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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.
20549

FORM 10-KSB /A 
Amendment No. 1

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 2007

OR

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

For the transition period from _________________to
__________________

*Commission file number*: 000-51936

FORTIFIED HOLDINGS
CORP.(formerly Aegis Industries, Inc.) (Name of small
business issuer in its charter)

|Nevada                          | 98-0420577                          
|------------------------------- | ------------------------------------
|(State or other jurisdiction of | (I.R.S. Employer Identification No.)
|incorporation or organization)  |                                     

125 Elm Street, New Canaan, Connecticut, USA
06840(Address of principal executive offices)

(203) 594-1686Issuer's telephone number

Securities registered pursuant to Section 12(b) of the Exchange
Act:

|Title of each class | Name of each exchange on which registered
|------------------- | -----------------------------------------
|None                | None                                     

Securities registered pursuant to Section 12(g) of the Exchange
Act:

Common Stock, $0.001 Par Value(Title of
Class)

Check whether the Issuer (1) filed all reports required to be
  filed by Section 13 or 15(d) of the Securities 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. [X] Yes [   ] No

1

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Check if there is no disclosure of delinquent filers in response
  to Item 405 of Regulation S-B is not contained in this form, and no disclosure
  will be contained, to the best of registrant's knowledge, in definitive proxy
  or information statements incorporated by reference in Part III of this Form
  10-KSB or any amendment to this Form 10-KSB. [   ]

Indicate by check mark whether the registrant is a shell company
  (as defined in Rule 12b-2 of the Exchange Act). [   ] Yes [X]
  No

State issuer's revenues for its most recent fiscal year:
$155,633

State the aggregate market value
of the voting and non-voting common equity held by non-affiliates computed by
reference to the price at which the common equity was sold, or the average bid
and asked price of such common equity, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.)

$23,315,000 as at March 31, 2008 based on the last sale price of
our common stock

State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.

83,268,864 shares of common stock as at March 31, 2008

Explanatory Note

Fortified Holdings Corp. (the "Registrant," "we," "us"  or "our") is filing this Amendment No. 1 to Form 10-KSB solely to  amend the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended  December 31, 2007, which was originally filed with the Securities and Exchange  Commission on April 15, 2008 (the "Original Filing") to:

(i)  revise the  Independent Auditors’ Report of O’Connor Davies Munns & Dobbins, LLP  contained in Part II, Item 7 of the  Original Filing to make reference to the standards of the Public Company  Accounting Oversight Board;

(ii)  revise  our report on disclosure controls and procedures contained in Part II, Item 8A  of the Original Filing to clearly and unequivocally state that our disclosure  controls and procedures were not effective as of December 31, 2007; and

(iii)  revise the  certifications contained in Exhibits 31.1 and 31.2 to the Original Filing, to  include the introductory language of paragraph 4 as set forth in Item  601(b)(31) of Regulation S-B.

2

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TABLE OF CONTENTS



|           |                                                                                            | PAGE
|---------- | ------------------------------------------------------------------------------------------ | ----
|PART I     |                                                                                            |     
|Item 1.    | Description of
      Business                                                              | 4   
|Item 2.    | Description of Property                                                                    | 10  
|Item 3.    | Legal Proceedings                                                                          | 10  
|Item 4.    | Submission of Matters to a Vote of Security Holders                                        | 10  
|PART II    |                                                                                           
|Item 5.    | Market for Registrants Common Equity and Related Stockholder
      Matters                | 10  
|Item 6.    | Managements Discussion and
      Analysis or Plan of Operation                             | 12  
|Item 7.    | Financial Statements                                                                       | 20  
|Item 8.    | Changes in and Disagreements
      with Accountants on Accounting and Financial Disclosure | 40  
|Item 8A.   | Controls and Procedures                                                                    | 40  
|PART III   |                                                                                           
|Item 9.    | Directors, Executive Officers, Promoters and Control Persons                               | 42  
|Item 10.   | Executive Compensation                                                                     | 44  
|Item 11.   | Security Ownership of Certain Beneficial Owners and Management                             | 46  
|Item 12.   | Certain Relationships and Related
      Transactions                                       | 47  
|Item 13.   | Exhibits and Reports                                                                       | 48  
|Item 14.   | Principal Accountant Fees and Services                                                     | 49  
|Signatures |                                                                                            | 50  

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PART I

This annual report on Form 10-KSB contains “forward-looking
  statements” within the meaning of the Private Securities Litigation Reform
  Act of 1995. In many but not all cases you can identify forward-looking statements
  by words such as “expects,” “anticipates,” “believes,”
  “plans,” “intends,” “estimates,” variations
  of those words, and similar expressions. These forward-looking statements include
  statements regarding our expectations, beliefs, or intentions about the future,
  and are based on information available to us at this time. We assume no obligation
  to update any of these statements and specifically decline any obligation to
  update or correct any forward-looking statements to reflect events or circumstances
  after the date of such statements or to reflect the occurrence of anticipated
  or unanticipated events. Actual events and results could differ materially from
  our expectations as a result of many factors, including those identified in
  the section titled “Investment Considerations” under Item 6, Management’s
  Discussion and Analysis of Financial Condition and Results of Operations, and
  other sections of this Form 10-KSB. We urge you to review and consider those
  factors, and those identified from time to time in our reports and filings with
  the SEC, for information about risks and uncertainties that may affect our future
  results. Our reports and filings are available from the SEC’s website
  (www.sec.gov) or from the investor page of our website (www.fortifiedholdings.com/investors).
  All forward-looking statements we make after the date of this filing are also
  qualified by this cautionary statement and identified risks.

ITEM 1: DESCRIPTION OF BUSINESS

Overview

Fortified Holdings Corp. (we, Fortified or the Company)
is working to establish itself as a leading provider of a variety of deployable
products used for field-based Emergency Management and Critical Incident
Response by law enforcement, first responders, the military, the private
security industry, humanitarian relief organizations and others who respond to
critical incidents. Within this market, we have focused to date especially
(but not exclusively) on so-called Command, Control, Communications and Compute,
Intelligence, Surveillance and Reconnaissance (C4ISR) products.

We currently produce and sell a line of man-portable Command,
Control, Communications and Compute (C4) solutions for field-based incident
management and emergency operations support under the NOMADTM brand.
Originally developed by our predecessor Z5Technologies LLC, our NOMADTMproducts are a line of Incident Command units and related deployable
communications and tactical power solutions, which are used by the military,
first responders, relief workers and high risk industries. We have also
developed, and are currently preparing to market, a suite of software
applications for the Geospatial Information Services market.

We intend to build out  through acquisition and through
internal development  additional products and services that enable emergency
responders to more effectively perform their roles though enhanced information
gathering, communications, situation management, and ultimately the ability to
respond to those in need at time of crisis. Our business plan and intention is
to seek out and acquire other companies with synergistic products that can be
marketed to the Emergency Management and Response sector. We expect to give
greatest consideration to acquisitions that will bring us additional product
lines in the fields of mobile data communications; geospatial and sensor data
management; and tactical power sources and power management.

Business Development

Fortified was incorporated in Nevada in February, 2004, under
  the name Major Creations Incorporated. Major Creations’ original business
  plan at that time was to sell new small diesel tractors, modified to have a
  vintage-style appearance. The Company exited that business in 2006 after having
  conducted only very limited operations. In November, 2006, we determined to
  enter into the business of designing, developing and selling products that are
  used by the Emergency Management and Response sector, and subsequently refined
  that plan to focus on C4ISR products used within that market.

On September 13, 2007, we completed an acquisition (by subsidiary
  merger) of Z5 Technologies LLC (respectively, the “Merger” and “Z5”).
  Prior to the Merger, we had minimal operations, and consequently the Merger
  was accounted for as a recapitalization of Z5. In this Report, unless the context
  indicates to the contrary, the term “we” includes the business operations
  of Z5 prior to its acquisition by Fortified.

Prior to its acquisition by Fortified, Z5 designed and sold its
  NOMADTM line of products. Since the acquisition of Z5, we have been
  actively pursuing the business formerly conducted by Z5. In addition, as contemplated
  by the terms of the Z5 Merger, the Chief Executive Officer and the Chief Financial
  Officer of Z5 were each elected by our Board as our Chief Executive Officer
  and Chief Financial Officer, respectively.

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Z5 itself was formed in 2003 as a Connecticut limited liability
company, with limited initial operations in 2004 and 2005 as a reseller of
information technology products to government purchasers. In early 2006, Z5 was
acquired by Thomas Keenan Ventures LLC (TKV) to pursue the development and
sale of the emergency operations centers (EOCs) then being developed by TKVs
principals. Z5s sales of NOMADTM units commenced in 2006.

Principal Products and Services

Our NOMAD TMIncident Command Platform assembles
advanced voice communications, data communications, mission command, compute,
data storage and security technologies into a rugged, man-portable case,
providing a tactical command solution. Incorporating cellular and/or satellite
communications capabilities, our NOMAD TMproducts and solution suite
enables users to take control of challenging situations in the most challenging
environments, coordinating their resources in the immediate vicinity while
maintaining communications with the outside world. Built to military
specifications, we believe our solutions are the first in this market segment to
combine the full range of capabilities we have included, assembled in a small
(~50lbs) man-portable case.

Given the array of devices that are included, power consumption
is of critical importance in these products. Our NOMADTM line
includes a proprietary power management system that manages the charging and
discharging cycles based on how the NOMADTM is used.

One of the key distinguishing features of the NOMADTM
  line is its ability to act as a wireless access point in a “mesh network”
  of wireless devices, creating a local data and communications network among
  a group of emergency responders. By combining a single NOMADTM with additional
  “nodes” geographically dispersed throughout an incident, a NOMADTM can establish a local area network (LAN) with a range of up to seven
  miles (subject to environmental and other factors) from a single base unit.
  The base NOMADTM unit can also be wirelessly connected automatically
  over a mesh network with additional NOMADTMs in order to expand
  the incident-specific communications network over a geographically dispersed
  area spanning citywide or even statewide (subject to terrain, environmental
  conditions and number of deployed NOMADTM units). The base NOMADTM unit provides the uplink to the internet via either broadband satellite
  or high-speed cellular link, enabling other users on the NOMAD mesh not only
  to communicate with one another but also to communicate with commanders and
  others who are not field deployed.

In addition to our flagship model that provides a
communications uplink, we also offer a smaller version designed to support
individual users in forward deployed locations. We continue to work toward the
integration and roll-out of additional NOMADTM models in various
configurations to meet specific end-user needs, as well as related product and
service sets that fit within its focused mission: to improve the delivery of
information management and advanced communications to the Emergency Management
and Response sector.

Markets for our Products

The NOMADTM fits at the core of the market segment
  known in the industry as Command, Control, Communications, Computers,
  Intelligence, Surveillance and Reconnaissance or C4ISR. The
  target market for C4ISR products in general  and for the NOMADTM
  line in particular  consists principally of:

- Government agencies responsible for incident management or relief
  operations, such as the Federal Emergency Management Agency, its state and
  international counterparts, and other agencies within the U.S. Department of
  Homeland Security
- Military (U.S. and foreign)
- Emergency responders, such as police departments and the National Guard
- Non-governmental organizations (NGOs) and other private bodies that conduct
  humanitarian relief operations
- High-risk industries that provide their own incident management, such as
  offshore oil and gas drilling, mining and in-field private security companies

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The creation of the U.S. Department of Homeland Security (DHS)
has dramatically increased the domestic market opportunity for C4ISR products,
and the terrorist attacks of 2001 that prompted the creation of the DHS
similarly have accelerated the C4ISR market internationally. Analyst firm Frost
& Sullivan estimates that annual government spending on C4ISR products now
exceeds $29 billion globally. Of the $42.7 billion spent annually by the U.S.
federal government on homeland security according to the Congressional Budget
Office (CBO), the CBOs categories of Emergency Preparedness and Response and
Border and Transportation Security stand out as areas in which the
NOMADTM has application. Annual spending on these functions totals
$8.4 billion and $18.2 billion respectively. While only a small fraction of this
spending is applied to communications and data management systems such as the
NOMADTM, making it difficult to forecast the size of the opportunity
within DHS and related departments, the Company believes that substantial budget
dollars are available within this single agency alone.

Among law enforcement and other first responders, we believe
our largest opportunities lie in the larger departments, which tend to be more
technologically sophisticated and which tend to put greater emphasis on the
extreme types of incidents in which our NOMADTM products have
greatest utility. (For example, over 90% of departments in cities of over
250,000 maintain a written terrorist attack plan, compared to only 30% in
jurisdictions of under 10,000.) A smaller but nonetheless possible opportunity
in the law enforcement sector is expected to be found in police and sheriffs
departments serving rural areas, where cellular communications are less reliable
or non-existent.

We believe the markets for our products are worldwide. Indeed,
the utility of our products may be greatest in remote areas where communications
infrastructure is lacking. In some cases, a domestic U.S. customer may purchase
our products for use overseas (for example, the U.S. military), but in others
the customer itself is outside the U.S. While to date we have not consummated
any sales outside of the U.S., we have established reseller relationships in the
Middle East and in Africa, and we are currently engaged in active sales
discussion with customer prospects that are located in the Middle East and in
Latin America or that are U.S. based but interested in deploying our solutions
in those regions.

Distribution Methods

Because our potential customers are both significant in number
and located around the world, we recognize that it would take significant
resources to reach our entire potential customer base through direct sales. We
therefore have adopted a multi-pronged sales strategy using a mix of direct
sales, distributor sales and strategic partnerships to maximize our penetration
into the Emergency Management and Response market.

Direct Sales to Designated Focus Accounts

Direct sales efforts are directed principally on designated
Focus Accounts, primarily within the homeland security, military, and large
Non Governmental Organization (NGO) market segments. These accounts include
several of the sub-agencies of the Department of Homeland Security, including
FEMA and the U.S. Border Patrol, various departments within the U.S. military,
and a few large NGOs. In select circumstances these also include law enforcement
and mid-size government agencies and commercial customers. Each focus account
takes significant time, effort and money to pursue so we are judicious about
which accounts we pursue directly as focus accounts. The sales process pursuing
these accounts is performed as a coordinated effort by a small in-house sales
team and select members of management.

Distributor/Reseller Channel

We expect to reach the bulk of our market through value added
resellers and other types of distributors. The primary markets that we seek to
address are well served today by value added resellers and other types of
distributors as channel partners. The better resellers and distributors can be
highly successful at establishing and maintaining relationships with their
customers, enabling them to sell a variety of different products into those
accounts. Rather than build a large direct sales force of our own, we generally
seek to leverage the access and influence that carefully selected channel
partners can offer in order to broaden our reach.

The indirect sales channel includes resellers focused on the
  support of First Responders and the military. These resellers (both domestic
  and international) offer Fortifieds solutions to their customers using
  the same fee structure as our direct sales force, except that the channel may
  retain a larger percentage of the revenue as commission. In general, resellers
  market the Companys products in conjunction with other software and hardware
  as a part of a total solution offering, thereby minimizing sales channel conflict
  with the Companys direct sales force.

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To date, Fortified has thirteen value added resellers in a Channel
  Partner Program. Of these, the majority are based in the U.S. and are focused
  on the U.S. market; we have recently (Q1 2008) announced an expansion into the
  Middle East and Africa with the addition of Channel Sales Partners in Abu Dhabi
  and South Africa. Applied in tandem with our direct sales team, these Channel
  Sales Partners help to significantly increase Fortified’s “feet
  on the street” and our ability to introduce the NOMAD product line to
  a larger potential customers base.

Strategic Partnerships and OEM Strategies

Over the longer term, a third component of our sales strategy
is anticipated to consist of strategic partnerships and OEM relationships with
other industry players. To this end, we have had preliminary discussions with
vendors of related technologies regarding the possibility of selling NOMAD units
to them, for resale under their respective brands. While this distribution
method holds the possibility of generating significant volume over time, it is
currently less developed than our other distribution methods.

*Newly Announced Products*

In late 2007, we announced that we were developing a suite of software applications
  for the Geospatial Information Services market, to be marketed under the name
  VantagePointTM. Certain of the VantagePointTM applications are currently being
  used by prospective customers and others in a “beta” release. We
  expect to release the product to the general market within the next several
  months.

Competition

We are not the sole vendor of man-portable Incident Command
units, deployable Emergency Operations Centers (EOC), deployable mesh networks
or tactical power solutions in the market today. We are aware of over twenty
(20) providers of products that compete by providing one or more of the
functionalities contained in our NOMADTM tactical power and satellite
communications solutions. However, most of the deployable solutions in the
market today are large systems that are vehicle mounted. To our knowledge we are
one of only four (4) firms focused on the man-portable sector of the market, and
none of these competitors is large or is shipping a sufficient number of units
today to give it a meaningful share of what we believe to be the total potential
market.

The largest of the known competitors, Scotty plc, is based in
the United Kingdom and sells a variety of communication and video equipment into
the healthcare and government sectors. Action Systems, a division of V&A
Incorporated, is a New Mexico-based integrator and reseller of a variety of
computer and peripherals products focusing largely on the government sector. And
the third known competitor is 308 Systems Inc., based in Colorado, which sells a
mobile office in a box designed to support a single user.

In light of the relatively small number of shipments by
ourselves and by these three focused competitors in comparison to what we
believe is the total potential market for deployable Incident Command solutions,
EOCs and related devices, in our view the market remains largely untapped. Thus,
we do not need to rely on taking market share away from these competitors in
order to expand our presence in our target market.

