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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, 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 June 30, 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 August 13, 2008, the registrant had outstanding
103,069,105 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                                                                                 | 3 
|--------------------------- | --------------------------------------------------------------------------------------------------------------------------- | --
|                            | Condensed Consolidated Balance Sheets as of June 30, 2008
      and December 31, 2007                                       | 3 
|                            | Condensed Consolidated Statements of Operations for the
        Three and Six Months Ended June 30, 2008 and June 30, 2007  | 4 
|                            | Condensed Consolidated Statements of Changes in Stockholders
      Deficit for the Period January 1, 2008 to June 30, 2008 | 5 
|                            | Condensed Consolidated Statements of Cash Flows for the Six
      Months Ended June 30, 2008 and June 30, 2007              | 6 
|                            | Notes to Condensed Consolidated Financial Statements                                                                        | 7 
|                            |                                                                                                                             |   
|ITEM 2.                     | Managements Discussion and Analysis of Financial Condition
      and Results of Operations                                 | 16
|                            |                                                                                                                             |   
|ITEM 3.                     | Quantitative and Qualitative Disclosures About Market Risk                                                                  | 22
|                            |                                                                                                                             |   
|ITEM 4.                     | Controls and Procedures                                                                                                     | 22
|                            |                                                                                                                             |   
|PART II  OTHER INFORMATION |                                                                                                                            
|                            |                                                                                                                             |   
|ITEM 1.                     | Legal Proceedings                                                                                                           | 23
|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                                                                                                               | 24
|ITEM 6.                     | Exhibits                                                                                                                    | 24

**PART I  FINANCIAL INFORMATION**

**ITEM 1  Condensed Consolidated Financial Statements**

2

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|FORTIFIED HOLDINGS CORP.             
|-------------------------------------
|                                     
|CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                |  |                                              |             |   | June 30,    |             |   | December 31, |  
|----------------------------------------------- |  | -------------------------------------------- | ----------- | - | ----------- | ----------- | - | ------------ | -
|                                                |  |                                              |             |   | 2008        |             |   | 2007         |  
|                                                |  | Assets                                       |             |   | (Unaudited) |             |   | (Audited)    |  
|Current assets:                                 |  |                                              |             |   |             |             |   |              |  
|Cash                                            |  |                                              |             | $ | 712,968     |             | $ | 1,835,509    |  
|Accounts receivable                             |  |                                              | 122,347     |   |             | 107,447     |  
|Inventories, net                                |  |                                              | 189,602     |   |             | 190,408     |  
|Notes receivable, net                           |  |                                              | 214,339     |   |             | 1,343,415   |  
|Prepaid expenses and other current
      assets |  |                                              | 25,849      |   |             | 25,316      |  
|                                                |  | Total current assets                         |             |   | 1,265,105   |             |   | 3,502,095    |  
|                                                |  |                                              |             |   |             |             |   |              |  
|Property and equipment, net                     |  |                                              | 64,967      |   |             | 92,016      |  
|Other assets                                    |  |                                              |             |   | -           |             |   | 340,500      |  
|                                                |  | Total assets                                 |             | $ | 1,330,072   |             | $ | 3,934,611    |  
|                                                |  |                                              |             |   |             |             |   |              |  
|                                                |  | Liabilities and Stockholders' Deficit        |             |   |             |             |   |              |  
|Current liabilities                             |  |                                              |             |   |             |             |   |              |  
|Accounts payable and accrued expenses           |  | $                                            | 304,623     |   | $           | 889,171     |  
|Demand notes payable                            |  |                                              | 452,471     |   |             | 1,541,618   |  
|Convertible notes payable                       |  |                                              | 859,101     |   |             | 814,225     |  
|Term notes payable                              |  |                                              | 3,923,059   |   |             | 4,416,687   |  
|Other current liabilities                       |  |                                              | 34,891      |   |             | 92,616      |  
|                                                |  | Total current liabilities                    |             |   | 5,574,145   |             |   | 7,754,317    |  
|Other liabilities                               |  |                                              | -           |   |             | 3,405,000   |  
|                                                |  | Total liabilities                            |             |   | 5,574,145   |             |   | 11,159,317   |  
|Commitments and                                 |  | contingencies (Note 11)                      |             |   |             |             |   |              |  
|                                                |  |                                              |             |   |             |             |   |              |  
|Stockholders' Deficit                           |  |                                              |             |   |             |             |   |              |  
|                                                |  |                                              |             |   |             |             |   |              |  
|Common stock, par value $.001 per share;        |  |                                              |             |   |             |             |  
|                                                |  | 200,000,000 shares authorized                |             |   |             |             |   |              |  
|                                                |  | 103,069,105 shares issued and outstanding at |             |   |             |             |   |              |  
|                                                |  | June 30, 2008; 60,707,605
      issued and   |             |   |             |             |   |              |  
|                                                |  | outstanding at December 31, 2007             |             |   | 103,070     |             |   | 60,708       |  
|Additional paid-in capital                      |  |                                              | 8,139,882   |   |             | 3,043,428   |  
|Accumulated deficit                             |  |                                              | (12,487,025 | ) |             | (10,328,842 | )
|                                                |  | Total stockholders' deficit                  |             |   | (4,244,073  | )           |   | (7,224,706   | )
|                                                |  | Total liabilities and stockholders' deficit  |             | $ | 1,330,072   |             | $ | 3,934,611    |  

