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UNITED STATESSECURITIES AND EXCHANGE COMMISSION
  Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2008.

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

For the transition period from __________to ______________

Commission File Number: 000-51936

FORTIFIED HOLDINGS
CORP.(Exact name of issuer as specified in its
charter)

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

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

(203)594-1686(Issuers telephone
number)

Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.

Yes [X] No [   ]

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

Large accelerated filer [   ] Accelerated filer
[   ] Non-accelerated filer (Do not check if a smaller reporting
company) Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).

Yes [   ] No [X]

As of May 14, 2007, the registrant had outstanding 101,708,355
shares of common stock, par value $0.001 per share, of which there is only a
single class.

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TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

|ITEM 1.                    | Condensed Consolidated Financial Statements                                                                                          | 1 
|-------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | --
|                           | Condensed Consolidated Balance Sheets as of March 31, 2008
      and December 31, 2007                                               | 1 
|                           | Condensed Consolidated Statements of Operations for the Three
      Months Ended March 31, 2008 and March 31, 2007                   | 2 
|                           | Condensed Consolidated Statements of Changes in StockholdersEquity
      (Deficit) for the Period January 1, 2008 to March 31, 2008 | 3 
|                           | Condensed Consolidated Statements of Cash Flows for the Three
      Months Ended March 31, 2008 and March 31, 2007                   | 4 
|                           | Notes to Condensed Consolidated Financial Statements                                                                                 | 5 
|                           |                                                                                                                                      |   
|ITEM 2.                    | Managements Discussion and Analysis of Financial Condition
      and Results of Operations                                          | 17
|                           |                                                                                                                                      |   
|ITEM 3.                    | Quantitative and Qualitative Disclosures About Market Risk                                                                           | 22
|                           |                                                                                                                                      |   
|PART II OTHER INFORMATION |                                                                                                                                     
|                           |                                                                                                                                      |   
|ITEM 1.                    | Legal Proceedings                                                                                                                    | 22
|ITEM 2.                    | Unregistered Sales of Equity Securities and Use of Proceeds                                                                          | 23
|ITEM 3.                    | Default Upon Senior Securities                                                                                                       | 23
|ITEM 4.                    | Submission of Matters to Vote of Securities Holders                                                                                  | 23
|ITEM 5.                    | Other Matters                                                                                                                        | 23
|ITEM 6.                    | Exhibits                                                                                                                             | 24

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PART I FINANCIAL INFORMATION

ITEM 1 Condensed Consolidated Financial Statements

FORTIFIED HOLDINGS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)

|                                                  |   | March 31,   |   |   | December 31, |  
|------------------------------------------------- | - | ----------- | - | - | ------------ | -
|                                                  |   | 2008        |   |   | 2007         |  
|Assets                                            |   | (Unaudited) |   |   | *            |  
|Current assets:                                   |   |             |   |   |              |  
|Cash                                              | $ | 993,321     |   | $ | 1,835,509    |  
|Accounts receivable                               |   | 95,563      |   |   | 107,447      |  
|Inventories, net                                  |   | 227,371     |   |   | 190,408      |  
|Notes receivable, net (Note 4)                    |   | 1,391,510   |   |   | 1,343,415    |  
|Prepaid expenses
      and other current assets   |   | 25,440      |   |   | 25,316       |  
|Total
      current assets                        |   | 2,733,205   |   |   | 3,502,095    |  
|                                                  |   |             |   |   |              |  
|Property and equipment, net                       |   | 78,492      |   |   | 92,016       |  
|Other assets                                      |   | -           |   |   | 340,500      |  
|Total assets                                      | $ | 2,811,697   |   | $ | 3,934,611    |  
|                                                  |   |             |   |   |              |  
|Liabilities and Stockholders' Equity              |   |             |   |   |              |  
|Current liabilities                               |   |             |   |   |              |  
|Accounts payable and accrued
      expenses       | $ | 450,117     |   | $ | 889,171      |  
|Demand notes
      payable (Note 6)               |   | 1,583,503   |   |   | 1,541,618    |  
|Convertible notes payable (Note
      7)          |   | 836,663     |   |   | 814,225      |  
|Term notes
      payable (Note 6)                 |   | 4,498,623   |   |   | 4,416,687    |  
|Other current liabilities                         |   | 17,158      |   |   | 92,616       |  
|Total current liabilities                         |   | 7,386,064   |   |   | 7,754,317    |  
|Other liabilities                                 |   | -           |   |   | 3,405,000    |  
|Total liabilities                                 |   | 7,386,064   |   |   | 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               |   |             |   |   |              |  
|82,015,855
      shares issued and outstanding at |   |             |   |   |              |  
|March
      31, 2008; 60,707,605 issued and       |   |             |   |   |              |  
|outstanding at
      December 31, 2007            |   | 82,017      |   |   | 60,708       |  
|Additional
      paid-in capital                  |   | 6,917,482   |   |   | 3,043,428    |  
|Accumulated deficit                               |   | (11,573,866 | ) |   | (10,328,842  | )
|Total stockholders' equity (deficit)              |   | (4,574,367  | ) |   | (7,224,706   | )
|Total
      liabilities and stockholders' equity  | $ | 2,811,697   |   | $ | 3,934,611    |  

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

*Derived from the audited balance sheet as of December 31, 2007.

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FORTIFIED HOLDINGS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF
OPERATION(Unaudited)

|                                          |   | For the three months ended |  
|----------------------------------------- | - | -------------------------- | -
|                                          |   | March 31,                  |  
|                                          |   | 2008                       |  
|                                          |   |                            |  
|Net sales                                 | $ | 140,678                    |  
|Cost of sales                             |   | 74,545                     |  
|Gross
      profit                        |   | 66,133                     |  
|                                          |   |                            |  
|Operating expenses                        |   |                            |  
|Research and development                  |   | 226,269                    |  
|Selling,
      general and administrative |   | 719,899                    |  
|Professional and
      Consulting fees    |   | 248,386                    |  
|Total operating expenses                  |   | 1,194,554                  |  
|Loss from operations                      |   | (1,128,421                 | )
|Other income and expenses:                |   |                            |  
|Interest income                           |   | 34,473                     |  
|Interest
      expense                    |   | (151,076                   | )
|Net loss                                  | $ | (1,245,024                 | )
|                                          |   |                            |  
|Basic and diluted net loss per share      | $ | (0.02                      | )
|                                          |   |                            |  
|Basic and diluted weighted average        |   |                            |  
|number of shares outstanding              |   | 77,439,946                 |  