We believe that most customers for deployable Incident Command
solutions, EOCs and related products are motivated primarily by product
functionality and similar factors. To most prospective customers in this market,
price differences between competing products are typically a secondary factor.
As a consequence, and in general, we seek to compete principally by offering the
most comprehensive solution available rather than by offering the lowest-cost
solution.

Suppliers

The majority of the components that are included in our
solutions are commercial off the shelf (COTS) components, available from a
variety of suppliers. We have selected the particular components based on our
assessment of their functionality, reliability, price and other factors, but in
nearly all instances components produced by other suppliers could be
substituted. We also have no reason to believe that the supplies of any of these
components are limited.

There are two categories of components currently incorporated
in our products that are not COTS components: the power supply, built for us by
a contract manufacturer to our own proprietary specifications; and the
communications components that provide mesh networking capability. The
production facilities and methods used to produce the power supplies are not
unique, and it is possible to shift production to a different contract
manufacturer if a given

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current manufacturer ceased to be capable of producing
sufficient quantities or to our specifications. Nonetheless, as we experienced
when we encountered reliability problems with our products during 2007, such a
transition can cause significant production delays and result in material added
costs as the new manufacturer brings our products into its workflow.

Major suppliers include Qualtron, Inc. and Vicor Corporation
for power management boards; Stratos, Inc. for satellite terminals and satellite
service; Persistent Systems for networking components; and Twinhead Corporation,
for ruggedized laptops.

Customers

By their nature, our products are sold largely to government
entities. While over time we expect these customers to include a range of
domestic federal, state and local entities as well as foreign entities, to date
more than 77% of our sales have been to various departments and agencies of the
U.S. federal government. These departments and agencies have included:

Branches and Agencies within U.S.
Department of Defense

- U.S. Army  U.S. Northern Command, Joint Task Force for Civilian Support
- U.S. Air Force  Hammer Adaptive Communications Element (ACE) team
- U.S. Coast Guard

Branches and Agencies within U.S. Department of
Homeland Security

- Federal Emergency Management Agency (FEMA)
- Department of Homeland Security Wireless Management Organization

In 2006, three customers accounted for approximately 90% of our
total revenue. During the first half of 2007, the Company deferred sales efforts
while it addressed product improvement and development of next generation
products. The limited revenues recorded during this time included sales to the
US Coast Guard, a commercial customer in the oil and gas industry, the city of
Coventry, LA, and FEMA. Sales efforts resumed during the third calendar quarter
of 2007, and we have begun to receive purchase orders for our updated products.
As of December 31, 2007, our backlog was approximately $150,000.

Patents, Trademarks, Licenses and other Agreements

Because our products incorporate third party components,
including software, the sale of our products to our customers in part entails
the resale of those third-party components. We hold reseller agreements with our
suppliers that, where applicable, enable us to pass on to our customers an
end-user license agreement to the extent necessary for the operation of the
software or other component.

We do not currently hold any issued patents or registered
trademarks, although we have applied for a patent entitled Man-Portable
Incident Command Platform. There are various aspects of the patent, which
covers recharging controls and plurality of communications. There is no
certainty that this patent, if obtained, will be of substantial protection or
commercial benefit to the Company. Furthermore, it is not known whether the
pending patent application will ultimately be granted or whether the patent, if
issued, will prevail if challenged in litigation.

Government Approvals

As discussed above under the heading “Customers,”
  approximately 77% of our historical sales have been to U.S. government customers.
  Moreover, various agencies and branches of the U.S. Department of Defense, taken
  together, accounted for approximately 90% of total sales in 2006. While it is
  not a legal requirement that we be an approved vendor in order to sell to the
  United States government, we have established, through a third party contract,
  a “GSA Schedule” with the U.S. General Services Administration (GSA)
  with respect to many of the products we sell, and have applied for an approved
  GSA Schedule independently. GSA Schedules are product and price lists that are
  periodically reviewed and approved by the GSA as the basis for purchases by
  federal government agencies. Those GSA Schedules greatly facilitate our sales
  to government end-users. If the GSA were to refuse to approve those GSA Schedules,
  we could lose much of our government revenue base, and our business and results
  of operations would be materially and adversely affected.

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In their standard configuration, our products comply with
applicable U.S. Federal Communications Commission (FCC) regulations regarding
wireless transmissions. As such, they do not require any separate approval from
the FCC. Higher power antennas may cause a NOMADTM to exceed the
FCCs regulatory limits, and a customer who wishes to substitute a higher power
antenna may be required to obtain approval of the FCC prior to its use. The
FCCs regulations apply only to use of our products within the United States,
but comparable regulations in some other countries also impose limitations on
wireless transmissions, which may be more or less stringent than those of the
FCC.

Government Regulation

U.S. export control laws and regulations of the U.S. Department
of Commerce, and similar regulations by the U.S. Department of State and other
agencies, place some restrictions on our ability to sell certain of our
components in certain countries outside the United States, or to certain
specific end-users. At least for certain of the technologies that we incorporate
in our products, the existence of these laws may effectively preclude sales in
some foreign countries which would otherwise present attractive sales
opportunities.

With the exception of export control laws and regulations and
similar regulations of other agencies, we are not aware of any existing or
pending regulations of the U.S. government, or of states within the United
States, that materially affect our business (other than general regulations that
affect all businesses).

Compliance with Environmental Laws

While some of the computer hardware and other components
incorporated into our products include hazardous materials, we neither
manufacture nor dispose of any of those components ourselves. Accordingly, we
believe that the risks of any release of hazardous materials into the
environment by us, and any associated liability for such a release, are both
low.

Laws in certain foreign countries require manufacturers of electronics
  equipment to accept returns of used products from customers for recycling. It
  is possible that some of these laws apply, in addition to the manufacturers
  themselves, to resellers of electronic equipment such as ourselves. Additionally,
  while no similar law is currently in force at the federal level in the United
  States, we are aware that certain states and municipalities have adopted or
  are considering adopting such laws. We continue to monitor these developments
  to ascertain whether and where they may apply to Fortified in its role as a
  reseller of electronics equipment. We anticipate that, if and where any such
  laws do apply to us, we will enter into arrangements with our manufacturer vendors
  under which we would return any used products that we accept to those manufacturers
  for recycling rather than undertake any recycling program ourselves.

Research and Development

Our research and development expenditures in 2006 and 2007 were
approximately $33,000 and $854,000, respectively. These costs primarily relate
to the integration of components and development of the proprietary power supply
system that is included in our NOMADTM, along with design and testing
of new product concepts.

We continually seek to enhance the functionality of our
products through further development efforts. We are seeking to develop
additional products for the vertical markets into which we sell our
NOMADTM, including both hardware and software.

Employees

As of March 31, 2008, we employed 12 people, of whom 9 were
full-time and 3 were part-time. None of our employees are subject to collective
bargaining agreements. We intend to increase the number of employees if we
obtain additional financing . Initially, we do not expect to increase headcount
by more than approximately 5 people, excluding increases through
acquisitions.

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ITEM 2: DESCRIPTION OF PROPERTY

We lease approximately 1,200 square feet of office space at 125
Elm Street, New Canaan, Connecticut, used as our corporate headquarters. The
lease expires October 31, 2008. In addition, we lease approximately 1,000 square
feet in Alexandria, Virginia through July, 2008 and approximately 500 square
feet of office space at 8310 South Valley Highway, Englewood, Colorado on a
month-to-month basis.

ITEM 3: LEGAL PROCEEDINGS

On or about June 8, 2007, Aegis Industries, Inc., (a privately
held Delaware Corporation) (AI) filed an action against Fortified, two of its
directors and several other additional parties in the Second Judicial District
Court, County of Washoe, State of Nevada. Plaintiffs allege claims for, among
other things, breach of contract related to a non-binding letter of intent
entered into by AI and Fortified in November, 2006. The parties have agreed on
settlement terms, effective upon certain payments made by a third party to AI,
which provide Fortified with a full release of all claims against it. Under
terms of the settlement, Fortified agreed to assign to a third party certain
promissory notes receivable issued to Fortified by AI totaling approximately
$1,206,000 in principal and accrued interest thereon, in full satisfaction of
demand notes payable that Fortified had previously issued to that third party,
and loans payable to AI, which together total approximately $1,160,000 as of
December 31, 2007 in principal and accrued interest. The difference between the
assigned notes receivable and the assigned liabilities of approximately $46,000
was recorded as an expense at December 31, 2007. Final settlement of this action
is expected during 2008.

In addition, the Company is involved in various claims in the
ordinary course of business. The Companys management believes that the amounts
of such claims are not material and as such, no amounts have been accrued for
legal matters in the accompanying financial statements as of December 31, 2007
and 2006.

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

No matters were submitted to a vote of security holders in
2007, through the solicitation of proxies or otherwise.

PART II

ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

**Market Information**

Our shares are quoted on the OTC Bulletin Board under the
symbol FFDH and are traded on the Stuttgart Exchange in Germany.

The following table shows the high and low bid quotations for
our common stock in 2007 and 2006. These over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, markdown or commission and
may not represent actual transactions.

10

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|               |  | Common Stock | 
|-------------- |  | ------------ | 
|               |  |              | 
|               |  | $ High       | 
|               |  |              | 
|2007           |  |              | 
|First Quarter  |  | $1.02        | 
|Second Quarter |  | $1.14        | 
|Third Quarter  |  | $.86         | 
|Fourth Quarter |  | $.73         | 
|               |  |              | 
|2006           |  |              | 
|First Quarter  |  | NA           | 
|Second Quarter |  | NA           | 
|Third Quarter  |  | NA           | 
|Fourth Quarter |  | $.86         | 

There was no trading on the Companys stock prior to December
2006. On April 14, 2008, the last reported sale price for our common stock was
$0.24. We had 62 shareholders of record as of March 31, 2008.

**Dividends**

There are no restrictions in our articles of incorporation or
bylaws that prevent us from declaring dividends. The Nevada Revised Statutes,
however, do prohibit us from declaring dividends where, after giving effect to
the distribution of the dividend:

|1. | we would not be able to pay our debts as they become due
      in the usual course of business; or                                                                                                                                          
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                             
|2. | our total assets would be less than the sum of our total
      liabilities plus the amount that would be needed to satisfy the rights of
      shareholders who have preferential rights superior to those receiving the
      distribution.

We have not declared any dividends in 2006 and 2007, and we do
not plan to declare any dividends in the foreseeable future.

**Equity Compensation Plan**

Our Board of Directors adopted the Fortified Holdings Corp.
2007 Stock Plan on September 13, 2007 (the Plan). The Plan was adopted without
seeking or obtaining the prior approval of the Companys stockholders. The
material terms of the Plan are summarized in Note 8 to our consolidated
financial statements included in Item 7 of this Annual Report.

The status of the Plan at December 31, 2007 is summarized as
follows:

|                                                                 |                     |                     | Number of shares       
|---------------------------------------------------------------- | ------------------- | ------------------- | -----------------------
|                                                                 |                     |                     | remaining available    
|                                                                 | Number of shares    |                     | for future issuance    
|                                                                 | to be issued upon   | Weighted average    | under equity           
|                                                                 | exercise of         | exercise price of   | compensation plans     
|                                                                 | outstanding options | outstanding options | (excluding shares      
|                                                                 |                     |                     | reflected in column (a)
|                                                                 | (a)                 | (b)                 | (c)                    
|Equity Compensation Plans approved by
      security holders     | -                   | -                   | -                      
|Equity Compensation Plans not approved by security
      holders | 10,605,000          | $.52                | 1,395,000              

11

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**Recent Sales of Unregistered Securities**

As of January 31, 2008, the Company completed a third closing
under a private placement of its equity securities. Earlier closings were
completed effective November 16, 2007 and January 7, 2008, and were described in
the Companys Form 10-QSB filed on November 19, 2007 and in a report on Form 8-K
filed on January 11, 2008. The private placement was made available solely to
accredited investors, and was exempt from the registration requirements of the
Securities Act of 1933, as amended, under Regulation D adopted pursuant to that
Act. Under the terms of the private placement, the Company issued units to
investors, consisting of one common share and one warrant for the purchase of
one additional common share (Unit). At the third closing, 300,000 Units were
issued in consideration of $108,000 in cash, net of $12,000 of associated
fees.

ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION

Plan of Operation

Since the closing of the Merger with Z5, we have continued Z5s
prior business of developing and selling a line of man-portable Command and
Control, Communications and Compute (C4) solutions for field based incident
management and emergency operations support. Z5s products were marketed under
the NOMADTM brand, principally for use by the military, first
responders, relief workers and high risk industries, and we have adopted that
brand subsequent to the Z5 acquisition.

Under our current operating plan, we hope to expand our line of
products for the Emergency Management and Response sector through a combination
of internal development and acquisitions. Our ability to execute on that
strategy is largely dependent on our raising additional capital through one or
more private placements of our common stock as described below under Liquidity
and Capital Resources. Assuming we will raise an additional $10 million in
gross proceeds in such private placements, we anticipate that our most
significant expenditures will be the following items:

- Mergers and Acquisition costs, including the cash portion of the purchase
  price, if any, and transaction related costs, are currently anticipated to
  total approximately $7 million. This includes $3.75 million that remains
  payable under the promissory note resulting from the Merger with Z5.
- Development costs, including salaries and associated employee benefits and
  travel, outsourced engineering and design services, and testing, are currently
  anticipated to total approximately $0.5 million.
- Sales and marketing expenses, which consist primarily of salaries,
  associated employee benefits, travel expenses of sales and marketing
  personnel, promotional expenses and the costs of programs aimed at increasing
  revenue such as advertising, trade shows, public relations and other market
  development programs, are currently anticipated to total approximately $0.5
  million.
- General and administrative expenses, which consist of salaries of our
  management, finance and administrative staff, and associated employee benefits
  and travel; facilities costs; information systems costs; legal, accounting and
  other professional fees; and other corporate costs, which are currently
  anticipated to total approximately $1.8 million.
- Inventory and other costs associated with production of NOMAD and related
  units. The total of these costs will vary based on the number of units that we
  produce, but we currently anticipate that we will require $0.2 million for
  inventory and other production costs.

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Results of Operations

As discussed above and in Note 1 to our consolidated financial
statements, our September 2007 Merger with Z5 has been accounted for as a
recapitalization of Z5. Accordingly, our results of operations for periods prior
to September 2007 are those of Z5. In the discussion below, when we seek to
refer to the operations or net assets of Fortified before the Merger with Z5, we
use the term legacy Fortified.

Results of Operations for the Year Ended December 31, 2007Compared to Results of Operations for the Year Ended December
  31, 2006

Sales.Our sales during the year ended December
31, 2007 were approximately $156,000. In comparison, our sales during the year
ended December 31, 2006 (our first year of sales) were $671,000. The 2007
decrease of $515,000, or 77%, is the direct result of our shift in focus during
2007 to the development and release of next generation products to correct
performance and reliability issues. Those efforts were delayed during the year
while the Company worked to complete the Merger and obtain necessary funding. We
believe we have now corrected all of the identified technical problems,
including transitioning to new suppliers where needed. We resumed shipments of
limited quantities of our primary product in September 2007, and as a
consequence we recorded only limited sales during the entire 2007 year. However,
we do believe that as of the time of this Report we are positioned to ship
product in commercial quantities to address demand from our customers as orders
are received.

Gross Margin. Gross margin for the year ended
December 31, 2007 was a loss of $273,000, driven primarily by our extensive
warranty replacement efforts conducted during the year to rectify the technical
problems we discovered early in the year. Some of these replacements were not
contractually required under our sales contracts, but we determined that we
should correct the known issues for all customers regardless of contractual
requirements, in the interest of long-term customer satisfaction and business
reputation.

In comparison, our gross profit for the year ended December 31,
2006 was $277,000, or 41% of sales. We believe the percentage gross margin
recorded in 2006 is, in general, indicative of the probable gross margins of the
hardware portion of our business in future periods.

Operating Expense. We recorded operating expense
for 2007 of $4,131,000. Of this amount, $2,747,000 consists of cash operating
expenses and $1,209,000 consists of non-cash expense related to grants of stock
options, $145,000 related to losses on disposal, write down and transfer of
assets, and $30,000 of depreciation costs.

Operating costs of approximately $4,131,000 reflect the
Companys efforts to complete the Merger with Z5, hiring of management and key
advisors, development, marketing and sales of new products, due diligence costs
and professional fees associated with identifying acquisition candidates, and
establishing shared services infrastructure in addition to general
administration and compliance related costs. These costs included research and
development costs of $854,000 (including $162,000 of stock-based compensation),
consulting costs of $718,000 (including $637,000 of stock-based compensation)
and $2,559,000 of selling, general and administrative expense (SG&A)
consisting primarily of compensation and benefits totaling $820,000, $411,000 of
stock-based compensation, professional services of $376,000, acquisition related
costs of $375,000, advertising and marketing of $127,000, travel related costs
of $125,000 facilities costs of $112,000, non-cash expenses related to loss on
disposal, write down and transfer of assets of $62,000, $37,000 and $46,000,
respectively, and $68,000 of other general and administrative expenses.