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

3

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|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|-----------------------------------------------
|                                               
|(Unaudited)                                    

|                                          |   | For the three months ended |   |   | For the six months ended |  
|----------------------------------------- | - | -------------------------- | - | - | ------------------------ | -
|                                          |   | June 30,                   |   |   | June 30,                 |  
|                                          |   | 2008                       |   |   | 2007                     |  
|                                          |   |                            |   |   |                          |  
|Net sales                                 | $ | 119,357                    |   | $ | -                        |  
|Cost of sales                             |   | 89,183                     |   |   | -                        |  
|Gross
      profit                        |   | 30,174                     |   |   | -                        |  
|                                          |   |                            |   |   |                          |  
|Operating expenses:                       |   |                            |   |   |                          |  
|Research and development                  |   | 127,187                    |   |   | 119,628                  |  
|Selling,
      general and administrative |   | 631,690                    |   |   | 553,872                  |  
|Professional and
      consulting fees    |   | 105,280                    |   |   | 368                      |  
|Total
      operating expenses            |   | 864,157                    |   |   | 673,868                  |  
|Loss from operations                      |   | (833,983                   | ) |   | (673,868                 | )
|Other income and expenses:                |   |                            |   |   |                          |  
|Interest income                           |   | 34,709                     |   |   | 1,630                    |  
|Interest
      expense                    |   | (113,885                   | ) |   | (6,305                   | )
|Loss before provision for income taxes    |   | (913,159                   | ) |   | (678,543                 | )
|Provision for income taxes                |   | -                          |   |   | -                        |  
|Net loss                                  | $ | (913,159                   | ) | $ | (678,543                 | )
|                                          |   |                            |   |   |                          |  
|Basic and diluted net loss per share      | $ | (0.01                      | ) | $ | (0.05                    | )
|                                          |   |                            |   |   |                          |  
|Basic and diluted weighted average        |   |                            |   |   |                          |  
|number of shares outstanding              |   | 92,385,498                 |   |   | 15,000,000               |  

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 IN
|STOCKHOLDERS DEFICIT                         
|(Unaudited)                                   

|                                  |  |              |  |   |         |  |   | Additional  |   |   |             |   |   |            |  
|--------------------------------- |  | ------------ |  | - | ------- |  | - | ----------- | - | - | ----------- | - | - | ---------- | -
|                                  |  | Common Stock |  |   | Paid-In |  |   | Accumulated |   |   |             |  
|                                  |  | 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   |  | 29,575,000   |  |   | 29,575  |  |   | 4,854,925   |   |   |             |   |   | 4,884,500  |  
|Employee stock based compensation |  |              |  |   |         |  |   | 202,283     |   |   |             |   |   | 202,283    |  
|Non employee stock based          |  |              |  |   |         |  |   |             |   |   |             |   |   |            |  
|compensation                      |  |              |  |   |         |  |   | 52,033      |   |   |             |   |   | 52,033     |  
|Fee paid in stock                 |  | 2,786,500    |  |   | 2,787   |  |   | (2,787      | ) |   |             |   |   | -          |  
|Net loss                          |  |              |  |   |         |  |   |             |   |   | (2,158,183  | ) |   | (2,158,183 | )
|Balance, June 30, 2008            |  | 103,069,105  |  | $ | 103,070 |  | $ | 8,139,882   |   | $ | (12,487,025 | ) | $ | (4,244,073 | )

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

5

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|FORTIFIED HOLDINGS CORP.                       
|-----------------------------------------------
|                                               
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|(Unaudited)                                    

|                                                        |   | Six Months Ended |   |   | Six Months Ended |  
|------------------------------------------------------- | - | ---------------- | - | - | ---------------- | -
|                                                        |   | June 30, 2008    |   |   | June 30, 2007    |  
|Cash flows from operating activities:                   |   |                  |   |   |                  |  
|Net loss                                                | $ | (2,158,183       | ) | $ | (915,009         | )
|Adjustments to
      reconcile net loss to              |   |                  |   |   |                  |  
|net cash used by operating
      activities:            |   |                  |   |   |                  |  
|                                                        |   |                  |   |   |                  |  
|Depreciation and
      amortization                     |   | 27,049           |   |   | 4,932            |  
|Stock
      based compensation                          |   | 254,316          |   |   | 70,547           |  
|Non-cash interest expense                               |   | 260,018          |   |   | 14,324           |  
|Non-cash
      interest income                          |   | (69,182          | ) |   | (3,067           | )
|Non-cash management fee                                 |   | -                |   |   | 1,776            |  
|Write-off
      of note receivable and accrued interest |   | 4,400            |   |   | -                |  
|Provision for loss on
      notes receivable            |   | 2,756            |   |   | -                |  
|Changes
      in assets and liabilities:                |   |                  |   |   |                  |  
|Accounts
      receivable                               |   | (14,900          | ) |   | 224,762          |  
|Inventories                                             |   | 806              |   |   | (289,642         | )
|Prepaid
      expenses and other current assets         |   | (533             | ) |   | -                |  
|Accounts
      payable and accrued expenses             |   | (537,363         | ) |   | 499,065          |  
|Other
      current liabilities                         |   | (57,725          | ) |   | -                |  
|Net
      cash used in operating activities             |   | (2,288,541       | ) |   | (392,312         | )
|                                                        |   |                  |   |   |                  |  
|Cash flows from investing activities:                   |   |                  |   |   |                  |  
|Notes receivable                                        |   | (29,000          | ) |   | (32,887          | )
|Acquisition of
      fixed assets                       |   | -                |   |   | (34,863          | )
|Net cash used in
      investing activities             |   | (29,000          | ) |   | (67,750          | )
|                                                        |   |                  |   |   |                  |  
|Cash flows from financing activities:                   |   |                  |   |   |                  |  
|Proceeds from
      issuance of stock, net              |   | 1,820,000        |   |   | -                |  
|Proceeds from notes payable                             |   | -                |   |   | 432,733          |  
|Repayment of
      notes                                |   | (625,000         | ) |   | (1,000           | )
|Net cash provided by
      financing activities         |   | 1,195,000        |   |   | 431,733          |  
|                                                        |   |                  |   |   |                  |  
|Net change in cash                                      |   | (1,122,541       | ) |   | (28,329          | )
|Cash, beginning
      of period                         |   | 1,835,509        |   |   | 159,136          |  
|                                                        |   |                  |   |   |                  |  
|Cash, end
      of period                               | $ | 712,968          |   | $ | 130,807          |  

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

6

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|FORTIFIED HOLDINGS CORP.                            
|----------------------------------------------------
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|(Unaudited)                                         

Note 1  Organization and 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.