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

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FORTIFIED HOLDINGS CORP.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES
INSTOCKHOLDERSEQUITY (DEFICIT)(Unaudited)

|                                  |  |              |  |   |         |  |   | Additional |   |   | Retained    |   |   |            |  
|--------------------------------- |  | ------------ |  | - | ------- |  | - | ---------- | - | - | ----------- | - | - | ---------- | -
|                                  |  | Common Stock |  |   | Paid-In |  |   | Earnings   |   |   |             |  
|                                  |  | Shares       |  |   | Amount  |  |   | Capital    |   |   | (Deficit)   |   |   | Total      |  
|Balance, January 1, 2008          |  | 60,707,605   |  | $ | 60,708  |  | $ | 3,043,428  |   | $ | (10,328,842 | ) | $ | (7,224,706 | )
|Additional shares issued in       |  |              |  |   |         |  |   |            |   |   |             |   |   |            |  
|connection with reverse merger.   |  | 10,000,000   |  |   | 10,000  |  |   | (10,000    | ) |   |             |   |   | -          |  
|Issuance of stock for cash, net   |  | 10,312,500   |  |   | 10,313  |  |   | 3,702,187  |   |   |             |   |   | 3,712,500  |  
|Employee stock based compensation |  |              |  |   |         |  |   | 130,830    |   |   |             |   |   | 130,830    |  
|Non employee stock based          |  |              |  |   |         |  |   |            |   |   |             |   |   |            |  
|compensation                      |  |              |  |   |         |  |   | 52,033     |   |   |             |   |   | 52,033     |  
|Fee paid in stock                 |  | 995,750      |  |   | 996     |  |   | (996       | ) |   |             |   |   | -          |  
|Net loss                          |  |              |  |   |         |  |   |            |   |   | (1,245,024  | ) |   | (1,245,024 | )
|Balance, March 31, 2008           |  | 82,015,855   |  | $ | 82,017  |  | $ | 6,917,482  |   | $ | (11,573,866 | ) | $ | (4,574,367 | )

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

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FORTIFIED HOLDINGS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS(Unaudited)

|                                                          |   | Three Months Ended |   |   | Three Months Ended |  
|--------------------------------------------------------- | - | ------------------ | - | - | ------------------ | -
|                                                          |   | March 31, 2008     |   |   | March 31,2007      |  
|Cash flows from operating activities:                     |   |                    |   |   |                    |  
|Net loss                                                  | $ | (1,245,024         | ) | $ | (236,466           | )
|Adjustments to reconcile net
      loss to                |   |                    |   |   |                    |  
|net cash used by
      operating activities:              |   |                    |   |   |                    |  
|                                                          |   |                    |   |   |                    |  
|Depreciation and amortization                             |   | 13,524             |   |   | 1,704              |  
|Stock based
      compensation                            |   | 182,863            |   |   | 28,217             |  
|Non-cash interest expense                                 |   | 146,259            |   |   | 4,920              |  
|Non-cash
      interest income                            |   | (34,472            | ) |   | (1,437             | )
|Non-cash management fee                                   |   | -                  |   |   | 1,776              |  
|Provision
      for loss on notes receivable              |   | 1,377              |   |   | -                  |  
|Changes in assets and liabilities:                        |   |                    |   |   |                    |  
|Accounts receivable                                       |   | 11,884             |   |   | 125,322            |  
|Inventories                                               |   | (36,963            | ) |   | (99,911            | )
|Prepaid expenses and other current assets                 |   | (124               | ) |   | -                  |  
|Accounts payable and accrued expenses                     |   | (439,054           | ) |   | 139,688            |  
|Other current liabilities                                 |   | (75,458            | ) |   | -                  |  
|Net cash used in operating activities                     |   | (1,475,188         | ) |   | (36,187            | )
|                                                          |   |                    |   |   |                    |  
|Cash flows from investing activities:                     |   |                    |   |   |                    |  
|Notes receivable                                          |   | (15,000            | ) |   | (27,387            | )
|Net cash used in investing activities                     |   | (15,000            | ) |   | (27,387            | )
|                                                          |   |                    |   |   |                    |  
|Cash flows from financing activities:                     |   |                    |   |   |                    |  
|Proceeds from issuance of stock,
      net                |   | 648,000            |   |   | -                  |  
|Repayment of
      notes                                  |   | -                  |   |   | (17,267            | )
|Net cash
      provided by (used in) financing activities |   | 648,000            |   |   | (17,267            | )
|                                                          |   |                    |   |   |                    |  
|Net change
      in cash                                  |   | (842,188           | ) |   | (80,841            | )
|Cash, beginning
      of period                           |   | 1,835,509          |   |   | 159,136            |  
|                                                          |   |                    |   |   |                    |  
|Cash, end of period                                       | $ | 993,321            |   | $ | 78,295             |  

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

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FORTIFIED HOLDINGS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

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.
(Aegis). 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 acquisition agreement was never
finalized, however, and the parties ceased discussions (see Note 11). On June 5,
2007, Aegis 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. (the Company
or Fortified). 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 an 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 NOMADTMbrand, 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 an aggregate
of 15,000,000 shares of the Companys common stock and a promissory note in the
amount of $5,000,000 to Thomas Keenan Ventures LLC, the owner of all Z5s equity
outstanding at the time of the Merger (respectively, TKVand the TKV Note).
Of the foregoing shares issued to TKV, pursuant to the terms of the Merger
Agreement 5,000,000 shares were issued at the closing of the Merger, 5,000,000
shares were issued on January 7, 2008 upon raising new capital and the final
5,000,000 shares were issued on February 15, 2008.

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
committed to make direct or indirect investments in the Company up to an
aggregate of $2.7 million if equity investments were not obtained from third
parties. 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 when the required investments were obtained from third
parties.

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 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.

Our accompanying unaudited condensed consolidated financial statements
  as of March 31, 2008 and for the three months ended March 31, 2008 and 2007
  reflect all adjustments that, in the opinion of management, are necessary for
  a fair presentation of the results for the interim periods presented. All such
  adjustments are of a normal nature, except as otherwise disclosed in the accompanying
  notes to the unaudited condensed consolidated financial statements. These financial
  statements have been prepared in accordance with accounting principles generally
  accepted in the United States of America for the interim financial information
  and with the

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instructions to Form 10-Q and Article 10 of the Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial
statements.

The information included in this Quarterly Report on Form 10-Q
should be read in conjunction with the Consolidated Financial Statements as
filed on Form 10-KSB for the year ended December 31, 2007. The results for the
interim periods presented are not necessarily indicative of the results that may
be expected for any future period.

Note 2 Summary of Significant Accounting
PoliciesPrinciples of Consolidation

The consolidated financial statements include the accounts of
Fortified Holdings Corp. and its wholly owned subsidiary, Fortified DataCom. 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 periods presented. For the three months
ended March 31, 2008 four customers accounted for all net sales and three
customers accounted for all accounts receivable at March 31, 2008. For the three
months ended March 31, 2007 one customer accounted for all net sales.

The Company has at times relied on one or more particular suppliers
  for a significant portion of its components or for a significant portion of
  its subcontracted production capacity. During the quarter ended March 31, 2008,
  the Company relied on one subcontractor for substantially all of its product
  assembly. Purchases from this vendor totaled approximately $238,000 during the
  period, and total accounts payable to this vendor amounted to approximately
  $72,000 at March 31, 2008. The Company did no business with that vendor during
  the quarter ended March 31, 2007. Although there are other vendors that the
  Company could use for procuring these components and services, a change could
  cause a delay in the production process, which could have an adverse impact
  on operating results.

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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 March
31, 2008.

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 the first three months of 2008, no software costs were capitalized.

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 Ratiosand 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

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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.

