash collection
      and the remaining $0.5 million reduced the unsecured, promissory notes payable
      to the sellers of SMLB (seller note). The seller note reduction was pursuant
      to
      the working capital adjustment pursuant to terms of the SMLB purchase agreement.
      Contract costs totaling $0.7 million were fully recognized in the nine months
      ended September 30, 2008. In the event the $1.3 million is collected, the
      Company will recognize revenue of $0.8 million and the seller note will be
      increased by $0.5 million.




As
      of
      September 30, 2008, accounts receivable of $1.4 million is due from a customer
      to whom the Company has offered extended payment terms. The customer has
      executed a promissory note in the same amount bearing interest at 8% per annum
      with payments of interest only due monthly and the balance in full is due on
      December 15, 2008. This amount was recognized as revenue during the nine months
      ended September 30, 2008. The Company has a history of conducting business
      with
      this customer and therefore believes collectibility is reasonably assured.





**(3)**
            **Customer
                Concentration**





The
      Company earned approximately 39% of its revenue from two customers for the
      nine
      months ended September 30, 2008. Accounts receivable from these customers at
      September 30, 2008 was $7.9 million. For the nine months ended September 30,
      2007, the Company earned approximately 30% of its revenue from two customers.




**(4)**
            **Acquisitions**





In
      2007,
      the Company transitioned from a special purpose acquisition company to an
      operating entity with its purchase of TSS/Vortech. The Company has continued
      its
      strategy to build on to the TSS/Vortech operations through acquisitions that
      expand geographical reach, add complementary services and access new key
      customers for additional selling opportunities. All of the acquisitions have
      been accounted for using purchase accounting. The results of operations
      attributable to each acquisition are included in the consolidated financial
      statements from the date of acquisition. The value of the Company’s common stock
      issued in connection with the acquisitions was determined based on the five
      day
      average closing price of the Company’s common stock beginning two days before
      through two days after the announcement date multiplied by the number of shares
      issued.




**2008
      Acquisition**




**SMLB,
      Ltd.**





On
      January 2, 2008, the Company acquired all of the outstanding stock of SMLB,
      Ltd., which provides consulting and construction management services for the
      mission-critical facilities in the Chicago area. The closing consideration
      consisted of (i) $2,094,561 in cash, including acquisition costs of $151,133
      and
      net of acquired cash of $56,573, subject to certain adjustment to be determined
      subsequent to the closing of the acquisition, as provided in the purchase
      agreement, (ii) 96,896 shares of the Company’s common stock valued at
      approximately $500,000, (iii) $500,000 in unsecured promissory notes
      bearing interest at 6% per annum, and (iv) additional earn-out amounts up to
      a
      maximum of $600,000, contingent upon the achievement of certain earnings targets
      by SMLB for each of the calendar years 2008-2009.





All
      of
      the shares issued to the selling members were placed into escrow to secure
      the
      rights of Fortress under the acquisition. These shares will be released subject
      to certain conditions under the agreements twelve months from the acquisition
      date. During the second quarter 2008, the unsecured promissory note of $500,000
      was reduced to $15,248 based on a working capital adjustment per the purchase
      agreement.





The
      Company paid a premium (i.e., goodwill) over the fair value of the net tangible
      and preliminarily identified intangible assets acquired for a number of reasons,
      including SMLB’s complementary experience, key customer relationships in an
      expanded market, and service offerings in the mission-critical facility
      industry. The Company recorded goodwill totaling $2.7 million associated with
      the SMLB acquisition, which is not expected to be deductible for income tax
      purposes.


6


FORTRESS
      INTERNATIONAL GROUP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS




The
      adjusted fair values of the assets acquired and the liabilities assumed for
      SMLB
      is as follows:





**SMLB**Cash
            
            $
            2,000,000Common
                stock
            
            
            462,775Promissory
                notes to sellers
            
            
            15,248Acquistion
                costs
            
            
            151,133Total
                purchase price
            
            $
            2,629,156Cash
                and equivalents
            
            $
            56,573Contracts
                and other receivables
            
            
            387,612Goodwill
            
            
            2,693,060Identifiable
                intangibles, net
            
            
            271,000Total
                assets acquired
            
            $
            3,408,245LiabilitiesAccounts
                payable and accrued expenses
            
            $
            137,309Income
                taxes payable
            
            
            131,662Billings
                in excess of costs
            
            
            510,117Total
                liabilities assumed
            
            
            779,089Net
                assets acquired
            
            $
            2,629,156




**2007
      Acquisitions**




**Rubicon
      Integration, LLC**





During
      the first quarter of 2008, the Company finalized its purchase price allocation
      associated with Rubicon, resulting in an increase in the value of customer
      relationship intangibles of $1.0 million and a corresponding decrease in
      goodwill.





During
      the second quarter of 2008, Rubicon achieved certain 2008 revenue bookings
      targets through June 30, 2008, which entitled the sellers under the purchase
      agreement to an unsecured promissory note of $0.4 million and resulted in a
      corresponding increase in goodwill (see Note 10). The Company recorded
      indefinite lived intangibles totaling $3.9 million associated with Rubicon
      transaction, of  which $2.3 million is expected to be deductible for
      income tax purposes.




**TSS/Vortech**





During
      the third quarter of 2008, shares issued to the selling members of TSS/Vortech
      were released from escrow. As of September 30, 2008, TSS/Vortech recorded
      indefinite lived intangibles were $16.5 million, of which $12.7 million is
      expected to be deductible for income taxes.





*Purchase
      Price Allocation*




Under
      business combination accounting, the purchase price for each of the acquired
      companies, Rubicon and SMLB, was allocated to the net tangible and identifiable
      intangible assets based on their estimated fair values as of the acquisition
      dates. The allocation of the purchase price was based upon valuations performed
      for each of the acquired companies. Subject to adjustment associated with
      working capital requirements and contingent consideration issuable upon
      achievement of certain financial targets, we finalized
      the Rubicon valuation in the first quarter of 2008 and SMLB
      during the second quarter 2008.




The
      valuations indicated that the estimated fair value of the assets acquired was
      less than the total of the purchase price paid and the liabilities assumed
      in
      the transactions. As a result, the excess purchase price was assigned to
      goodwill for each acquisition. The Company recorded goodwill associated with
      its
      acquisitions of SMLB and Rubicon totaling $6.1 million of which $2.3 million
      is
      expected to be deductible for income tax purposes.


7


FORTRESS
        INTERNATIONAL GROUP, INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS




*Tangible
      and Other Intangible Long-Lived Assets*




In
      performing the purchase price allocation for each acquired company, the Company
      considered, among other factors, the intention for future use of acquired
      assets, analysis of historical financial performance and estimates of future
      performance of each acquired company’s products. The fair value of assets was
      based, in part, on a valuation using either a cost, income, or in some cases,
      market valuation approach and estimates and assumptions provided by management.
      The tangible assets primarily include personal property such as computers,
      software and service vehicles. Intangible assets consist primarily of customer
      relationships, order backlog and trade name.




The
      value
      of the components of intangible assets as of September 30, 2008 are as
      follows:





SMLB
            
            Rubicon
            
            Innovative
            
            TSS/Vortech
            
            TotalIntangible
                asset:Trade
                name
            
            $
            36,000
            
            $
            460,000
            
            $
            60,000
            
            $
            4,930,000
            
            $
            5,486,000In-place
                contracts
            
            
            230,000
            
            
            50,000
            
            
            350,000
            
            
            406,201
            
            
            1,036,201Customer
                relationships
            
            
            -
            
            
            2,970,000
            
            
            560,000
            
            
            14,100,000
            
            
            17,630,000Non
                competition agreement
            
            
            5,000
            
            
            685,000
            
            
            50,600
            
            
            -
            
            
            740,600Total
                intangible
            
            
            271,000
            
            
            4,165,000
            
            
            1,020,600
            
            
            19,436,201
            
            
            24,892,801Accumulated
                amortization
            
            
            (152,122
            )
            
            (822,131
            )
            
            (382,483
            )
            
            (3,697,513
            )
            
            (5,054,249
            )Intangible
                assets, net
            
            $
            118,878
            
            $
            3,342,869
            
            $
            638,117
            
            $
            15,738,688
            
            $
            19,838,552





*Impairment*





The
      Company has not realized the anticipated revenue from customers acquired in
      its
      acquisitions and had experienced continued operating losses during the nine
      months ended September 30, 2008. Based on the recurring operating losses and
      a
      revision to the Company’s forecast during the second quarter of 2008, the
      Company conducted analyses of the operations in order to identify any impairment
      in the carrying value of the goodwill related to the business. During the third
      quarter 2008, the Company’s market value declined further and we conducted
      additional analysis, which contemplated the market condition occurring through
      the third quarter. The analyses of the business using both an income approach
      and a market approach determined that the carrying value exceeded the current
      fair value of the business, resulting in goodwill impairment of $3.0 million
      for
      the three months ended September 30, 2008 and $4.2 million for the nine months
      ended September 30, 2008. At September 30, 2008, the adjusted carrying value
      of
      goodwill was $18.8 million.





For
      the
      three months ended September 30, 2008 and September 30, 2007, amortization
      expense totaling $0.8 million and $0.7 million, respectively, has been included
      in the accompanying consolidated statements of operations related to the above
      intangibles of which $0.2 million and $0.1 million, respectively, is included
      in
      cost of revenue.