Prior to the Merger, 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 (and now our products) are marketed under the
NOMADTM brand, principally for use by the military, first responders,
relief workers and high risk industries. To effect the Merger, Z5 merged with a
new, wholly-owned subsidiary of Fortified, which has been renamed Fortified Data
Communications, Inc. or Fortified DataCom and which now conducts the former Z5
business.

As consideration for the Merger, Fortified issued 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 and TKV has made no demand that such
a registration statement be filed.

The accompanying unaudited condensed consolidated financial
statements as of June 30, 2008 and for the three and six months ended June 30,
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

7

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accounting principles generally accepted in the United States
of America for the interim financial information and with the 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.

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 and has generated net operating losses and negative cash flows from
operations since inception. Based on government purchasing programs in which it
was selected as a participant, initial responses to sales proposals and other
sales activity, the Company believed until recently that it would have begun
generating significant revenues from product sales by this time, and that within
the next one to two calendar quarters its sales would be sufficient to enable
the Company to begin covering its ongoing operating expenses. However, the
Companys sales have not developed at the pace that was previously expected. As
a consequence, there is now substantial doubt regarding the Companys ability to
continue to operate as a going concern. The Company is therefore exploring
various alternatives, including seeking additional financing (either equity or
debt), a sale of some or all of its operations, or a sale of the Company as a
whole. However, any such additional financing (if available at all) is likely to
be significantly dilutive to existing stockholders. Furthermore, in the event of
a sale of some or all of the Companys operations, the Companys creditors would
be legally entitled to payment before any consideration would become available
for distribution to stockholders. Those liabilities totaled $5,574,000 at June
30, 2008, of which $3,825,000 is secured by the assets of the Companys
operating subsidiary. There can be no assurance that the Company will be able to
obtain either financing or a buyer (whether for limited operations or for the
Company as a whole) prior to the time that it exhausts its limited remaining
resources, raising substantial doubt about the Companys ability to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

Note 2- 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.

Note 3 - 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, calculated using the treasury stock
method, for the three and six months ended June 30, 2008, is 0 and 335,356,
respectively.

Note 4 - Recent Accounting Developments

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

8

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

In 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.

Note 5 - 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 deficit.

Note 6 - Notes Receivable

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

June 30,
    
    
    December 31,2008
    
    
    2007(a) AI, accrues interest at 10%-12% per
      annum
    $
    -
    
    $
    1,095,283(b) Note receivable from employee
    
    128,750
    
    
    128,750(c) Note receivable from FastNet
    
    41,250
    
    
    45,000(d) Note receivable from employee
    
    15,000
    
    
    -(e) Note receivable from employee
    
    14,000
    
    
    -Total principal
    $
    199,000
    
    $
    1,269,033Accrued interest
    
    15,339
    
    
    120,185Reserve
    
    -
    
    
    (45,803
    )Notes receivable, net
    $
    214,339
    
    $
    1,343,415


(a) On various dates between December 1, 2006, and March 26,
2007, the Company loaned an aggregate of $1,095,283 to AI. These loans were
unsecured and due on demand, and bore interest at a non-default rates between
10% and 12% per annum. In connection with the resolution of the litigation
described below under Note 11, effective June 30, 2008 the Company assigned all
of these notes receivable, totaling approximately $1,269,000 with accrued
interest, to a third party that had loaned the Company an aggregate of
$1,000,000 under several notes payable, in full satisfaction of those notes
payable, totaling approximately $1,173,000 with accrued interest. As part of the
assignment, the latter party also assumed approximately $47,000 in accounts
payable due from the Company to AI. The difference between the aggregate
principal and interest on the assigned notes receivable after offset for the
assumed accounts payable, and the aggregate principal and interest on the
satisfied notes payable ($49,000) was reserved in anticipation of the
assignment. Accrued interest of $110,786 is included in notes receivable at
December 31, 2007.

(b) Note receivable from employee (who is not an executive officer) 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 $12,151 and $8,896 is included in notes receivable at June 30, 2008 and December 31, 2007, respectively.

(c) On November 27, 2007, the Company loaned $45,000 to
FastNet, Inc. (FastNet), a supplier to the Company. The loan accrues interest
at 12% per annum. The loan is collateralized by assets of FastNet, and
guaranteed by the majority shareholder of FastNet, and was due on January 31,
2008. In May 2008, the Company hired FastNets majority shareholder as its Vice
President of Engineering. Contemporaneously with his hiring, the Company and the
majority shareholder of FastNet entered an agreement for forgiveness of the note
over time provided that he does not terminate his employment with the Company
(and is not

9

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terminated by the Company for cause) during that period.
Beginning June 1, 2008, 1/12 of the balance of principal and accrued interest as
of May 1, 2008 will be forgiven monthly (i.e., $3,941 per month) until the note
has been satisfied in full. The forgiveness of the note receivable is recorded
as a charge to selling, general and administrative expense in the statement of
operations. In addition, the interest accrued in the prior month will be
forgiven. Principal and interest in arrears bear interest at 18% per annum.
Accrued interest of $2,509 and $503 is included in notes receivable at June 30,
2008 and December 31, 2007, respectively.