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 three months ended March 31, 2008, the Company granted 520,000 options to directors and consultants under its stock option plan.  The total fair value of the options granted during the period ended March 31, 2008 was $67,841.  The
Company recognized compensation expense of $182,863 related to option grants in the three months ended March 31, 2008.

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. The number of potential
  common shares for common stock options, calculated using the treasury stock
  method as of March 31, 2008 is 737,832.

Recent Accounting Developments

In September 2006, the FASB issued Statement of Financial
  Accounting Standards (SFAS) SFAS No. 157, Fair Value Measurements
  (SFAS 157). SFAS No. 157 defines fair value, establishes a framework
  and gives guidance regarding the methods used for measuring fair value, and
  expands disclosures about fair value measurements. SFAS No. 157 is effective
  for financial statements issued for fiscal years beginning after November 15,
  2007, and interim periods of those fiscal years. In February 2008, the FASB
  released a FASB Staff Position (FSP FAS 157-2 Effective Date of FASB Statement
  No. 157) which delays the effective date of SFAS No. 157 for all nonfinancial
  assets and nonfinancial liabilities except those that are recognized or disclosed
  at fair value in the financial statements on a recurring basis (at least annually)
  to fiscal years beginning after November 15, 2008. There was no

8

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impact from adoption of this standard on our financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159 expands the use of fair value accounting
but does not affect existing standards which require assets or liabilities to be carried at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  Under SFAS No. 159, a company may elect to use fair value to measure eligible items at specified election dates and
to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Eligible items include, but are not limited to, accounts and loans receivable, available-for-sale and
held-to-maturity securities, equity method investments, accounts payable, guarantees, issued debt and firm commitments.  If elected, SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We have not elected to apply the fair
value option to any of our financial instruments.

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.

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 March 2008, the FASB issued SFAS Statement No. 161 Disclosures about Derivative Instruments and Hedging Activities (SFAS No. 161).  The new standard is intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better understand their effects on an entitys financial position, financial performance, and cash flows.  It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application encouraged. The new standard also improves transparency about the location and amounts of derivative instruments in an entitys financial statements; how derivative
instruments and related hedged items are accounted for under SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133); and how derivative instruments and related hedged items affect its financial position,
financial performance, and cash flows. The Company does not expect the adoption of SFAS No. 161 to have a material impact on its financial statements.

Reclassifications

Certain amounts in the 2007 financial statements have been reclassified to conform to the 2008 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, 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.

9

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Note 4 - Notes Receivable

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

|                                          |   | March 31, |   |   | December 31, |  
|----------------------------------------- | - | --------- | - | - | ------------ | -
|                                          |   | 2008      |   |   | 2007         |  
|(a) AI, accrues interest at 10% per annum | $ | 295,283   |   | $ | 295,283      |  
|(b) AI, accrues interest at 12% per annum |   | 250,000   |   |   | 250,000      |  
|(c) AI, accrues interest at 12% per annum |   | 175,000   |   |   | 175,000      |  
|(d) AI, accrues interest at 12% per annum |   | 75,000    |   |   | 75,000       |  
|(e) AI, accrues interest at 12% per annum |   | 300,000   |   |   | 300,000      |  
|(f) Note receivable from employee         |   | 128,750   |   |   | 128,750      |  
|(g) Note receivable from FastNet          |   | 45,000    |   |   | 45,000       |  
|(h) Note receivable from employee         |   | 15,000    |   |   | -            |  
|Total principal                           | $ | 1,284,033 |   | $ | 1,269,033    |  
|Accrued interest                          |   | 154,657   |   |   | 120,185      |  
|Reserve                                   |   | (47,180   | ) |   | (45,803      | )
|Notes receivable, net                     | $ | 1,391,510 |   | $ | 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 $39,317 and $31,955 is
included in notes receivable at March 31, 2008 and December 31, 2007,
respectively.

(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
$34,931 and $27,452 is included in notes receivable at March 31, 2008 and
December 31, 2007, respectively.

(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
$21,921 and $16,685 is included in notes receivable at March 31, 2008 and
December 31, 2007, respectively.

(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
$9,321 and $7,077 is included in notes receivable at March 31, 2008 and December
31, 2007, respectively.

(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 $36,592 and $27,617 is included in notes
receivable at March 31, 2008 and December 31, 2007, respectively.

(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 $10,523 and $8,896 is included in notes receivable at March
31, 2008 and December 31, 2007, respectively.

(g) On November 27, 2007, the Company
loaned $45,000 to FastNet, Inc., a supplier to the Company. The loan accrues
interest at 12% per annum. The loan is collateralized by assets of FastNet, Inc.
and was due on January 31, 2008. The loan was not paid when due but the Company
has not made demand as of the date of this report. Principal and interest in
arrears bear interest at 18% per annum. Accrued interest of $1,849 and $503 is
included in notes receivable at March 31, 2008 and December 31, 2007,
respectively.

(h) Note receivable from employee is
due on demand and accrues interest at 8% per annum; subsequent to demand for
payment, principal and interest in arrears accrue interest at 12% per annum.
Accrued interest of $203 is included in notes receivable at March 31, 2008.

Note 5 - Property and Equipment

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

10

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|                              |   | March 31,2008 |   |   | December 31,2007 |  
|----------------------------- | - | ------------- | - | - | ---------------- | -
|Demonstration Equipment       | $ | 91,712        |   | $ | 91,712           |  
|Computer equipment            |   | 25,789        |   |   | 25,789           |  
|Office furniture and fixtures |   | 1,603         |   |   | 1,603            |  
|                              |   | 119,104       |   |   | 119,104          |  
|Accumulated Depreciation      |   | (40,612       | ) |   | (27,088          | )
|Net book value                | $ | 78,492        |   | $ | 92,016           |  

Depreciation expense amounted to $13,524 and $1,704 for the
three months ended March 31, 2008 and 2007, respectively.

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

Notes payable consists of the
following:

|                                   |   | March 31, |  |   | December 31, | 
|---------------------------------- | - | --------- |  | - | ------------ | 
|                                   |   | 2008      |  |   | 2007         | 
|(A) Demand note                    | $ | 315,000   |  | $ | 315,000      | 
|(B) Demand notes                   |   | 1,085,000 |  |   | 1,085,000    | 
|Accrued interest                   |   | 183,503   |  |   | 141,618      | 
|                                   | $ | 1,583,503 |  | $ | 1,541,618    | 
|(C) Promissory note payable to TKV | $ | 4,250,000 |  | $ | 4,250,000    | 
|(D) Promissory note to shareholder |   | 75,130    |  |   | 75,130       | 
|Accrued interest                   |   | 173,493   |  |   | 91,557       | 
|                                   | $ | 4,498,623 |  | $ | 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 $50,642 and
$41,218 is included in notes payable at March 31, 2008 and December 31, 2007,
respectively.

(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 $132,861 and $100,400 is included in loans payable at March 31, 2008
and December 31, 2007, respectively.