For
      the
      nine months ended September 30, 2008 and September 30, 2007, amortization
      expense totaling $2.5 million and $1.9 million, respectively, has been
      included in the accompanying consolidated statements of operations related
      to
      the above intangibles of which $0.3 million and $0.3 million, respectively,
      is included in cost of revenue.





**  *Proforma
      Results*




Unaudited pro
      forma results of operations are as follows. The amounts are shown as if the
      acquisitions had occurred at the beginning of the periods
      presented:




Three Months
            
            Nine  MonthsEnded
            
            EndedSeptember 30, 2007
            
            September 30, 2007Proforma
                revenue
            
            $
            15,894,628
            
            $
            44,642,765Proforma
                operating loss
            
            
            (2,052,390
            )
            
            (5,707,428
            )Proforma
                pretax loss
            
            
            (2,068,684
            )
            
            (5,681,989
            )Proforma
                net loss
            
            
            (2,515,304
            )
            
            (5,596,968
            )Pro
                forma basic and diluted net loss per share
            
            $
            (0.21
            )
            $
            (0.45
            )Weighted
                average common shares
            
            
            12,039,904
            
            
            12,520,861





This
      information is not necessarily indicative of the operational results that would
      have occurred if the acquisition had been consummated on the dates indicated
      nor
      is it necessarily indicative of future operating results of the combined
      enterprise.


8


FORTRESS
        INTERNATIONAL GROUP, INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS




**(5)**
            **Basic
                and Diluted Net Loss per
                Share**





Basic
      and
      diluted net loss per common share is computed as follows:





SuccessorThree
                Months Ended
            
            Nine
                Months EndedSeptember
                30,
            
            September
                30,
            
            September
                30,
            
            September
                30,2008
            
            2007
            
            2008
            
            2007Net
                loss
            
            $
            (3,217,911
            )
            $
            (2,621,052
            )
            $
            (11,512,445
            )
            $
            (6,212,024
            )Basic
                and diluted weighted average common shares
            
            
            12,326,397
            
            
            11,715,512
            
            
            12,164,454
            
            
            11,743,186Net
                loss per share
            
            $
            (0.26
            )
            $
            (0.22
            )
            $
            (0.95
            )
            $
            (0.53
            )




As
      of September 30, 2008, there were unvested restricted stock, options to purchase
      units and warrants outstanding to purchase a total of 18,165,634 shares of
      common stock and convertible unsecured promissory notes convertible into 533,333
      shares of common stock. These were excluded in the computation of diluted
      net loss per common share for the three and nine months ended September 30,
      2008, as their inclusion would be anti-dilutive.





No
      weighted average common shares or income (loss) per share amounts are shown
      for
      the Predecessor since the Predecessor was limited liability company whose
      capital structure consisted of membership interests.




**(6)**
            **Employee
                Benefit Plans**





*Restricted
      Stock*




During
      the nine months ended September 30, 2008 and September 30, 2007, the Company
      granted 132,000 and 770,832 restricted common shares,
      respectively, under the 2006 Omnibus Incentive Compensation Plan (“Plan”).
      During the nine months ended September 30, 2008, the weighted average fair
      value
      of these grants was $4.53 per share.





During
      the three months ended September 30, 2008 and September 30, 2007, non-cash
      compensation expense totaling $0.5 million and $0.3 million, respectively,
      has
      been included in the accompanying consolidated statements of operations related
      to vesting of awards, of which $0.1 million and zero, respectively, is in
      cost of revenue.





During
      the nine months ended September 30, 2008 and September 30, 2007, non-cash
      compensation expense totaling $1.5 million and $0.8 million, respectively,
      has
      been included in the accompanying consolidated statements of operations related
      to vesting of awards, of which $0.3 million and zero, respectively, is in cost
      of revenue. There was no other restricted stock activity.





**(7)**
            **Common
                Stock Repurchases**




During
      the three months ended September 30, 2008, the Company repurchased 8,895
      treasury shares with an aggregate value of $20,322 associated with vesting
      restricted stock of an employee. During the nine months ended September 30,
      2008, the Company repurchased 14,885 treasury shares with an aggregate value
      of
      $47,465 associated with vesting restricted stock of an employee.  The
      Company paid the employee’s related taxes associated with the employee’s
      vested stock and decreased the shares issued to the employee by a corresponding
      value, resulting in a share issuance net of taxes to employee. The value of
      the
      shares netted for employee taxes represents treasury stock repurchased. There
      were no similar repurchases during 2007.





Prior
      to
      the consummation of the acquisition of TSS/Vortech, the Company announced and
      implemented a common stock repurchase program under which it may purchase up
      to
      3,000,000 shares of common stock. Currently the Board of Directors has
      authorized the repurchase of up to 500,000 shares under this program. 
During the nine months ended September 30, 2007, the Company repurchased 354,775
      of the Company’s common shares valued in aggregate at $1.9 million. The plan was
      suspended in the third quarter of 2007; accordingly, there has been no activity
      under the plan in 2008.





In
      January 2007, the Company repurchased 756,100 shares at an aggregate value
      of $4.3 million from those shareholders that voted against the acquisition
      of TSS/Vortech and requested that their shares be redeemed at the then per
      share
      trust value of $5.74 per share.


9


FORTRESS
      INTERNATIONAL GROUP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





**(8)**
            **Options
                to Purchase Units and
                Warrants**





At
      September 30, 2008 and December 31, 2007, there were outstanding options to
      purchase units and warrants to purchase 17,810,300 of common shares. Both the
      option to purchase units and warrants have a cashless exercise feature, whereby
      the holder may elect to receive a net amount of shares and forego the payment
      of
      the strike price.





In
      February 2007, the Company entered into a one year agreement with an advisor
      in
      which we were obligated to issue a warrant for the purchase of 125,000 shares
      of
      our common stock, in exchange for consulting services. The fair value of these
      warrants was determined using the Black-Scholes model and is recognized over
      the
      term of the agreement. For the three and nine months ended September 30, 2008,
      the computed Black-Scholes value of the warrant remained unchanged and decreased
      by $141,422, respectively, resulting in a corresponding decrease in selling,
      general and administrative expense for the nine months ended September 30,
      2008.
      For the three and nine months ended September 30, 2007, the Company recognized
      $213,000 in selling, general and administrative expense associated with the
      warrant.





**(9)**
            **Income
                Taxes**




The
      Company accounts for income taxes in accordance with SFAS No. 109, “ Accounting
      for Income Taxes” (“SFAS No. 109”),. APB
      No.
      28, Interim
      Financial Reporting ,
      and
      FASB Interpretation No. 18, “ Accounting
      for Income Taxes in Interim Periods .”
      Deferred income taxes are provided for the temporary differences between the
      financial reporting and tax basis of the Company’s assets and liabilities using
      enacted tax rates in effect for the year in which the differences are expected
      to reverse.




The
      Company’s provision for income taxes reflects the establishment of a full
      valuation allowance against deferred tax assets as of September 30, 2008. SFAS
      No. 109 requires management to evaluate its deferred tax assets on a regular
      basis to reduce them to an amount that is realizable on a more likely than
      not
      basis.




The
      Company is in a net operating loss carryover position. The net operating losses
      not utilized can be carried forward for 20 years to offset future taxable
      income. For the year ended December 31, 2007, the Company recorded a
      partial valuation allowance against its deferred tax assets, as the
      Company concluded that under relevant accounting standards, it is more
      likely than not that a portion of deferred tax assets will be not be
      realizable.





Under
      SFAS No. 109, the Company evaluated available evidence to determine whether
      a
      full or partial valuation allowance of deferred tax assets should be recorded.
      As of September 30, 2008, cumulative losses in recent periods is evidence to
      support the need for a valuation allowance. Such evidence outweighs projections
      of future taxable income that may support the realization of deferred tax
      assets.




The
      Company is expected to record future deferred tax expense, primarily as the
      result of tax amortization resulting from the purchases of TSS/Vortech and
      Rubicon. Under SFAS No. 109, tax amortization on indefinite lived assets
      (goodwill and other intangibles) may not be offset by deferred tax assets that
      are not currently realizable, primarily deferred tax assets relating to net
      operating loss carryovers, because of valuation allowances.





The
      Company has recorded an income tax benefit of $349,898 for the three months
      ended September 30, 2008 which consists of income taxes currently payable of
      $37,102 net of a reduction in deferred tax liabilities of $387,000. For the
      nine
      months ended September 30, 2008, income expense of $37,102 has been recorded
      to
      reflect state income taxes.




The
      Company’s effective tax rate is based upon the rate expected to be applicable to
      the full fiscal year. The rate differs from that used in the three months ended
      September 30, 2007 primarily due to changes in the valuation allowance
      subsequent to that date.





Effective
      January 1, 2007, the Company was required to adopt FASB Interpretation No.
      48,
“ Accounting
      for Uncertainty in Income Taxes” (“FIN
      48”). The Company evaluates its uncertain tax positions on a quarterly basis and
      has not identified any changes in uncertain tax positions during the reporting
      period.





Management
      is in the process of evaluating the various tax positions associated with the
      acquisition of SMLB and is of the opinion that any deferred tax liabilities
      that
      would ultimately result from uncertain tax positions related to this acquisition
      is not anticipated to be material.





The
      Company files a consolidated federal tax return in states that allow it, and
      in
      other states it files separate company returns.