(d) Note receivable from employee (who is not an executive
officer) 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 $506 is included in notes receivable at June 30,
2008.

(e) Note receivable from employee (who is not an executive
officer) 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 $173 is included in notes receivable at June 30,
2008.

Note 7 - Notes Payable (including Notes Payable to
Shareholder)

Notes
      payable consists of the following:June 30,
    
    
    December 31,2008
    
    
    2007(A) Demand notes
    $
    -
    
    $
    1,000,000(B) Demand notes
    
    400,000
    
    
    400,000Accrued interest
    
    52,471
    
    
    141,618$
    452,471
    
    $
    1,541,618(C) Promissory note payable to TKV
    $
    3,625,000
    
    $
    4,250,000(D) Promissory note to shareholder
    
    75,130
    
    
    75,130Accrued interest
    
    222,929
    
    
    91,557$
    3,923,059
    
    $
    4,416,687


(A) On various dates between November 28, 2006 and March 15,
2007, the Company received loan proceeds in the aggregate amount of $1,000,000.
These loans were unsecured and due on demand, and bore interest at a non-default
rate of 12% per annum. In connection with the settlement of litigation described
in Note 11, effective June 30, 2008 the Company assigned certain notes
receivable that the Company held (as described in Note 6 above), having an
aggregate principal balance of $1,095,283, to the holder of these notes payable
in full satisfaction of the notes payable (including accrued interest). As part
of that assignment, the holder of the notes payable also assumed approximately
$47,000 in accounts payable due from the Company to AI. Interest of $113,081 is
included in notes payable at December 31, 2007; all interest on the notes was
satisfied in the foregoing assignment as of June 30, 2008.

(B) During the period May 4, 2007 through August 24, 2007, the
Company received loan proceeds totaling $400,000. 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 $52,471
and $28,537 is included in loans payable at June 30, 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 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.

10

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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 $200,348 and $73,472 is included in
promissory notes payable at June 30, 2008 and December 31, 2007,
respectively.

(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 $22,581 and $18,085 is included in
promissory notes payable at June 30, 2008 and December 31, 2007,
respectively.

Note 8 - Convertible Notes Payable

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 initially were 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 were sold for cash, or (ii)
October 31, 2007. In late 2007, the Company reached an informal understanding
with the holders that payment would be deferred at that date, and principal and
interest are now due on demand.

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 $109,101 and $64,225 is included in convertible notes
payable at June 30, 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.

Note 9 - Capital Stock

At June 30, 2008, the Company had 200,000,000 shares
authorized, at a par value of $.001 per share, of which 103,069,105 shares were
issued and outstanding.

2007 Private Placement Offering.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 2008 Private Placement
Offering described 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. Also prior to the 2008 Private Placement Offering described below, if
at any time after November 30, 2008 the closing price of the Common Stock
exceeded $2.00 per share for 15 consecutive trading days and the average trading
volume of the Common Stock exceeded 500,000 shares per trading day over the same
period, the Company had the right to 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 deficit.

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.

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 deficit upon the second
closing.

11

---

In addition to cash placement fees, designees of Falcon
Capital, the Companys placement agent, were issued an aggregate of 1,250,750
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.

Subsequent to the 2007 Offering, each investor in the 2007
offering was issued an additional share of common stock for each share of common
stock that was purchased under the 2007 Offering and the exercise price of the
warrants issued under the 2007 Offering was reduced from $0.65 to $0.40. See
2008 Private Placement Offering described below.

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 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 $1,152,000 in cash (net of $108,000 in associated cash placement
fees). Effective June 10, 2008 the Company completed the sale of a final 50,000
Units in the 2008 Offering in exchange for $20,000 in cash. 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 6,400,000 shares of Common Stock and 3,200,000 Warrants). 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 relative fair value of the warrants
issued was approximately $292,000, which is reported as a component of
additional-paid-in-capital within stockholders equity. In addition to cash
placement fees, designees of Falcon Capital, the Companys placement agent, were
issued an aggregate of 540,000 shares of Common Stock in connection with the
sales of Units in the 2008 Offering.

The principal investors in the initial closing under the 2008
Offering, representing $1,080,000 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 each investor in the 2007 Offering that invested through the efforts of
Falcon Capital Ltd. as placement agent, and to amend those investors 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 to each such investor in the
2007 Offering from $.65 to $.40. The Company revalued all warrants issued under
the 2007 Private Placement Offering which resulted in a relative fair value of
approximately $1,274,000, which is reported as a component of
additional-paid-in-capital within stockholders equity. The Company also agreed
to adjust the number of shares issued to Falcon Capital as placement agent to
maintain the agreed-upon proportion of investor shares and placement fees paid
in shares. 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 to investors with respect to the 2007
Offering, and an additional 1,250,750 shares of Common Stock to Falcon Capital
with respect to the 2007 Offering.

Of the Units sold in 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.

12

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Note 10 - Stock Based Compensation

The Companys stock option plan, adopted on September 13, 2007,
allows the board of directors to grant incentives to employees, directors and
consultants in the form of incentive stock options (ISOs); nonqualified stock
options; stock appreciation rights (SARs); and restricted and unrestricted stock
awards. Stock awards under the Companys plan are granted at prices which are no
less than the fair market price of the stock on the date of grant. ISO grants
and SARs granted to ten percent shareholders, however, are issued at 110% of
fair market value. Options granted under this plan can be time based or
performance based options and vesting varies accordingly. Options under this
plan expire ten years from the date of grant. Compensation expense recognized in
the Statement of Operations during the three and six months ended June 30, 2008
amounted to $71,453 and $254,316, respectively.

