UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
  
 Form 10-Q
 
  (Mark One)
 
 þ  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the quarterly period ended September 30, 2010
 
 o  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 
 For the transition period from ________________ to ______________
 
 Commission file number: 000-53756
 
 BLASTGARD INTERNATIONAL, INC.
 (Exact name of small business issuer as specified in it charter)
 
 Colorado

84-1506325(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)
 
 2451 McMullen Booth Road, Suite 242, Clearwater, Florida 33759-1362(Address of principal executive offices)
 
 (727) 592-9400(issuer’s telephone number)(Former name, former address and former fiscal year, if changed since last report)
 
 Check 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 such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þNo o
 
 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T during the 12 preceding months (or such shorter period that the registrant was required to submit and post such file). Yes  ̈No  ̈
 
 Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
  Large Accelerated Filer
o

Accelerated Filer
oAccelerated Filer
o

Smaller Reporting Company
þ
 
 APPLICABLE ONLY TO CORPORATE ISSUERS
 
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 Yes oNo þ
     
  
 
 INDEX
  PagePART 1 – FINANCIAL INFORMATIONItem 1.  Financial Statements
1Condensed balance sheets, September 30, 2010 (unaudited) and December 31, 2009
1Condensed statements of operations, for the three and nine months endedSeptember 30, 2010 and 2009 (unaudited)
2Condensed statements of cash flows for the nine months ended September 30, 2010 and 2009(unaudited)
3Notes to condensed financial statements (unaudited)
4Item 2.  Management’s Plan of Operation.
12Item 3. Quantitative and Qualitative Disclosures and MarketRisk
20Item 4.  Controls and Procedures
20PART 2 – OTHER INFORMATIONItem 1.  Legal Proceedings
21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
21Item 3.  Defaults upon Senior Securities
22Item 4.  Submission of Matters to a Vote of Security Holders
22Item 5.  Other Information
22Item 6.  Exhibits
22Signatures
23







i





PART I - FINANCIAL INFORMATION
 
 ITEM 1 - FINANCIAL STATEMENTS.
 BLASTGARD INTERNATIONAL, INC.
 Condensed Balance Sheet


September 30,


December 31,2010


2009(unaudited)AssetsCurrent assets:Cash

$
1,082


$
1,739Receivables:Trade, net


30,687



—Inventory


50,610



67,126Prepaid expenses


915



—Total current assets


83,294



68,865Property and equipment, net


121



320Other assets:Intangible assets, net


24,828



26,277Deferred costs


201,364



179,112Deposits


300



817$
309,907


$
275,391Liabilities and Shareholders’ EquityCurrent maturities on convertible notes payable, net ofunamortized discount of $0 and $0 respectively

$
634,292


$
634,292Line of credit


95,517



91,380Accounts payable


285,517



139,603Accrued expenses


290,734



111,956Short term protion of settlement


18,750



75,000Due to officers


21,933



26,544Total current liabilities


1,346,743



1,078,775Shareholders’ equityPreferred stock, $.001 par value; 1,000 shares authorized,-0- shares issued and outstanding


—



—Common stock, $.001 par value; 100,000,000 shares authorized,42,182,478 and 39,786,554 shares issued and outstanding respectively


50,586



50,086Additional paid-in capital


12,400,749



12,351,249Retained deficit


(13,488,171
)


(13,204,719
)Total shareholder’s equity


(1,036,836
)


(803,384
)$
309,907


$
275,391




See accompanying notes to condensed financial statements


1






BLASTGARD INTERNATIONAL, INC.
 Condensed Statements of Operations (Unaudited)




Three Months Ended


Nine Months EndedSeptember 30,


September 30,2010


2009


2010


2009Revenues:Sales

$
43,315


$
28,423


$
87,698


$
41,221Cost of goods sold


31,165



14,887



65,584



21,981Gross profit


12,150



13,536



22,114



19,240Operating expenses:General and administrative


45,758



95,882



249,240



488,325Research and development


—



12,248



888



25,110Depreciation and amortization


539



624



1,648



1,660Total operating expenses


46,297



108,754



251,776



515,095Operating loss


(34,147
)


(95,218
)


(229,662
)


(495,855
)Non-operating income/(expense):Interest income


—



—



—



2Other income


—



—



6,446



1,200Rental income


—



—



894



—Royalty expense


—



(439
)