All
      of
      the Company's prior federal and state income tax filings since inception remain
      open under statutes of limitation.  Innovative Power System Inc.'s statutes
      of limitation are open from the 2002 tax year forward for both federal and
      Virginia purposes.  Quality Power Systems Inc.'s statutes of
      limitation are open from the 2003 tax year forward for both federal and Virginia
      purposes. SMLB’s statutes of limitation are open from the 2006 tax year forward
      for both federal and Illinois purposes.


10





FORTRESS
      INTERNATIONAL GROUP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS




**(10)**
            **Notes
                Payable**




September 30,
            
            December 31,2008
            
            2007Convertible,
                unsecured promissory note, due 2012 (6.0%)
            
            $
            4,022,356
            
            $
            7,500,000Unsecured
                promissory note, due 2011 (6.0%)
            
            
            331,688
            
            
            394,611Unsecured
                promissory note, due 2008 (6.0%)
            
            
            -
            
            
            1,517,753Unsecured
                promissory note, due 2011 (6.0%)
            
            
            15,248
            
            
            -Vehicle
                notes
            
            
            43,105
            
            
            86,603Total
                debt
            
            
            4,412,397
            
            
            9,498,967Less
                current portion
            
            
            182,384
            
            
            1,650,306Total
                debt, less current portion
            
            $
            4,230,013
            
            $
            7,848,661





In
      connection with the acquisition of TSS/Vortech, on January 19, 2007, the Company
      issued two convertible, unsecured promissory notes, with an aggregate value
      of
      $10,000,000 to the sellers. During the third quarter of 2007, the Company
      entered into an agreement with its Chief Executive Officer (the “CEO”), one
      of the selling members, to retire $2,500,000 of the note due to him by paying
      $2,000,000 and the CEO used the proceeds to repurchase the Company’s common
      stock and warrants. The prepayment discount realized of $500,000 has been
      recorded as additional paid-in capital. The notes bear interest at six percent
      per year and have a term of five years. Interest only is payable during the
      first two years of each note with principal payments commencing on the second
      anniversary (January 19, 2009) and continuing throughout the balance of the
      term
      of the notes in equal quarterly principal installments totaling $625,000, as
      adjusted for the early repayment of the CEO notes.





During
      the third quarter 2008, the Chief Executive Officer and Chief Operating Officer,
      both of the selling members, entered into an agreement with the Company to
      convert $2,500,000 and $1,000,000, respectively, of their respective notes
      into
      equity at a conversion price of $7.50 per share, resulting in the aggregate
      issuance of 466,667 common shares. The conversion has been recorded as
      additional paid-in capital. In addition, the Chief Operating Officer agreed
      to
      postpone any principal and interest payments payable to him under his remaining
      $4,000,000 promissory note until March, 2010, with such interest to be accrued
      to the outstanding principal. The notes are convertible at any time by the
      selling members at a conversion price of $7.50 per share and are automatically
      convertible if the average closing price of the Company’s common stock for 20
      consecutive trading days equals or exceeds $7.50 per share.





In
      connection with the acquisition of Innovative, on September 24, 2007, the
      Company issued an unsecured promissory note to the sellers in the amount of
      $300,000. The note bears interest at six percent per year and has a three year
      term. Quarterly principal installments of $15,000 plus interest are due
      commencing December 31, 2007, with a final balloon payment of $120,000 due
      on
      December 31, 2010. Based on achieving certain earnings targets through December
      31, 2007 and net of a purchase price adjustment associated with working capital,
      the Innovative sellers received an additional promissory note of $64,611 at
      December 31, 2007. The additional unsecured promissory note is in a similar
      form of the unsecured promissory note issued at closing, bearing interest
      at six percent per year and has a three-year term. Quarterly principal
      installments of $3,231 plus interest are due commencing March 31, 2008 with
      a
final balloon payment of $25,844 due on March 31, 2011.





In
      connection with the Rubicon acquisition, the Company was obligated to issue
      unsecured promissory notes totaling $1.5 million and $2.0 million contingent
      on
      Rubicon achieving certain earnings targets for the month ended December 31,
      2007
      and certain revenue bookings targets for 2008, respectively. Rubicon exceeded
      earnings targets for the month ended December, 31 2007, resulting in the
      issuance of a promissory note totaling $1.5 million which was paid in the first
      quarter of 2008.





Of
      the
      $2.0 million contingent note, approximately $0.4 million was issued at June
      30,
      2008 based on Rubicon’s achievement of revenue bookings targets through that
      date. The issued note bears interest at six percent per annum from the
      acquisition date and was paid on July 31, 2008. At December 31, 2008, the
      Company may be required to issue and pay up to $1.6 million or the balance
      of
      the note contingent on Rubicon’s achievement of certain revenue booking targets
      in the second half of 2008. Any contingent note issuance will have earned
      interest at six percent per annum from the purchase date through
      payment. At September 30, 2008, revenue bookings were not determinable beyond
      a
      reasonable doubt and the remaining $1.6 million contingent note has not been
      issued.





In
      connection with the acquisition of SMLB, on January 2, 2008, the Company issued
      unsecured promissory notes with an aggregate value of $500,000 to the sellers.
      The notes bear interest at six percent per year and has a three-year term.
      During the three months ended June 30, 2008, the Company reduced the seller
      notes to $15,248 based on a $484,752 working capital adjustment in
      accordance with the terms of the purchase agreement. Principal installments
      net of the adjustment of $3,050, $3,050 and $9,148, plus accrued
      interest, are due on January 2, 2009, January 2, 2010 and January 2,
      2011, respectively. The Company may prepay the notes any time at its election
      without penalty.


11




FORTRESS
      INTERNATIONAL GROUP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





**(11)**  **Related
      Party Transactions**





Our
      Audit
      Committee in accordance with its written charter reviews and approves in advance
      all related party transactions greater than $25,000 and follows a pre-approved
      process for contracts with related parties for less than $25,000.




The
      Company participates in transactions with the following entities affiliated
      through common ownership and management.





**S3
      Integration, LLC.** S3
      Integration LLC (S3 Integration) is owned 15% by each of the Company’s Chief
      Executive Officer and President. S3 Integration provides commercial security
      systems design and installation services as a subcontractor to the
      Company.





**Chesapeake
      Systems, LLC.** (Chesapeake Systems) is 9% owned by, and significantly indebted to, the
      Company’s Chief Executive Officer. Chesapeake Systems is a manufacturers’
representative and distributor of mechanical and electrical equipment and
      purchased certain assets of Chesapeake Tower Systems, Inc. in February
      2007.





**Chesapeake
      Mission Critical, LLC.** (Chesapeake MC) is 9% owned by each of the Company’s Chief Executive Officer and
      its President. Additionally, it is significantly indebted to the Company’s Chief
      Executive Officer. Chesapeake MC is a manufacturers’ representative and
      distributor of electrical equipment and purchased certain assets of Chesapeake
      Tower Systems, Inc. in February 2007.





**Chesapeake
      Tower Systems, Inc** .
      Chesapeake Tower Systems, Inc. (Chesapeake) is 100% owned by the Company’s Chief
      Executive Officer. On February 28, 2007, Chesapeake sold substantially all
      of
      its assets to Chesapeake Systems and Chesapeake MC. Except for an office space
      sublease agreement, Chesapeake does not engage in any business with the Company.
      Chesapeake was a manufacturer's representative and distributor of mechanical
      and
      electrical equipment, which Chesapeake sold to the Company.




**CS
      Technology, Inc.** CS
      Technology, Inc. (CST) is majority owned by a nephew of the Company’s Chief
      Executive Officer. CST is in the Technology Consulting business and is a
      customer of the Company.





**CTS
      Services, LLC** (CTS) is
      55% owned by the Company’s Chief Executive Officer. CTS is a mechanical
      contractor that acts as a subcontractor to the Company for certain projects.
      In
      addition, CTS utilizes the Company as a subcontractor on projects as
      needed.





**L.H.
      Cranston Acquisition Group, Inc** . L.H.
      Cranston Acquisition Group, Inc. is 25% owned by the Company’s Chief Executive
      Officer. L.H. Cranston Acquisition Group is a mechanical, electrical and
      plumbing contractor that acts, directly or through its subsidiary L.H. Cranston
      and Sons, Inc., as subcontractor to the Company on a project-by-project
      basis.





**Telco
      P&C, LLC.** Telco
      P&C, LLC (Telco) is 55% owned by the Company’s Chief Executive Officer.
      Telco is a specialty electrical installation company that acts as a
      subcontractor to the Company. The Company has also acted as a subcontractor
      to
      Telco as needed. CTS purchased 100% of Telco’s membership interests in the first
      quarter of 2008.





**Automotive
      Technologies, Inc.** Automotive Technologies, Inc., is 60% owned by the Company’s Chief Executive
      Officer and provides vehicle maintenance and repair services to the
      Company.





**TPR
      Group Re Three LLC.** TPR
      Group Re Three, LLC (TPR Group Re Three) is 50% owned by each of the
      Company’s Chief Executive Officer and its President. TPR Group Re
      Three leases office space to the Company under the terms of a real property
      lease to TSS/Vortech.





The
      following table sets forth transactions the Company has entered into with the
      above related parties for the Successor for the three and nine months ended
      September 30, 2008 and 2007 and for the Predecessor for the period from January
      1, 2007 through January 19, 2007.