The total operating expense of $4,131,000 in 2007 represents an
increase of $3,975,000 from the $156,000 of total operating expense recorded in
2006. However, in 2006, Z5 was a private company with no full time employees and
limited operations.

Interest Expense. During 2007, interest expense
  (net) increased from essentially nil in 2006 to $400,000 in 2007. This increase
  reflects a significant increase in borrowing during 2007, as we conducted multiple
  bridge note borrowings in order to fund operations prior to the closing of the
  Merger with Z5 and thereafter until we received proceeds from our equity offering
  commenced in the fourth quarter of 2007.

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Liquidity and Capital Resources

Cash.At December 31, 2007, the Company had $1,836,000
  in cash and cash equivalents. In comparison, at December 31, 2006, cash and
  cash equivalents were $159,000.

For the year ended December 31, 2007, our operating activities
used $2,690,000 of cash, compared to $157,000 of cash generated in operating
activities during 2006. Primary uses of cash during 2007 included cash costs
associated with cash based operating expenses outlined above, replacement and
warranty of products, and increased inventory. These were offset in part by
accounts receivable collections and customer prepayments, and increases in
accounts payable. During 2006, operating cash flows reflected net income of
$122,000 plus non-cash costs (depreciation), less increased inventories and
accounts receivable, offset by increased accounts payable.

Cash used in investing activities during 2007 was primarily
comprised of capital expenditures for computer equipment and demonstration
equipment totaling $111,000, loans totaling $70,000 and capitalized software
costs of $62,000. During 2006, investing activities included purchases of for
$35,000 and loans to an employee of $109,000.

Cash flows from financing activities of $4,609,000 during 2007
shifted dramatically relative to 2006. $1,272,000 of proceeds related to
recapitalization of the Company in September 2007 related primarily to business
loans. Subsequently, the Company borrowed an additional $200,000 under
convertible notes. As further described in Note 9 to our consolidated financial
statements in Item 7 of this Annual Report, during the fourth quarter of 2007,
we received net proceeds of $918,000 through sales of common stock, repaid
$845,000 of notes and received a net amount of $3,064,000 of advances for
issuance of common stock in 2008. We sold additional common stock in January,
2008, yielding net proceeds of another $648,000. Financing cash flows for 2006
consisted of loans of $145,000 to fund operations.

Notes Payable and Notes Receivable

During 2006, the Company issued a $170,130 note payable to an
affiliate, due December 31, 2007. $95,000 of the note was repaid during 2007,
and the balance remains outstanding. Upon the Merger with Z5 in September 2007,
the Company issued a promissory note for $5,000,000 to TKV, as the sole member
of Z5, payable in installments through March 15, 2008 (as amended). During 2007,
$750,000 of the note was repaid. On April 2, 2008, $500,000 was repaid and the
repayment terms were amended again, extending payment through May 31, 2008, with
acceleration terms connected to incremental funding above $2,000,000.

In conjunction with the recapitalization of the Company, the
Company assumed demand and convertible notes payable from lenders, and several
notes receivable from Aegis Industries, Inc., (AI) a Delaware corporation
previously under a Letter of Intent to merge with Fortified prior to the Merger
with Z5. Total principal under the notes payable amounted to $2,850,000 of
which, $1,095,000 was loaned to AI. As more fully described in Item 3 to this
Annual Report, an agreement has been reached pursuant to which the note
receivable from AI will be transferred to a lender in repayment of certain of
the demand notes. In addition, $200,000 of proceeds were raised pursuant to an
additional convertible note issued by the Company in October, 2007.

In November, 2007, $921,000 of principal and interest under the
convertible notes was converted to equity.

Liquidity, including Private Placement of
Securities

As noted above, as of December 31, 2007, we had approximately
$1,836,000 in cash and cash equivalents. We generated a net loss of $4,750,000
during 2007, including $1,740,000 of non-cash expenses and $320,000 of changes
in assets and liabilities to reconcile the net loss to $2,690,000 of net cash
used in operating activities. During the majority of 2007, we were engaged in
efforts to close on the Merger with Z5, fundraising activities, the technical
overhaul of our product design as well as retrofitting (at our expense) units
previously sold to customers. As a consequence, during 2007 we both were not
generating material sales and we were incurring costs that we believe are
atypical. However, while this is a consequence of events that we believe will
not be repeated in the future, it nonetheless is a loss and reflects the fact
that we must achieve both greater gross profits as well as a reduction in our
operating expenses in order to achieve profitability.

14

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Since December 31, 2007, we have received contracts and orders
in excess of $2,500,000. The Company had $993,000 in cash on March 31, 2008. In
light of the foregoing factors, we have made certain cost reductions since
December 31, 2007 in an effort to bring our cost structure in line with our cash
resources. It should be noted, however, that these cost reductions alone will
not be sufficient to eliminate our cash losses through the time when gross
profits from sales cover our operating costs. For that reason, it is necessary
that we either raise additional capital or, failing that, undertake further
operating cost reductions.

In keeping with the foregoing discussion, we remain committed
to raising additional equity capital to augment our cash position sufficient to
fund our cash losses until the time that we turn cash flow positive. To this
end, we continue to work with the investment bankers that placed the initial
$5.1 million of equity described above during late 2007 and early 2008 and other
placement agents. While discussions with potential funding sources are positive,
we do not have firm financing commitments as of the date of this Report.
Accordingly, we have begun executing further cost reduction plans to provide
additional time to raise sufficient proceeds that, when coupled with our
anticipated growth in sales and gross profits, we believe will sustain us
through the time that we become profitable. It should be noted that the terms of
this financing may be materially dilutive to existing shareholders. However,
these efforts, when taken together, and assuming a continuation of our current
business trends, are expected to provide sufficient liquidity to fund operations
over the next twelve months.

While, as stated above, the capital-raising efforts now under
way coupled with anticipated increases in sales and the cost reduction actions
taken to date and continued efforts to minimize expense, are currently projected
to enable the Company to reach profitability and positive cash flow, there can
be no assurance that we will succeed in doing so. For this reason, as well
uncertainty regarding the turnaround in the larger economy, there is a
possibility that we will need either to undertake further cost-cutting measures
(which could entail curtailing certain operations), or to raise equity capital
or debt beyond the amounts currently contemplated. If we do seek to raise
additional equity capital or debt, there is no assurance that it will be
available on favorable terms or in an amount sufficient to avoid further
cost-cutting. If equity capital is raised, the issuance of those shares would
also be dilutive to the ownership interests of all other stockholders.

Capital Expenditures

During the year ended December 31, 2007, we purchased
approximately $111,000 of demonstration equipment and computer equipment, and
$61,845 for capitalized software costs, which was subsequently written off. We
anticipate spending lower capital expenditures during 2008.

Seasonality

Historically, we have not experienced significant seasonality
in our business, although our revenue is subject to fluctuation due to
government and commercial purchasing cycles. See Investment Considerations
below.

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet arrangements that
have, or that are reasonably likely to have, a material current or future effect
on our financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.

Investment Considerations

In addition to the other information in this Annual Report, the
  following risks, uncertainties and other factors should be considered in evaluating
  our business and financial condition. There also could be additional risks and
  uncertainties that we are currently unaware of, or that we are aware of but
  currently do not consider to be material, but that may become important in the
  future or prove to be material and affect our financial condition or results
  of operations.

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Risks Specific to Us

We have negative working capital, have incurred losses since
  inception and expect to continue to incur losses for the foreseeable future.
  We will require additional capital financing to satisfy the obligations we incurred
  in our Merger with Z5 and to execute on our planned expansion of operations.
  We may have difficulty obtaining such additional capital on acceptable terms,
  or at all. If adequate funds are not available, we may be required to curtail
  our operations, or obtain funds on unfavorable terms.

We are in the early stages of our life cycle and have
limited operating history.Therefore, there is limited historical or current
operating information upon which an investor can base its investment decision.
To date, we have engaged primarily in development, product testing and initial
production of our products, engaging distribution sources, and making other
arrangements necessary to begin full-scale operations. We have generated only
limited revenues to date. Our prospects must be considered in light of the risks
frequently encountered by a start-up technology company formed to engage in a
relatively new and potentially competitive industry.

Moreover, as an early stage company, we have limited experience
in implementing and managing our planned business in an operational setting.
Accordingly, there can be no assurance that we will be able to successfully
implement our business plans or strategies. We cannot provide any assurance that
we will be successful in addressing the risks which we may encounter, and our
failure to do so could have a material adverse effect on our business,
prospects, financial condition and results of operations.

We may never achieve profitability, which failure would
adversely impact the price of our common stock.While we believe that our
products are differentiated from the competitive offerings in the marketplace,
those differences add to the speculative nature of our business. The lack of
substantial sales of comparable products makes it difficult to assess the demand
for our products. We therefore can provide no assurance that we will ever
generate sufficient revenues to achieve profitability from our planned
operations.

We may be unable to adapt to technology trends or evolving
industry standards which would impede our ability to successfully develop and
sell new products.We will need to adapt to competitively significant
changes in component technology as well as to advanced technology used by our
competitors. New products based on new technologies or new industry standards
expose us to risks of technical or product obsolescence. We may not be
successful in using new technologies effectively, developing new product
iterations or enhancing existing products in a timely manner. If we are unable
to adapt to technology trends and evolving industry standards, our financial
condition, results of operations and future prospects will be materially and
adversely affected.

Although we are not aware of any existing impediments, we
can give no assurance that we will be able to operate without infringing upon
the proprietary rights of third parties.We may have to alter our products
or processes, pay licensing fees, defend an infringement action or challenge the
validity of the patents in court, or cease activities altogether because of
patent rights or other intellectual property rights of third parties, any of
which could result in a material adverse effect upon our financial condition,
results of operations and future prospects.

We rely on third party manufacturers, which may have a
material adverse effect on our ability to manufacture and sell our products.The technical problems we encountered with our products in 2007 were due, at
least in part, to failures in manufacturing processes. While we have changed
manufacturers, we continue to rely on third parties to produce our products.
This dependency could negatively affect our sales and marketing efforts if the
sources of such supply prove to be unreliable or unavailable. If the contracted
manufacturing source is unreliable or unavailable, or if we experience delays in
the supply chain for our product resulting in insufficient quantities of
particular components to complete the manufacturing of our product, which could
have an adverse effect on our financial condition, results of operations and
business.

If we are unable to retain key personnel and industry
partners, we may be unable to achieve our goals and our business could be
adversely impacted.Our success is heavily dependent on the continued active
participation of our current executive officers and strategic partners. The loss
of the services of one or more of these managers or strategic partners could
have a material adverse effect upon our business, financial condition and
results of operations. Further, our success and achievement of our growth plans
depend on our ability to recruit, hire, train and retain other highly qualified
personnel, and the loss of any such persons, or an inability to attract, retain
and motivate additional highly skilled employees could have a materially adverse
effect on our financial condition, results of operations and future
prospects.

16

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We have entered into agreements with our executive officers
containing non-disclosure and non-competition provisions. The non-competition
agreements are limited in duration and are not effective under certain
circumstances, such as the improper termination of the executive or the
termination by the executive for good cause. Regardless of the non-competition
agreements executed with executives, there can be no assurance that executives
will remain associated with us or that they will not compete, directly or
indirectly, with us. Moreover, the enforceability and scope of non-competition
agreements are often litigated and there is no assurance that such provisions
will be enforceable as written.

We are a early stage company with limited personnel and
other resources, and have not fully designed and tested a system of internal
control policies, procedures, testing and oversight.Moreover, the Company
has not yet constituted an audit committee, a compensation committee, or any
other committee of the Board of Directors. Effective internal controls are
necessary for us to provide reliable financial reports. If we are unable to
implement an effective system of internal controls we may be unable to provide
reliable financial reports, our operating results could be misstated, our
reputation may be harmed and the trading price of our stock could be negatively
affected.

Risks related to our Industry

The markets for Command and Control, Communications and
Compute (C4) solutions are highly competitive and we may be unable to compete
effectively.The market for rapidly deployable incident management and
emergency operations support products is diverse and highly competitive, and is
characterized by relatively low entry barriers. Moreover, it is subject to
constant technological change and intense marketing by providers who may be
capable in a short period of time to introduce products similar to the NOMAD
device. Our current competitive edge in large part depends upon the knowledge of
our management team in creating and thus far developing the NOMAD and other
devices, and in our relationships with our strategic partners and potential
customer base. While we believe that this is a significant competitive
advantage, it is not one that depends upon any resource that is unique to us. We
expect that new competitors are likely to enter this market, potentially using
the same market entry strategy employed by us. Any potential competitors may be
significantly larger and have substantially greater market presence, greater
financial, technical, operational, sales, marketing and other resources and
experience, including more established relationships with vendors, distributors
and partners, than we have. In the event that such a competitor expends
significant sales and marketing resources in one or more of the market segments
in which we operate, we may not be able to compete successfully in such markets.
We believe that over time there will be significant competition in the market
for products having functionality similar to the NOMAD device. Such competition
will exert downward pressure on prices. In addition, the pace of technological
change could make it impossible for us to keep pace with such competitors in
such an environment. If our competitors were to provide better products or
better prices, our results of operations, financial condition and future
prospects will be materially adversely affected.

Risks Related to the Securities Markets and Investments
in our Common Stock

The price of our common stock may be volatile, which may
limit our ability to raise capital in the current private offering or in the
future, and which may cause investment losses for our stockholders.Our
common stock is currently quoted on the OTC Bulletin Board. The quotation of our
common stock on the OTC Bulletin Board does not assure that a meaningful,
consistent and liquid trading market will exist at all times, and in recent
years the shares of many smaller companies like Fortified that are quoted on the
OTC Bulletin Board have experienced extreme price volatility and volume
fluctuations. This volatility can occur for many reasons, some of which are
beyond our control and may not be related to our operating performance. These
fluctuations could cause you to lose part or all of your investment. Those
factors that could cause fluctuations include, but are not limited to, the
following:

- price and volume fluctuations in the overall stock market;
- fluctuations in stock market prices and trading volumes of similar
  companies;
- actual or anticipated changes in our earnings or fluctuations in our
  operating results or in the expectations of securities analysts;
- general economic conditions and trends;
- major catastrophic events;
- sales of large blocks of our stock;
- departures of key personnel;
- events affecting any strategic partners or collaborators;
- announcements of new products or technologies, commercial relationships or
  other events by us or by our competitors;

17

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- regulatory developments in the United States and other countries;
- failure of our common stock to be quoted on the OTC Bulletin Board or
  listed on the Nasdaq Stock Market, American Stock Exchange, or other national
  securities market or exchange;
- changes in accounting principles; and
- discussion of us or our stock price by the financial and technical press
  and in online investor communities.

Due to such volatility, our stock price may decline
substantially in a short time and our stockholders could suffer losses or be
unable to liquidate their holdings at a time that they require liquidity.

In the past, following periods of volatility in the market
price of a companys securities, securities class action litigation has often
been brought against that company.Due simply to the potential volatility of
our stock price, we could become the target of securities litigation in the
future. Even if meritless, securities litigation could result in substantial
costs and divert managements attention and resources from our business.

Our common stock is considered to be penny stock, which
may make it more difficult for investors to resell their shares to third
parties.Our common stock may be deemed to be penny stock as that term is
defined in Rule 3a51-1, promulgated under the Securities and Exchange Act of
1934, as amended (the Exchange Act). Section 15(g) of the Exchange Act and
Rule 15g-2 promulgated thereunder require broker-dealers dealing in penny stocks
to provide potential investors with a document disclosing the risks of penny
stocks and to obtain a manually signed and dated written receipt of the document
before effecting any transaction in a penny stock for the investors account.
We urge potential investors to obtain and read this disclosure carefully before
purchasing any shares that are deemed to be penny stock.

Rule 15g-9 promulgated under the Exchange Act requires
broker-dealers in penny stocks to approve the account of any investor for
transactions in such stocks before selling any penny stock to that investor.
This procedure requires the broker-dealer to:

- obtain from the investor information about his or her financial situation,
  investment experience and investment objectives;
- reasonably determine, based on that information, that transactions in
  penny stocks are suitable for the investor and that the investor has enough
  knowledge and experience to be able to evaluate the risks of penny stock
  transactions;
- provide the investor with a written statement setting forth the basis on
  which the broker-dealer made his or her determination; and
- receive a signed and dated copy of the statement from the investor,
  confirming that it accurately reflects the investors financial situation,
  investment experience and investment objectives.

Compliance with these requirements may make it more difficult
for investors in our common stock to resell their shares to third parties.
Accordingly, our common stock should only be purchased by investors who
understand that such investment is long-term and illiquid, and are capable of
and prepared to bear the risk of holding the investment for an indefinite period
of time.

We may incur increased costs as a result of recently enacted
and proposed changes in laws and regulations relating to corporate governance
matters which may cause us to reallocate our resources, which could adversely
affect our business.

Recently enacted and proposed changes in the laws and
regulations affecting public companies, including the provisions of the
Sarbanes-Oxley Act of 2002 and rules adopted or proposed by the SEC, will result
in increased costs to us as we evaluate the implications of these laws and
regulations and respond to their requirements. These laws and regulations could
make it more difficult or more costly for us to obtain certain types of
insurance, including director and officer liability insurance, and we may be
forced to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. The impact of these events
could also make it more difficult for us to attract and retain qualified persons
to serve on our board of directors, our board committees or as executive
officers. We are presently evaluating and monitoring developments with respect
to these laws and regulations and cannot predict or estimate the amount or
timing of additional costs we may incur to respond to their requirements.