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 Six MonthsEnded June 30, 2008Expected life
    2.5  3.5 yearsExpected volatility
    82.53%-121.21%Risk-free interest rate
    2.51%-2.90%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 June 30,
2008 is summarized as follows:

WeightedNumber of
      
      
      Weighted
      
      
      AverageShares
      
      
      Average
      
      
      RemainingUnder Option
      
      
      Exercise Price
      
      
      Contractual(000s)
      
      
      per
        Share
      
      
      Term
        in YearsOutstanding, January 1, 2008
    
    10,605
    
      $
    .52
    
    
    4.54Granted
    
    1,520
    
      $
    .21
    
    
    4.83Exercised
    
    -
    
      
    -
    
    
    -Canceled or Forfeited
    
    1,768
    
      $
    .58
    
    
    -Outstanding June 30,, 2008
    
    10,357
    
      $
    .47
    
    
    4.18


On March 28, 2008, 520,000 stock options were granted. 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. On May 15, 2008, 1,000,000 stock
options were issued. The weighted average fair value of each option granted,
estimated as of the grant date using the Black-Scholes option valuation model,
was $.14 per share. The options vest ratably over a three year period. The
aggregate intrinsic value of options outstanding and exercisable at June 30,
2008 is $0. 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 $.11 per share at June 30, 2008, which would have been received
from the option holders had those option holders exercised their options as of
that date.

The following table summarizes information about stock options
outstanding at June 30, 2008:

Weighted AverageNumber
    Remaining
    NumberOutstanding
    Contractual Life
    ExercisableExercise Prices
    (000s)
    (Years)
    (000s)$.28
    2,179
    3.6
    2,179$.41
    2,053
    4.1
    2,053$.76
    2,000
    4.2
    -$.77
    1,105
    4.2
    -


13

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$.45
    1,500
    4.4
    -$.26
    520
    4.7
    520$.18
    1,000
    4.9
    -


As of June 30, 2008, there was approximately $653,000 of total
unrecognized compensation cost that remains to be amortized over the remaining
vesting period.

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 January,
2009.

Rent expense charged to operations amounted to $50,800 and
$102,600 for the three and six months ended June 30, 2008. There was no rent
expense in the corresponding periods of 2007. Future minimum lease payments as
of June 30, 2008 are approximately $55,000 in 2008.

On December 1, 2006, the Company entered into a contract for
investor relations services; as amended, the contract requires payments of
$2,500 per month and expires 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 (the Court), in which the plaintiffs
alleged 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.
That litigation remained pending at June 30, 2008. Subsequent to that date, by
agreement with the plaintiffs, the Court has dismissed Fortified and its
directors from the litigation (see Note 14).

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 June 30, 2008 and
December 31, 2007.

Note 12 - Related Party Transactions

Management Fees.During the six months ended June
30, 2007, 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 six months ended June 30, 2008.

Note 13  Fair Value Measurements

On January 1, 2008, the Company adopted Statement of Financial
Accounting Standards No. 157, Fair Value Measurements(SFAS No. 157).
SFAS No. 157 defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. SFAS No. 157
applies to reported balances that are required or permitted to be measured at
fair value under existing accounting pronouncements; accordingly, the standard
does not require any new fair value measurements of reported balances. The FASB
has partially delayed the effective date for one year for certain fair value
measurements when those measurements are used for financial statement items that
are not measured at fair value on a recurring basis.

SFAS No. 157 emphasizes that fair value is a market-based
measurement, not an entity-specific measurement. Therefore, a fair value
measurement should be determined based on the assumptions that market
participants would use in pricing the asset or liability. As a basis for
considering market participant assumptions in fair value measurements, SFAS No.
157 establishes a fair value hierarchy that distinguishes between market
participant assumptions based on market data obtained from sources independent
of the reporting entity (observable inputs that are classified within Levels 1
and 2 of the hierarchy) and the reporting entitys own assumptions about market
participant assumptions (unobservable inputs classified within Level 3 of the
hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active
markets for identical assets or liabilities that the Company has the ability to
access. Level 2 inputs are inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly or indirectly.
Level 2 inputs may include quoted prices for similar assets and liabilities in
active markets, as well as inputs that are observable for the asset or liability
(other than quoted prices), such as interest rates, foreign exchange rates, and
yield curves that are observable at commonly quoted intervals. Level 3 inputs
are unobservable inputs for the asset or liability, which are typically

14

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based on an entitys own assumptions, as there is little, if
any, related market activity. In instances where the determination of the fair
value measurement is based on inputs from different levels of the fair value
hierarchy, the level in the fair value hierarchy within which the entire fair
value measurement falls is based on the lowest level input that is significant
to the fair value measurement in its entirety. The Companys assessment of the
significance of a particular input to the fair value measurement in its entirety
requires judgment, and considers factors specific to the asset or liability.
There was no impact from the adoption of this standard on the Companys
financial position or results from 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.

Note 14 - Subsequent Events

As stated in Note 11, on June 30, 2008 Fortified and two of its
directors were defendants in certain litigation brought by Aegis Industries,
Inc., (a privately held Delaware Corporation) (AI) against Fortified, those
directors and several additional parties in June 2007. Plaintiffs had alleged
claims for, among others, breach of contract related to a non-binding letter of
intent entered into by AI and Fortified in November 2006. By stipulation of the
parties, the Court entered orders of dismissal, dismissing Fortified and each of
its directors from the litigation as of July 18, 2008 and July 25, 2008
respectively. The dismissals did not include a legal release of the plaintiffs
claims and were without prejudice to the right of the plaintiffs to re-assert
the same claims in the future, but the Company has been given no reason to
believe the plaintiffs intend to re-assert those or any other claims.

In July 2008, the
Company formed a new subsidiary, Fortified International, Inc. (a Delaware
corporation) (Fortified International), through which it intends to conduct
its international sales operations in the future. Fortified International is in
the process of establishing a branch in one foreign country. As of the date of
filing of this report, Fortified International does not yet have any
operations.