12




FORTRESS
      INTERNATIONAL GROUP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





Successor
            
            PredecessorPeriod fromThree Months
            
            Nine Months
            
            January 1, 2007Ended
            
            Ended
            
            Ended
            
            Ended
            
            throughSeptember 30, 2008
            
            September 30, 2007
            
            September 30, 2008
            
            September 30, 2007
            
            January 19, 2007**Revenue**CTS
                Services, LLC
            
            $
            51,298
            
            $
            78,885
            
            $
            163,576
            
            $
            147,711
            
            $
            1,800Chesapeake
                Systems, LLC
            
            
            2,410
            
            
            -
            
            
            2,410
            
            
            52,716
            
            
            -Chesapeake
                Mission Critical, LLC
            
            
            12,562
            
            
            67,818
            
            
            65,565
            
            
            95,034
            
            
            -CS
                Technology, Inc.
            
            
            40,752
            
            
            -
            
            
            116,673
            
            
            -
            
            
            -S3
                Integration
            
            
            7,667
            
            
            -
            
            
            7,667
            
            
            -
            
            
            -Total
            
            $
            114,689
            
            $
            146,703
            
            $
            355,891
            
            $
            295,461
            
            $
            1,800**Cost
                of Revenue**CTS
                Services, LLC
            
            $
            1,309,845
            
            $
            2,292,792
            
            $
            2,102,864
            
            $
            2,763,184
            
            $
            82,032Chesapeake
                Systems, LLC
            
            
            -
            
            
            -
            
            
            147,931
            
            
            160,304
            
            
            -Chesapeake
                Mission Critical, LLC
            
            
            65,082
            
            
            41,125
            
            
            118,399
            
            
            78,750
            
            
            -Chesapeake
                Tower Systems, Inc.
            
            
            -
            
            
            -
            
            
            -
            
            
            56,501
            
            
            8,225S3
                Integration, LLC
            
            
            111,630
            
            
            -
            
            
            149,145
            
            
            218,922
            
            
            -LH
                Cranston & Sons, Inc.
            
            
            -
            
            
            90,800
            
            
            7,500
            
            
            222,677
            
            
            -Telco
                P&C, LLC
            
            
            325,089
            
            
            18,222
            
            
            335,158
            
            
            29,174
            
            
            -Total
            
            $
            1,811,646
            
            $
            2,442,939
            
            $
            2,860,997
            
            $
            3,529,512
            
            $
            90,257**Selling,
                general and administrative**Office
                rent paid to Chesapeake Tower Systems, Inc.
            
            $
            58,072
            
            $
            46,841
            
            $
            176,406
            
            $
            131,782
            
            $
            16,016Office
                rent paid to TPR Group Re Three, LLC
            
            
            98,131
            
            
            94,976
            
            
            293,513
            
            
            286,454
            
            
            26,472Vehicle
                repairs to Automotive Technologies, Inc.
            
            
            -
            
            
            -
            
            
            -
            
            
            4,442
            
            
            656Total
            
            $
            156,203
            
            $
            141,817
            
            $
            469,919
            
            $
            422,678
            
            $
            43,144





September
                30,
            
            December
                31,**Accounts
                receivable/(payable):**
            
            
            2008
            
            
            2007CTS
                Services, LLC
            
            $
            58,746
            
            $
            44,821CTS
                Services, LLC
            
            
            (861,263
            )
            
            (2,969,671
            )Chesapeake
                Systems, LLC
            
            
            2,410
            
            
            611Chesapeake
                Systems, LLC
            
            
            -
            
            
            (873
            )Chesapeake
                Mission Critical, LLC
            
            
            12,562
            
            
            104,397Chesapeake
                Mission Critical, LLC
            
            
            (47,576
            )
            
            (18,950
            )CS
                Technology, Inc.
            
            
            40,712
            
            
            -Telco
                P&C,
                LLC
            
            
            (122,274
            )
            
            (8,000
            )LH
                Cranston&Sons,
                Inc.
            
            
            -
            
            
            (11,575
            )S3
                Integration, LLC
            
            
            7,667
            
            
            -S3
                Integration, LLC
            
            
            (31,425
            )
            
            (60,556
            )**Total
                accounts receivable**
            
            $
            122,097
            
            $
            149,829**Total
                accounts (payable)**
            
            $
            (1,062,538
            )
            $
            (3,069,625
            )




13





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





The
      following discussion should be read in conjunction with our Financial Statements
      and related Notes thereto included elsewhere in this report.





This
      Quarterly Report on Form 10-Q, including, without limitation, Management’s
      Discussion and Analysis of Financial Condition and Results of Operations,
      contains ‘‘forward-looking statements’’ within the meaning of Section 27A
      of the Securities Act, as amended, and Section 21E of the Securities
      Exchange Act of 1934, as amended (the “Exchange Act”). We intend the
      forward-looking statements to be covered by the safe harbor for forward-looking
      statements in such sections of the Exchange Act. The forward-looking information
      is based on various factors and was derived using numerous assumptions. All
      statements, other than statements of historical fact, that address activities,
      events or developments that we intend, expect, project, believe or anticipate
      will or may occur in the future are forward-looking statements. Such statements
      are based upon certain assumptions and assessments made by our management in
      light of their experience and their perception of historical trends, current
      conditions, expected future developments and other factors they believe to
      be
      appropriate. These forward-looking statements are usually accompanied by words
      such as “believe,” “anticipate,” “plan,” “seek,” “expect,” “intend” and similar
      expressions.





Forward-looking
      statements necessarily involve risks and uncertainties, and our actual results
      could differ materially from those anticipated in the forward looking statements
      due to a number of factors, including those set forth in Part I,
      Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended
      December 31, 2007, as amended, and as updated and supplemented by
      Part II, Item 1A “Risk Factors” of our Quarterly Reports on Form 10-Q,
      and elsewhere in this report. These factors, as well as other cautionary
      statements made in this Quarterly Report on Form 10-Q, should be read and
      understood as being applicable to all related forward-looking statements
      wherever they appear herein. The forward-looking statements contained in this
      Quarterly Report on Form 10-Q represent our judgment as of the date hereof.
      We
      encourage you to read those descriptions carefully. We caution you not to place
      undue reliance on the forward-looking statements contained in this report.
      These
      statements, like all statements in this report, speak only as of the date of
      this report (unless an earlier date is indicated) and we undertake no obligation
      to update or revise the statements except as required by law.




**Business
      Formation and Overview**




We
      were incorporated in Delaware on December 20, 2004 as a special
      purpose acquisition company under the name “Fortress America Acquisition
      Corporation” for the purpose of acquiring an operating business that performs
      services in the homeland security industry.  On July 20, 2005, we
      closed our initial public offering of 7,800,000 units (including underwriters
      exercise of an over-allotment option), resulting in net proceeds to us of
      approximately $43.2 million.




On
      January 19, 2007, we acquired all of the outstanding membership interests
      of each of VTC, L.L.C., doing business as “Total Site Solutions” (“TSS”), and
      Vortech, L.L.C. (“Vortech” and, together with TSS, “TSS/Vortech”) and
      simultaneously changed our name to “Fortress International Group, Inc.”
 The acquisition fundamentally transformed us from a firm primarily seeking
      to invest capital to an operating business.




Building
      on the TSS/Vortech business, management continued an acquisition strategy to
      expand our geographical footprint, add complementary services, and diversify
      and
      expand our customer base. During 2007, we acquired substantially all of the
      assets of Comm Site of South Florida, Inc., 100% of the outstanding stock of
      Innovative Power Solutions, Inc. and Quality Power Solutions, Inc. and 100%
      of
      the membership interests of Rubicon Integration, L.L.C.




On
      January 2, 2008, we continued our acquisition strategy with the purchase of
      100% of the outstanding stock of SMLB, Ltd., which provides consulting and
      construction management services for the mission-critical facilities in the
      Chicago area. The closing consideration consisted of (i) $2,000,000 in cash,
      subject to certain adjustment to be determined subsequent to the closing of
      the acquisition, as provided in the purchase agreement, (ii) 96,896 shares
      of our common stock valued at approximately $500,000, (iii) $500,000
      in unsecured promissory notes bearing interest at 6% per annum (this note
      was adjusted to $15,248 as SMLB has not met the working capital requirement
      established in the purchase agreement), and (iv) additional earn-out amounts
      up
      to a maximum of $600,000, contingent upon the achievement of certain earnings
      targets by SMLB for each of the calendar years 2008-2009.





With
      the
      acquired assets, we provide comprehensive services for the planning, design,
      and
      development of mission-critical facilities and infrastructure. We also
      provide a single source solution for highly technical mission-critical
      facilities such as data centers, operation centers, network facilities, server
      rooms, security operations centers, communications facilities and the
      infrastructure systems that are critical to their function. Our services include
      technology consulting, engineering and design management, construction
      management, system installations, operations management and facilities
      management and maintenance.





***Contract
      Backlog***





We
      believe an indicator of our future performance is our backlog of uncompleted
      projects in process or recently awarded. Our backlog represents our estimate
      of
      anticipated revenue from executed and awarded contracts that have not been
      completed and that we expect will be recognized as revenues over the life of
      the
      contracts. We have broken out our backlog into the following three categories:
      (i) technology consulting consisting of services related to consulting and/or
      engineering design contracts; (ii) construction management, and (iii) facility
      management.


14




Backlog
      is not a measure defined in generally accepted accounting principles, and our
      methodology for determining backlog may not be comparable to the methodology
      of
      other companies in determining their backlog. Our backlog is generally
      recognized under two categories: (1) contracts for which work authorizations
      have been or are expected to be received on a fixed-price basis, guaranteed
      maximum price basis and time and materials basis and (2) contracts awarded
      to us
      where some, but not all, of the work have not yet been authorized.




