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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 September 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 November 19, 2008, the registrant had outstanding
173,395,738 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** | 3                                                                                                                                  
|---------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------
|                                   |                                                                                                                                    
|ITEM 1.                            | Condensed Consolidated Financial Statements                                                                                        
|                                   |                                                                                                                                    
|                                   | Condensed Consolidated Balance Sheets as of September 30,
      2008 and December 31, 2007                                         
|                                   |                                                                                                                                    
|                                   | Condensed Consolidated Statements of Operations for the Three
      and Nine Months Ended September 30, 2008 and September 30, 2007
|                                   |                                                                                                                                    
|                                   | Condensed Consolidated Statements of Changes in Stockholders
      Deficit for the Period January 1, 2008 to September 30, 2008   
|                                   |                                                                                                                                    
|                                   | Condensed Consolidated Statements of Cash Flows for the Nine
      Months Ended September 30, 2008 and September 30, 2007          
|                                   |                                                                                                                                    
|                                   | Notes to Condensed Consolidated Financial Statements                                                                               
|                                   |                                                                                                                                    
|ITEM 2.                            | Managements Discussion and Analysis of Financial Condition
      and Results of Operations                                        
|                                   |                                                                                                                                    
|ITEM 3.                            | Quantitative and Qualitative Disclosures About Market Risk                                                                         
|                                   |                                                                                                                                    
|ITEM 4.                            | Controls and Procedures                                                                                                            
|                                   |                                                                                                                                    
|**PART II  OTHER INFORMATION**    | 24                                                                                                                                 
|                                   |                                                                                                                                    
|ITEM 1.                            | Legal Proceedings                                                                                                                  
|                                   |                                                                                                                                    
|ITEM 2.                            | Unregistered Sales of Equity Securities and Use of Proceeds                                                                        
|                                   |                                                                                                                                    
|ITEM 3.                            | Default Upon Senior Securities                                                                                                     
|                                   |                                                                                                                                    
|ITEM 4.                            | Submission of Matters to Vote of Securities Holders                                                                                
|                                   |                                                                                                                                    
|ITEM 5.                            | Other Matters                                                                                                                      
|                                   |                                                                                                                                    
|ITEM 6.                            | Exhibits                                                                                                                           