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We may not be able to achieve secondary trading of our stock
in certain states because our common stock is not nationally traded, which could
subject our stockholders to significant restrictions and costs.Because our
common stock is not approved for trading on the Nasdaq Stock Market or listed
for trading on a national securities exchange, our common stock is subject to
the securities laws of the various states and jurisdictions of the United States
in addition to federal securities law. This regulation covers any primary
offering we might attempt and all secondary trading by our stockholders. While
we may register our common stock or qualify for exemptions for our common stock
in one of more states, if we fail to do so the investors in those states where
we have not taken such steps may not be allowed to purchase our stock or those
who presently hold our stock may not be able to resell their shares without
substantial effort and expense. These restrictions and potential costs could be
significant burdens on our stockholders.

Additional authorized shares of common stock available for
issuance may adversely affect the market for our common stock and dilute the
interests of our stockholders.We are authorized to issue 200,000,000 shares
of our common stock. As of March 31, 2008, we had approximately 83,300,000
shares of our common stock issued and outstanding, excluding shares issuable in
the future upon conversion of notes or exercise of our outstanding options and
warrants. We may issue the remaining shares of our common stock without
stockholder approval.

We expect to issue additional common stock in the private
placement that we are currently conducting. Moreover, if we undertake future
acquisitions as contemplated, it is likely that we will issue additional common
stock or other securities as part of the purchase price for those target
companies. Such future issuances could be at a price lower than the then-current
trading price of our common stock. Further, whether the price of any subsequent
issuance is lower or higher than our common stocks then-current trading price,
any future issuance of our equity will cause an investors percentage ownership
in the Company to be reduced. Additionally, sales of substantial amounts of the
common stock in the public market by the purchasers of those new shares, or
perceptions that such sales may take place, may lower our common stocks market
price.

Shares eligible for future sale may adversely affect the
price of our common stock.The shares issued in the Merger with Z5 are not
currently registered, and are therefore restricted securities under applicable
securities laws and are not currently tradable on the open market. However,
those shares will become eligible for resale by means of ordinary brokerage
transactions in the open market pursuant to Rule 144 promulgated under the
Securities Act (Rule 144), subject to certain limitations. In general, the
stockholders who received shares in the Merger with Z5 will become eligible to
begin selling shares pursuant to Rule 144 in September 2008. In general, in the
case of those stockholders who are affiliates of the Company under Rule 144,
the stockholder (including other stockholders whose shares are aggregated with
his) will be permitted to sell within any three-month period a number of
securities which does not exceed the greater of 1% of the then outstanding
shares of common stock or the average weekly trading volume of the class during
the four calendar weeks prior to such sale, subject to certain procedural
requirements. In general, Rule 144 also permits those stockholders who are not
affiliates of the Company to sell those securities without any volume limitation
commencing in September 2008. The Company is also contractually obligated to
seek to register the shares issued pursuant to the Merger with Z5 with the SEC
to permit their resale. Any substantial sale of our common stock pursuant to
Rule 144 or pursuant to any resale prospectus may have an adverse effect on the
market price of our securities.

It is uncertain whether we will ever pay dividends or ever
provide an opportunity for any return on investment. Our securities should not
be purchased by persons who cannot afford the loss of their entire investment.It is unlikely that we will pay dividends on our common stock in the
foreseeable future, if ever. Accordingly, it is likely that the only way
investors will be able to obtain liquidity for their investment in our common
stock is through the resale of their shares in the open market. For the reasons
summarized above, the price of our common stock is likely to fluctuate
considerably, and an investor may be unable to sell his or her shares at a time
that the investor requires liquidity. Our securities should therefore not be
purchased by persons who cannot afford the loss of their entire investment.

19

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ITEM 7: FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM

The Board of Directors and Stockholders Fortified Holdings
Corp.New Canaan, Connecticut

We have audited the accompanying consolidated balance sheet of
Fortified Holdings Corp. (a Nevada corporation) as of December 31, 2007, and the
related consolidated statements of operations, changes in stockholders equity
(deficit) and cash flows for year ended December 31, 2007. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Fortified
Holdings Corp. as of December 31, 2007, and the results of their operations and
their cash flows for year ended December 31, 2007 in conformity with accounting
principles generally accepted in the United States of America.

The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As described in Note
3 to the financial statements, the Company's recurring losses from operations,
cash used by operating activities, negative working capital, and accumulated
deficit raise substantial doubt about its ability to continue as a going
concern. Management's plans concerning these matters are also described in Note
3. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.

/s/ Fiondella, Milone & LaSaracina LLP

Fiondella, Milone & LaSaracina LLP Glastonbury,
Connecticut April 14, 2008

20

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Independent Auditors Report



******To the Members  of**Z5 Technologies,  LLC****

We have audited the accompanying balance sheets of Z5  Technologies, LLC as of December 31, 2006 and 2005, and the related statements  of income and member’s equity (deficiency), and cash flows for the year ended  December 31, 2006. These financial statements are the responsibility of the  Company's management. Our responsibility is to express an opinion on these financial  statements based on our audits.

We conducted our audits in accordance with the standards of the  Public Company Accounting Oversight Board (United States). Those standards  require that we plan and perform the audits to obtain reasonable assurance about  whether the financial statements are free of material misstatement. An audit  includes consideration of internal control over financial reporting as a basis  for designing audit procedures that are appropriate in the circumstances, but  not for the purpose of expressing an opinion on the effectiveness of the  Company’s internal control over financial reporting. Accordingly, we express no  such opinion. An audit also includes examining, on a test basis, evidence  supporting the amounts and disclosures in the financial statements, assessing  the accounting principles used and significant estimates made by management, as  well as evaluating the overall financial statement presentation. We believe  that our audits provide a reasonable basis for our opinion.

As discussed in Note 5 to the financial statements, Z5  Technologies, LLC is related to several other companies and individuals through  common ownership. Z5 Technologies, LLC has entered into numerous and recurring  business transactions with these related companies and individuals during the  year ended December 31, 2006. These transactions include both written and  unwritten arrangements for working capital and other financing, sales  facilitation, and general management, occupancy and other cost sharing  arrangements. If these transactions were entered into with unrelated parties,  terms and conditions of the underlying arrangements may have been different  than those entered into with related parties, and those differences may have had  a material impact on the financial position of the Company at December 31, 2006  and 2005 and the operations of the Company for the year ended December 31,  2006.

In our opinion, the financial statements referred to above present  fairly, in all material respects, the financial position of Z5 Technologies,  LLC as of December 31, 2006 and 2005, and the results of its operations and its  cash flows for the year ended December 31, 2006 in conformity with accounting  principles generally accepted in the United States of America.

/s/  O’Connor Davies Munns & Dobbins, LLP

Stamford, Connecticut 
May 22, 2007



21

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FORTIFIED HOLDINGS CORP.

CONSOLIDATED BALANCE SHEET

|                                                |   | December 31, |  
|----------------------------------------------- | - | ------------ | -
|Assets                                          |   | 2007         |  
|Current assets:                                 |   |              |  
|Cash                                            | $ | 1,835,509    |  
|Accounts
      receivable                       |   | 107,447      |  
|Inventories, net                                |   | 190,408      |  
|Notes
      receivable, net                     |   | 1,343,415    |  
|Prepaid expenses and other
      current assets |   | 25,316       |  
|                                                |   |              |  
|Total current assets                            |   | 3,502,095    |  
|                                                |   |              |  
|Property and equipment, net                     |   | 92,016       |  
|Other assets                                    |   | 340,500      |  
|                                                |   |              |  
|Total assets                                    | $ | 3,934,611    |  
|                                                |   |              |  
|Liabilities and Stockholders' Equity            |   |              |  
|Current liabilities:                            |   |              |  
|Accounts payable
      and accrued expenses     | $ | 889,171      |  
|Demand notes payable                            |   | 1,541,618    |  
|Convertible
      notes payable                 |   | 814,225      |  
|Promissory notes payable                        |   | 4,416,687    |  
|Other current
      liabilities                 |   | 92,616       |  
|                                                |   |              |  
|Total current liabilities                       |   | 7,754,317    |  
|                                                |   |              |  
|Other liabilities                               |   | 3,405,000    |  
|                                                |   |              |  
|Total liabilities                               |   | 11,159,317   |  
|                                                |   |              |  
|Commitments and contingencies (Note 11)         |   |              |  
|                                                |   |              |  
|Stockholders' Equity (Deficit)                  |   |              |  
|Capital stock                                   |   |              |  
|Common stock,
      par value $.001 per share;  |   |              |  
|200,000,000 shares authorized                   |   |              |  
|60,707,605 shares issued and outstanding        |   | 60,708       |  
|Additional paid-in capital                      |   | 3,043,428    |  
|Retained
      earnings (deficit)               |   | (10,328,842  | )
|                                                |   |              |  
|Total stockholders' equity (deficit)            |   | (7,224,706   | )
|                                                |   |              |  
|Total liabilities and stockholders' equity      | $ | 3,934,611    |  

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

22

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|FORTIFIED HOLDINGS CORP.                       
|-----------------------------------------------
|                                               
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

|                                          |   | For the year ended |  
|----------------------------------------- | - | ------------------ | -
|                                          |   | December 31,       |  
|                                          |   | 2007               |  
|                                          |   |                    |  
|Net sales                                 | $ | 155,633            |  
|Cost of sales                             |   | 428,411            |  
|Gross
      profit (loss)                 |   | (272,778           | )
|                                          |   |                    |  
|Operating expenses:                       |   |                    |  
|Research and development                  |   | 854,443            |  
|Selling,
      general and administrative |   | 2,558,641          |  
|Consulting fees                           |   | 718,013            |  
|Total
      operating expenses            |   | 4,131,097          |  
|Income (loss) from operations             |   | (4,403,875         | )
|Other income and expenses:                |   |                    |  
|Interest income                           |   | 53,592             |  
|Interest
      expense                    |   | (399,965           | )
|Loss before provision for income taxes    |   | (4,750,248         | )
|Provision for income taxes                |   | -                  |  
|Net income (loss)                         | $ | (4,750,248         | )
|                                          |   |                    |  
|Basic and diluted net income (loss) per   |   |                    |  
|share                                     | $ | (0.23              | )
|                                          |   |                    |  
|Basic and diluted weighted average        |   |                    |  
|Shares Outstanding                        |   | 20,740,390         |  

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

23

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|FORTIFIED HOLDINGS CORP.            
|------------------------------------
|                                    
|CONSOLIDATED STATEMENT OF CHANGES IN
|STOCKHOLDERS EQUITY (DEFICIT)      

|                                     |  |              |  |   |         |  |   | Additional |   |   | Retained    |   |   |            |  
|------------------------------------ |  | ------------ |  | - | ------- |  | - | ---------- | - | - | ----------- | - | - | ---------- | -
|                                     |  | Common Stock |  |   | Paid-In |  |   | Earnings   |   |   |             |  
|                                     |  | Shares       |  |   | Amount  |  |   | Capital    |   |   | (Deficit)   |   |   | Total      |  
|Balance, January 1, 2006 (Note 1)    |  | -            |  | $ | -       |  | $ | -          |   | $ | (36,720     | ) | $ | (36,720    | )
|Net income                           |  | -            |  |   | -       |  |   | -          |   |   | 122,449     |   |   | 122,449    |  
|Balance, December 31, 2006 (Note 1)  |  | -            |  | $ | -       |  | $ | -          |   | $ | 85,729      |   | $ | 85,729     |  
|Net assets and Public company shares |  |              |  |   |         |  |   |            |   |   |             |   |   |            |  
|outstanding on date of merger        |  |              |  |   |         |  |   |            |   |   |             |   |   |            |  
|(September 13, 2007)                 |  | 50,600,000   |  |   | 50,600  |  |   | -          |   |   | (659,323    | ) |   | (608,723   | )
|Public company shares issued in      |  |              |  |   |         |  |   |            |   |   |             |   |   |            |  
|exchange for private company shares  |  | 5,000,000    |  |   | 5,000   |  |   | -          |   |   | (5,000      | ) |   | -          |  
|Note payable to Shareholder          |  | -            |  |   | -       |  |   | -          |   |   | (5,000,000  | ) |   | (5,000,000 | )
|Issuance of stock for cash, net      |  | 2,550,000    |  |   | 2,550   |  |   | 915,450    |   |   | -           |   |   | 918,000    |  
|Fee paid in stock                    |  | 255,000      |  |   | 255     |  |   | (255       | ) |   | -           |   |   | -          |  
|Conversion of notes                  |  | 2,302,605    |  |   | 2,303   |  |   | 918,738    |   |   | -           |   |   | 921,041    |  
|Employee Stock based compensation    |  | -            |  |   | -       |  |   | 572,729    |   |   | -           |   |   | 572,729    |  
|Non-employee Stock based             |  |              |  |   |         |  |   |            |   |   |             |   |   |            |  
|compensation                         |  | -            |  |   | -       |  |   | 636,766    |   |   | -           |   |   | 636,766    |  
|Net loss                             |  | -            |  |   | -       |  |   | -          |   |   | (4,750,248  | ) |   | (4,750,248 | )
|Balance, December 31, 2007           |  | 60,707,605   |  | $ | 60,708  |  |   | 3,043,428  |   | $ | (10,328,842 | ) | $ | (7,224,706 | )

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

24

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|FORTIFIED HOLDINGS CORP.             
|-------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                             |   | Year Ended        |   |   | Year Ended        |  
|------------------------------------------------------------ | - | ----------------- | - | - | ----------------- | -
|                                                             |   | December 31, 2007 |   |   | December 31, 2006 |  
|Cash flows from operating activities:                        |   |                   |   |   |                   |  
|Net income (loss)                                            | $ | (4,750,248        | ) | $ | 122,449           |  
|Adjustments to
      reconcile net income (loss) to          |   |                   |   |   |                   |  
|net cash provided by (used in)
      operating activities:   |   |                   |   |   |                   |  
|Depreciation                                                 |   | 29,545            |   |   | 26,468            |  
|Write down of capitalized
      software                     |   | 61,845            |   |   | -                 |  
|Stock
      based compensation                               |   | 1,209,495         |   |   | -                 |  
|Non-cash interest expense                                    |   | 350,310           |   |   | -                 |  
|Non-cash
      interest income                               |   | (43,841           | ) |   | (2,495            | )
|Loss on disposal of
      assets                             |   | 36,891            |   |   | -                 |  
|Provision
      for loss on notes receivable                 |   | 45,803            |   |   | -                 |  
|Provision for obsolete
      inventory                       |   | 35,000            |   |   | -                 |  
|Provision
      for warranty costs                           |   | 15,000            |   |   | -                 |  
|Changes in assets and
      liabilities:                     |   |                   |   |   |                   |  
|Accounts receivable                                          |   | 117,315           |   |   | (224,762          | )
|Inventories                                                  |   | (157,507          | ) |   | (67,901           | )
|Prepaid expenses and other current assets                    |   | (14,799           | ) |   | -                 |  
|Accounts
      payable and accrued expenses                  |   | 287,119           |   |   | 302,937           |  
|Other current liabilities                                    |   | 87,618            |   |   | -                 |  
|Net cash provided by (used
      in) operating activities    |   | (2,690,454        | ) |   | 156,696           |  
|                                                             |   |                   |   |   |                   |  
|Cash flows from investing activities:                        |   |                   |   |   |                   |  
|Purchases of property,
      plant and equipment             |   | (110,756          | ) |   | (34,848           | )
|Purchases of capitalized software                            |   | (61,845           | ) |   |                   |  
|Notes receivable                                             |   | (69,721           | ) |   | (108,750          | )
|Net cash used in
      investing activities                  |   | (242,322          | ) |   | (143,598          | )
|                                                             |   |                   |   |   |                   |  
|Cash flows from financing activities:                        |   |                   |   |   |                   |  
|Proceeds related to
      recapitalization                   |   | 1,271,649         |   |   | -                 |  
|Proceeds from issuance of convertible
      debt             |   | 200,000           |   |   | -                 |  
|Proceeds from
      (repayment of) notes                     |   | (845,000          | ) |   | 145,402           |  
|Proceeds from issuance of common stock,
      net            |   | 918,000           |   |   | -                 |  
|Advances for future
      issuance of common stock, net      |   | 3,064,500         |   |   | -                 |  
|Net cash provided by
      financing activities              |   | 4,609,149         |   |   | 145,402           |  
|                                                             |   |                   |   |   |                   |  
|Net change in cash                                           |   | 1,676,373         |   |   | 158,500           |  
|Cash, Beginning
      of period                              |   | 159,136           |   |   | 636               |  
|                                                             |   |                   |   |   |                   |  
|Cash, End
      of period                                    | $ | 1,835,509         |   | $ | 159,136           |  
|                                                             |   |                   |   |   |                   |  
|Supplemental
      Disclosures of Cash Flow Information:     |   |                   |   |   |                   |  
|Net assets acquired through
      issuance of stock and debt | $ | (659,323          | ) | $ | -                 |  
|Non-cash stock
      issuance costs                          | $ | 102,000           |   | $ | -                 |  

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

25

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FORTIFIED HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis of Presentation

Fortified Holdings Corp. was incorporated in the State of
Nevada, on February 5, 2004 under the name Major Creations Incorporated
(Major). On December 5, 2006, Major changed its name to Aegis Industries, Inc.
At that time, Major, a reseller of vintage style tractors, had decided to pursue
other business objectives including the acquisition of Aegis Industries, Inc., a
Delaware corporation that was in the business of designing, developing and
manufacturing intermediate force products for military, law enforcement and
security forces. A definitive agreement was never finalized, however, and the
parties ceased discussions (see Note 11). On June 5, 2007, the Company formed a
wholly-owned subsidiary, Fortified Holdings Corp. in the State of Colorado, and
on June 6, 2007, the Company merged with Fortified Holdings Corp. and changed
its name to Fortified Holdings Corp. On September 13, 2007, Fortified completed
the acquisition of Z5 Technologies LLC (Z5). The acquisition of Z5 was
effected through the merger of Z5 with and into a subsidiary of Fortified (the
Merger) formed for the purpose of the Merger, pursuant to the Agreement and
Plan of Merger (the Merger Agreement).