(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. The note is guaranteed by Fortified DataCom and collateralized by
Fortified DataComs assets. TKV and the Company have entered into three Note
Modification Agreements to revise the payment schedule thereunder, the most
recent of which was entered into as of May 14, 2008. Pursuant to the first and
second Note Modification Agreements, which were entered into at times that there
were past-due payments outstanding under the note, TKV also waived the Companys
failure to make all 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.

Pursuant to the note as currently modified, the remaining
principal balance of the Note and interest accrued under the Note are due on the
following schedule:

- $125,000 on or before June 1, 2008
- $125,000 on or before July 1, 2008
- $1,000,000 on or before November 1, 2008
- $500,000 on or before March 1, 2009
- Final installment in an amount equal to the full then-remaining principal
    balance (i.e., $2,000,000 if all payments are made in accordance with the
    foregoing schedule) plus all accrued interest on or before July 1, 2009.

In addition to the foregoing scheduled payments, if the Company
receives equity or equity-linked financing in excess of $2,000,000 between April
1, 2008 and the payment of the note in full, then a portion of the note will
become due equal to 25% of amount by which the gross financing proceeds exceed
$2,000,000.

Accrued interest of $153,160 and $73,472 is included in promissory
  notes payable at March 31, 2008 and December 31, 2007, respectively.

11

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(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 $20,333 and $18,085 is included in
promissory notes payable at March 31, 2008 and December 31, 2007,
respectively.

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 $86,663 and $64,225 is
included in convertible notes payable at March 31, 2008 and December 31, 2007,
respectively.

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.

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.

NOTE 8 - Income Taxes

The Company has accumulated net losses since inception.
Accordingly, the Company has not provided for income taxes for the periods ended
March 31, 2008 and 2007.

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 March 31, 2008.

The Company has adopted the provisions 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
  nor does the company anticipate any material changes over the next twelve months.

12

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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. Tax fiscal year 2004 and
forward remain open to examination by the U.S. Internal Revenue Service and state authorities.

The Company recognized interest accrued related to unrecognized tax benefits and penalties, if incurred, as a component of income tax expense.

Note 9 - Capital Stock

At March 31, 2008, the Company had 200,000,000 shares authorized, at a par value of $.001 per share, of which 82,015,855 shares were issued and outstanding.

2007 Private Placement.Effective November 16, 2007, the Company conducted the initial closing of a sale of Units under a private placement (the 2007 Offering). Each Unit in the 2007 Offering was sold at a price of
$0.40 per Unit. Prior to the May 2008 amendment described in Note 13 below, each Unit (a 2007 Unit) consisted 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.

In the initial closing of the 2007 Offering in November 2007, the Company issued 4,852,605 of the 2007 Units 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).

In the second and third closings of the 2007 Offering, both conducted in January 2008, the Company issued an aggregate of 10,312,500 of the 2007 Units in exchange for $4,125,000 in cash, net of $412,500 of associated cash fees. Of the total
amount invested in the second and third closings, $3,405,000 had been received by the Company prior to December 31, 2007, and was recorded as other liabilitieson the balance sheet at that date and the associated fees of $340,500
were paid prior to December 31, 2007 and recorded as prepaid expenses at that date and included in other assets; both such amounts were transferred to paid-in capital within stockholdersequity upon the second closing.

In addition to cash placement fees, designees of Falcon Capital, the Companys placement agent, were issued an aggregate of 995,750 shares of Common Stock in connection with the sales of Units in the 2007 Offering.

The 2007 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.

Issuances for Z5 Merger.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 the Agreement and Plan of Merger between the
Company, Z5 and certain other parties, 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
2007 Offering.

2008 Private Placement.Effective in May 14,
  2008, the Company completed a first closing under a private placement of Common
  Stock and warrants commenced in March 2008. In connection with that placement,
  the Company also amended the terms of the 2007 Offering. Both that private placement
  and that amendment are described in greater detail in Note 13, below.

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Note 10 - Stock Based Compensation

The Companys stock option plan, adopted on September 13, 2007,
allows our 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 three months ended March 31, 2008
amounted to approximately $182,863.

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 Three MonthsEnded March 31, 2008Expected life
    2.5 yearsExpected volatility
      82.53%Risk-free interest rate
    2.51%Dividend yield
    0%


The expected life of options was estimated using the simplified
method described in SAB 107, which is based on the vesting period and
contractual term for each grant, or for each vesting-tranche for awards with
graded vesting. 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 March 31,
2008 is summarized as follows:

| |                              |              |                 | Weighted            | 
| | ---------------------------- | ------------ | --------------- | ------------------- | 
| |                              | Number of    | Weighted        | Average             | 
| |                              | Shares       | Average         | Remaining           | 
| |                              | Under Option | Exercise Price  | Contractual         | 
| |                              | (000s)      | per
      Share | Term
      in Years | 
| | Outstanding, January 1, 2008 | 10,605       | $.52            | 4.54                | 
| | Granted                      | 520          | $.26            | 4.99                | 
| | Exercised                    | -            | -               | -                   | 
| | Canceled or Forfeited        | -            | -               | -                   | 
| | Outstanding March 31, 2008   | 11,125       | $.51            | 4.33                | 

During the three months ended March 31, 2008 the weighted average
  fair value of each option granted, estimated as of the grant date using the
  Black-Scholes option valuation model, was $.13 per share. The options were immediately
  vested upon grant. The aggregate intrinsic value of options outstanding and
  exercisable at March 31, 2008 is $10,400. 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 $.28 per share at March 31, 2008,
  which would have been received from the option holders had those option holders
  exercised their options as of that date.

14

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The following table summarizes information about stock options
  outstanding at March 31, 2008:

Weighted AverageNumber
    Remaining
    NumberOutstanding
    Contractual Life
    ExercisableExercise Prices
    (000s)
    (Years)
    (000s)$.28
    2,647
    3.8
    2,647$.41
    2,353
    4.3
    2,353$.76
    3,000
    4.4
    -$.77
    1,105
    4.4
    -$.45
    1,500
    4.6
    -$.26
      520
    5.0
    520


As of March 31, 2008, there was approximately $463,000 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 $51,800 and $0
for the three months ended March 31, 2008 and 2007, respectively. Future minimum
lease payments as of March 31, 2008 are approximately $60,000 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.

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. Plaintiffs allege claims for, among
other claims, 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
$1,237,000 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 $1,190,000 as of
March 31, 2008 in principal and accrued interest. The difference between the
assigned notes receivable and the assigned liabilities of approximately $47,000
was fully reserved at March 31, 2008. 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 March 31, 2008 and
2007.

Note 12 - Related Party Transactions

Management Fees.During the three months ended
  March 31, 2007 pursuant to a contract that expires November 30, 2008, the Company
  paid management fees totaling $12,000 to a company controlled by a director
  and former officer of the Company. There were no such payments made in the three
  months ended March 31, 2008.