2

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FORTIFIED HOLDINGS CORP. CONDENSED CONSOLIDATED BALANCE
SHEETS

|                                                  |   | September 30, |   |   | December 31, |  
|------------------------------------------------- | - | ------------- | - | - | ------------ | -
|                                                  |   | 2008          |   |   | 2007         |  
|Assets                                            |   | (Unaudited)   |   |   | (Audited)    |  
|Current assets:                                   |   |               |   |   |              |  
|Cash                                              | $ | 8,793         |   | $ | 1,835,509    |  
|Accounts receivable                               |   | 54,777        |   |   | 107,447      |  
|Inventories, net                                  |   | 151,332       |   |   | 190,408      |  
|Notes receivable, net                             |   | 204,536       |   |   | 1,343,415    |  
|Prepaid expenses and other current assets         |   | 31,394        |   |   | 25,316       |  
|Total current assets                              |   | 450,832       |   |   | 3,502,095    |  
|                                                  |   |               |   |   |              |  
|Property and equipment, net                       |   | 53,561        |   |   | 92,016       |  
|Other assets                                      |   | -             |   |   | 340,500      |  
|Total assets                                      | $ | 504,393       |   | $ | 3,934,611    |  
|                                                  |   |               |   |   |              |  
|Liabilities and Stockholders' Deficit             |   |               |   |   |              |  
|Current liabilities                               |   |               |   |   |              |  
|Accounts payable and accrued expenses             | $ | 335,366       |   | $ | 889,171      |  
|Demand notes payable                              |   | 549,014       |   |   | 1,541,618    |  
|Convertible notes payable                         |   | 830,899       |   |   | 814,225      |  
|Term notes payable                                |   | 3,875,071     |   |   | 4,416,687    |  
|Other current liabilities                         |   | 30,099        |   |   | 92,616       |  
|Total current liabilities                         |   | 5,620,449     |   |   | 7,754,317    |  
|Other liabilities                                 |   | -             |   |   | 3,405,000    |  
|Total liabilities                                 |   | 5,620,449     |   |   | 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      |   |               |   |   |              |  
|September 30, 2008; 60,707,605 issued and         |   |               |   |   |              |  
|outstanding
      at December 31, 2007            |   | 103,070       |   |   | 60,708       |  
|Additional paid-in capital                        |   | 8,133,642     |   |   | 3,043,428    |  
|Accumulated deficit                               |   | (13,352,768   | ) |   | (10,328,842  | )
|Total stockholders' deficit                       |   | (5,116,056    | ) |   | (7,224,706   | )
|Total
      liabilities and stockholders' deficit | $ | 504,393       |   | $ | 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 nine months ended |  
|----------------------------------------- | - | -------------------------- | - | - | ------------------------- | -
|                                          |   | September 30,              |   |   | September 30,             |  
|                                          |   | 2008                       |   |   | 2007                      |  
|                                          |   |                            |   |   |                           |  
|Net sales                                 | $ | 88,451                     |   | $ | 25,054                    |  
|Cost of sales                             |   | 37,576                     |   |   | 208,330                   |  
|Gross profit                              |   | 50,875                     |   |   | (183,276                  | )
|                                          |   |                            |   |   |                           |  
|Operating expenses:                       |   |                            |   |   |                           |  
|Research and development                  |   | 172,610                    |   |   | 133,977                   |  
|Selling,
      general and administrative |   | 544,920                    |   |   | 932,222                   |  
|Professional and consulting
      fees    |   | 118,403                    |   |   | 468,723                   |  
|Total operating expenses                  |   | 835,933                    |   |   | 1,534,922                 |  
|                                          |   |                            |   |   |                           |  
|Loss from operations                      |   | (785,058                   | ) |   | (1,718,198                | )
|                                          |   |                            |   |   |                           |  
|Other income and expenses:                |   |                            |   |   |                           |  
|Interest income                           |   | 3,153                      |   |   | 11,502                    |  
|Interest
      expense                    |   | (83,838                    | ) |   | (91,062                   | )
|Loss before provision for income taxes    |   | (865,743                   | ) |   | (1,797,758                | )
|Provision for income taxes                |   | -                          |   |   | -                         |  
|Net loss                                  | $ | (865,743                   | ) | $ | (1,797,758                | )
|                                          |   |                            |   |   |                           |  
|Basic and diluted net loss per share      | $ | (0.01                      | ) | $ | (0.12                     | )
|                                          |   |                            |   |   |                           |  
|Basic and diluted weighted average        |   |                            |   |   |                           |  
|number of shares outstanding              |   | 103,069,105                |   |   | 14,452,747                |  

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

4

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FORTIFIED HOLDINGS CORP. 
  CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
  STOCKHOLDERS DEFICIT 
  (Unaudited)

AdditionalCommon Stock
      
      
      Paid-In
      
      
      AccumulatedShares
      
      
      Amount
      
      
      Capital
      
      
      Deficit
      
      
      TotalBalance, January 1, 2008
      
      60,707,605
      
      $
      60,708
      
      $
      3,043,428
      
      $
      (10,328,842
      )
      $
      (7,224,706
      )Additional shares issued inconnection with reverse merger
      
      10,000,000
      
      
      10,000
      
      
      (10,000
      )
      
      
      
      
      -Issuance of stock for cash, net
      
      29,575,000
      
      
      29,575
      
      
      4,854,925
      
      
      
      
      
      4,884,500Employee stock based compensation
      
      
      
      
      
      
      
      196,043
      
      
      
      
      
      196,043Non employee stock basedcompensation
      
      
      
      
      
      
      
      52,033
      
      
      
      
      
      52,033Fee paid in stock
      
      2,786,500
      
      
      2,787
      
      
      (2,787
      )
      
      
      
      
      -Net loss
      
      
      
      
      
      
      
      
      
      
      (3,023,926
      )
      