Prior to the Merger, Fortified (then a development stage
enterprise), the legal acquirer, had no business operations and no working
capital and Z5 was a non-reporting privately held company. For accounting
purposes, the Merger has been treated as a recapitalization of Z5 using
accounting principles applicable to reverse acquisitions, with Z5 being treated
as the accounting parent (acquirer). Accordingly, all equity and options of Z5
prior to the Merger have been converted into shares and options of the Company.
The acquirer is considered to have issued shares of its Common Stock to
shareholders of Fortified in exchange for the net assets of Fortified. The net
assets consisted of $1,164,000 of notes receivable and $1,314,000 of other
current and non-current assets and $3,087,000 of notes payable and other current
liabilities. Results of operations for the periods prior to the Merger reflect
the operations of Z5. Historical equity of Z5 prior to the Merger has been
retroactively restated to reflect the number of shares outstanding immediately
post-Merger. Per share information for periods prior to the merger has been
restated to reflect the number of equivalent shares received by Z5s members.
Pro forma information giving effect to the acquisition of Z5 has not been
provided since the combination is not considered a business combination under
Statement of Financial Accounting Standards No. 141, Business
Combinations. The Company is quoted on the Over-the-Counter Bulletin Board
under the symbol FFDH.

Z5 was in the business of developing and selling a line of
man-portable Command and Control, Communications and Computer (C4) solutions for
field based incident management and emergency operations support. Z5s products
are marketed under the NOMAD brand, principally for use by the military, first
responders, relief workers and high risk industries. To effect the Merger, Z5
merged with a new, wholly-owned subsidiary of Fortified, which has been renamed
Fortified Data Communications, Inc. or Fortified DataCom and which now
conducts the former Z5 business.

As consideration for the Merger, Fortified issued 5,000,000
shares of the Companys common stock and a promissory note in the amount of
$5,000,000 to Thomas Keenan Ventures LLC (TKV), the owner of all Z5s equity
outstanding at the time of the Merger. In addition, the Company has agreed to
issue TKV another 10,000,000 shares in two future tranches: 5,000,000 shares
were issued on January 7, 2008 upon raising new capital and the final 5,000,000
shares will be issued on February 15, 2008 or upon raising a total of $6.0
million in new capital (including the prior amounts), if earlier.

Prior to the Merger, Z5 borrowed $900,000 from Fortified under
various notes payable. These borrowings, in conjunction with $371,649 of cash
held by Fortified at the time of the Merger provided $1,271,649 of proceeds
related to the recapitalization. In connection with the Merger, the Company
entered into a Standby Financing Agreement with a third party, Clarus Capital
Limited and one of its affiliates (collectively, Clarus), under which Clarus
has committed to direct or indirect investments up to an aggregate of $2.7
million. Of this amount, $500,000 was funded prior to the Merger and $200,000
was funded subsequent to the merger; this agreement expired with no further
funding from Clarus.

The shares issued to TKV in the Merger are subject to a
Registration Rights Agreement, under which the Company undertook to register the
shares for resale as promptly as practicable, but no later than six months after
any registration

26

---

of shares that the Company sells in a private placement
financing after the closing of the Merger, or one year after the closing of the
Merger, if earlier.

The Agreement does not, however, stipulate specific penalties
if the foregoing deadlines are not met. As of the filing of this report, no
registration statement covering the shares had yet been filed with the U.S.
Securities and Exchange Commission.

Note 2  Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of
Fortified Holdings Corp. and its wholly owned subsidiary. All intercompany
balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements and related disclosures
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and revenue and
expenses during the period reported. The Companys most significant estimates
include assessing the collectability of accounts receivable and notes
receivable, the use and recoverability of inventory, determining the fair value
of stock-based awards, useful lives of depreciation and amortization periods of
tangible and intangible assets, and long-lived asset impairments, among others.

The markets for the Companys products are characterized by
intense competition, rapid technological developments, evolving standards, short
product life cycles and price competition, all of which could impact the future
realizable value of the Companys assets. Estimates and assumptions are reviewed
periodically and the effects of revisions are reflected in the period that they
are determined to be necessary. Actual results could differ from those
estimates.

Long lived Assets

The Company reviews long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. An asset is considered to be impaired when the sum of
the undiscounted future net cash flows expected to result from the use of the
asset and its eventual disposition exceeds its carrying amount. The amount of
impairment loss, if any, is measured as the difference between the net book
value of the asset and its estimated fair value.

Business Segments and Concentrations

Statement of Financial Accounting Standards (SFAS) No. 131,
Disclosure about Segments of an Enterprise and Related Information,
requires an enterprise to report segment information based on how management
internally evaluates the operating performance of its business units (segments).
The Companys operations are confined to one business segment: the design,
development and manufacture of a comprehensive line of man-portable incident
command platforms and incident command software for the military, law
enforcement and other markets, under the brand names of NOMADTM and
VantagePointTM.

The Companys business depends in large part on the demand for
its communications equipment and related products. The Companys revenues can be
significantly affected by changes in demand for these types of products. These
markets are competitive and rapidly changing and significant technological
changes, new customer requirements, changes in customer buying behavior or the
emergence of competitive products with new capabilities or technologies could
adversely affect revenues and operating results. Also, portions of the Companys
revenues are derived from customers that individually accounted for greater than
10% of the Companys revenues for the years presented. For the year ended
December 31, 2007 five customers accounted for all of net sales. Two of these
customers accounted for all of accounts receivable at December 31, 2007. For the
year ended December 31, 2006, three customers accounted for 90% of net
sales.

27

---

The Company contracts with a particular supplier to purchase
components and build certain sub-assemblies. Purchases from this vendor totaled
approximately $444,000 and $134,000 during the year ended December 31, 2007 and
2006, respectively. Total accounts payable to this vendor amounted to
approximately $23,000 at December 31, 2007. Although there are other vendors
that the Company could use for procuring these components and services, a change
would cause a delay in the production process, which could have an adverse
impact on operating results.

Cash and Cash Equivalents

The Company maintains cash in bank deposits which, at times,
may exceed federally insured limits. The Company has not experienced any losses
on these accounts. Cash equivalents include all highly liquid debt instruments
with an original maturity of three months or less at the date of acquisition.
The carrying value of these instruments approximates fair value.

Accounts Receivable

The Company records an allowance for doubtful accounts based on
the Companys estimated losses resulting from the inability of its customers to
make required payments. The Company did not require an allowance for doubtful
accounts as of December 31, 2007.

Inventories

Inventories, consisting primarily of sub-assemblies and
purchased components, are stated at the lower of cost, determined on a first-in,
first-out basis, or market. The Company records an inventory reserve based upon
the estimated resale value for parts that have been deemed to have a fair market
value that is lower than cost.

Property and Equipment

Property and equipment is stated at cost less accumulated
depreciation. Depreciation and amortization is determined using the
straight-line method over the estimated useful lives of the various asset
classes.

Estimated useful lives range from two to seven years. Major
renewals and improvements are capitalized and minor replacements, maintenance,
and repairs are charged to current operations as incurred. Upon retirement or
disposal of assets, the cost and related accumulated depreciation are removed
from the consolidated balance sheets and any gain or loss is reflected in the
consolidated statements of operations.

Capitalized Software Costs

The Company capitalizes software product development costs in
accordance with Financial Accounting Standards Board (FASB) Statement No. 86
(SFAS No. 86), Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed. This statement specifies that costs incurred
internally in creating a computer software product shall be charged to expense
when incurred as research and development until technological feasibility has
been established for the product. Technological feasibility is established upon
completion of all planning, designing, and testing activities that are necessary
to establish that the product can be produced to meet its design specifications
including functions, features, and technical performance requirements. The
Company ceases capitalization of internally developed software when the product
is made available for general release to customers and thereafter, any
maintenance and customer support is charged to expense when related revenue is
recognized or when those costs are incurred. The Company amortizes such
capitalized costs on a straight line basis over the estimated life of the
software. SFAS No. 86 also requires that the unamortized capitalized costs of a
computer software product be compared to the net realizable value of such
product at each reporting date. To the extent the unamortized capitalized cost
exceeds the net realizable value of a software product based upon its estimate
future gross revenues, reduce by estimated future costs of completing and
disposing of the product, the excess is written off. During 2007, $61,845 was
capitalized and subsequently written off and recorded as research and
development cost.

28

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Convertible Instruments

When the Company issues convertible debt securities with a
non-detachable conversion feature that provides for an effective rate of
conversion that is below market value on the commitment date, it is known as a
beneficial conversion feature (BCF). Pursuant to EITF Issue No, 98-5 
Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratiosand EITF Issue No. 00-27,the conversion feature of a security that has characteristics of an equity
instrument is measured at its intrinsic value at the commitment date and is
recorded as additional paid in capital. A portion of the proceeds of the
security issued is allocated to the conversion feature equal to its intrinsic
value to a maximum of the amount allocated to the convertible instrument. The
resulting discount of the debt instrument is amortized into income as interest
expense over the term of the convertible instrument.

Revenue Recognition

Revenue is derived from the sale of the Companys products.
Revenue is recognized when persuasive evidence of an arrangement exists, the
product has been delivered and title and risk of loss have transferred, the
price is fixed and determinable and collection of the resulting receivable is
reasonably assured. Utilizing these criteria, product revenue is generally
recognized upon delivery of the product at the end customers location when risk
and rewards of ownership have passed to the customer. Revenue is deferred from
sales to distributors until the product is ultimately sold to the end-customer.
Sales revenue is not reduced to reflect estimated returns because the Companys
sales arrangements do not grant end-customers a right of return. Products are
not subject to post shipment customer acceptance. There are no post shipment
obligations such as installation or training. Accordingly, unless those
obligations are specifically contained in a contract, deferral of revenue is not
required for either customer acceptance or post shipment obligations.

Revenue from rental of the Companys products is recognized
when payments are due and collection of the resulting receivable is reasonably
assured. Revenue is recognized over the term of the lease which is generally one
year.

Research and Development Costs

Research and development costs are charged to expense as
incurred.

Income Taxes

The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, which requires the use of the assets and liabilities method of
accounting for deferred income taxes (see Note 8).

The provision for income taxes includes federal, state and
local income taxes currently payable and deferred taxes resulting from temporary
differences between the financial statement and tax bases of assets and
liabilities. Valuation allowances are recorded to reduce deferred tax assets
when it is more likely than not that a tax benefit will not be realized.

Stock-Based Compensation

The Company has begun recording compensation expense associated
with stock options and other forms of equity compensation in accordance with
Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payments(SFAS 123R), as interpreted by SEC Staff Accounting
Bulletin No. 107. Accordingly, the Company recognizes compensation expense on
all options issued subsequent to January 1, 2006, based on the grant-date fair
value estimated in accordance with the provisions of SFAS 123R. A compensation
charge is recorded when it is probable that performance conditions, if any, will
be satisfied. The probability of vesting is updated at each reporting period and
compensation is adjusted via a cumulative catch-up adjustment or prospectively
depending upon the nature of the change.

29

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Options or warrants issued to non-employees for services are
recorded at fair value and accounted for in accordance with Emerging Issues Task
Force (EITF) Issue No. 96-18, Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services. The Company remeasures the fair value of these options at
each reporting period prior to vesting and records the changes in fair value of
these options as compensation expense in the period of change in accordance with
FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plan. For equity instruments that are immediately
vested, compensation cost is measured on the date such instruments vest or
performance commitment is reached, as defined in EITF 96-18.

During the year ended December 31, 2007, the Company granted
1,545,298 options to consultants under the Plan. The total fair value of the
options granted to non-employees at December 31, 2007 was $686,072. The Company
recognized compensation expense of $636,766 related to non-employee option
grants in the year ended December 31, 2007.

Earnings Per Share

Earnings per share is presented in accordance with the
provisions of SFAS No. 128, Earnings Per Share (EPS). Basic earnings per share
is calculated by dividing net income or loss by the weighted average number of
outstanding common shares during the period. Diluted earnings per share is
calculated by adjusting net income or loss and outstanding shares for all
dilutive potential common shares outstanding. Diluted net loss per common share
is equal to basic net loss per common share since all potential common shares
are anti-dilutive. Potential common shares excluded from diluted net loss per
share consist of stock options, convertible debt instruments and warrants. There
were no potential common shares at December 31, 2007. The number of potential
common shares for each type of security, calculated using the treasury stock
method as of December 31, 2007, is summarized as follows:

Contingently issuable shares
    
    10,000,000Common stock options
    
    3,379,579Warrants
    
    718,669Convertible debt instruments
    
    1,067,136Total
    
    15,165,384


Recently Adopted Accounting Pronouncements

The Company has adopted the provisions of FASB Interpretation
No 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109" ("FIN 48"). FIN 48 addresses the determination of whether tax
benefits claimed or expected to be claimed on a tax return should be recorded in
the financial statements. Under FIN 48, the Company may recognize the tax
benefit from an uncertain tax position only if it is more likely than not that
the tax position will be sustained on examination by the taxing authorities,
based on the technical merits of the position. The Company has determined that
the Company has no uncertain tax positions requiring recognition under FIN
48.

Recent Accounting Developments

In December 2007, the FASB issued SFAS No. 141R, Business
Combinations. This Statement replaces FASB SFAS No. 141. SFAS 141R establishes
principles and requirements for how the acquirer of a business recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree. SFAS 141R
also provides guidance for recognizing and measuring the goodwill acquired in
the business combination and determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination. This Statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The
Company believes the adoption of this pronouncement will not have a material
impact on the Companys financial statements.

30

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In December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statementsan amendment of ARB No. 51. This
Statement amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. In addition to the amendments to ARB
51, this Statement amends FASB Statement No. 128, Earnings per Share; so that
earnings-per-share data will continue to be calculated the same way those data
were calculated before this Statement was issued. This Statement is effective
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. The Company believes the adoption of this pronouncement
will not have a material impact on the Companys financial statements.

In February 2007, the Financial Accounting Standards Board
(FASB) issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, including an amendment to SFAS No. 115 (SFAS No.
159). This statement permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reporting earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This statement is expected to expand the use of fair value
measurements, which is consistent with the FASBs long-term measurement
objectives for accounting for financial instruments. SFAS No. is effective for
fiscal years beginning after November 15, 2007. The Company does not expect that
the adoption of SFAS No. 159 will have a material impact on the Companys
financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements. This
statement is effective for financial statements issued for fiscal years ending
beginning after November 15, 2007, however earlier application is encouraged.
The Company does not expect the adoption of SFAS 157 will have a material impact
on its consolidated financial statements

Reclassifications

Certain amounts in the 2006 financial statements have been
reclassified to conform to the 2007 presentation with no impact or change to
previously reported net income or stockholders equity.

Note 3  Going Concern

The financial statements have been prepared on a going-concern
basis, which assumes realization of all assets and settlement or payment of all
liabilities in the ordinary course of business. The Company has limited capital
resources, net operating losses and negative cash flows from operations since
inception and expects these conditions to continue for the foreseeable future.
In addition, it is not anticipated that the Company will generate sufficient
revenues from product sales during the next twelve months to satisfy all of its
current liabilities and provide ongoing working capital. The Company is
currently seeking to raise additional funds through the private sale of equity
securities, a portion of which has been raised between the balance sheet date
and the filing of this report (see Note 14), and the Company may in the future
seek other financing sources. There can be no assurance that such additional
financing, if at all available, can be obtained on terms acceptable to the
Company. In the event that sufficient funds are not available, the Company will
need to postpone or discontinue planned operations. Continuance of the Company
as a going concern is dependent upon, among other things, the Companys ability
to obtain adequate long-term financing and/or its attainment of profitable
operations. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

31

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Note 4 - Notes Receivable(Note 11)

Notes receivable consist of the following demand notes from
Aegis Industries Inc. (AI), from an employee and an unrelated third party:

December 31,2007(a) AI, accrues interest at 10% per annum
    $
    295,283(b) AI, accrues interest at 12% per annum
    
    250,000(c) AI, accrues interest at 12% per annum
    
    175,000(d) AI, accrues interest at 12% per annum
    
    75,000(e) AI, accrues interest at 12% per annum
    
    300,000(f) Note receivable from employee
    
    128,750(g) Note receivable from FastNet
    
    45,000Total principal
    $
    1,269,033Accrued interest
    
    120,185Reserve
    
    (45,803
    )Notes receivable, net
    $
    1,343,415


(a) On December 1, 2006, the Company loaned $295,283 to AI. The
loan is unsecured and is due on demand. Subsequent to demand for payment,
principal and interest in arrears will bear interest at 10% per annum,
calculated annually. Accrued interest of $31,955 is included in notes receivable
at December 31, 2007.