At
      September 30, 2008, we have authorizations to proceed with work for
      approximately $54.3 million or 25% of our total backlog of $217.7 million.
      At
      December 31, 2007, we had authorizations to proceed with work for approximately
      $32.4 million or 19% of our total backlog of $172.9 million. Additionally,
      approximately $144.9 million and $118.0 million or 67% and 68% of our backlog
      relates to a single customer at September 30, 2008 and December 31, 2007,
      respectively.





As
      of
      September 30, 2008, our backlog was approximately $217.7 million, compared
      to
      approximately $172.9 million at December 31, 2007. The following table reflects
      the value (in millions) of our backlog in the above three categories as of
      September 30, 2008 and December 31, 2007, respectively.





September 30,
            
            December 31,2008
            
            2007Technology
                consulting
            
            $
            6.8
            
            $
            3.9Construction
                management
            
            
            195.9
            
            
            154.1Facilities
                management
            
            
            15.0
            
            
            14.9Total
            
            $
            217.7
            
            $
            172.9





The
      backlog amounts are estimates, subject to changes or cancellations. The actual
      customer purchase orders to perform work may vary in scope and amount from
      the
      backlog amounts presented herein. Additionally, some of our customers may be
      dependent on additional funding resources, which in the current economic
      environment may be difficult for them to obtain. Accordingly, we can provide
      no
      assurance that we will in fact be awarded the maximum amount of such contracts
      or be awarded any amount at all.





**Critical
      Accounting Policies and Estimates**





Our
      financial statements have been prepared in accordance with generally accepted
      accounting principles in the United States of America (“GAAP”). The preparation
      of these financial statements requires that management make estimates and
      assumptions that affect the amounts reported in the financial statements and
      the
      accompanying notes. Actual results could differ significantly from those
      estimates.




We
      believe the following critical accounting policies affect the more significant
      estimates and judgments used in the preparation of our financial
      statements.




*Revenue
      Recognition*




We
      recognize revenue when pervasive evidence of an arrangement exists, the contract
      price is fixed or determinable, services have been rendered or goods delivered
      and collectability is reasonably assured. Our revenue is derived from the
      following types of contractual arrangements: fixed-price contracts, time and
      material contracts and cost-plus-fee contracts (including guaranteed maximum
      price contracts). Our primary source of revenue is from fixed price contracts
      and we apply Statement of Position (SOP) 81-1, *“*Accounting
      for Performance of Construction-Type and Certain Production-Type
      Contracts ,”
      recognizing revenue on the percentage-of-completion method using costs incurred
      in relation to total estimated project costs.




Revenue
      from fixed price contracts is recognized on the percentage of completion method,
      measured by the percentage of total costs incurred to date to estimated total
      costs for each contract. This method is used because management considers costs
      incurred and costs to complete to be the best available measure of progress
      in
      the contracts. Contract costs include all direct materials, subcontract and
      labor costs and those indirect costs related to contract performance, such
      as
      indirect labor, payroll taxes, employee benefits and supplies.





Revenue
      on time-and-material contracts is recognized based on the actual labor hours
      performed at the contracted billable rates and costs incurred on behalf of
      the
      customer. Revenue on cost-plus-fee contracts is recognized to the extent of
      costs incurred, plus an estimate of the applicable fees earned. Fixed fees
      under
      cost-plus-fee contracts are recorded as earned in proportion to the allowable
      costs incurred in performance of the contract.




Contract
      revenue recognition inherently involves estimation. Examples of estimates
      include the contemplated level of effort to accomplish the tasks under the
      contract, the costs of the effort and an ongoing assessment of the Company’s
      progress toward completing the contract. From time to time, as part of its
      standard management process, facts develop that require us to revise its
      estimated total costs on revenue. To the extent that a revised estimate affects
      contract profit or revenue previously recognized, we record the cumulative
      effect of the revision in the period in which the revisions becomes known.
      The
      full amount of an anticipated loss on any type of contract is recognized in
      the
      period in which it becomes probable and can reasonably be
      estimated.


15




Under
      certain circumstances, we may elect to work at risk prior to receiving an
      executed contract document. We have a formal procedure for authorizing any
      such
      at risk work to be incurred. Revenue, however, is deferred until a contract
      modification or vehicle is provided by the customer.





Additionally,
      in the event the collection of revenue is not reasonably assured, we recognize
      revenue when we are paid for the service. We expense any related contracted
      costs as they are incurred.





*Allowance
      for Doubtful Accounts*





The
      allowance for doubtful accounts is our best estimate of the amount of probable
      credit losses in our existing accounts receivable. We determine the
      allowance based on an analysis of our historical experience with bad debt
      write-offs and an aging of the accounts receivable balance. Account balances
      are
      charged off against the allowance after all means of collection have been
      exhausted and the potential for recovery is considered remote.




As
      of
      September 30, 2008, accounts receivable of $1.4 million is due from a
      customer to whom we have offered extended payment terms. The customer has
      executed a promissory note in the same amount bearing interest at 8% per annum
      with payments of interest only due monthly and the balance in full is due on
      December 15, 2008. This amount was recognized as revenue in the nine months
      ended September 30, 2008. We have a history of conducting business with this
      customer and therefore believe collectibility is reasonably
      assured.




*Non-cash
      Compensation*




We
      apply
      the expense recognition provisions of SFAS No. 123(R), “ *Accounting
      for Stock-Based Compensation” (“SFAS No. 123(R)”)* ,
      therefore, the recognition of the value of the instruments results in
      compensation expense in our financial statements. The expense differs from
      other
      compensation and professional expenses in that these charges, though generally
      permitted to be settled in cash, are typically settled through the issuance
      of
      common stock, which would have a dilutive effect upon earnings per share, if
      and
      when such warrants are exercised or restricted stock vests. The determination
      of
      the estimated fair value used to record the compensation or professional
      expenses associated with the equity or liability instruments issued requires
      management to make a number of assumptions and estimates that can change or
      fluctuate over time.




*Goodwill
      and Other Purchased Intangible Assets*




Goodwill
      represents the excess of costs over fair value of net assets of businesses
      acquired. Other purchased intangible assets include the fair value of items
      such
      as customer contracts, backlog and customer relationships. SFAS No. 142,
“ *Goodwill
      and Other Intangible Assets* ”(“SFAS
      No. 142”), establishes financial accounting and reporting for acquired
      goodwill and other intangible assets. Goodwill and intangible assets acquired
      in
      a purchase business combination and determined to have an indefinite useful
      life
      are not amortized, but rather tested for impairment on an annual basis or
      purchased intangible assets with a definite useful life are amortized on a
      straight-line basis over their estimated useful lives. We have a process
      pursuant to which we typically retain third-party valuation experts to assist
      us
      in determining the fair market values and useful lives of identified intangible
      assets. Certain techniques require us to make estimates and assumptions about
      the future financial performance of the acquired businesses that may change
      in
      the future.





Our
      intangible assets consist of trade name, in-place contracts, customer
      relationships, and non-competition agreements with amortizable lives of 1-8
      years for the finite lived intangibles. The Company annually tests for the
      impairment of goodwill pursuant to the requirements of SFAS No. 142 and of
      the
      other purchased intangible assets pursuant to the requirements of SFAS No.
      144, *“Accounting
      for the Impairment or Disposal of Long-Lived Assets.”* If
      events or changes in circumstances indicate that an asset value might be
      impaired, we will test during the interim period in which those changes occur.
      Through the third quarter 2008, we
      continued to incur operating losses, revised our forecasted revenues as certain
      of our acquisitions have not delivered originally anticipated revenues, and
      experienced a market decline in our equity value .
      As a
      result of these potential impairment indicators, we evaluated the carrying
      value
      of goodwill and other long-lived intangible assets for impairment. Utilizing
      a
      third party firm we determined the carrying value of goodwill was in excess
      of
      the fair value, resulting in an aggregate impairment on goodwill of
      approximately $4.2 million.


16




*Income
      Taxes*




Deferred
      income taxes are provided for the differences between the basis of assets and
      liabilities for financial reporting and income tax purposes. Deferred tax assets
      and liabilities are measured using tax rates in effect for the year in which
      those temporary differences are expected to be recovered or settled. A valuation
      allowance is established when necessary to reduce deferred tax assets to the
      amount expected to be realized.




We
      make
      certain estimates and judgments in determining income tax expense for financial
      statement purposes. These estimates and judgments occur in the calculation
      of
      certain tax assets and liabilities, which principally arise from differences
      in
      the timing of recognition of revenue and expense for tax and financial statement
      purposes. We also must analyze income tax reserves, as well as determine the
      likelihood of recoverability of deferred tax assets and adjust any valuation
      allowances accordingly. Considerations with respect to the recoverability of
      deferred tax assets include the period of expiration of the tax asset, planned
      use of the tax asset and historical and projected taxable income, as well as
      tax
      liabilities for the tax jurisdiction to which the tax asset relates. Valuation
      allowances are evaluated periodically and will be subject to change in each
      future reporting period as a result of changes in one or more of these
      factors.