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Note 13 - Subsequent Events

2008 Private Placement Offering.Effective May
14, 2008, the Company closed on the sale of 3,150,000 Units in an initial
closing under a private placement (the 2008 Offering), in exchange for an
aggregate of $1,154,000 in cash (net of $106,000 in associated cash placement
fees). Each Unit in the 2008 Offering (a 2008 Unit) was sold at a price of
$0.40 per Unit and consisted of (i) two (2) shares of Common Stock, and (ii) one
(1) warrant (a Warrant) to purchase one (1) share of Common Stock at an
exercise price of $0.40 (i.e., an aggregate of 6,300,000 shares of Common Stock
and 3,150,000 Warrants in the initial closing). Warrants are exercisable at any
time through April 30, 2011. At any time after April 30, 2009, if the closing
price of the Common Stock exceeds $1.20 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 principal investors in the initial closing under the 2008
  Offering, representing $1,060,000 of the gross amount invested, were also investors
  in the 2007 Offering. As a condition to the Companys obtaining their investment
  in the 2008 Offering, the Company agreed to issue additional shares to all of
  the investors in the 2007 Offering and to amend the Warrants issued in the 2007
  Offering so as to effectively amend the economic terms of the 2007 Offering
  to be the same as those of the 2008 Offering. Specifically, the Company agreed
  to issue one (1) additional share of Common Stock for each share of Common Stock
  that each such investor purchased in the 2007 Offering, and to reduce the exercise
  price of the Warrants issued in the 2007 Offering from $.65 to $.40. As a consequence
  of this adjustment, contemporaneously with the initial closing of the 2008 Offering,
  the Company issued an additional 12,862,500 shares of Common Stock with respect
  to the 2007 Offering.

Of the Units sold in the initial closing of the 2008 Offering, 500,000 Units (i.e., 1,000,000 shares of Common Stock plus 500,000 Warrants) were purchased by Brendan Reilly, the Companys Chief Executive Officer, in exchange for $200,000 in
cash. The 2008 Units purchased by Mr. Reilly were sold on the terms identical to the 2008 Units sold to other investors (although the Company did not pay any placement agent fees with respect to the investment by Mr. Reilly). Neither Mr. Reilly nor
any of the Companys other officers or directors were investors in the 2007 Offering; as a consequence, neither Mr. Reilly nor any other officer or director received any additional shares of Common Stock as a result of the adjustment of the
2007 Offering described in the preceding paragraph.

The Company is currently evaluating the accounting treatment of the transaction.

Amendment of TKV Note.As described in Note
  6 above, the Company is the borrower under a promissory note payable to TKV
  in the original principal amount of $5,000,000. Under the terms in force
  at March 31, 2008, the full remaining balance of that note was scheduled to
  come due at May 31, 2008. Effective May 14, 2008, the Company and TKV entered
  into a Third Note Modification Agreement to amend the payment schedule and extend
  the remaining payments to various dates between June 1, 2008 and July 1, 2009,
  subject to full or partial acceleration udner certain circumstances. The amended
  payment schedule is set forth in Note 6 above.

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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.

Cautionary Note Regarding Forward-Looking
Statements

This report on Form 10-Q as well as press releases and other
information provided periodically in writing or verbally by our officers or our
agents contain 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 expect, anticipate,
believe, intend, plan, estimate, may, would, could, variations of
those words, and similar expressions. These forward-looking statements, which
are based on information available to us at this time, include statements
regarding our expectations, beliefs, or intentions about the future with respect
to, among other things: (i) our liquidity and capital resources; (ii) our
financing opportunities and plans; (iii) our ability to generate revenues; (iv)
market and other trends affecting our future financial condition or plan of
operation; and (v) our growth and operating strategy.

Investors and prospective investors are cautioned that any
such forward-looking statements are not guarantees of future performance, that
they involve various risks and uncertainties, and that actual results may differ
materially from those projected in the forward-looking statements. The factors
that might cause such differences include, among others, those set forth in Part
I, Item 2 of this report on Form 10-Q entitled Managements Discussion and
Analysis or Plan of Operationor in Part II, Item 6 of our annual report on Form
10-K under the heading Investment Considerations. 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). We undertake no obligation to update any
forward-looking statement after the date when made, 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.

Our financial statements, which have been prepared in
accordance with United States generally accepted accounting principles (GAAP),
contemplate that we will continue as a going concern. They do not contain any
adjustments that might result if we were unable to continue as a going
concern.

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 (Z5), our
NOMADTM products 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 have recently released, 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.

Our ability to execute on the foregoing 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 Since March 31, 2008, the date of the balance sheet in this report,
we have raised gross proceeds of $1.26 million in one such private placement (of
which $200,000 was invested by one of our executive officers).

Prior to our acquisition of Z5 in September 2007, we had minimal
  operations, and consequently the acquisition of Z5 has been 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.

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Results of Operations for the Quarter Ended March 31,
2008Compared to Results of Operations for the Quarter Ended March 31,
2007

Since inception, we have operated at a loss. In early 2006, we
were primarily engaged in organizational activity including product development,
negotiating vendor contracts, engaging and developing our initial customer base,
and recruiting and managing staff. Our first products shipped in the third
calendar quarter of 2006, to the City of New Orleans Police Department, and
sales of military products began during the fourth calendar quarter of 2006.
Total sales for 2006 were approximately $671,000. During 2007 we returned our
focus to the development and release of next generation products to correct
performance and reliability issues. Those efforts were futher delayed during the
year while we worked to complete Fortifieds acquisition of Z5 and obtain
funding necessary for our operations. Consequently, sales during 2007 were
limited, totaling approximately $156,000 for the year. We resumed our sales
efforts near the end of 2007 and have continued those efforts through the first
quarter of 2008. Nonetheless, recognized revenues remain low due to the current
stage of our business, and the relationships between revenue, cost of revenue
and operating expenses reflected in the financial information included herein
are not reflective of the relationships between those figures that we expect in
the future once we achieve a higher volume of sales volume.

Sales. Our sales during the quarter ended March
31, 2008 were approximately $141,000, an increase of approximately $81,000 or
138% over the sales during the corresponding period of 2007. The sales for the
first quarter of 2008 also represented 90% of the sales recorded during the full
2007 calendar year. As noted above, sales during both the first quarter of 2007
and the full 2007 calendar year were constrained due to product redesign
efforts, which were not completed until late in the year. We believe that we
have corrected all identified technical problems, including transitioning to new
suppliers where necessary, and that we are currently positioned to ship product
in commercial quantities to address demand from customers as orders are
received. We do not believe inflations was a material factor in the increase in
our sales between the 2007 and 2008 periods.

Gross Profit and Margin.Our cost of goods sold
consists primarily of direct costs of the manufactured units. Gross profit for
the quarter ended March 31, 2008 was approximately $66,000, representing a gross
margin of 47%. Gross profit for the quarter constitutes an increase of
approximately $41,000, or 169%, over the gross profit of approximately $25,000
recorded in the first quarter of 2007. The substantial increase in gross profit
is a consequence of both the increase in sales volume and an increase in gross
margin by five percentage points, up from the 42% margin recorded in the 2007
period.