      (3,023,926
      )Balance, September 30, 2008
      
      103,069,105
      
      $
      103,070
      
      $
      8,133,642
      
      $
      (13,352,768
      )
      $
      (5,116,056
      )


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)

|                                                  |   | Nine Months Ended  |   |   | Nine Months Ended  |  
|------------------------------------------------- | - | ------------------ | - | - | ------------------ | -
|                                                  |   | September 30, 2008 |   |   | September 30, 2007 |  
|Cash flows from operating
      activities:       |   |                    |   |   |                    |  
|Net loss                                          | $ | (3,023,926         | ) | $ | (2,712,767         | )
|Adjustments to reconcile net loss to              |   |                    |   |   |                    |  
|net cash used in
      operating activities:      |   |                    |   |   |                    |  
|                                                  |   |                    |   |   |                    |  
|Depreciation and amortization                     |   | 40,696             |   |   | 16,576             |  
|Stock based compensation                          |   | 248,076            |   |   | 816,908            |  
|Non-cash interest expense                         |   | 340,927            |   |   | 86,614             |  
|Non-cash interest income                          |   | (72,335            | ) |   | (16,900            | )
|Loss on disposal of assets                        |   | -                  |   |   | 36,672             |  
|Provision for loss on transfer of assets          |   | -                  |   |   | 44,409             |  
|Provision for obsolete inventory                  |   | -                  |   |   | 57,500             |  
|Provision for warranty costs                      |   | -                  |   |   | 15,000             |  
|Write-off of note receivable and accrued interest |   | 17,356             |   |   | -                  |  
|Provision for loss on notes receivable            |   | 2,756              |   |   | -                  |  
|Changes in assets and liabilities:                |   |                    |   |   |                    |  
|Accounts receivable                               |   | 52,670             |   |   | 199,708            |  
|Inventories                                       |   | 39,076             |   |   | (204,029           | )
|                                                  |   |                    |   |   |                    |  
|Prepaid expenses and other current assets         |   | (6,078             | ) |   | (6,406             | )
|Accounts payable and accrued
      expenses       |   | (506,620           | ) |   | 507,498            |  
|Other current liabilities                         |   | (62,517            | ) |   | 70,245             |  
|Net cash used in operating activities             |   | (2,929,919         | ) |   | (1,088,972         | )
|                                                  |   |                    |   |   |                    |  
|Cash flows from investing
      activities:       |   |                    |   |   |                    |  
|Notes receivable                                  |   | (29,000            | ) |   | (43,568            | )
|Purchase of software for resale                   |   | -                  |   |   | (31,845            | )
|Acquisition of
      fixed assets                 |   | (2,241             | ) |   | (106,500           | )
|Net cash used in investing activities             |   | (31,241            | ) |   | (181,913           | )
|                                                  |   |                    |   |   |                    |  
|Cash flows from financing
      activities:       |   |                    |   |   |                    |  
|Proceeds from
      issuance of stock, net        |   | 1,820,000          |   |   | -                  |  
|Proceeds related to recapitalization              |   | -                  |   |   | 1,271,649          |  
|Proceeds from
      notes payable                 |   | 114,444            |   |   | -                  |  
|Repayment of notes                                |   | (800,000           | ) |   | -                  |  
|Net cash provided by financing activities         |   | 1,134,444          |   |   | 1,271,649          |  
|                                                  |   |                    |   |   |                    |  
|Net change in cash                                |   | (1,826,716         | ) |   | 764                |  
|Cash, beginning of period                         |   | 1,835,509          |   |   | 159,136            |  
|                                                  |   |                    |   |   |                    |  
|Cash, end of period                               | $ | 8,793              |   | $ | 159,900            |  

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 September 30, 2008 and for the three and nine months ended September 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

7

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accompanying notes to the unaudited condensed consolidated
financial statements. These financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for the interim financial information and with the 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), continuing our business in its current form as an independent company, a
sale of a limited portion of our operations (such as 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. 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 $5,620,449 at September
30, 2008, of which $3,500,000 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 nine months ended September 30, 2008, is 0 and
126,627, 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 notesfrom Aegis Industries Inc. (AI), from three employees and from an
unrelated third party supplier:

September 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
    
    30,000
    
    
    45,000(d) Note receivable from employee
    
    15,000
    
    
    -(e) Note receivable from
      employee
    
    14,000
    
    
    -Total principal
    $
    187,750
    
    $
    1,269,033Accrued interest
    
    16,786
    
    
    120,185Reserve
    
    -
    
    
    (45,803
    )Notes receivable, net
    $
    204,536
    
    $
    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 $13,796 and $8,896 is
included in notes receivable at September 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

9

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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 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 $1,825 and $503 is included in notes receivable at September
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 $813 is included in notes
receivable at September 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 $352 is included in notes receivable
  at September 30, 2008.

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

Notes payable consists of the
following:

September 30,
    
    
    December 31,2008
    
    
    2007(A) Demand notes
    $
    -
    
    $
    1,000,000(B) Demand notes
    
    400,000
    
    
    400,000(C) Demand note
    
    84,444
    
    
    -Accrued interest
    
    64,570
    
    
    141,618$
    549,014
    
    $
    1,541,618(D) Promissory note payable
      to TKV
    $
    3,500,000
    
    $
    4,250,000(E) Promissory notes to shareholder
    
    105,130
    
    
    75,130Accrued interest
    
    269,941
    
    
    91,557$
    3,875,071
    
    $
    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 September 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 $64,570
and $28,537 is included in loans payable at September 30, 2008 and December 31,
2007, respectively.

(C) During September 2008 the Company entered into an agreement
with a shareholder and officer of the Company. This loan was secured by sales
orders of the Company totaling $84,444 and bears an interest rate of 10%.

(D) 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.

10

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Pursuant to the note as currently modified, which is explained
  in greater detail in the Subsequent Events section below, the remaining principal
  balance of the Note and interest accrued under the Note are due on the following
  schedule:

- $1,000,000 on or before December 15, 2008
- $500,000 on or before March 1, 2009
- Final installment in an amount equal to the full then-remaining principal
  balance (i.e., $2,000,000 if all payments are made in accordance with the
  foregoing schedule) plus all accrued interest on or before July 1, 2009.

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

Accrued interest of $245,087 and $73,472 is included in
promissory notes payable at September 30, 2008 and December 31, 2007,
respectively.

(E) 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. In September of 2008 the Company received an additional
$30,000 in loan proceeds under a demand promissory note from the same officer
and shareholder of the Company. The note is due on demand any time on or after
December 15, 2008 and bears interest at 12% per annum. This results in the total
principal outstanding to the officer and shareholder to $105,130 at September
30, 2008. Accrued interest of $24,854 and $18,085 is included in promissory
notes payable at September 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 $114,427 and $64,225 is included in convertible notes
payable at September 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 September 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

11

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$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.

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

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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.

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 nine months ended September 30,
2008 amounted to $(6,239) and $248,076, respectively. The reduction in
compensation expense for the three months ended September 30, 2008 resulted from
forfeitures of unvested options by employees who left the Company.

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 Nine MonthsEnded September 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 September
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
      4.58Exercised
      -
      -
      -Canceled or Forfeited
      2,018
      $.54
      -Outstanding September 30, 2008
      10,107
      $.47
      3.91


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 September
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 $.02 per share at September 30, 2008, which would have
been received from the option holders had those option holders exercised their
options as of that date.

13

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

Weighted AverageNumber
    Remaining
    NumberOutstanding
    Contractual Life
    ExercisableExercise Prices
    (000s)
    (Years)
    (000s)$.28
    2,179
    3.3
    2,179$.41
    2,053
    3.9
    2,053$.76
    2,000
    4.0
    -$.77
    1,105
    4.0
    -$.45
    1,500
    4.1
    -$.26
    270
    4.5
    270$.18
    1,000
    4.6
    -


As of September 30, 2008, there was approximately $425,000 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 150 square feet of
office space in Norwalk, Connecticut for the Companys headquarters under a
lease that expires in April 2009. In addition, the Company leases 1,000 square
feet in Alexandria, Virginia through January, 2009.