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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 internal development and
through acquisition  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
includes seeking out and acquiring 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. Additionally,
the Company has established a new subsidiary to conduct its international sales
operations and is in the process of establishing an international branch office
for that subsidiary.

Our ability to conduct acquisitions, and to a lesser extent our
ability to engage in internal product development, is dependent on our raising
additional capital through one or more private placements of our common stock,
as described below under Liquidity and Capital Resources. During the quarter
ended June 30, 2008, we raised gross proceeds of $1.28 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 Three and Six Month Periods
Ended June 30, 2008Compared to Results of Operations for the Three
and Six Month Periods Ended June 30, 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 further delayed during
2007 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. Recognized revenues remain low during the first
six months of 2008 due to the current stage of our business. As a corollary, 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.

Sales.Our sales during the quarter ended June
30, 2008 were approximately $119,000, and our sales during the six months ended
June 30, 2008 were approximately $260,000. Portions of the revenue in both
periods  particularly in the first three months of 2008  consisted of revenue
that was deferred in 2007 and subsequently recognized in the current period, and
correspondingly revenue was reduced by amounts required to be deferred and
recognized only in subsequent periods. On a pro forma basis excluding
recognition of those previously-deferred amounts and excluding the effect of
those revenue deferrals, revenue during the quarter ended March 31, 2008 would
have been $96,000 and revenue during the quarter ended June 30, 2008 would have
been $137,000.

In contrast, we recorded zero sales during the corresponding
three month period of 2007, and we recorded $59,000 in sales during the
corresponding six month period of 2007. The sales for the first six months of
2008 also exceeded, by 67%, the sales recorded during the full 2007 calendar
year. As noted above, sales during 2007 were constrained due to product redesign
efforts, which caused shipments to be halted during the first quarter of the
year and which were not resumed 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 inflation 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 June 30, 2008 was approximately $30,000, representing a gross
margin of 25%. Gross profit for the six month period ended June 30, 2008 was
approximately $96,000, representing a gross margin of 37%. The reduction in
gross margin from the first quarter to the second quarter of this year reflects
adjustments in the way we defer revenue on service contracts. Currently, while
our sales volumes remain low, our percentage margin may be subject to wide
fluctuations depending on product mix and other factors; we believe that once
our volumes reach higher levels the percentage margin will be less susceptible
to change based on individual sales transactions and will stabilize modestly
above the levels recorded in the first six months of 2008.

Because we recorded zero sales in the corresponding quarter of
2007, gross profit during that period was also zero. Gross profit for the six
month period of this year constitutes an increase of approximately $72,000, or
291%, over the gross profit of approximately $25,000 recorded in the first six
months of 2007. The substantial increase in gross profit is a consequence of the
increase in total sales volume during the period, offset in part by a decline in
gross margin, down from the 42% margin recorded in the 2007 period.

Operating Expense.We recorded total operating
expense of approximately $864,000 for the quarter ended June 30, 2008. This
figure represents a reduction of $330,000 from the operating expense recorded in
the first three months of 2008. We undertook significant steps during the most
recent quarter to reduce our operating expenses and conserve cash while we work
to build our sales to a sustainable level. These steps included elimination of a
number of personnel positions, temporary reductions in the compensation paid to
certain other employees (including our CEO, who is currently not receiving any
salary, and certain other senior officers), and significant curtailment of
research and development efforts. Those reductions were undertaken at various
points during the quarter, and ongoing operating expense levels as of the close
of the quarter were lower than the average over the full three months of the
quarter.

The operating expense for the current-year quarter represents
an increase of $190,000 or 28% over the levels recorded in the corresponding
three-month 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 $105,000 from a figure of less than $1,000
recorded

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in the second quarter of 2007. A significant portion of the
increase was attributable to the residual 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) and similar costs associated with filing a Form 10-Q as an
operating company (again, as opposed to Fortifieds shell company status in the
prior year).

Selling, General & Administrative costs also increased in
gross dollar terms from the year-earlier period, from approximately $554,000 to
$632,000, an increase of $78,000, although on a percentage basis that increase
was far less significant than the increase in professional, legal and consulting
fees. Moreover, $29,000 of that increase consisted of non-cash expense related
to option grants, which totaled $71,000 during the period; excluding that option
grant expense, SG&A expenses rose only $49,000 or 10% between the two
periods. Research and development expense also increased slightly between the
two periods, from $120,000 in the 2007 period to $127,000 in the 2008 period
(and increase of $7,000 or 6%)

For the six months ended June 30, 2008, total operating expense
was approximately $2,059,000. This figure represents an increase of
approximately $1,129,000 or 121% over the operating expense recorded in the
corresponding period of 2007. As with the three month periods, the most
significant cause of the increase on percentage terms was the increase in
professional, legal and consulting fees, which increased by $301,000 (or 575%)
from $52,000 in the 2007 period. Additionally, Selling, General &
Administrative costs increased significantly in gross dollar terms from the
year-earlier period (from approximately $680,000 to $1,352,000, an increase of
$672,000), although on a percentage basis that increase was not as significant
as the increase in professional, legal and consulting fees. The majority of the
increased SG&A expense reflects the significant increases in almost all
aspects of the Companys operations relative to the first quarter of 2007, when
the Company (i.e., Z5 at the time) was still operating largely as a start-up
business. These increases include a substantial increase in personnel: at March
31, 2007 Z5 had only three full-time-equivalent personnel (FTEs); in contrast,
the Company had 13 FTEs at June 30, 2008. These changes in personnel also
resulted in corresponding changes 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 issued to employees is approximately $653,000, which will be recognized
through 2011. 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 $198,000 to $353,000, an increase of
$155,000 or 78%). 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
period, our costs related almost entirely to developing and improving the
NomadTM product line.