Operating Expense.We recorded total operating
expense of approximately $1,195,000 for the quarter ended March 31, 2008, an
increase of approximately $939,000 or 367% over the operating expense recorded
in the corresponding period of 2007. Of this total, the greatest increase was in
professional, legal and consulting fees (all classified as Professional and
Consulting fees), which increased by $196,000 (or almost 376%) from $52,000 in
the first quarter of 2007. A significant portion of the increase was
attributable to legal and accounting costs associated with our first audit and
first Form 10-KSB annual report as a operating company (as opposed to
Fortifieds shell company status prior to the September 2007 acquisition of Z5).
An additional portion of the increase consists of $183,000 of non-cash expense
related to option grants to the Companys non-management Directors and to
certain members of the Companys Board of Advisors.

Selling, General & Administrative costs also increased
significantly in gross dollar terms from the year-earlier period (from
approximately $126,000 to $720,000, an increase of $594,000), although on a
percentage basis that increase was not as significant as the increase in
professional, legal and consulting fees. The increased SG&A expense reflects
the significant increases in almost all aspects of the Companys operations
relative to the year-earlier period, when the Company (i.e., Z5 at the time) was
operating largely as a start-up business. These increases include a substantial
increase in personnel, from three full-time-equivalent personnel (FTEs) at March
31, 2007 to 13 FTEs at March 31, 2008, and corresponding increases in travel
costs, office costs and other ordinary-course operating expenses.

The Company issues stock options to employees and
non-employees. Fair value of the options for non-employees is remeasured at each
reporting date and compensation expense being amortized is adjusted accordingly.
The aggregate non-cash compensation expense to be recognized in the future for
awards to employees that were unvested at March 31, 2008 is approximately
$463,000, which will be recognized through 2010. We expect to continue issuing
stock options as an important component of incentive compensation. Stock-based
compensation charges can fluctuate substantially from period to period based on
the fair market value of our stock and the number of options granted during each
period.

Research & Development costs also increased significantly
  in gross dollar terms (from approximately $78,000 to $226,000, an increase of
  $148,000). However, on a percentage basis that increase was not as significant
  as those in the other categories of operating expense. During the 2008 period,
  our increase in R&D expense was due in part to our costs of developing and
  improving our VantagePointTM software, while continuing to improve
  our NomadTM product line and related peripheral devices. In the 2007
  Q1 period, our costs related almost entirely to our development of the NomadTM
  product line.

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Interest Expense. During the quarter ended March
31, 2008, interest expense (net) increased to approximately $151,000 from $7,000
in the corresponding period of 2007. This increase reflects a significant
increase in borrowing over the course of 2007, as we conducted multiple bridge
note borrowings in order to fund operations prior to the closing of the
acquisition of Z5 and thereafter until we received proceeds from the equity
offering commenced in the fourth quarter of 2007. A portion of those borrowings
remain outstanding currently. In addition, we issued a $5.0 million promissory
note in September 2007 as part of the consideration paid for our acquisition of
Z5. A principal balance of $4.25 million remained outstanding on that Note
throughout the first quarter of 2008. Although no interest has been paid in cash
on that Note, interest expense has been accrued.

Liquidity and Capital Resources

Cash.At March 31, 2008, the Company had
approximately $993,000 in cash and cash equivalents. This figure represents a
net reduction in cash of approximately $842,000 during the quarter, down from
approximately $1,835,000 in cash and cash equivalents at December 31, 2007. In
comparison, at March 31, 2007, cash and cash equivalents were approximately
$78,000.

For the quarter ended March 31, 2008, our operating activities
used approximately $1,475,000 of cash, compared to only approximately $36,000 of
cash used in operating activities during the corresponding period of 2007.
Primary uses of cash during the 2008 period included cash costs associated with
cash based operating expenses outlined above and with reductions of accounts
payable and accrued expenses. The net loss was offset in part by non-cash
expense associated with stock-based compensation and interest expense that was
accrued but not paid in cash during the period. During the 2007 period,
operating cash flows reflected a net loss of approximately $236,000 plus an
increase in inventory of $100,000, which were largely offset by a net increase
in accounts payable and accrued expenses and net decrease (through collections)
of accounts receivable.

Cash used in investing activities during both the 2008 period
and the 2007 period were primarily comprised of relatively small increases in
notes receivable from employees.

Cash flows from financing activities of approximately $648,000
during the quarter ended March 31, 2008 reflect the next proceeds of a private
placement of our common stock, for which the third and final closing occurred
during the quarter. The corresponding period of 2007 had no such activity; the
sole financing activity during that period was a repayment of $17,000 of notes
outstanding.

Notes Payable and Notes Receivable.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 (the TKV Note). Under the TKV Notes
  original terms, principal was payable in several installments, with the final
  installment due March 31, 2008. During 2007, $750,000 of the TKV Note was paid
  and on April 2, 2008 an additional $500,000 was paid. Following the payment,
  the Company had approximately $463,000 in remaining cash on April 2, 2008. Due
  to our inability to pay all of the installments when due, the TKV Note has been
  amended three times to extend the payment dates. Under the latest amendment,
  entered into on May 14, 2008, the remaining balance of $3,750,000 will come
  due on various dates between June 1, 2008 and July 1, 2009, as follows:

- $125,000 on or before June 1, 2008
- $125,000 on or before July 1, 2008
- $1,000,000 on or before November 1, 2008
- $500,000 on or before March 1, 2009
- Final installment in an amount equal to the then-remaining principal balance
    (i.e., $2,000,000 if all payments are made in accordance with the foregoing
    schedule) plus all accrued interest on or before July 1, 2009.

In addition to the foregoing scheduled payments, if the Company
  receives equity or equity-linked financing in excess of $2,000,000 between April
  1, 2008 and the payment of the TKV Note in full, then a portion of the TKV Note
  will become due in an amount equal to 25% of amount by which the gross financing
  proceeds exceed $2,000,000.

We currently have sufficient cash on hand that we do not anticipate
  a problem making the payments that are due on June 1, 2008 and July 1, 2008
  with only our existing cash resources. Our ability to make the payments due
  on November 1, 2008 and thereafter remain dependent on how rapidly we are able
  to execute on our sales efforts and, potentially, on our ability to raise additional
  outside funding. If we are unable to generate sufficient cash through a combination
  of our sales and outside funding prior to each of those due dates, we anticipate
  that we would be required to negotiate with TKV to amend the Note again to extend
  the due date for some or all of the remaining principal and for the accrued
  interest. However, TKV is under no obligation to agree to such an extension;
  moreover, it is possible that (unlike the previous three amendments) TKV could
  impose additional requirements as a condition to such an extension, such as
  but not limited to an increase in the interest rate or payment of some separate
  consideration. The TKV Note is guaranteed by our operating subsidiary, Fortified
  Data

19

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Communications, Inc., and is secured by substantially all of the assets of Fortified Data Communications. If TKV were to foreclose on that security interest, we would likely be forced to seek bankruptcy protection or cease operations.

In conjunction with the recapitalization of the Company in September 2007, the Company assumed demand and convertible notes payable from lenders, and acquired 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 Note 11 to
the financial statements included in this Form 10-Q, an agreement has been reached pursuant to which the notes receivable from AI will be transferred to a lender in repayment of certain of the demand notes.

During 2006, the Company issued a $170,130 note payable to an affiliate, due December 31, 2007. $95,000 of that note was repaid during 2007, and the balance remains outstanding.