Effective
      January 1, 2007, we were required to adopt FASB Interpretation
      No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”).
      FIN 48 prescribes a more-likely-than-not threshold of financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. This interpretation also provides guidance on de-recognition of
      income tax assets and liabilities, classification of current and deferred tax
      assets and liabilities, accounting for interest and penalties associated with
      tax positions, accounting for income taxes in interim periods and income tax
      disclosures. Since inception and through January 1, 2007, the adoption date
      of this standard, we were in essence a “special purpose acquistion”
company with no substantive operations. Management concluded that the adoption
      of FIN 48 had no material effect on our financial position or results
      of operations. As of September 30, 2008, we do not have any material
      gross unrecognized tax benefit liabilities. However, management is still in
      the
      process of evaluating the various tax positions associated with the acquisition
      of SMLB and is of the opinion that any deferred tax liabilities that would
      ultimately result from uncertain tax positions related to these entities may
      be
      covered by indemnification provisions provided in the acquisition agreement
      or
      may result in an adjustment to goodwill.




*Use
      of Estimates*




The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenue and expenses during the reporting period. The
      most critical estimates and assumptions are made in determining the allowance
      for doubtful accounts, revenue recognition, recovery of long-lived assets,
      useful lives of long-lived assets, accruals for estimated tax and stock
      compensation expense. Actual results could differ from those estimates and
      assumptions.





*Recently
      Issued Accounting Pronouncements*





In
      October 2008, the FASB issued FASB Staff Position 157-3, “Determining the Fair
      Value of a Financial Asset When the Market of that Asset is not Active” (“FSP
      157-3”). FSP 157-3 provides an example that clarifies and reiterates certain
      provisions of the existing fair value standard, including basing fair value
      on
      orderly transactions and usage of management and broker inputs. FSP 157-3 is
      effective immediately but is not expected to have a material impact on our
      financial position or results of operations.





In
      May
      2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
      Insurance Contracts” (“SFAS 163”), SFAS 163 requires recognition of a claim
      liability prior to an event of default when there is evidence that credit
      deterioration has occurred in an insured financial obligation. SFAS 163
      clarifies how FAS 60 applies to financial guarantee insurance contracts,
      including the recognition and measurement to be used to account for premium
      revenue and claim liabilities and requires expanded disclosures about financial
      guarantee insurance contracts. SFAS 163 is effective for us January 1, 2009.
      The
      Company does not expect the adoption of SFAS 163 to have a material effect
      on
      our consolidated results of operations and financial condition.





In
      May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
      Accepted Accounting Principles” (“SFAS 162”). SFAS 162 identifies the
      sources of accounting principles and the framework for selecting the principles
      used in the preparation of financial statements of nongovernmental entities
      that
      are presented in conformity with generally accepted accounting principles (the
      GAAP hierarchy). SFAS No. 162 will become effective 60 days
      following the SEC’s approval of the Public Company Accounting Oversight Board
      amendments to AU Section 411, “The Meaning of Present Fairly in
      Conformity With Generally Accepted Accounting Principles.” We do not expect the
      adoption of SFAS 162 to have a material effect on our consolidated results
      of operations and financial condition.




In
      April
      2008, FASB issued a Staff Position (FSP) No. FAS 142-3, “Determination of the
      Useful Life of Intangible Assets,” (“FSP 142-3”) which amends the factors a
      Company should consider when developing renewal assumptions used to determine
      the useful life of an intangible asset under SFAS 142. FSP 142-3 replaces the
      previous useful life criteria with a new requirement-that an entity consider
      its
      own historical experience in renewing similar arrangements. In issuing FSP
      142-3, the FASB hopes to improve the consistency between the useful life of
      a
      recognized intangible asset and the period of expected cash flows used to
      measure the fair value of the asset. FAS 142-3 is effective January 1, 2009.
      We
      are currently assessing the potential impact that adoption of FAS 142-3 may
      have
      on our financial statements.


17




In
      March
      2008, the FASB issued SFAS No. 161, “ Disclosures about Derivative
      Instruments and Hedging Activities, an amendment of FASB Statement
      No. 133,” (“SFAS No. 161”) which requires additional disclosures about the
      objectives of the derivative instruments and hedging activities, the method
      of
      accounting for such instruments under SFAS No. 133 and its related
      interpretations, and a tabular disclosure of the effects of such instruments
      and
      related hedged items on our financial position, financial performance, and
      cash
      flows. SFAS No. 161 is effective beginning January 1, 2009. We are
      currently assessing the potential impact that adoption of SFAS No. 161 may
      have on our financial statements. **




In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS No.
      160”) *,* which
      changes the accounting and reporting for minority interests. Minority interests
      will be recharacterized as noncontrolling interests and will be reported as
      a
      component of equity separate from the parent’s equity, and purchases or sales of
      equity interests that do not result in a change in control will be accounted
      for
      as equity transactions. In addition, net income attributable to the
      noncontrolling interest will be included in consolidated net income on the
      face
      of the income statement and, upon a loss of control, the interest sold, as
      well
      as any interest retained, will be recorded at fair value with any gain or loss
      recognized in earnings. SFAS No. 160 is effective beginning July 1,
      2009 and will apply prospectively, except for the presentation and disclosure
      requirements, which will apply retrospectively. We do not expect the adoption
      of
      SFAS No. 160 to have a material effect on our consolidated results of operation
      of financial.





In
      December 2007, the FASB issued SFAS No. 141R, “Business Combinations,”
(“SFAS No. 141(R)”) which replaces SFAS No. 141. The statement retains the
      purchase method of accounting for acquisitions, but requires a number of
      changes, including changes in the way assets and liabilities are recognized
      in
      the purchase accounting. It also changes the recognition of assets acquired
      and
      liabilities assumed arising from contingencies, requires the capitalization
      of
      in-process research and development at fair value, and requires the expensing
      of
      acquisition-related costs as incurred. SFAS No. 141R is effective beginning
      January 1, 2009 and will apply prospectively to business combinations
      completed on or after that date.





**Consolidated
      Statements of Operations**




PredecessorSuccessor (Fortress International Group, Inc.)
            
            (TSS/Vortech)For the periodJanuary 1,Three Months Ended
            
            Nine Months Ended
            
            throughSeptember 30, 2008
            
            September 30,2007
            
            September 30, 2008
            
            September 30,2007
            
            January 19, 2007(unaudited)
            
            (unaudited)
            
            (unaudited)
            
            (unaudited)
            
            (audited)Results
                of Operations:Revenue
            
            $
            25,781,523
            
            $
            12,692,772
            
            $
            65,363,481
            
            $
            32,232,016
            
            $
            1,412,137Cost
                of revenue
            
            
            20,660,103
            
            
            10,749,331
            
            
            54,719,170
            
            
            27,378,926
            
            
            1,108,276Gross
                profit
            
            
            5,121,420
            
            
            1,943,441
            
            
            10,644,311
            
            
            4,853,090
            
            
            303,861Operating
                expenses:Selling,
                general and administrative
            
            
            4,838,291
            
            
            3,964,468
            
            
            15,275,116
            
            
            10,026,448
            
            
            555,103Depreciation
            
            
            125,716
            
            
            137,032
            
            
            355,810
            
            
            289,708
            
            
            33,660Amortization
                of intangibles
            
            
            702,569
            
            
            567,109
            
            
            2,104,067
            
            
            1,574,671
            
            
            -Impairment
                loss on goodwill
            
            
            2,973,000
            
            
            -
            
            
            4,190,000
            
            
            -
            
            
            -Total
                operating costs
            
            
            8,639,576
            
            
            4,668,609
            
            
            21,924,993
            
            
            11,890,827
            
            
            588,763Operating
                loss
            
            
            (3,518,156
            )
            
            (2,725,168
            )
            
            (11,280,682
            )
            
            (7,037,737
            )
            
            (284,902
            )Interest
                income (expense), net
            
            
            (49,653
            )
            
            104,116
            
            
            (194,661
            )
            
            476,388
            
            
            3,749Loss
                from operations before income taxes
            
            
            (3,567,809
            )
            
            (2,621,052
            )
            
            (11,475,343
            )
            
            (6,561,349
            )
            
            (281,153
            )Income
                tax expense (benefit)
            
            
            (349,898
            )
            
            -
            
            
            37,102
            
            
            (349,325
            )
            
            -Net
                loss
            
            $
            (3,217,911
            )
            $
            (2,621,052
            )
            $
            (11,512,445
            )
            $
            (6,212,024
            )
            $
            (281,153
            )





**Results
      of operations for the Successor company for the three months ended September
      30,
      2008 compared with the three months ended September 30,
      2007.**





*Revenue.* Revenue
      increased $13.1 million to $25.8 million for the three months ended September
      30, 2008 from $12.7 million for the three months ended September 30, 2007.
      The
      increase was primarily driven by a $12.3 million increase in our
      construction management services and the inclusion of $1.9 million of revenue
      associated with the acquisitions of Innovative, Rubicon and
      SMLB.





*Cost
      of Revenue.* Cost of
      revenue increased $10.0 million to $20.7 million for the three months ended
      September 30, 2008 from $10.7 million for the three months ended September
      30,
      2007. The increase was primarily driven by a volume increase in our
      construction management services and the inclusion of $1.2 million of cost
      of
      revenue associated with the acquisitions of Innovative, Rubicon, and
      SMLB.




*Gross
      Margin Percentage.* Gross
      margin percentage increased by 4.6% to 19.9% for the three months ended
      September 30, 2008 compared to 15.3 % for the three months ended September
      30,
      2007. Excluding the effect of gross margin contribution associated with the
      acquisitions of Innovative, Rubicon and SMLB, gross margin percentage
      increased to 18.9% for the three months ended September 30, 2008 from 15.3%
      for the three months ended September 30, 2007. The overall increase in gross
      profit was primarily attributable improved profitability on our
      construction management contracts; however, we expect our total gross margin
      percentage to approximate 16.0%.