Interest Expense. During the quarter ended June
30, 2008, interest expense (net) increased to approximately $79,000 from $5,000
in the corresponding period of 2007, and for or the six month period ended June
30, 2008, interest expense (net) increased to approximately $196,000 from
$10,000 in the corresponding period of 2007. These increases 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 offerings conducted in the fourth quarter of 2007 and in 2008. 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 $3.625 million remained
outstanding on that Note as of June 30, 2008. Although no interest has been paid
in cash on that Note, interest expense has been accrued.

Interest income for the six-month period includes interest in
the amount of $62,000 accrued (but not received in cash) on $1,095,000 of notes
receivable, and interest expense for the six-month period includes interest in
the amount of $68,000 accrued (but not paid in cash) on $1,000,000 of notes
payable, which were exchanged effective June 30, 2008 in satisfaction of those
notes payable. The exchange of these notes will eliminate those sources of both
interest income and interest expense in future periods.

Liquidity and Capital Resources

Cash.At June 30, 2008, we had approximately
$713,000 in cash and cash equivalents. This figure represents a net reduction in
cash of approximately $280,000 during the quarter and a reduction of
approximately $1,123,000 during the first six months of 2008, down from
approximately $993,000 at March 31, 2008 and approximately $1,835,000 at
December 31, 2007. In comparison, at June 30, 2007, cash and cash equivalents
were approximately $131,000.

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For the six months ended June 30, 2008, our operating activities used approximately $2,289,000 of cash, compared to only approximately $392,000 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, accrued expenses and other current liabilities totaling $595,000. 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 $915,000 plus an
increase in inventory of $290,000, which were largely offset by a significant net increase in accounts payable and accrued expenses of $499,000 and net decrease (through collections) of accounts receivable of $225,000.

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 and, in the case of 2007, a relatively small increase in fixed assets.

Cash flows from financing activities provided a net of $1,195,000 during the six month period ended June 30, 2008, reflecting net proceeds of a private placements of our common stock during the period yielding an aggregate $1,820,000, offset
by $625,000 in repayment of notes payable.  During the corresponding period of 2007, financing activities yielded $432,000 (net) from the issuance of notes payable.

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).  The TKV Note is guaranteed by our
operating subsidiary, Fortified DataCom, and is secured by substantially all of Fortified DataComs assets.  Under the TKV Notes original terms, principal was payable in several installments, with the final installment due March 31, 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 balance of $3,625,000 remaining outstanding at
the date of balance sheet in this report will come due on various dates between July 1, 2008 and July 1, 2009, as follows:

- $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 made the payment due on July 1, 2008 with our existing cash resources, and had $588,000 in cash remaining after that payment. 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. As noted
above, the TKV Note is guaranteed by our operating subsidiary, Fortified Data 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 Notes 6
and 7 to the financial statements included in this Form 10-Q, the notes receivable from AI have been assigned to a lender in repayment of $1,000,000 in principal amount of the demand notes and an additional $900,000 of the notes payable have
been converted to equity. Following the foregoing assignment and conversions, an aggregate of $1,150,000 of such notes remained outstanding at June 30, 2008. Of these notes, one note in the principal amount of $50,000 has been repaid since
that date.

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

Liquidity.As noted above, as of June 30, 2008, we had approximately $713,000 in cash and cash equivalents. We generated a net loss (including non-cash items) of approximately $913,000 during the quarter ended June 30,
2008. While smaller than

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the net loss of $1,245,000 recorded during the quarter ended March 31, 2008, the loss during the current period remains substantial. Excluding non-cash items, we used $813,000 of net cash in operating activities during the quarter. Like the
net loss which includes non-cash items, the foregoing cash-based figure reflects a significant contraction from the $1,475,000 in net cash used in operations during the first quarter of 2008, but it remains substantial. Approximately 67% of that
net cash loss was offset by financing activity conducted during the quarter (net proceeds of the common stock private placement completed in May 2008, reduced by promissory note repayments), but even after that financing activity our total cash
resources declined by $280,000 during the quarter.

The foregoing reductions between the first quarter and the second quarter of 2008 in both our net loss and our cash loss reflect numerous and material cost reductions that we have made from late in the first quarter through the present time in an
effort to reduce our cost structure and thereby preserve our remaining cash resources. We undertook those steps in the expectation that our sales were developing within a timeframe that would enable us to generate material revenues and cashflow from
operations by the third calendar quarter of 2008, and to begin generating sufficient cashflow from operations to cover our operating costs (as reduced by those cost-cutting actions) by the fourth calendar quarter of 2008. As discussed in the
following paragraphs, we no longer believe that our sales will grow sufficiently to enable us to cover our operating costs, even with those reductions, prior to the time we exhaust our existing cash resources. As a consequence, there is now
substantial doubt regarding our ability to continue to operate as a going concern.

Since December 31, 2007, we have received contracts and orders in excess of $2,500,000. As expected, the larger contracts included in that figure were scheduled to result in product deliveries only over an extended period. Nonetheless, it had
been managements belief that the delivery schedule under these contracts and additional sales contracts anticipated in the near future would enable the Company to generate revenue from operations adequate to cover ongoing expenses prior to the
time that we exhaust our existing cash resources. However, there have subsequently occurred a variety of factors that have caused further, unanticipated delays in product deliveries (such as delays in subcontracts being issued by prime contractors,
and third-party protests of government contracts awarded to us).  As a consequence of the delay in product deliveries beyond the timeframe previously anticipated, and the resultant delay in anticipated collections from customers, there is now
substantial doubt regarding our ability to continue to operate using only our existing capital resources.