Liquidity, including Private Placement of Securities.As noted above, as of March 31, 2008, we had approximately $993,000 in cash and cash equivalents. We generated a net loss (including non-cash items) of approximately
$1,245,000 during the quarter ended March 31, 2008. Excluding those non-cash items, we used $1,475,000 of net cash in operating activities during the quarter. Somewhat less than one-half of that net cash loss was offset by the final tranche
of the common stock private placement commenced in late 2007, which was completed in January 2008.

Since December 31, 2007, we have received contracts and orders in excess of $2,500,000. However, the larger contracts included in that figure will result in product deliveries only over a period of several months. As a consequence, revenue and
gross profits from sales will not generate sufficient cashflow to cover operating costs at our historical cost levels in the immediate term. In light of these factors, over the past 60 days we have made various and material cost reductions in an
effort to reduce our cost structure and thereby preserve our remaining 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, in late March 2008 we also recommenced efforts to raise additional equity capital to augment our cash position and fund our cash losses until the time that we turn cash flow positive. Working with Falcon Capital Ltd.,
the investment bankers that placed the initial $5.1 million of equity during late 2007 and early 2008, we completed the sale of an initial $1,260,000 of common stock (before placement costs) in early May 2008. We continue to work with Falcon
Capital as well as other placement agents in an effort to raise capital in addition to the initial amount received in recent weeks. At May 14, 2008, we had approximately $1,422,000 in cash and cash equivalents.

We stand ready to execute even further cost reduction plans (beyond those taken already) should those reductions prove necessary to provide additional time to raise sufficient private placement proceeds which, when coupled with our forecasted 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 such a financing may be materially dilutive to existing shareholders. However, this combination of cost
reductions and capital raising 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

There were no capital expenditures in the quarter ended March 31, 2008 or March 31, 2007. We anticipate keeping capital expenditure costs to a minimum until the Company turns cash flow positive.

Seasonality

Historically, we have not experienced significant seasonality
  in our business, although our revenue may be subject to fluctuation due to government
  and commercial purchasing cycles.

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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.

Critical Accounting Policies

Our critical accounting policies, including the assumptions and judgments underlying those policies, are more fully described in the notes to our audited financial statements contained in our Annual Report on Form 10-KSB. We have not adopted any
material changes to our critical accounting policies from those discussed in our Annual Report. We have consistently applied these policies in all material respects except as specifically identified herein. Investors are cautioned, however, that
these policies are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially. Set forth below are the accounting policies that we believe most critical to an understanding of our
financial condition and liquidity.

Below is a brief description of key accounting principles which we have adopted in determining our recognition of revenues and expenses:

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 the 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 conversion
features vesting period.

Revenue Recognition.We recognize revenue in accordance with SEC Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. Under these guidelines, revenue is recognized when persuasive evidence of an arrangement exists, shipment
has occurred or services rendered, the price is fixed or determinable and payment is reasonably assured. Under these requirements, when the terms of sale include customer acceptance provisions, and compliance with those provisions has not been
previously demonstrated, revenues are deferred and recognized upon acceptance. Revenue will be deferred and recognized once acceptance has occurred.

Stock Based Compensation.Awards under our stock option plans are accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 123R (SFAS 123R) Share Based Payment, EITF 96-18 Accounting for Equity
Instruments That Are Issued to Other Than Employees For Acquiring, Or In Conjunction With Selling, Goods or Services and SAB No. 107, Share-Based Payment. Compensation is measured on the grant date of an award and recognized over the service
period for which the award was granted, generally the vesting period. For awards with graded vesting, compensation is recorded using the straight line method over the vesting period, but in no event shall total compensation recognized under the
awards be less than the aggregate fair value of shares vested under such awards. Stock option related compensation is equal to the fair value of the award which we determine using a binomial option-pricing model.

Income Taxes.We account for income taxes using the asset and liability method, as provided by SFAS 109, Accounting for Income Taxes (SFAS 109) which requires the recognition of different tax assets and liabilities for the future tax
consequences of temporary differences between the financial statement and tax basis carrying amounts of assets and liabilities. No income taxes were provided because we have incurred losses from our inception. Due to the Companys limited
operating history and, therefore, uncertainty of future taxable income, no future tax benefits have been recognized.

Recent Accounting Pronouncements.In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines fair value,
establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods of those fiscal years. In February 2008, the FASB released a FASB Staff Position (FSP FAS 157-2Effective Date of FASB Statement No. 157) which delays the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. There was no impact
from adoption of this standard on our financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value
  Option for Financial Assets and Financial Liabilities

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Including an amendment of FASB Statement No. 115 (SFAS No.
159). SFAS No. 159 expands the use of fair value accounting but does not affect
existing standards which require assets or liabilities to be carried at fair
value. The objective of SFAS No. 159 is to improve financial reporting by
providing companies with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. Under SFAS No. 159, a
company may elect to use fair value to measure eligible items at specified
election dates and report unrealized gains and losses on items for which the
fair value option has been elected in earnings at each subsequent reporting
date. Eligible items include, but are not limited to, accounts and loans
receivable, available-for-sale and held-to-maturity securities, equity method
investments, accounts payable, guarantees, issued debt and firm commitments. If
elected, SFAS No. 159 is effective for fiscal years beginning after November 15,
2007. We have not elected to apply the fair value option to any of our financial
instruments.

Critical Accounting 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

Not applicable

ITEM 4. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

Based on an evaluation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended) required by paragraph (b) of Rule 13a-15 or
Rule 15d-15, as of March 31, 2008, our Chief Executive Officer and Principal
Financial Officer have concluded that our disclosure controls and procedures
were not effective due to the fact that we lack sufficient internal accounting
personnel and segregation of duties necessary to ensure that an adequate review
of the financial statements and notes thereto is performed and to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is accumulated and communicated to our management,
including our Chief Executive Officer and Principal Financial Officer, all in a
manner that allows timely decisions regarding required disclosure. We are
undertaking planning and actions to provide effective disclosure controls and
procedures in the future.

In designing and evaluating our disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily is required
to apply its judgment in evaluating the relationship between the benefit of
desired controls and procedures and the cost of implementing new controls and
procedures.

The consolidated financial statements include all adjustments
identified as a result of the evaluation performed.

There were no changes in our internal controls over financial
reporting that would significantly affect internal controls over financial
reporting during the quarter ended March 31, 2008.

PART II OTHER INFORMATION

ITEM 1. 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 claims, breach of contract related to a non-binding letter
  of intent entered into by AI and Fortified in November 2006.

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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 $1,237,000 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 $1,190,000 as of March 31, 2008 in principal and accrued interest. The difference between the assigned notes receivable and the assigned liabilities of approximately $47,000
was recorded as an expense at March 31, 2008. Final settlement is expected during 2008.

Except as otherwise disclosed above, there are no pending
  material legal proceedings to which we are a party and we are not aware that
  any are contemplated. There can be no assurance, however, that we will not be
  made a party to litigation in the future. Any finding of liability imposed against
  us is likely to have an adverse effect on our business, our financial condition,
  including liquidity and profitability, and our plan of operation.