(b) On January 21, 2007, the Company loaned $250,000 to AI. The
loan accrues interest at 12% per annum. The loan is unsecured and is due on
demand. Subsequent to demand for payment, principal and interest in arrears will
bear interest at 30% per annum. Accrued interest of $27,452 is included in notes
receivable at December 31, 2007.

(c) On March 16, 2007, the Company loaned $175,000 to AI. The
loan accrues interest at 12% per annum. The loan is unsecured and is due on
demand. Subsequent to demand for payment, principal and interest in arrears will
bear interest at 30% per annum. Accrued interest of $16,685 is included in notes
receivable at December 31, 2007.

(d) On March 19, 2007, the Company loaned $75,000 to AI. The
loan accrues interest at 12% per annum. The loan is unsecured and is due on
demand. Subsequent to demand for payment, principal and interest in arrears will
bear interest at 30% per annum. Accrued interest of $7,077 is included in notes
receivable at December 31, 2007.

(e) On March 26, 2007, the Company loaned $300,000 to AI. The
loan accrues interest at 12% per annum. The loan is collateralized by all of the
assets of AI and is due on demand. Subsequent to demand for payment, principal
and interest in arrears will bear interest at 12% per annum. Accrued interest of
$27,617 is included in notes receivable at December 31, 2007.

(f) Note receivable from employee is due on demand and accrues
interest at 5% per annum; subsequent to demand for payment, principal and
interest in arrears accrue interest at 9% per annum. Accrued interest of $8,896
is included in notes receivable at December 31, 2007.

(g) On November 27, 2007, the Company loaned $45,000 to
FastNet, Inc. The loan accrues interest at 12% per annum. The loan is
collateralized by assets of FastNet, Inc. and is due on January 31, 2008.
Principal and interest in arrears will bear interest at 18% per annum. Accrued
interest of $503 is included in notes receivable at December 31, 2007.

32

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Note 5 - Property and Equipment

Property and equipment, at cost, consists of the following:

December 31,2007Demonstration equipment
    $
    91,712Computer equipment
    
    25,789Office furniture and fixtures
    
    1,603119,104Accumulated depreciation
    
    (27,088
    )Net book value
    $
    92,016


Depreciation expense amounted to $29,545 and $26,468 for the
year ended December 31, 2007 and 2006, respectively. During, 2007, obsolete
demonstration equipment and related accumulated depreciation of $34,848 and
$30,252, respectively, were written off.

Note 6 - Notes Payable (including Notes Payable to
Shareholder)

Notes payable consists of the following:

December 31,2007(A) Demand note
    $
    315,000(B) Demand notes
    
    1,085,000Accrued interest
    
    141,618$
    1,541,618(C) Promissory note payable to TKV
    $
    4,250,000(D) Promissory note to shareholder
    
    75,130Accrued interest
    
    91,557$
    4,416,687


(A) On November 28, 2006, the company received loan proceeds of
$315,000. The amount is unsecured and is due on demand. The principal amount
bears interest at 12% per annum. Any payment of principal or interest in arrears
bears interest at 12% per annum. Default in payment shall, at the option of the
holder, render the entire balance payable. Accrued interest of $41,218 is
included in notes payable at December 31, 2007.

(B) During the period December 20, 2006 through August 24,
2007, the Company received loan proceeds totaling $1,085,000. The notes are
unsecured and accrue interest at the rate of 12% per annum. Any payment of
principal and interest in arrears bears interest at 30% per annum. Accrued
interest of $100,400 is included in loans payable at December 31, 2007.

(C) Secured note, as amended, payable to TKV in conjunction
with the acquisition of Z5 on September 13, 2007; bearing interest at 5% per
annum (increasing to 13% if not paid in full on or before March 15, 2008, or
upon occurrence of certain default events as defined in the note), guaranteed by
the Companys operating subsidiary, Fortified DataCom and collateralized by
Fortified DataComs assets. On November 15, 2007, TKV and the Company entered
into a Note Modification Agreement (the Note Amendment), amending the Note to
revise the payment schedule thereunder. The Note Amendment defers $750,000 of
the payments previously scheduled to be made in 2007 until 2008, in
consideration of a modest acceleration of payments previously scheduled for
March 31, 2008 to various earlier dates in 2008. The Note Amendment was made
effective October 17, 2007, upon the expiration of the cure period applicable to
the original due date of the first payment to TKV. Pursuant to the Note
Amendment, TKV also waived the Companys failure to make that payment and the
subsequent payment on a timely basis (although no acceleration notice had
previously been given by TKV). No other terms of the Note were amended.

33

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Pursuant to the Note Amendment, the revised payment schedule is
as follows:

| | - | $250,000 on or before November 19, 2007                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------
| | - | $500,000 on or before December 14, 2007                                                                                
| | - | $1,000,000 on or before January 15, 2008                                                                               
| | - | $1,000,000 on or before January 31, 2008                                                                               
| | - | $1,000,000 on or before February 15, 2008                                                                              
| | - | $1,000,000 on or before February 28, 2008                                                                              
| | - | Final installment in the amount equal to
      the then outstanding principal and interest on or before March 15, 2008.

$750,000 of principal was repaid during 2007. Accrued interest
of $73,472 is included in promissory notes payable at December 31, 2007. Through
March 2008, the Company paid an additional $500,000 under the note. The note was
amended a second time, effective March 28, 2008, to further extend the payment
schedule, as described in Note 14.

(D) During 2006, the Company received loan proceeds from an
officer and shareholder of the Company totaling $170,130. The amount was due
under an unsecured promissory note payable to an officer of the Company on
December 31, 2007 or upon an equity raise of $1 million, if earlier. The
principal amount bears interest at 12% per annum. $95,000 of principal was
repaid during 2007. Accrued interest of $18,085 is included in promissory notes
payable at December 31, 2007.

Note 7 - Convertible notes payable

Notes with Beneficial Conversion Feature

During the period April 26, 2007 through May 18, 2007, the
Company issued a series of convertible notes upon receiving cash proceeds
aggregating $750,000. The notes are unsecured and are due upon the occurrence of
either (i) the consummation of one or more related transactions pursuant to
which no less than $15,000,000 of equity securities of the Company are sold for
cash or (ii) October 31, 2007. The principal amount bears interest at 12% per
annum. At any time that the principal and accrued interest remains outstanding,
the lender of each note has the right to convert such principal and accrued
interest into shares of the Companys common stock at a rate of $0.50 per share,
which was less than the fair value of the Companys common stock on the date of
issue. Accrued interest of $64,225 is included in convertible notes payable at
December 31, 2007.

The convertible notes payable had a beneficial conversion
discount because the conversion prices of the notes were less than the fair
value of the Companys common stock at the date of issuance. A discount of
$750,000 was recorded with the offset to additional paid in capital for the fair
market value of the beneficial conversion feature (the BCF). The resulting
discount (BCF) was amortized into income as interest expense over the term of
the debt. As of December 31, 2007, the BCF was fully amortized.

Other Notes

During the period July 23, 2007 through October 22, 2007, the
Company issued a series of convertible notes upon receiving cash proceeds
aggregating $900,000. Conversion was tied to the consummation of a Subsequent
Financing, as defined, with a conversion price equal to the price of the shares
issued in such financing. The initial closing under a private placement was
completed as of November 16, 2007; accordingly, the convertible notes below
converted to equity contemporaneously with such closing (see Note 9).

On July 23, 2007, the Company issued a convertible note in the
  principal amount of $200,000 for cash proceeds. The principal amount bore interest
  at 12% per annum. The principal and interest were immediately convertible upon
  the consummation of subsequent financing transactions in which the Company raises
  a minimum of $500,000 through the sale and issuance of equity or equity-linked
  securities. On November 16, 2007, the convertible notes plus accrued interest
  of $7,627 were converted into 519,068 shares of common stock using the price
  determined for the private placement.

On September 5, 2007, September 6, 2007 and October 22, 2007,
  pursuant to its funding agreement with Clarus, the Company issued convertible
  notes upon receiving cash proceeds aggregating $700,000. The notes are unsecured
  and mature one year from the issuance dates. The principal amounts bear interest
  at 12% per annum and any payments in arrears bear interest at 18% per annum.
  The principal and interest are mandatorily and automatically convertible upon
  the consummation, before the maturity date, of subsequent financing transactions
  in which the Company raises a minimum of $500,000 through the sale and issuance
  of equity or equity-linked securities. On November 16, 2007, the convertible
  notes plus accrued interest of $13,414 were converted into 1,783,534 shares
  of common stock using the price determined for the private placement.

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NOTE 8 - Income Taxes

The Company’s results of operations during 2006 and through
  the date of the Merger (September 13, 2007) were not subject to tax at the Company
  level as Z5 was a limited liability company and tax gains and losses passed
  through to its members as a partnership under Subchapter K of the Internal Revenue
  Code (see Note 1).

The provision for income taxes differs from the amount computed
  by applying the statutory rate as follows:

Year ended December 31,2007
      
      
      2006Income taxes using U.S. federal statutory
        rate
      
      ($1,615,084
      )
      $
      41,633Partnership tax effect
      
      537,624
      
      
      (41,633
      )State tax benefit, net of federal effect
      
      (114,836
      )
      
      -Other
      
      74,563
      
      
      -Increase in valuation allowance
      
      1,117,733
      
      
      -Provision for income taxes
      
      -
      
      
      -


The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities are as
follows:

Year ended December 31,2007
      
      
      2006Stock based compensation
      $
      464,000
      
      $
      -Inventory reserves
      
      13,000
      
      
      -Reserve for uncollectible notes
      
      17,000
      
      
      -Goodwill
      
      3,853,000
      
      
      -Fixed assets
      
      11,000Net operating loss carryforward
      
      611,000
      
      
      -4,969 ,000
      
      
      -Valuation allowance
      
      ($4,969,000
      )
      $
      -


In conjunction with the Merger, the Company allocated approximately
  $10,150,000 to goodwill, which can generally be deducted over 15 years for income
  tax purposes, and, therefore, created a $3,853,000 deferred tax asset. In assessing
  the realizability of deferred tax assets, the Company considers whether it is
  more likely than not that some portion or all of the deferred tax assets will
  not be realized. The ultimate realization of deferred tax assets is dependent
  upon the generation of future taxable income during the periods in which those
  temporary differences become deductible. Based on the Company’s historical
  net losses, management does not believe that it is more likely than not that
  the Company will realize the benefits of these deferred tax assets and, accordingly,
  a full valuation allowance has been recorded against the deferred tax assets
  as of December 31, 2007.

The Company has net operating loss carry-forwards of approximately
  $1.6 million for federal and state income tax purposes which is available to
  offset future taxable income through 2027.

The Company complies with the provisions of FASB Interpretation
  No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation
  of FASB Statement No. 109 ” (“FIN No. 48”). FIN 48 addresses
  the determination of whether tax benefits claimed or expected to be claimed
  on a tax return should be recorded in the financial statements. Under FIN 48,
  the Company may recognize the tax benefit from an uncertain tax position only
  if it is more likely than not that the tax position will be sustained on examination
  by the taxing authorities, based on the technical merits of the position. The
  Company's management has determined that the Company has no uncertain tax positions
  requiring recognition under FIN No. 48.

The Company is subject to U.S. federal income tax as well as
  income tax of certain state jurisdictions. The Company has not been audited
  by the U.S. Internal Revenue Service or any states in connection with income
  taxes. The period from the date of the Merger (September 13, 2007) to December
  31, 2007 remains open to examination by the U.S. Internal Revenue Service and
  state authorities.

We recognize interest accrued related to unrecognized tax benefits
  and penalties, if incurred, as a component of income tax expense.

35

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Note 9 - Capital Stock

At December 31, 2007, the Company had 200,000,000 shares
authorized at a par value of $.001 per share. Effective November 16, 2007, the
Company closed on the sale of 2,550,000 Units in the initial closing under a
private placement. Each Unit was sold at a price of $0.40 per Unit for aggregate
proceeds to the Company of $1,020,000. Each Unit consists of (i) one (1) share
of common stock, par value $.001 per share (Common Stock), and (ii) one (1)
warrant (a Warrant) to purchase one (1) share of Common Stock at an exercise
price of $0.65. Warrants are exercisable at any time through November 30, 2010.
At any time after November 30, 2008, if the closing price of the Common Stock
exceeds $2.00 per share for 15 consecutive trading days and the average trading
volume of the Common Stock has exceeded 500,000 shares per trading day over the
same period, the Company may redeem the Warrants 60 days after notice to the
Warrant holders, and Warrants not exercised within that 60 day period will be
redeemed at a redemption price of $0.001 per Warrant share. In that event, a
Warrant holder desiring to exercise its Warrant will have the opportunity to do
so within that 60 day period. The warrants have been accounted for at fair value
using the Black-Scholes option pricing model. The relative fair value assigned
to the warrants issued was approximately $333,000, which is reported as a
component of additional paid-in-capital within stockholders equity.

The Units were offered and sold only to accredited investors
(as such term is defined in Rule 501 promulgated under the Securities Act) in
reliance on the exemption provided by Section 4(2) of the Securities Act and
Rule 506 promulgated thereunder. Each investor executed a subscription agreement
confirming its accredited investor status. Designees of Falcon Capital, the
Companys placement agent, were issued 255,000 shares of Common Stock in
connection with the sale, worth $102,000.

Pursuant to the initial closing, 4,852,605 Units were issued in
exchange for a combination of $918,000 in cash, net of $102,000 of associated
cash fees, and conversion of certain convertible notes totaling $921,000 in
related principal and interest. The convertible notes exchanged were issued in
July, September and October 2007 for gross proceeds of $900,000 (see Note
7).

Pursuant to a subsequent closing under the private placement,
at December 31, 2007 the Company recorded $3,405,000 as other liabilities on its
balance sheet relating to funds received in 2007, for which stock was issued in
2008. Prepaid fees associated with those funds, amounting to $340,500 were
included as other assets at December 31, 2007 (see Note 14).

Note 10 - Stock Based Compensation

The Companys stock option plan, adopted on September 13, 2007,
allows the board of directors to grant incentives to employees, directors and
consultants in the form of incentive stock options (ISOs); nonqualified stock
options; stock appreciation rights (SARs); and restricted and unrestricted stock
awards. Stock awards under the Companys plan are granted at prices which are no
less than the fair market price of the stock on the date of grant. ISO grants
and SARs granted to ten percent shareholders, however, are issued at 110% of
fair market value. Options granted under this plan can be time based or
performance based options and vesting varies accordingly. Options under this
plan expire ten years from the date of grant. Compensation expense recognized in
the Statement of Operations during the year ended December 31, 2007 amounted to
approximately $1,209,000.

The fair value of each option award granted is estimated on the
date of grant, subject to remeasurement for non-employees, using the
Black-Scholes option valuation model and assumptions as noted in the following
table:

For the Year EndedDecember 31, 2007Expected life
    2-5 yearsExpected volatility
    53.6% - 88.8%Risk-free interest rate
    4.07% - 4.59%Dividend yield
    0%


36

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The expected life of options is based on the observed and
expected time to post-vesting, forfeiture and exercise. Groups of employees that
have similar historical exercise behavior are considered separately for
valuation purposes. The expected volatility pre-Merger was based on an index,
and post-Merger is based on volatility of the Companys stock. The risk-free
interest rate is based on the continuous rates provided by the U.S. Treasury
with a term equal to the expected life of the options. The expected dividend
yield is zero as the Company has never paid dividends and does not currently
anticipate paying any in the foreseeable future. The status of the Companys
stock option plan at December 31, 2007 is summarized as follows:

WeightedNumber of
    Weighted
    AverageShares
    Average
    RemainingUnder Option
    Exercise Price
    Contractual(000s)
    per
      Share
    Term
      in YearsOutstanding, January 1, 2007
    -
    -
    -Granted
    11,487
    $.50
    4.52Exercised
    -
    -
    -Canceled or Forfeited
    882
    $.28
    -Outstanding December 31, 2007
    10,605
    $.52
    4.54


During the year ended December 31, 2007 the weighted average
fair value of each option granted, estimated as of the grant date using the
Black-Scholes option valuation model, was $.24 per share. The requisite service
period for options granted during 2007 was 1 to 3 years. The aggregate intrinsic
value of options outstanding and exercisable at December 31, 2007 is zero. The
aggregate intrinsic value represents the total pretax intrinsic value, based on
options with an exercise price less than the Companys closing stock price of
$.44 per share at December 31, 2007, which would have been received from the
option holders had those option holders exercised their options as of that
date.

The following table summarizes information about stock options
outstanding at December 31, 2007:

Weighted AverageNumber
    Remaining
    NumberOutstanding
    Contractual Life
    ExercisableExercise Prices
    (000s)
    (Years)
    (000s)$.28
    2,647
    4.1
    1,853$.41
    2,353
    4.6
    2,353$.76
    3,000
    4.7
    -$.77
    1,105
    4.7
    -$.45
    1,500
    4.9
    -


As of December 31, 2007, there was approximately $578,000 of
total unrecognized compensation cost related to non-vested options.