*Selling,
      general and administrative expenses* .
      Selling, general and administrative expenses increased $0.8 million to $4.8
      million for the three months ended September 30, 2008 from $4.0 million for
      the
      three months ended September 30, 2007. The increase was primarily driven by
      professional fees of approximately $0.5 million that we expensed associated
      with abandoned acquisitions and the inclusion of $0.6 million of selling,
      general and administrative expenses associated with the acquisitions of
      Innovative, Rubicon, and SMLB.


18





As
      we
      have experienced delays in the timing of revenues associated with certain
      customers, we began implementing a plan to restructure expenses to align with
      current operating revenues. The plan seeks to reduce operating costs associated
      with personnel and related costs, professional fees, and sales and marketing,
      which we anticipate will result in lower total selling, general and
      administrative costs.





*Depreciation.* Depreciation remained consistent at $0.1 million for the three months
      ended September 30, 2008 compared to $0.1 million for the three months
      ended September 30, 2007.




*Amortization
      of intangible assets.* Amortization expense increased $0.1 million to $0.7 million for the three months
      ended September 30, 2008 compared to $0.6 million for the three months ended
      September 30, 2007. The increase is attributable to an increase in amortizable
      intangible assets as a result of our acquisitions of Innovative, Rubicon and
      SMLB.





*Impairment
      loss on intangibles.* We
      have
      experienced continued operating losses and had a decline in our equity market
      value during the three months ended September 30, 2008. Based on these potential
      impairment indicators, we conducted analyses of the operations in order to
      identify any impairment in the carrying value of the goodwill and other
      intangibles related to our business. Analyzing our business using both an income
      approach and a market approach, we determined that the carrying value
      exceeded the current fair value of our business, resulting in goodwill
      impairment of $3.0 million for the three months ended September 30, 2008. At
      September 30, 2008, the adjusted carrying value of goodwill was $18.8
      million.





*Interest
      income (expense), net.* Our
      interest income (expense), net, decreased $0.2 million to ($0.1) million for
      the
      three months ended September 30, 2008 from $0.1 million for the three months
      ended September 30, 2007. The decrease in interest income was due primarily
      to a
      lower average invested balance in the three months ended September 30, 2008
      compared to the three months ended September 30, 2007.





*Income
      tax expense (benefit).* Income
      tax (benefit) increased $0.4 million to ($0.4) million for the three months
      ended September 30, 2008 from zero for the three months ended September 30,
      2007. The tax benefit was associated with the decrease in our deferred tax
      liability associated with a decrease in our tax deductible
      goodwill.





**Results
      of operations for the Successor company for the nine months ended September
      30,
      2008 compared with the nine months ended September 30,
      2007.**





*Revenue.* Revenue
      increased $33.2 million to $65.4 million for the nine months ended September
      30,
      2008 from $32.2 million for the nine months ended September 30, 2007. The
      increase was primarily driven by a $24.1 million increase in our
      construction management services and the inclusion of $10.5 million of revenue
      associated with the acquisitions of Innovative, Rubicon, and
      SMLB.





*Cost
      of Revenue.* Cost of
      revenue increased $27.3 million to $54.7 million for the nine months ended
      September 30, 2008 from $27.4 million for the nine months ended September 30,
      2007. The increase was driven by the increase in revenue primarily from our
      construction management services and the inclusion of $8.3 million of cost
      of
      revenue associated with the acquisitions of Innovative, Rubicon, and
      SMLB.




*Gross
      Margin Percentage.* Gross
      margin percentage increased 1.2% to 16.3% for the nine months ended September
      30, 2008 compared to 15.1% for the nine months ended September 30, 2007. The
      increase in gross profit was primarily attributable to improved
      profitability on our construction management contracts.





*Selling,
      general and administrative expenses* .
      Selling, general and administrative expenses increased $5.3 million to $15.3
      million for the nine months ended September 30, 2008 from $10.0 million for
      the
      nine months ended September 30, 2007. The increase was primarily driven
      by $2.2 million of selling, general and administrative expenses associated
      with the acquisitions of Innovative, Rubicon and SMLB, and $1.2 million that
      we
      expensed associated with abandoned acquisitions.





As
      we
      have experienced delays in the timing of revenues associated with certain
      customers and margins have contracted, we began implementing a plan to
      restructure expenses to align with current operating revenues. The plan seeks
      to
      reduce operating costs associated with personnel and related costs, professional
      fees, and sales and marketing, which we anticipate will result in lower total
      selling, general and administrative costs.





*Depreciation.* Depreciation remained consistent at $0.4 million for the nine months
      ended September 30, 2008 compared to $0.3 million for the nine months
      ended September 30, 2007.




*Amortization
      of intangible assets.* Amortization expense increased $0.5 million to $2.1 million for the nine months
      ended September 30, 2008 from $1.6 million for the nine months ended September
      30, 2007. The increase is attributable to an increase in the amortizable
      intangible assets as a result of our acquisitions of Innovative, Rubicon and
      SMLB.


19




*Impairment
      loss on intangibles.* Through
      the third quarter 2008, we continued to incur operating losses, revised our
      forecasted revenues as certain of our acquisitions have not delivered originally
      anticipated revenues, and experienced a market decline in our equity value.
      Based on these potential impairment indicators, we conducted an analyses of
      the
      operations in order to identify any impairment in the carrying value of the
      goodwill and other intangibles related to our business. Analyzing our business
      using both an income approach and a market approach, we determined that the
      carrying value exceeded the current fair value of our business, resulting in
      goodwill impairment of $4.2 million for the nine months ended September 30,
      2008. At September 30, 2008, the adjusted carrying value of goodwill was $18.8
      million.





*Interest
      income (expense), net.* Our
      interest income (expense), net, decreased $0.7 million to ($0.2) million for
      the
      nine months ended September 30, 2008 from $0.5 million for the nine months
      ended
      September 30, 2007. The decrease in interest income was due primarily to a
      lower
      average invested balance in the nine months ended September 30, 2008 compared
      to
      nine months ended September 30, 2007.





*Income
      tax expense (benefit).* Income
      tax expense (benefit) decreased $0.3 million to zero for the nine months ended
      September 30, 2008 from ($0.3) million for the nine months ended September
      30,
      2007. For the nine months ended September 30, 2007, income tax benefit was
      $0.3
      million reflecting the value of a NOL carryback to prior periods at an effective
      federal rate of 34%, net of a valuation allowance on deferred tax
      assets.





**Financial
      Condition, Liquidity and Capital Resources**




We
      have
      historically incurred net losses and have used our cash and investments to
      fund
      our operating and investing activities. We believe that operational
      improvements, strategic investments and complementary acquisitions will improve
      the cash flows of our business. Our efforts are continuing and may include
      further acquisitions and realignment of our sales, general and administrative
      expenses. We cannot be sure, however, as to the amount and timing of the
      associated financial impact. Summary cash flows for the nine months ended
      September 30, 2008 and 2007 and for the period January 1, through January 19,
      2007 (Predecessor) are as follows:




PredecessorSuccessor (Fortress International Group, Inc.)
            
            (TSS/Vortech)For
                the periodFor
                the nine
            
            For
                the nine
            
            January
                1,months
                ended
            
            months
                ended
            
            throughSeptember 30, 2008
            
            September 30, 2007
            
            Janaury 19, 2007Net
                cash provided by (used in) operating activities
            
            $
            (1,896,152
            )
            $
            (5,618,627
            )
            $
            656,001Net
                cash provided by (used in) investing activities
            
            
            (2,331,281
            )
            
            31,989,260
            
            
            (127,602
            )Net
                cash provided by (used in) financing activities
            
            
            (2,088,524
            )
            
            (8,447,522
            )
            
            (1,567,920
            )Net
                increase (decrease) in cash
            
            $
            (6,315,957
            )
            $
            17,923,111
            
            $
            (1,039,521
            )




Cash
      and
      cash equivalents decreased $6.3 million to $6.9 million at September 30, 2008
      from $13.2 million at December 31, 2007. The decrease was primarily attributable
      to $1.9 million from operating activities, $2.1 million for the purchase of
      SMLB
      and $2.0 million for the repayment of promissory notes issued in connection
      with
      the Rubicon acquisition.





*Operating
      Activity*





Net
      cash
      used in operations decreased $3.7 million to $1.9 million for the nine months
      ended September 30, 2008 from $5.6 million used in operations for the nine
      months ended September 30, 2007. The decline in cash used in operating cash
      flows is primarily attributable to working capital as follows:





*Increase
      in net loss.* Net loss
      increased $5.3 million to $11.5 million for the nine months ended September
      30,
      2008 from $6.2 million for the nine months ended September 30, 2007. The
      increase in net loss was primarily attributable to a $5.0 million increase
      in non-cash items consisting of the impairment loss on goodwill, amortization
      of
      intangibles and equity-based compensation expense.




*Increase
      in working capital.* Net
      changes in operating assets and liabilities decreased approximately $4.1
      million primarily due to trade receivables and payables, which accounts for
      the improvement or decline in cash used by operating activities. The
      decrease is primarily attributable to managing our trade accounts receivable
      and
      corresponding payables.