We are now pursuing a variety of alternatives, including seeking to raise additional capital (either equity, debt or a hybrid), a sale of some or all of our existing operations to raise cash, or a sale of the Company as a whole.  As described elsewhere in this report, we raised approximately $1.28 million (net of cash fees) from a private placement of our equity in May 2008.  (Our CEO participated in this private placement, investing $200,000 of the total.)  The equity sold in that placement was priced at $.20 per share (if no value is ascribed to the warrants included in the placement).  Since that time, however, the market price of our stock has fluctuated dramatically; on August 13, 2008, our shares closed at $.09 in Over-the-Counter trading, after reaching a low of $.03 in July 2008.  Our ability to raise additional capital through sales of equity or equity-linked securities such as convertible debt is likely to be limited while our stock price remains in its current range, and in all events any sale of equity or equity-linked securities with the stock price in its current range would be significantly dilutive to existing holders.

In addition to efforts to raise additional capital, we are simultaneously pursuing strategic alternatives to continuing our business in its current form as an independent company. Such alternatives could include a sale of a limited portion of our
operations (such as the intellectual property for our software), a sale of our operations as a whole, or a merger of the Company with another business having greater financial resources. We are currently engaged in preliminary discussions regarding
such strategic transactions, but no definitive agreements have yet been executed.

It should be noted that, in the event of any such sale, it is likely we would be obligated to satisfy our existing liabilities before any consideration became available for distribution to our stockholders.  At June 30, 2008, we had $5,574,000
in total liabilities, principally in the form of notes payable. Moreover, the largest of those notes payable, the TKV Note, is secured by substantially all of the assets of our operating subsidiary, which provides the lender under the TKV Note a
claim to those assets or their proceeds ahead of the claims of other creditors and ahead of the rights of the companys stockholders.

While, as stated above, the Company is undertaking significant efforts either to obtain sufficient capital to continue its operations or to engage in a strategic transaction with a third party, there can be no assurance that we will succeed in
achieving either of these objectives. For this reason, there is a substantial risk that we will be forced to cease operations in the near future.

Capital Expenditures

There were no capital expenditures in the six months ended June 30, 2008. Capital expenditures in the corresponding period of 2007 totaled $35,000. We anticipate keeping capital expenditure costs to a minimum until the Company turns cash flow
positive.

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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. In particular, the U.S. Governments fiscal year ends on
September 30 of each year. Certain of our current sales contracts and orders with anticipated delivery dates in the next 90 days are with U.S. Government entities, and delivery may be required by the customer either before, or after, September 30.
Our ability to meet these deadlines could have an impact on our successful delivery under those contracts.

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.

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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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.

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.

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 June 30, 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 June 30, 2008.

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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 alleged 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.

By stipulation of the parties, the Court entered an order
dismissing Fortified from the litigation as of July 18, 2008, and a separate
Order dismissing its two directors from the litigation as of July 25, 2008. The
dismissals did not include a legal release of the plaintiffs claims and were
without prejudice to the right of the plaintiffs to re-assert the same claims in
the future, but we have not been given any reason to believe the plaintiffs
intend to re-assert those or any other claims.

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.

As disclosed (as a subsequent event) in our Form 10-Q for the
period ended March 31, 2008, we conducted a private placement of Units (as
defined below) under which an initial closing occurred on May 14, 2008. The
transaction was referred to in that filing as the 2008 Offering. Effective
June 10, 2008 we completed the sale of a final 50,000 Units in the 2008
Offering. The Units were sold at a price of $.40 per Unit. Each Unit consisted
of two (2) shares of our Common Stock together with a warrant to purchase one
(1) additional share of Common Stock at an exercise price of $.40 (i.e., 100,000
shares of Common Stock and 50,000 Warrants in the final closing, and a total of
6,400,000 shares of Common Stock and 3,200,000 Warrants in the initial closing
and the final closing taken together). 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 Units were offered and sold
only to accredited investors (as such term is defined in Rule 501 promulgated
under the Securities Act) in reliance on the exemption provided by Section 4(2)
of the Securities Act and Rule 506 promulgated thereunder. Each investor
executed a subscription agreement confirming its accredited investor status.

Designees of Falcon Capital, the Companys placement agent,
were issued an additional 10,000 shares of Common Stock in connection with the
foregoing final closing. Additionally, as discussed in our Form 10-Q for the
period ended March 31, 2008, as a condition to the Companys obtaining the
investors subscriptions in the 2008 Offering the Company agreed to issue
additional shares to all of the investors in its 2007 Offering who invested
through Falcon Capital and to make certain amendments to the Warrants issued to
those investors in the 2007 Offering. Our engagement agreement with Falcon
Capital provided for it (or its designees) to be issued a number of shares of
Common Stock as equity placement fees based on the number of shares of Common
Stock issued to investors in the 2007 Offering. In connection with the foregoing
adjustment of the shares issued to the investors, we also issued an additional
1,250,750 shares of Common Stock to designees of Falcon Capital as an adjustment
to its equity placement fees.

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

There were no reportable events under this Item 3 during the
quarterly period ended June 30, 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 June 30, 2008.

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ITEM 5. OTHER INFORMATION.

There have been no changes made during the quarter ended June
  30, 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  | 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.                                                                                                                            
|2.2  | Articles of Merger, filed with
        the Secretary of State of Nevada, incorporated by reference from Exhibit
        3.1 to the Form 8-K filed July 3, 2007.                                                                                                                              
|2.3  | 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.                                                                                                                
|31.1 | Certification
        of Fortified Holdings Corp. Chief Executive Officer, Brendan Reilly, required
        by Rule 13a-14(a) or Rule 15d-14(a), dated August 14, 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 August 14, 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 August 14,
        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 August 14,
        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: August 14, 2008

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

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