Note 11 - Commitments and Contingencies

The Company presently leases approximately 1,200 square feet of
office space in New Canaan, Connecticut for the Companys headquarters under a
lease that expires in October 2008. In addition, the Company leases 500 square
feet of office space in Englewood, Colorado on a month to month basis and
approximately 1,000 square feet in Alexandria, Virginia through July, 2008

Rent expense charged to operations amounted to $40,200 and $0
  for the years ended December 31, 2007 and 2006, respectively. Future minimum
  lease payments are approximately $84,000 in 2008.

On December 1, 2006, the Company entered into a contract for
investor relations services requiring the payment of $10,000 per month expiring
on November 30, 2008. This commitment can be terminated by either party with 30
days written notice.

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On October 22, 2007, the Company entered into a contract for
public relations services requiring the payment of $5,000 per month expiring on
October 21, 2008. This commitment can be terminated by either party without
penalty upon 60 days written notice.

On or about June  8, 2007, Aegis Industries, Inc., (a privately held Delaware corporation) (“AI”)  filed an action against Fortified, two of its directors and several other  additional parties in the Second Judicial District Court, County of Washoe,  State of Nevada.  The plaintiffs alleged  claims for, among other claims, breach of contract related to a non-binding letter  of intent entered into between AI and Fortified in November 2006.

The parties have agreed on settlement terms,  effective upon certain payments made by a third party to AI, which provide  Fortified with a full release of all claims against it.  Under terms of the settlement, Fortified  agreed to assign to a third party certain promissory notes receivable issued to  Fortified by AI totaling approximately $1,206,000 in principal and accrued  interest thereon, in full satisfaction of demand notes payable that Fortified  had previously issued to that third party, and loans payable to AI, which  together total approximately $1,160,000 as of December 31, 2007 in principal  and accrued interest. The difference between the assigned notes receivable and  the assigned liabilities of approximately $46,000 was recorded as an expense at  December 31, 2007.  Final settlement is  expected during 2008.

In addition, the Company is involved in various claims in the
ordinary course of business. The Companys management believes that the amounts
of such claims are not material and as such, no amounts have been accrued for
legal matters in the accompanying financial statements as of December 31, 2007
and 2006.

Note 12 - Related Party Transactions

Management Fees

During the year ended December 31, 2007, pursuant to a contract
that expires November 30, 2008, the Company paid management fees totaling
$64,000 to a company controlled by a director and former officer of the
Company.

Reseller agreement

During the year ended December 31, 2007, the Company was paid
  $179,000 for products sold during 2006 as a reseller by a company in which a
  director and officer of the Company indirectly holds a minority interest.

Loans and Advances from Related Party

During the year ended December 31, 2007, the Company paid
approximately $65,000 to reimburse expenses paid on behalf of the Company by a
company controlled by a director and officer of the Company.

Note 13  Product Warranty

During the year ended December 31, 2007, the Company upgraded
products sold to certain customers during 2006. These upgrades were not
contemplated at the time of sale, and accordingly, were recorded as warranty
cost. The cost of these upgrades, net of the value of exchanged product, totaled
$109,000 and was charged to Cost of Goods Sold.

Note 14 - Subsequent Events

In January 2008, the Company closed on the sale of 10,312,500
Units in a private placement offering (the Offering) of up to 50,000,000 Units
to a limited group of accredited investors (the Sale). Each Unit consists of
(i) one (1) share of common stock, par value $.001 per share (Common Stock),
and (ii) one (1) warrant (a Warrant) to purchase one (1) share of Common Stock
at an exercise price of $0.65. Warrants are exercisable at any time through
November 30, 2010. At any time after November 30, 2008, if the closing price of
the Common Stock exceeds $2.00 per share for 15 consecutive trading days and the
average trading volume of the Common Stock has exceeded 500,000 shares per
trading day over the same period, the Company may redeem the Warrants 60 days
after notice to the Warrant holders, and Warrants not exercised within that 60
day period will be redeemed at a redemption price of $0.001 per Warrant

38

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share. In that event, a Warrant holder desiring to exercise its
Warrant will have the opportunity to do so within that 60 day period.

Each Unit was sold at a price of $0.40 per Unit for aggregate
proceeds to the Company of $4,125,000. The related warrants have been accounted
for at fair value using the Black-Scholes option pricing model. The relative
fair value assigned to the warrants issued was $1,295,000, which is reported as
a component of additional paid-in-capital within stockholders equity.

Designees of Falcon Capital, the Companys placement agent,
were issued 995,750 shares of Common Stock in connection with the Sale.

The Units were offered and sold only to accredited investors
(as such term is defined in Rule 501 promulgated under the Securities Act) in
reliance on the exemption provided by Section 4(2) of the Securities Act and
Rule 506 promulgated thereunder. Each investor executed a subscription agreement
confirming its accredited investor status.

Effective January 7, 2008, the Company issued an additional
5,000,000 shares of its Common Stock to designees of Thomas Keenan Ventures LLC
pursuant to the terms of an Agreement and Plan of Merger of the Company, dated
May 31, 2007, as modified by a Letter Agreement dated September 12, 2007.
Pursuant to that Agreement and Plan of Merger and Letter Agreement, such shares
were due to be issued to Thomas Keenan Ventures LLC at such time as the Company
raised not less than $2,600,000 through the sale of equity or equity-linked
securities.

In addition, effective February 15, 2008, the Company issued
the final installment of 5,000,000 shares of its Common Stock to designees of
Thomas Keenan Ventures LLC pursuant to the terms of an Agreement and Plan of
Merger of the Company, dated May 31, 2007, as modified by a Letter Agreement
dated September 12, 2007. Pursuant to that Agreement and Plan of Merger and
Letter Agreement, such shares were due to be issued to Thomas Keenan Ventures
LLC at the earlier of February 15, 2008 or at such time as the Company raised
not less than $6,000,000 through the sale of equity or equity-linked securities.
Through February 15, 2008, the Company raised a total of $5,145,000, including
the November 2007 and January 2008 closings under the private placement.

On March 28, 2008, TKV and the Company entered into a Second
Note Modification Agreement (the Second Note Amendment) with respect to the
Promissory Note issued to TKV in connection with the Merger with Z5, further
amending the Note to revise the payment schedule and waive any default
thereunder. The Second Note Amendment defers an aggregate of $3,750,000 of
payments that were previously scheduled to be made on various dates between
January 31, 2008 and March 15, 2008, to a final due date of May 31, 2008. As a
condition to the effectiveness of the Second Note Amendment, on April 4, 2008
the Company made a principal payment in the amount of $500,000. Pursuant to the
Second Note Amendment, TKV also waived the Companys failure to make the
past-due payments on a timely basis (although no acceleration notice had
previously been given by TKV). No other terms of the Note were amended.

39

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ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

The accountant's reports on our financial statements for each
of the past two years did not contain an adverse opinion or a disclaimer of
opinion, nor was it qualified or modified as to uncertainty, audit scope or
accounting principles, except for a qualification of uncertainty regarding Z5's
ability to continue as a going concern.

Prior to the Merger with Z5, the Fortified Holdings Corp. was
audited by Amisano Hanson, Chartered Accountants. The Company dismissed Amisano
Hanson, Chartered Accountants, as the Companys independent registered public
accounting firm, effective September 19, 2007. The decision to dismiss Amisano
Hanson was approved by the Board of Directors of the Company. There are no
disagreements over accounting policies or practices between Amisano Hanson and
the Company. The 2006 financial statements for Z5 were audited by OConnor,
Davies, Munns and Dobbins (ODMD). Z5 dismissed ODMD prior to the Merger. There
are no disagreements over accounting policies or practices between ODMD and the
Company.

Effective September 19, 2007, the Company engaged Fiondella,
Milone and LaSaracina, LLP (FML) as its new independent registered public
accounting firm. The decision to engage FML was approved by the Board of
Directors of the Company.

The Company has provided FML and ODMD with a copy of this
report on Form 10-KSB prior to the Company filing it with the U.S. Securities
and Exchange Commission.

ITEM 8A: CONTROLS AND PROCEDURES

**Disclosure  Controls and Procedures**
  In connection with the preparation and filing of this Annual Report, we  completed an evaluation of the effectiveness of our disclosure controls and  procedures under the supervision and with the participation of our chief  executive officer and chief financial officer. This evaluation was conducted  pursuant to the Securities Exchange Act of 1934, as amended.  Based on the  evaluation, management concluded that it did not have effective disclosure  controls and procedures as of December 31, 2007, due to the effect of the  material weaknesses described below. **Management’s Report on Internal Control Over Financial Repor**ting************ Management assessed the effectiveness of our internal control over  financial reporting as of December 31, 2007. In making this assessment,  management used the framework set forth in the report Internal Control —  Integrated Framework issued by the Committee of Sponsoring Organizations of the  Treadway Commission, or COSO.  The COSO  framework summarizes each of the components of a company’s internal control  system, including (i) the control environment, (ii) risk assessment, (iii)  control activities, (iv) information and communication, and (v) monitoring. 
  Based on the evaluation, management concluded that it did not have effective  internal control over financial reporting.  The Company has identified the material  weaknesses noted below in “Management’s Report on Internal Control over  Financial Reporting”.  A material  weakness is a control deficiency, or combination of control deficiencies, that  results in more than a remote likelihood that a material misstatement of the  financial statements will not be prevented or detected on a timely basis by  employees in the normal course of their work.

As evidenced by the material weaknesses  described below, we determined that entity-level controls related to the  control environment and control activities did not operate effectively  resulting in material weaknesses in each of these respective COSO components.  The deficiency in each of these individual  COSO components represents a separate material weakness.  These material weaknesses contributed to an  environment where there is a more than a remote likelihood that a material  misstatement of the interim and annual financial statements could occur and not  be prevented or detected .         **** The Company is a non-accelerated  filer.  Accordingly, while this annual  report does not require an attestation report by the registered public  accounting firm regarding internal control over financial reporting, management  is required to assess and report on its evaluation of the effectiveness of  internal controls over financial reporting as of December 31, 2007.  Management’s report was not subject to  attestation by the Company’s registered public accounting firm pursuant to the  temporary rules of the Securities and Exchange Commission that permit the  Company to provide only management’s report in this annual report.  The Company was a shell company until  September, 2007. Subsequently, management began to design and implement  internal controls as required under the Sarbanes-Oxley Act of 2002.

40

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Control Environment

Our accounting support staff lacked
sufficient training or experience. Because the accounting department was
understaffed we did not have sufficient review capabilities and could not
adequately segregate duties.

Risk Assessment

The Company did not perform an entity level
risk assessment to evaluate the implication of relevant risks on financial
reporting, including the impact of potential fraud-related risks and the risks
related to non-routine transactions, if any, on its internal control over
financial reporting. Lack of an entity-level risk assessment constituted an
internal control design deficiency which resulted in more than a remote
likelihood that a material error would not have been prevented or detected, and
constituted a material weakness.

Control Activities

The internal controls were not adequately designed or operating
  in a manner to effectively support the requirements of the financial reporting
  and period-end close process. This material weakness is the result of aggregate
  deficiencies in internal control activities. The material weakness includes
  failures in the operating effectiveness of controls which would ensure (i) independent
  review and approval of key balance sheet account analyses and reconciliations,
  (ii) journal entries and their supporting worksheets are consistently reviewed
  and approved, (iii) appropriate review for the accuracy of classification within
  the income statement, (iv) accuracy and completeness of the financial statement
  disclosures and presentation in accordance with GAAP. Due to the significance
  of the financial closing and reporting process to the preparation of reliable
  financial statements and the potential impact of the deficiencies to significant
  account balances and disclosures, there is more than a remote likelihood that
  a material misstatement of the interim and annual financial statements would
  not be prevented or detected. In addition, due to the misinterpretation of certain
  accounting literature, material adjustments to and restatement of our April
  30 and July 31, 2007 interim consolidated financial statements were required
  (as incorporated in our Form 10-QSB for the period ended September 30, 2007).

Entity Level Controls

In addition to the material weaknesses noted above, management
  also concluded that there is a material weakness in our entity level controls.
  This was evidenced by the lack of a code of conduct, asset protection programs,
  and comprehensive accounting and human resources policies and procedures manuals.
  Formalized audit, compensation, governance and other Board of Directors committees
  have not been established. These items were, in the aggregate, considered a
  material weakness in the entity level internal controls over financial reporting.

Because of the material weaknesses
described above, management believes that, as of December 31, 2007, we did not
maintain effective internal control over financial reporting based on the COSO
criteria. Nevertheless, management believes that the consolidated financial
statements in this Annual Report on Form 10-KSB fairly present, in all material
respects, our financial position, results of operations and cash flows as of the
dates, and for the periods presented, in conformity with generally accepted
accounting principles in the United States of America.

Plan for Remediation of Material Weakness

Management acknowledges its responsibility
for internal controls over financial reporting and seeks to continually improve
those controls. In order to achieve compliance with Section 404 of the Act, we
are currently performing the system and process documentation and evaluation
needed to comply with the Act. We believe our process for documenting,
evaluating and monitoring our internal control over financial reporting is
consistent with the objectives of the Act.

41

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In addition, in order to remediate the
material weakness described above, management plans to (1) conduct additional
training, (2) hire additional resources, (3) complete a risk assessment, (4)
design and implement new policies, procedures and controls, and (5) create
subcommittees for the Board of Directors.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal
controls over financial reporting that occurred during the last fiscal quarter
ended December 31, 2007 that have materially affected, or are reasonably likely
to materially affect, our internal controls over financial reporting.

PART III

ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS , CONTROL
PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT

Directors and Executive Officers

Our directors are appointed for a one-year term to hold office
until the next annual general meeting of our shareholders or until removed from
office in accordance with our bylaws. Our officers are appointed by the board of
directors and will hold office until removed by the board.

Our current directors and executive officers are as
follows:

Brendan T. ReillyAge 42, Chief Executive
Officer and DirectorBrendan Reilly has served as the Chairman and Chief
Executive Officer of Fortified Holdings Corp. since the closing of the Z5 Merger
in September 2007. From early 2006 until the Z5 Merger, Mr. Reilly served as the
President of Z5. From 2001 until 2005, Mr. Reilly served as a Vice President of
SANZ Inc., a data management integration services and geospatial software
company and, from 2001 to 2003, as a Director of its parent company, SAN
Holdings Inc. (OTC: SANZ). While at SANZ, Mr. Reilly was responsible for
building and managing the SANZ Federal business unit. Prior to joining SANZ, Mr.
Reilly co-founded and participated in the management of two high-tech companies.
The first  ITIS Services  was a data management and storage services company
which received venture funding and generated more than $13 million in revenue
prior to being sold to SANZ in late 2001. The second  Raging Knowledge Inc. 
was an enterprise knowledge management software company which was sold two years
after inception to a publicly held UK-based software company. Prior to 1999, Mr.
Reilly spent eight years with EMC Corporation. Mr. Reilly currently serves as
Director of the management company of Thomas Keenan Ventures LLC and Alvarez
& Associates LLC (both non-reporting companies), and of Catholic Charities
of Fairfield County and Helping Heroes Foundation. Mr. Reilly attended
Providence College and Harvard Business School (AMP166).

Steven I. Cooper, Age 58, President and
DirectorMr. Cooper joined Fortified Holdings Corp. as its President
effective in November 2007. Before joining the Company, Mr. Cooper served most
recently as the Senior Vice President and Chief of Information Technology at the
American Red Cross. Prior to joining the Red Cross, Mr. Cooper served as the
first CIO of the U.S. Department of Homeland Security, a position to which he
was appointed by President Bush in February 2003. At DHS, Mr. Cooper and his
team had responsibility for the information technology assets supporting 190,000
federal employees of the 22 agencies that merged to comprise the new department.
Prior to DHS, Mr. Cooper was appointed by President Bush in March 2002 as the
Special Assistant to the President for Homeland Security, and served as Senior
Director for Information Integration in the White House Office of Homeland
Security. In this role, Cooper launched the development of the National
Enterprise Architecture for Homeland Security to address information integration
within the federal government and the sharing of homeland security information
with local, state and relevant private sector entities, including fostering
partnerships among federal, state and local governments and the private sector.
Prior to federal government service, Cooper spent more than 20 years in the
private sector in a variety of Information Technology management roles, most
recently as CIO of Corning, Inc.

David Kirby, Age 55, Director Mr. Kirby
  has served as a Director of the Company since 2006. For more than 10 years,
  Mr. Kirby has worked as an independent financial advisor specializing in advising
  and raising capital for US and international private equity and mezzanine debt
  partnerships, operating as Kirby Capital Advisors. Mr. Kirby is an MBA graduate
  of Harvard Graduate School of Business Administration, and holds a Bachelor
  of Science degree in Civil Engineering from Georgia Institute of Technology.

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Dennis W. Mee,Age 64, DirectorMr. Mee
has served as a Director of the Company since 2006; additionally, he acted the
Companys Acting Chief Executive Officer for several months ending upon the
closing of the Z5 Merger and as its Chief Financial Officer from early 2007
until the closing of the Z5 Merger. Mr. Mee is the principal of D.W. MEE &
Associates, a provider of management consulting and financial advisory services
to various companies, which he founded in 2002. Prior to founding D.W. MEE &
Associates, Mr. Mee was the Chief Financial Officer of Essentially Yours
Industries, a distributor of wellness and health products. From 1988 through
1993, he served as the Vice President of Finance for Cable & Wireless
Telecommunications Inc., a Canadian provider of telecommunication services,
networks and equipment with sales of over Cdn $80 million. Mr. Mee is a Canadian
Chartered Accountant and holds a Bachelor of Commerce, Honours from Carleton
University (Ottawa, Canada).