*Investing
      Activity*





Net
      cash
      used in investing increased $34.3 million to $2.3 million used in investing
      activities for the nine months ended September 30, 2008 from $32.0 million
      provided by investing activities for the nine months ended September 30, 2007.
      The increase was primarily attributable to our transition to an operating
      Company in the first quarter of 2007 and the release of investments held in
      trust for general operating purposes.




*Sale
      of investments held in Trust* .
      Upon
      the approval of the TSS/Vortech acquisition, we had a cash inflow from the
      sale of approximately $44.7 million in trust investments, which funded the
      cash
      portion of the acquisition and repurchase of common stock from dissenting
      shareholders electing to receive their IPO proceeds back and provided cash
      for
      future ongoing operations.


20




*Acquisitions.* Net cash
      used to acquire businesses decreased $10.2 million to $2.1 million for the
      nine months ended September 30, 2008 from $12.3 million for the nine months
      ended September 30, 2007. In the first quarter of 2008, we acquired SMLB, Ltd.
      which had a significantly lower enterprise value and in turn lower cash purchase
      price component as compared to TSS/Vortech acquisition, which occurred in the
      first quarter of 2007.




*Financing
      Activity*




Net
      cash
      used in financing decreased $6.3 million to $2.1 million for the nine months
      ended September 30, 2008 from $8.4 million for the nine months ended September
      30, 2007. The decrease in cash used in financing activities was attributable
      fundamentally to different activity as described in the following:




·
            *Repayment
                of seller notes*.
                During the nine months ended September 30, 2008, we repaid $2.0
                million of unsecured promissory notes that were issued to the Rubicon
                sellers upon achievement of certain financial targets at December
                31, 2007
                and June 30, 2008.





·
            *Repurchase
                of common stock*.
                During the first quarter of 2007, we used $6.2 million to repurchase
                our
                common stock associated with the election of conversion rights
                by our dissenting shareholders in connection with our acquisition of
                TSS/Vortech and $1.3 million in a share buyback program. The share
                buyback
                program was suspended in the third quarter of 2007; however,
                during 2008 we repurchased 14,885 shares at an average price of $3.19
                per share for employee taxes associated with net issuance of vesting
                restricted stock.





*Non-Cash
      Activities*





During
      the nine months ended September 30, 2008, we issued total unsecured
      promissory notes totaling $0.5 million as purchase consideration. In connection
      with the acquisitions of SMLB, we initially issued $0.5 million of unsecured
      promissory notes that were reduced in the second quarter 2008 to $15,248
      pursuant to the working capital requirements per the original purchase
      agreement. Consistent with the Rubicon purchase agreement in exchange for
      achieving specified financial targets through June 30, 2008, we issued an
      additional $0.4 million of unsecured promissory notes.





During
      the third quarter 2008, the Chief Executive Officer and Chief Operating Officer,
      both of the selling members of TSS/Vortech, entered into an agreement with
      the
      Company to convert $2,500,000 and $1,000,000, respectively, of their respective
      notes into common stock at a conversion price of $7.50 per share, resulting
      in the aggregate issuance of 466,667 common shares. The conversion has been
      recorded as an increase to additional paid-in capital. In addition, the Chief
      Operating Officer agreed to postpone any principal and interest payments payable
      to him under his remaining $4,000,000 promissory note until March, 2010, with
      such interest to be accrued to the outstanding principal. At September 30,
      2008,
      $4,000,000 of the seller notes remains outstanding, which are convertible at
      $7.50 per shares to 533,333 shares of the Company’s common stock.





For
      a
      discussion of our acquisitions, see Note 3 of the Notes to Consolidated
      Financial Statements-Acquisitions.





*Liquidity*





In
      the
      third quarter of 2008, we initiated a plan to restructure expenses to realign
      them with the current operating revenues and gross margins as certain customers
      have delayed their spending. Our plan seeks to reduce operating costs associated
      with professional fees, sales and marketing, and personnel and related
      costs.





We
      believe that our current cash and cash equivalents and expected future cash
      generated from operations will satisfy our expected working capital, capital
      expenditure and investment requirements through the next twelve months. We
      may elect to secure additional capital in the future, if available and at
      acceptable terms, to improve our liquidity or fund acquisitions. The
      amounts involved in any such transaction, individually or in the aggregate,
      may
      be material and differ in structure relative to past acquisitions. To the extent
      that we raise additional capital through the sale of equity securities, the
      issuance of such securities could result in dilution to our existing
      shareholders. If we raise additional funds through the issuance of debt
      securities, the terms of such debt could impose additional restrictions on
      our
      operations. Additional capital, if required, may not be available on acceptable
      terms, if at all. If we are unable to obtain additional financing, we may be
      required to reduce the scope of acquisition plans, which could impact our
      business, financial condition and earnings.





***Off
      Balance Sheet Arrangements***  **





At
      September 30, 2008, we do not have any off balance sheet
      arrangements.


21


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





Refer
      to
      our annual report on Form 10-K for the year ended December 31, 2007, as amended,
      for a complete discussion of our market risk. There have been no material
      changes to the market risk information included in our Annual Report on
      form 10-K, as amended, for the year ended December 31, 2007.




**Item
      4T. Controls and Procedures.**




Our
      management performed an evaluation under the supervision and with the
      participation of our Chief Executive Officer (principal executive
      officer) and our Chief Financial Officer (principal financial officer)
      of the effectiveness of our disclosure controls and procedures (as defined
      in
      Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended)
      as of September 30, 2008. Based upon that evaluation, our Chief Executive
      Officer and Chief Financial Officer have concluded that as of September 30,
      2008, our disclosure controls and procedures were ineffective.





**Changes
      in Internal Control over Financial Reporting**




There
      were no other changes in the Company’s internal control over financial reporting
      for the third quarter of 2008 that have materially affected, or are reasonably
      likely to materially affect, the Company’s internal control over financial
      reporting as such term is defined in Rule 13a-15 and 15d-15 of the Exchange
      Act.




**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings.**





We
      are
      not currently subject to any material legal proceedings, nor, to our knowledge,
      is any material legal proceeding threatened against us.





**Item
      1A. Risk Factors**





In
      addition to the other information set forth in this Form 10-Q, you should
      carefully consider the factors discussed in Part I, Item 1A “Risk Factors” in
      our Annual Report on Form 10-K for the year ended December 31, 2007 and
      subsequent quarterly reports, which could materially affect our business,
      financial condition or future results. The risks described in our Annual Report
      on Form 10-K are not the only risks that we face. Additional risks and
      uncertainties not currently known to us or that we currently deem to be
      immaterial also may materially adversely affect our business, financial
      condition and/or operating results as well as adversely affect the value of
      an
      investment in our common stock.





There
      have been no material updates to the risk factors previously disclosed in our
      Form 10-K for the year ended December 31, 2007.




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




The
      table
      set forth below shows all repurchases of securities by us during the quarter
      ended September 30, 2008:





Total Shares
            
            Approximate DollarAverage
            
            Purchased as Part of
            
            Amount of Shares YetMonthly
                Period During the Quarter
            
            Total Shares
            
            Price Paid
            
            Publically Announced
            
            To Be Purchase UnderEnded
                September 30, 2008
            
            Purchased
            
            per
                Share
            
            Plans
            
            PlansJuly
                1, 2008-July 31, 2008
            
            
            8,028
            
            $
            2.27
            
            
            -
            
            
            -August,
                1 2008-August 31, 2008
            
            
            -
            
            $September
                1, 2008- September 30, 2008
            
            
            867
            
            $
            1.31
            
            
            -
            
            
            -Total
            
            
            8,895
            
            $
            2.18





The
      Company repurchased 8,895 shares for employee taxes associated with net issuance
      of vesting restricted stock.


22





**Item
      3. Defaults upon Senior Securities.**





Not
      applicable.





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





Not
      applicable.





**Item
      5. Other Information.**




Not
      applicable.





**Item
      6. Exhibits.**





Exhibit
              Number
            
            Description10.1
            
            Amendment
                to Employment Agreement between Fortress International Group, Inc.
                and
                Thomas P. Rosato, dated August 26, 2008.10.2
            
            Amendment
                to Employment Agreement between Fortress International
                Group, Inc. and Gerard G. Gallagher, dated August 26,
                2008.10.3
            
            Amendment
                to Employment Agreement between Fortress International Group, Inc.
                and
                Harvey L. Weiss, dated August 26, 2008.10.4
            
            Amendment
                to Employment Agreement between Fortress International Group, Inc.
                and
                Timothy C. Dec, dated August 26, 2008.10.5
            
            Amendment
                to Consulting Agreement between Fortress International Group, Inc.
                and
                Washington Capital Advisors, Inc. , dated August 26,
                2008.31.1
            
            Certificate
                of Fortress International Group, Inc. Chief Executive Officer pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 2002.31.2
            
            Certificate
                of Fortress International Group, Inc. Chief Financial Officer pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 2002.32.1‡
            
            Certificate
                of Fortress International Group, Inc. Chief Executive Officer and
                Chief
                Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
                of
                2002.





‡
      Furnished herewith.


23





**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.





**FORTRESS
                INTERNATIONAL GROUP, INC.**Date:
                November 14, 2008
            By:
            /s/ Thomas P. RosatoThomas P. Rosato*Chief
                Executive Officer (Authorized Officer and Principal Executive
                Office)*




Date:
                November 14, 2008
            By:
            /s/
                Timothy C. DecTimothy
                C. Dec*Chief
                Financial Officer (Authorized Officer and Principal Financial and
                Accounting Officer)*




24