Rent expense charged to operations amounted to $54,900 and
$157,500 for the three and nine months ended September 30, 2008 and $21,000 for
both the three and nine months ended September 30, 2007. Future minimum lease
payments as of September 30, 2008 are approximately $32,000.

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.
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.
Please refer to Note 6(a).

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 September 30, 2008
and December 31, 2007.

Note 12 - Related Party Transactions

Management Fees.During the three and nine
months ended September 30, 2007, the Company paid management fees totaling
$14,000 and $64,000, respectively, to a company controlled by a director and
former officer of the Company. There were no such payments made in the three and
nine months ended September 30, 2008.

The Company has entered into numerous related party
transactions that are fully disclosed in Notes 1,6,7 and 9.

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

14

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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 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

On October 2, 2008, the Company entered into a non-binding letter of intent with Grand Investigative Services Corporation. The completion of the transactions contemplated by this letter of intent are subject to the negotiation and execution of
definitive agreements, as well as due diligence by both parties. There can be no assurance that negotiations will lead to the execution of definitive agreements or that the transactions will be completed following the execution of the agreements.

The letter of intent provides that the parties will commence negotiations of an acquisition by the Company (via a merger with a Company subsidiary) of all of the existing capital stock of Grand ISS in consideration of the issuance of 75,000,000
shares of Company common stock and the issuance of a convertible promissory note in principal amount of $12,500,000 which will be later converted to shares of the Company common stock.

The proposed transaction will require that the following steps will have been accomplished prior to the closing: (a) the conversion by TKV of $1,300,000 of the Companys outstanding indebtedness to common stock of the Company, (b) the sale
by the Company of its wholly-owned subsidiary, Fortified Data Communications, Inc., to Fortified Acquisition Corp. (FAC) in consideration of the assumption of all of the Companys remaining debt to TKV ($2,200,000), the
assumption of approximately $250,000 of current trade-debt, $50,000 in cash and a $150,000 promissory note and (c) the relinquishing by certain shareholders of a total of approximately 88,630,800 shares of Company common stock.

On November 10, 2008, Brendan T. Reilly submitted his resignation from his positions as Chairman and Chief Executive Officer of Fortified Holdings Corp. (the Company) effective November 10, 2008.

On November 10, 2008, Dennis Mee submitted his resignation as a Director of the Company effective November 10, 2008.

On November, 13, the Companys Board of Directors voted to approve the appointment of Steven Cooper as interim Chief Executive Officer of the Company. Mr. Cooper currently serves as President and a Director of the Company.

On November 10, 2008, the Company failed to make a timely payment of One Million Dollars ($1,000,000) in principal due under that certain Term Loan Note dated September 13, 2007, as amended  (the Note) payable to Thomas Keenan
Ventures, LLC (TKV), with a remaining balance due of Three Million Five Hundred Thousand Dollars ($3,500,000). The failure to timely make such payment is an event of default under the Note. TKV is controlled by Brendan T. Reilly,
who, prior to his resignation effective November 10, 2008, was the Chairman of the Board of Directors and Chief Executive Officer of the Company.

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On November 14, 2008, the Company and TKV entered into the Fourth Note Modification Agreement pursuant to which TKV agreed to extend the due date for such One Million Dollar ($1,000,000) principal payment under the Note until December 15, 2008.
In consideration therefore, the Company agreed to issue to TKV shares of its common stock with a value equal to Fifty Thousand Dollars ($50,000) based on the closing price of the Companys shares on the date of the default ($0.01) .
Therefore, the Company will issue Five Million (5,000,000) shares of its common stock to TKV.

In addition, on November 14, 2008, pursuant to an authorization approved by the Board of Directors on October 2, 2008, the Company and TKV entered into a Note Conversion and Modification Agreement whereby TKV converted One Million Three Hundred
Thousand Dollars ($1,300,000) of principal amount of the Note into shares of common stock at the closing price on October 2, 2008. Based on a closing price of $0.0199, the Company will issue Sixty Five Million Three Hundred Twenty Six
Thousand Six Hundred Thirty Three (65,326,633) shares of its common stock to TKV. As a result of such conversion, the remaining principal amount due under the Note has been reduced from Three Million Five Hundred Thousand Dollars ($3,500,000) to
Two Million Two Hundred Thousand Dollars ($2,200,000).