Alan D. Hurwitz,Age 45, Chief Financial
OfficerAlan Hurwitz has served as the Executive Vice President, Chief
Financial Officer and Secretary of Fortified Holdings Corp. since the closing of
the Z5 Merger in September 2007, and served as the Chief Financial Officer of Z5
until the closing of the Merger. Prior to joining Z5 in early 2007, Mr. Hurwitz
served as Chief Financial Officer of Revonet, Inc., a data-driven marketing
business serving technology and telecommunications companies. Prior to joining
Revonet, he was Chief Financial Officer of HMonline, a revenue cycle application
service provider in the healthcare industry and was Co-founder and CFO of
PowerSmart Inc., a power management semiconductor company spun-off from
Duracell. Mr. Hurwitz played an integral role in the successful merger of
PowerSmart into Microchip Technologies during 2002 (NASDAQ: MCHP). Prior to the
spin-off, he was responsible for the finances of Duracells New Products and
Technology Division, managed Duracells global internal audit function and
served as a member of the corporate integration team when Duracell merged with
Gillette. Before joining Duracell, Mr. Hurwitz was an audit manager in
PricewaterhouseCoopers Middle Market group, serving public and private
enterprises in various industries. Mr. Hurwitz is a certified public
accountant.

Section 16(a) Beneficial Ownership Reporting
Compliance

Section 16(a) of the Exchange Act requires our executive
officers and directors, and persons who beneficially own more than 10% of our
equity securities, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission. Officers, directors and shareholders
beneficially owning greater than 10% of our equity securities are required by
SEC regulation to furnish us with copies of all Section 16(a) forms they file.
Based on our review of the copies of such forms we received, we believe that
during the fiscal year ended December 31, 2007 all such filing requirements
applicable to our officers and directors were complied with, excepting the
reports filed late by the following persons:

|                                            | Number  | Transactions | Known Failures
|------------------------------------------- | ------- | ------------ | --------------
|                                            | Of late | Not Timely   | To File a     
|Name and principal
      position           | Reports | Reported     | Required Form 
|Brendan T. Reilly 
      (Chairman and CEO) | 1       | 0            | 0             
|Alan D. Hurwitz 
      (EVP and CFO)        | 1       | 0            | 0             

Ethics Policy

We anticipate holding our annual meeting of shareholders within
the next 90 days, at which time we expect that several new Directors will be
elected. We have determined that we should defer the adoption of a new Code of
Ethics,

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applicable to our Chief Executive Officer, President, Chief
Financial Officer and other members of senior management, until those new
Directors are seated because at that time members of senior management will
constitute a significantly smaller proportion of our Board than they do today.
We anticipate that our Board of Directors will adopt such a Code of Ethics at a
meeting shortly following the aforementioned meeting of shareholders.

Board Committees

We are in the process of reviewing our corporate governance
policies and procedures. Accordingly, the Company has not yet constituted an
audit committee, a compensation committee or any other committee of the Board of
Directors. We expect that we will constitute standing committees following the
election of Directors at our next annual meeting of stockholders.

ITEM 10: EXECUTIVE COMPENSATION

The table below summarizes all compensation awarded to, earned
by, or paid to our executive officers by any person for all services rendered in
all capacities to us for the fiscal years ended December 31, 2006 and December
31, 2007 (including amounts paid by Z5 prior to the closing of the Merger with
Z5).

|Summary Compensation
      Table   | 
|---------------------------------- | 
|                                   | 
|                                   | 
|                                   | 
|                                   | 
|                                   | 
|                                   | 
|Name and                           | 
|principal
      position           | 
|                                   | 
|Brendan T. Reilly                  | 
|Chief
      Executive Officer      | 
|                                   | 
|Steven I. Cooper.                  | 
|President
      and COO            | 
|                                   | 
|Alan D. Hurwitz                    | 
|Executive Vice President
      and | 
|Chief
      Financial Officer      | 

We have employment agreements with Brendan Reilly, our CEO;
Steven Cooper, our President; and Alan Hurwitz, our CFO, each of which requires
us to continue paying the applicable executives salary, earned bonuses and
certain employee benefits for a period of 24 months (for Mr. Reilly) and 12
months (for Messrs. Cooper and Hurwitz) following termination of employment in
the following cases:

- if we terminate his employment agreement other than for cause;
- if he terminates his employment due to our material change of his
  employment conditions;
- if he terminates his employment due to a breach by us of his employment
  agreement or, in the cases of Messrs. Reilly and Hurwitz, a breach by us of
  the agreements relating to the Z5 Merger.

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Equity Awards

The following table shows the number of shares underlying
unexercised options held at December 31, 2007 by each of the executive officers
required to be named in the Summary Compensation Table, and the exercise price
and expiration date of each such option. All grants were made under Fortifieds
2007 Stock Plan. Certain of the options were granted in replacement of options
granted by Z5 prior to the Z5 Merger, as indicated in the Table. Fortified has
not granted any restricted stock or stock appreciation rights.

Outstanding Equity Awards at Fiscal Year-End

|                  | Number of shares underlying            | Option                  | Option                       |                                                        
|----------------- | -------------------------------------- | ----------------------- | ---------------------------- | -------------------------------------------------------
|                  | Unexercised options at Fiscal Year-end | Exercise Price          | Expiration Date              |                                                        
|Name              | (# exercisable)                        | **(# unexercisable)**   | ($)                          |                                                        
|                  |                                        |                         |                              |                                                        
|Brendan T. Reilly | 794,120 
      1,242,933               | -0-
      -0- 2,000,000 | $.28 
      $.41 
      $.76 | Feb. 1, 2012 
      Aug. 16, 2012
      Sept. 13, 2012 
|Steven I. Cooper  | -0-                                    | -0-                     | N/A                          |                                                        
|Alan D. Hurwitz   | 441,178 
      275,000 
      -0-      | -0-
      -0- 1,000,000 | $.28 
      $.41 
      $.76 | Feb. 1, 2012 
      Aug. 16, 2012 
      Sept. 13, 2012

(1) Granted in replacement of options granted by Z5
Technologies LLC before the Merger with Z5.

The options granted to each of the executive officers named
above will vest in the event that the executives employment is terminated under
circumstances where he is entitled to the severance benefits described above, or
in the event that the Company undergoes a Change of Control as defined in his
employment agreement.

Compensation of Directors

We have no standing arrangement
to compensate Directors for their services, and during the fiscal year ended
December 31, 2007 we did not pay any cash or other compensation to any of our
directors for their services as such. However, during the fiscal year ended
December 31, 2007 we paid D.W. MEE & Associates an aggregate of $64,000 for
the services of Mr. Mee as our Acting Chief Executive Officer and as our Chief
Financial Officer during the portions of the year described above under Item 9,
Directors and Executive Officers.

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ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The table below reflects the number of shares of common stock
and preferred stock beneficially owned as of March 31, 2007 by:

- each person or group we believe to be the beneficial owner of more than
  five percent of our voting securities,
- each director and director nominee,
- each executive officer required to be named in the Summary Compensation
  Table; and
- all directors, director nominees, and executive officers, as a group, as of
  March 31, 2008.

Shares of common stock subject to options, warrants and
convertible preferred stock currently exercisable or convertible, or exercisable
or convertible within 60 days of March 31, 2008 are deemed outstanding for
purposes of computing the percentage beneficially owned by the person or entity
holding those securities, but are not deemed outstanding for purposes of
computing the percentage beneficially owned by any other person or entity.
Percentages of beneficial ownership are based on 83,268,868 shares of common
stock outstanding as of the close of business on March 31, 2008.

Unless otherwise indicated below, the address for each listed
director and executive officer is Fortified Holdings Corp., 125 Elm Street, New
Canaan, Connecticut 06840. Except as otherwise indicated, all shares are owned
directly.

|Title of Class | Name of Beneficial Owner       | Amount and Nature of | Percent of Class
|-------------- | ------------------------------ | -------------------- | ----------------
|               |                                | Beneficial Ownership |                 
|Common Stock   | Brendan Reilly (1)             | 12,474,158           | 14.6%           
|Common Stock   | Alan Hurwitz (2)               | 1,771,473            | 2.1%            
|Common Stock   | Steven Cooper                  | 0                    | 0.0%            
|Common Stock   | Dennis Mee                     | 250,000              | *               
|Common Stock   | David Kirby                    | 250,000              | *               
|Common Stock   | All Directors and Officers (3) | 14,745,631           | 17.0%           

* Less than 1.0%

|(1) | Included in the shares owned beneficially by Mr. Reilly
      are:                                                                                                                                                                                                                                                                              
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | (a)                                                                                                                                                                                                                                                                                                                                             
|    | (b)                                                                                                                                                                                                                                                                                                                                             
|(2) | Included in the shares owned beneficially by Mr. Hurwitz
      are 716,178 shares subject to exercise of options (initially granted by
      Z5, and replaced with options granted by Fortified in the Merger) which
      are exercisable in the next 60 days.                                                                                 
|(3) | Included in the shares owned beneficially by All
      Directors and Officers are the shares held by Mr. Reillys wife plus
      3,253,231 shares subject to exercise by the Officers of options (initially
      granted by Z5, and replaced with options granted by Fortified in the
      Merger) which are exercisable in the next 60 days.

46

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ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE

Transactions with Related Persons

Other than the transactions disclosed below, we have not
entered into any transactions in which any of our former directors, directors,
executive officers, or affiliates of our Company, including any member of an
immediate family, had or is to have a direct or indirect material interest.

Brendan Reilly, who became our Chief Executive Officer upon the
closing of the Z5 Merger, is the majority beneficial owner of Thomas Keenan
Ventures LLC (TKV), and Alan Hurwitz, who became our Chief Financial Officer
upon the closing of the Z5 Merger, holds a minority interest in TKV. As part of
the consideration for the Merger with Z5, we issued to TKV a promissory note
(the Z5 Acquisition Note) in the original principal amount of $5,000,000
bearing interest at 5% per annum (increasing to 13% upon certain default
events). The Z5 Acquisition Note is guaranteed by our operating subsidiary,
Fortified DataCom and is secured by Fortified DataComs assets.

The original terms of the Z5 Acquisition Note required
principal payments on several dates between October 2007 and March 2008, with
the final payment due on March 31, 2008. We failed to make the payments under
the Z5 Acquisition Note according to its original payment schedule due to our
having insufficient cash, and TKV has twice agreed to amend the Z5 Acquisition
Notes payment schedule. Under the schedule currently in effect, the full
remaining balance of $3,750,000, together with all accrued interest, is payable
on May 31, 2008.

Pursuant to the terms of the Z5 Merger, Stanley Major, a former
  President and former member of our Board of Directors, returned 41,200,000 shares
  of common stock to the treasury for cancellation, without consideration.

47

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ITEM 13: EXHIBITS

Exhibits, Financial Statement Schedules and Reports on Form
  8-K

EXHIBIT INDEX

|Exhibit |                                                                                                                                                                                                                                                
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | **Description**                                                                                                                                                                                                                                
|        |                                                                                                                                                                                                                                                
|2.1     | Merger Agreement with Z5, incorporated
      by reference to Exhibit 2.1 on Form 8-K filed June 7, 2007.                                                                                                                                       
|        |                                                                                                                                                                                                                                                
|2.2     | Letter Agreement, incorporated
      by reference to Exhibit 2.2 on Form 8-K filed September 19, 2007.                                                                                                                                         
|        |                                                                                                                                                                                                                                                
|3.1     | Articles of Incorporation, incorporated
      by reference to the Exhibits filed with our Registration Statement on Form
      SB-2 filed on February 17, 2005, SEC File Number 333-122870.                                                    
|        |                                                                                                                                                                                                                                                
|3.2     | By-laws, incorporated by reference
      to the Exhibits filed with our Registration Statement on Form SB-2 filed
      on February 17, 2005, SEC File Number 333-122870.                                                                      
|        |                                                                                                                                                                                                                                                
|3.3     | Articles of Merger, filed with
      the Secretary of State of Nevada, incorporated by reference from Exhibit
      3.1 to the Form 8-K filed April 10, 2006.                                                                                  
|        |                                                                                                                                                                                                                                                
|3.4     | Articles of Merger, filed with
      the Secretary of State of Nevada, incorporated by reference from Exhibit
      3.1 to the Form 8-K filed July 3, 2007.                                                                                    
|        |                                                                                                                                                                                                                                                
|10.1    | Registration Rights Agreement by
      and between Fortified Holdings Corp. and Thomas Keenan Ventures, LLC, dated
      September 13, 2007, incorporated by reference from Exhibit 10.1 to the Form
      8-K filed September 19, 2007.       
|        |                                                                                                                                                                                                                                                
|10.2    | Promissory Note payable to Thomas
      Keenan Ventures LLC, dated September 13, 2007, incorporated by reference
      from Exhibit 10.2 to the Form 8-K filed September 19, 2007.                                                             
|        |                                                                                                                                                                                                                                                
|10.3    | Continuing Guaranty Agreement of
      Fortified Data Communications, Inc. in favor of Thomas Keenan Ventures,
      LLC, dated September 13, 2007, incorporated by reference from Exhibit 10.3
      to the Form 8-K filed September 19, 2007.
|        |                                                                                                                                                                                                                                                
|10.4    | Security Agreement between Fortified
      Data Communications, Inc. and Thomas Keenan Ventures, LLC, dated September
      13, 2007, incorporated by reference from Exhibit 10.4 to the Form 8-K filed
      September 19, 2007.              
|        |                                                                                                                                                                                                                                                
|10.5    | Standby Financing Commitment Agreement
      by and between Clarus Capital Limited and Fortified Holdings Corp., dated
      September 11, 2007, incorporated by reference from Exhibit 10.5 to the Form
      8-K filed September 19, 2007.   
|        |                                                                                                                                                                                                                                                
|10.6    | Employment Agreement with Brendan
      Reilly, incorporated by reference from Exhibit 10.6 to the Form 8-K filed
      September 19, 2007.                                                                                                    
|        |                                                                                                                                                                                                                                                
|10.7    | Employment Agreement with Brendan
      Reilly, incorporated by reference from Exhibit 10.7 to the Form 8-K filed
      September 19, 2007.                                                                                                    
|        |                                                                                                                                                                                                                                                
|10.8    | Employment
      Agreement with Steven Cooper,  incorporated by reference
    to Exhibit 10.8 to the Form 10-KSB filed on April 15, 2008                                                                                                       
|        |                                                                                                                                                                                                                                                
|16.1    | Letter on change in Certifying
      Accountants, incorporated by reference from Exhibit 16.1 to the Form 8-K
      filed September 19, 2007.                                                                                                  

48

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|23.1 | Consent of
        Independent Certified Public Accountants (OConner Davies Munns &
        Dobbins, LLP),FILED HEREWITH.                                             
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                        
|31.1 | Certification
        of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002),FILED HEREWITH.                                
|     |                                                                                                                                                                        
|31.2 | Certification
        of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002),FILED HEREWITH.                                
|     |                                                                                                                                                                        
|32.1 | Certification
        of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002),filed herewith. 
|     |                                                                                                                                                                        
|32.2 | Certification
        of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002), filed herewith.

ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

Our principal accountants are Fiondella, Milone & LaSaracina
  LLP (FML). Prior to the Merger, Z5s principal accountants were O'Conner
  Davies Munns & Dobbins, LLP (ODMD). The following table presents fees for
  professional audit services for the audit of the Companys annual financial
  statements for the year ended December 31, 2008 and for fees billed for other
  services during 2007 (no fees were invoiced in 2006):

FML
      ODMDAudit fees
      $50,630
      $13,250Audit-related fees
      $6,778
      -Tax fees
      -
      -All other fees
      -
      -


Audit fees consist of fees related to professional services rendered
  in connection with the audit of our annual financial statements, and the review
  of the financial statements included in each of our quarterly reports on Form
  10-QSB. Audit related fees are principally for professional services rendered
  in connection with accounting consultation related to the reverse merger transaction
  and other matters.

Our policy is to pre-approve all audit and permissible non-audit
  services performed by the independent accountants. These services may include
  audit services, audit-related services, tax services and other services. Under
  our Board of Directors procedures, pre-approval is generally provided
  for particular services or categories of services, including planned services,
  project based services and routine consultations. In addition, we may also pre-approve
  particular services on a case-by-case basis. We approved all services that our
  independent accountants provided to us in the past two fiscal years.

49

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SIGNATURES

In accordance with Section 13 or
  15(d) of the Securities Exchange Act of 1934, the registrant has caused this
  report to be signed on its behalf by the undersigned, thereunto duly authorized.

| | Fortified Holdings Corp.            
| | ------------------------------------
| |                                     
| |                                     
| | BY:                                 
| | Name:
      /s/ Brendan T. Reilly   
| | Title:
      Chief Executive Officer
| |                                     
| |                                     
| |                                     
| | Date: October 31, 2008              



| | BY:                                 
| | ------------------------------------
| | Name:
      /s/ Kirk Hanson         
| | Title:
      Chief Financial Officer
| |                                     
| | Date: October 31, 2008              

50

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