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

We conducted no sales of unregistered equity securities during the quarter ended March 31, 2008 which have not previously been disclosed on a Form 8-K. Subsequently to the end of the quarter, effective May 14, 2008, the Company completed the a
closing under a private placement for 6,300,000 common shares and 3,150,000 warrants in exchange for $1,154,000 of cash (net of fees).

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

There were no reportable events under this Item 3 during the quarterly period ended March 31, 2008.

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

There were no matters submitted to a vote of our stockholders, through the solicitation of proxies or otherwise, during the quarterly period ended March 31, 2008.

ITEM 5. OTHER INFORMATION.

Sale of Unregistered SecuritiesEffective May 14, 2008, the Company closed on the sale of 3,150,000 Units in an initial closing under a private placement (the 2008 Offering), in exchange for an aggregate of $1,154,000
in cash (net of $106,000 in associated cash placement fees). Each Unit in the 2008 Offering (a 2008 Unit) was sold at a price of $0.40 per Unit and consisted of (i) two (2) shares of Common Stock, and (ii) one (1) warrant (a
Warrant) to purchase one (1) share of Common Stock at an exercise price of $0.40 (i.e., an aggregate of 6,300,000 shares of Common Stock and 3,150,000 Warrants in the initial closing). Warrants are exercisable at any time through
April 30, 2011. At any time after April 30, 2009, if the closing price of the Common Stock exceeds $1.20 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.

Designees of Falcon Capital, the Companys placement agent, were issued 530,000 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.

The principal investors in the initial closing under the 2008
  Offering, representing $1,060,000 of the gross amount invested, were also
  investors in the Companys private placement of common stock and warrants
  that closed in three closings between

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November 2007 and January 2008 (the 2007 Offering). As a
condition to the Companys obtaining their investment in the 2008 Offering, the
Company agreed to issue additional shares to all of the investors in the 2007
Offering and to amend the Warrants issued in the 2007 Offering so as to
effectively amend the economic terms of the 2007 Offering to be the same as
those of the 2008 Offering. Specifically, the Company agreed to issue one (1)
additional share of Common Stock for each share of Common Stock that each such
investor purchased in the 2007 Offering, and to reduce the exercise price of the
Warrants issued in the 2007 Offering from $.65 to $.40. As a consequence of this
adjustment, contemporaneously with the initial closing of the 2008 Offering, the
Company issued an additional 12,862,500 shares of Common Stock with respect to
the 2007 Offering.

Amendment of Material ContractThe Company is the
obligor under a promissory note payable to Thomas Keenan Ventures LLC (TKVand
the TKV Note), issued in conjunction with the Companys acquisition of Z5
Technologies LLC on September 13, 2007 and previously filed as an exhibit to
Form 8-K on September 19, 2007. The TKV Note is guaranteed by Fortified DataCom
and collateralized by Fortified DataComs assets. TKV and the Company have
previously entered into two Note Modification Agreements to revise the payment
schedule under the TKV Note.

Effective May 14, 2008, the Company and TKV entered into a Third
  Note Modification Agreement, amending the due date of the remaining principal
  and interest under the TKV Note, which was scheduled to come due in full on
  May 31, 2008. As modified under the Third Note Modification Agreement, the remaining
  principal balance of the TKV Note and interest accrued thereunder are now due
  on the following schedule:

- $125,000 on or before June 1, 2008
- $125,000 on or before July 1, 2008
- $1,000,000 on or before November 1, 2008
- $500,000 on or before March 1, 2009
- Final installment in an amount equal to the full then-remaining principal
    balance (i.e., $2,000,000 if all payments are made in accordance with the
    foregoing schedule) plus all accrued interest on or before July 1, 2009.

In addition to the foregoing scheduled payments, if the Company
receives equity or equity-linked financing in excess of $2,000,000 between April
1, 2008 and the payment of the note in full, then a portion of the note will
become due equal to 25% of amount by which the gross financing proceeds exceed
$2,000,000.

No other terms of the TKV Note were amended pursuant to the
Third Note Modification Agreement.

Entrance into a Material ContractOn May 14,
2008, the Company entered into an Employment Agreement with Kirk Hanson, its
Chief Financial Officer. The appointment of Mr. Hanson as Chief Financial
Officer was previously announced on a Form 8-K filed on April 25, 2008. The
Employment Agreement has an effective date of May 1, 2008, and an initial term
of two years. Pursuant to the Agreement, Mr. Hanson will be paid a base salary
at an annual rate of $120,000, will be eligible for certain additional cash
bonus compensation, and will issued an option to purchase 1,000,000 shares of
common stock vesting over a period of three years (subject to acceleration under
certain circumstances). He will also be entitled to severance compensation equal
to one years base salary and a prorated portion of any eligible bonus in the
event his employment is terminated by the Company without cause or by Mr. Hanson
with good reason, both as defined in the Agreement.

Method of Recommending Nominees to the Companys Board of
DirectorsThere have been no changes made during the quarter ended March
31, 2008 to the method by which shareholders may recommend nominees to the
Companys Board of Directors.

ITEM 6. EXHIBITS.No. Description of
Exhibit

|2.1 | Third Note
        Modification Agreement by and among Fortified Holdings Corp. and Thomas
        Keenan Ventures, LLC, dated May 14, 2008. FILED HEREWITH.                                   
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                
|2.2 | 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.                              
|    |                                                                                                                                                                                                
|2.3 | Articles of Merger, filed with the Secretary
        of State of Nevada, incorporated by reference from Exhibit 3.1 to the
        Form 8-K filed July 3, 2007.                                
|    |                                                                                                                                                                                                
|2.4 | 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.                  

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|10.1 | Employment
        Agreement by and between Fortified Holdings Corp. and Kirk Hanson, dated
        May 14, 2008. FILED HEREWITH.                                                                                                                                                         
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                           
|31.1 | Certification
        of Fortified Holdings Corp. Chief Executive Officer, Brendan Reilly, required
        by Rule 13a-14(a) or Rule 15d-14(a), dated May 15, 2008. FILED HEREWITH.                                                                                                      
|     |                                                                                                                                                                                                                                                                                           
|31.2 | Certification
        of Fortified Holdings Corp. Chief Financial Officer Kirk Hanson, required
        by Rule 13a-14(a) or Rule 15d-14(a), dated May 15, 2008. FILED HEREWITH.                                                                                                          
|     |                                                                                                                                                                                                                                                                                           
|32.1 | Certification
        of Fortified Holdings Corp. Chief Executive Officer, Brendan Reilly, required
        by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of
        Title 18 of the United States Code (18 U.S.C. 1350), dated May 15, 2008.
        FILED HEREWITH.
|     |                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                           
|32.2 | Certification of Fortified
        Holdings Corp. Chief Financial Officer, Kirk Hanson, required by Rule
        13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18
        of the United States Code (18 U.S.C. 1350), dated May 15, 2008. FILED
        HEREWITH.   

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Signatures

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

Date: May 15, 2008

| | FORTIFIED HOLDINGS CORP.
| | ------------------------
| |                         
| | By:                     
| |                         
| |                         
| |                         
| | By:                     
| |                         
| |                         

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