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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)
has been 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.

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 nine
months ended September 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.

Results of Operations for the Three and Nine Month Periods
  Ended September 30, 2008Compared to Results of Operations for the Three and Nine Month Periods
  Ended September 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

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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 nine 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 September 30, 2008 were approximately $88,000, and our sales during the nine months ended September 30, 2008 were approximately $348,000. 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, revenue during the
quarter ended June 30, 2008 would have been $137,000, and revenue during the quarter ended September 30, 2008 would have been $58,000. In contrast, we recorded $59,000, zero, and $25,000 in sales during the three month periods ended
March 31, June 30, and September 30, 2007, respectively.

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 September 30, 2008 was approximately $51,000, representing a gross margin of 58%.
Gross profit for the nine month period ended September 30, 2008 was approximately $147,000, representing a gross margin of 42%. The higher gross margin rates of the current quarter are largely due to the mix of higher-margin products that were
sold. 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 nine months of 2008.

Comparing the corresponding quarter of 2007, sales were approximately $25,000, while gross margins were negative. For the nine months ended September 30, 2007, we recorded sales of approximately $84,000, while gross margins were negative.
Negative margins for those periods were driven by an upgrade program that has not been billed, combined with additional warranty and obsolescence reserves stemming from the rollout of the new NOMAD C4 design.

Gross profit for the nine month period of this year constitutes an increase of approximately $306,000 over the negative gross profit recorded in the first nine months of 2007. The substantial increase in gross profit is a consequence of the
increase in total sales volume during the period.

Operating Expense.We recorded total operating expense of approximately $836,000 for the quarter ended September 30, 2008. The operating expense for the current-year quarter represents a decrease of approximately $699,000 or
46% less than the levels recorded in the corresponding three-month period of 2007. Selling, General & Administrative costs decreased from approximately $932,000 to $545,000 in gross dollar terms from the year-earlier period.  In
addition, Professional and Consulting fees also dropped from the corresponding three-month period of 2007, from approximately $469,000 to $118,000.

In the second quarter, we took significant steps 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 continued to be in
effect for the current quarter.

For the nine months ended September 30, 2008, total operating expense was approximately $2,895,000.  This figure represents an increase of approximately $430,000 over the operating expense recorded in the corresponding period of 2007. The
majority of that increase occurred in the first quarter of this year, prior to  our significant steps to reduce  operating expenses as described above.

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 $425,000, which

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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.

Interest Expense. During the quarter ended September 30, 2008, interest expense (net) increased to approximately $81,000 from $79,000 in the corresponding period of 2007, and for or the nine month period ended September 30,
2008, interest expense (net) increased to approximately $276,000 from $89,000 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 $3.5 million remained outstanding on that Note as of September
30, 2008. Although no interest has been paid in cash on that Note, interest expense has been accrued.

Liquidity and Capital Resources

Cash.  At September 30, 2008, we had approximately $9,000 in cash and cash equivalents.  This figure represents a net reduction in cash of approximately $704,000 during the quarter and a reduction of approximately
$1,827,000 during the first nine months of 2008, down from approximately $713,000 at June 30, 2008, approximately $993,000 at March 31, 2008 and approximately $1,836,000 at December 31, 2007. In comparison, at September 30, 2007,
cash and cash equivalents were approximately $160,000.

For the nine months ended September 30, 2008, our operating activities used approximately $2,930,000 of cash, compared to approximately $1,089,000 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 $569,000. 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 nine month 2007 period, operating cash flows reflected a net loss of approximately
$2,713,000 plus an increase in inventory of $204,000, which were largely offset by non-cash expense associated with stock-based compensation of $817,000, a significant net increase in accounts payable, accrued expenses and other current
liabilities of $578,000 and net decrease (through collections) of accounts receivable of $200,000.

Cash used in investing activities during the nine months ended September 30, 2008 was $31,000 verses $182,000 for the corresponding period of 2007. The decrease was primarily due to a reduction in the purchase of fixed assets.

Cash flows from financing activities provided a net of $1,134,000 during the nine month period ended September 30, 2008, reflecting net proceeds of a private placements of our common stock during the period yielding an aggregate $1,820,000
and additional proceeds from notes payable of $114,000, offset by $800,000 in repayment of notes payable.  During the corresponding period of 2007, financing activities yielded $1,272,000 proceeds from the recapitalization of the
Company.

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 four times to extend the payment dates. Under the latest amendment, entered into on November 10, 2008, the balance of $3,500,000 remaining outstanding
at the date of balance sheet in this report will come due on various dates between December 15, 2008 and July 1, 2009, as follows:

- $1,000,000 on or before December 15, 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. We were unable to make the payments due on November 1, 2008. Subsequently, we entered into an agreement with TKV to
extend the deadline to make the November 1 payment until December 15, 2008.  In consideration of that extension, we issued 5,000,000 shares of common stock to TKV as explained above the subsequent events section.

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Our ability to make the payments due on December 15, 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 four 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.

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 $30,000 additional funds were loaned to the
Company during September of 2008. The principal balance outstanding at September 30, 2008 is $105,130.

Liquidity.As noted above, as of September 30, 2008, we had approximately $9,000 in cash and cash equivalents.  We generated a net loss (including non-cash items) of approximately $866,000 during the quarter ended
September 30, 2008. The net loss of the current quarter is slightly lower than our net loss in the quarter ended June 30, 2008 of approximately $913,000. The lowering of the loss during the current period reflects cost cutting measures described
above taken in the past six months to conserve cash. While the net loss of the current quarter is smaller than the net loss of the previous two quarters, the loss during the current period remains substantial.

The foregoing reductions between the second quarter and the third 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 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 continued 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, continuing our business in its current form as an
independent company, a sale of the Company as a whole, or a merger of the Company with another business having greater financial resources. 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 former 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; from a high during the quarter on July 25, 2008, when our shares closed at $0.14 in Over-the-Counter trading, subsequently reaching
a low on September 30, 2008, of $0.02. 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.

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On October 2, 2008, the Company entered into a non-binding letter of intent with Grand Investigative Services Corporation. The completion of the transactions contemplated by this letter of intent are subject to the negotiation and execution of
definitive agreements, as well as due diligence by both parties. There can be no assurance that negotiations will lead to the execution of definitive agreements or that the transactions will be completed following the execution of the agreements.

The letter of intent provides that the parties will commence negotiations of an acquisition by the Company (via a merger with a Company subsidiary) of all of the existing capital stock of Grand ISS in consideration of the issuance of 75,000,000
shares of Company common stock and the issuance of a convertible promissory note in principal amount of $12,500,000 which will be later converted to shares of the Company common stock.

The proposed transaction will require that the following steps will have been accomplished prior to the closing: (a) the conversion by TKV of $1,300,000 of the Companys outstanding indebtedness to common stock of the Company, (b) the sale
by the Company of its wholly-owned subsidiary, Fortified Data Communications, Inc., to Fortified Acquisition Corp. (FAC) in consideration of the assumption of all of the Companys remaining debt to TKV ($2,200,000), the
assumption of approximately $250,000 of current trade-debt, $50,000 in cash and a $150,000 promissory note and (c) the relinquishing by certain shareholders of a total of approximately 88,630,800 shares of Company common stock.

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 September 30, 2008, we had
$5,620,000 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 capital expenditures in the amount of $2,000 in the nine months ended September 30, 2008. Capital expenditures in the corresponding period of 2007 totaled $107,000. We anticipate keeping capital expenditure costs to a minimum
until the Company turns cash flow positive.

Seasonality

Historically, we have not experienced significant seasonality in our business, although our revenue may be subject to fluctuation due to government and commercial purchasing cycles. In particular, the U.S. Governments fiscal year ends on
September 30 of each year. Any orders expected to be received around that timeframe may experience delays. In addition, the U.S Government reacts slowly to new procurements during the quarter following the September 30 fiscal year-end. 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 experience delays.

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:

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

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

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

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

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

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

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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 September 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.

In connection with the preparation and filing of this Quarterly Report, we completed an evaluation of the effectiveness of our disclosure controls and procedures under the supervision and with the participation of our chief executive officer and
chief financial officer. This evaluation was conducted pursuant to the Securities Exchange Act of 1934, as amended. Based on the evaluation, management concluded that it did not have effective disclosure controls and procedures as of September 30,
2008, due to the effect of the material weaknesses described below (as similarly incorporated in our Form 10-KSB/A for the period ended December 31, 2007).

Managements Report on Internal Control Over Financial Reporting

Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2008. In making this assessment, management used the framework set forth in the report Internal Control  Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a companys internal control system, including (i) the control environment, (ii) risk assessment, (iii)
control activities, (iv) information and communication, and (v) monitoring.

Based on the evaluation, management concluded that it did not have effective internal control over financial reporting. The Company has identified the material weaknesses noted below. A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected on a timely basis by employees in the normal course of their work.

As evidenced by the material weaknesses described below, we
  determined that entity-level controls related to the control environment and
  control activities did not operate effectively resulting in material weaknesses
  in each of these respective COSO components. The deficiency in each of these
  individual COSO components represents a separate material weakness. These material
  weaknesses contributed to an environment where there is a more than a remote
  likelihood that a material misstatement of the interim and annual financial
  statements could occur and not be prevented or detected.

The Company is a non-accelerated filer. Accordingly, while
  this quarterly report does not require an attestation report by the registered
  public accounting firm regarding internal control over financial reporting,
  management is required to assess and report on its evaluation of the effectiveness
  of internal controls over financial reporting as of September 30, 2008. Managements
  report was not subject to attestation by the Companys registered public
  accounting firm pursuant to the temporary rules of the Securities and Exchange
  Commission that permit the Company to provide only managements report
  in this quarterly report. The Company was a shell company until September, 2007.
  Subsequently, management began to design and implement internal controls as
  required under the Sarbanes-Oxley Act of 2002.

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Control Environment

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

Risk Assessment

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

Control Activities

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

Entity Level Controls

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

Because of the material weaknesses
described above, management believes that, as ofSeptember 30, 2008, we did not maintain effective internal control over financial
reporting based on the COSO criteria. Nevertheless, management believes that the
consolidated financial statements in this Annual Report on Form 10-Q/A
fairly present, in all material respects, our financial
position, results of operations and cash flows as of the dates, and for the
periods presented, in conformity with generally accepted accounting principles
in the United States of America.

Plan for Remediation of Material Weakness

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

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

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.

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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. Additional details about this
event are described above in Note 11, Accounts Payable.

On or about October 22, 2008, Rajant Corporation, a privately
held Deleware Corporation (Rajant) filed an action against Fortified and Z5
Technologies in the Court of Common Pleas, Chester County, State of
Pennsylvania. Plaintiffs alleged claims for, among other claims, breach of
contract related to a Strategic Alliance and Reseller Agreement dated as of
November 16, 2006 between it and Z5 Technologies (a predecessor of Fortified.
The Company believes that the suit is without merit and is preparing the
appropriate pleadings in answer of the complaint. Further, the Company believes
that any liability that may result will not have any material effect on the
Company.

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.

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

ITEM 5. OTHER INFORMATION.

There have been no changes made during the quarter ended
September 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. Interim Chief Executive Officer, Steven Cooper,
        required by Rule 13a-14(a) or Rule 15d-14(a), dated November 19, 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 November 19, 2008. FILED HEREWITH.                                                                                                                
|     |                                                                                                                                                                                                                                                                                                       
|32.1 | Certification
        of Fortified Holdings Corp. Interim Chief Executive Officer, Steven Cooper,
        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 November
        19, 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 November 19,
        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: November 19, 2008

| |     | FORTIFIED HOLDINGS CORP.       
| | --- | -------------------------------
| |     |                                
| | By: | /s/
      Steven Cooper        
| |     | Steven Cooper                  
| |     | Interim Chief Executive Officer
| |     |                                
| |     |                                
| | By: | /s/
      Kirk Hanson          
| |     | Kirk Hanson                    
| |     | Chief Financial Officer        

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