(251
)


(439
)Interest expense (Notes 4 and 5):Amortized debt discount


—



(8,359
)


—



(39,007
)Other


(29,572
)


(10,537
)


(60,879
)


(46,173
)Loss before income taxes


(63,719
)


(114,553
)


(283,452
)


(580,272
)Income tax provision (Note 3)


—



—



—



—Net loss

$
(63,719
)

$
(114,553
)

$
(283,452
)

$
(580,272
)Basic loss per share

$
-


$
-


$
(0.01
)

$
(0.01
)Diluted loss per share

$
-


$
-


$
(0.01
)

$
(0.01
)Basic weighted averagecommon shares outstanding


50,586,142



40,771,101



50,512,068



46,371,044Diluted weighted averagecommon shares outstanding


50,586,142



40,771,101



50,512,068



50,135,848





See accompanying notes to condensed financial statements


2




BLASTGARD INTERNATIONAL, INC.
 Condensed Statements of Cash Flows
 (Unaudited)
 Nine Months EndedSeptember 30,2010


2009Cash flows from operating activities:Net loss

$
(283,452
)

$
(465,719
)Adjustments to reconcile net loss to net cashused in operating activities:Depreciation and amortization


1,648



1,036Stock paid for interest


—



388Stock-based compensation


50,000



116,500Discount on convertible notes payable


—



30,648Intrinsic value of beneficial conversion feature


—



19,753Changes in operating assets and liabilities:Accounts receivable


(30,687
)


267,668Inventory


16,516



(2,231
)Other operating assets.


(398
)


8,910Accounts payable and accruals


274,178



(31,025
)Indebtedness to a related party


(4,611
)


5,267Net cash provided by (used) inoperating activities


23,194



(48,805
)Cash flows from investing activities:Payments for deferred costs


(24,423
)


(17,157
)Net cash used ininvesting activities


(24,423
)


(17,157
)Cash flow from financing activities:Proceeds from sale of common stock


—



90,000Net payments on line of credit


572



(22,881
)Net cash used infinancing activities


572



67,119Net change in cash


(657
)


1,157Cash, beginning of period


1,739



1,477Cash, end of period

$
1,082


$
2,634Supplemental disclosure of cash flow information:Cash paid during the period for:Interest

$
14,172


$
19,495Income taxes

$
—


$
—Debt discount recognized on issuance of warrants

$
—


$
—






See accompanying notes to condensed financial statements


3




BLASTGARD INTERNATIONAL, INC.
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (unaudited)


(1)           Basis of Presentation





The Consolidated Balance Sheet as of September 30, 2010, and the Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009, and Cash Flows for the nine months ended September 30, 2010 and 2009 have been prepared by us without audit.  In the opinion of Management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly in all material respects our financial position as of September 30, 2010 and results of operations for the three and nine months ended September 30, 2010 and 2009, and cash flows for the nine months ended September 30, 2010 and 2009. The results of operations and cash flows for the nine months ended September 30, 2010 are not necessarily indicative of the results to be expected for the full year.





This report should be read in conjunction with our Form 10-K for our fiscal year ended December 31, 2009.





BlastGard International, Inc. (the “Company”) was incorporated on September 26, 2003 as BlastGard Technologies, Inc. (“BTI”) in the State of Florida, to design and market proprietary blast mitigation materials. The Company created, designs, develops and markets proprietary blast mitigation materials.  The Company’s patent-pending BlastWrap® technology effectively mitigates blast effects and suppresses post-blast fires.  The Company sub-contracts the manufacturing of products to licensed and qualified production facilities.




The Company went public through a shell merger on January 31, 2004.  On March 31, 2004, the Company changed its name to BlastGard International, Inc.




Going Concern




The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.  As shown in the accompanying financial statements, the Company has incurred recurring losses and has used significant cash in support of its operating activities.  These factors, among others, may indicate that the Company will be unable to continue as a going concern.




The financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.  The Company’s continuation as a going concern was dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain profitability.  The Company plans to generate the necessary cash flows with increased sales revenue over the next 12 months.  However, should the Company’s sales not provide sufficient cash flow; the Company has plans to raise additional working capital through debt and/or equity financings.    There was no assurance the Company will be successful in producing increased sales revenues or obtaining additional funding through debt and equity financings.




Accounting Pronouncements




We have reviewed accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. We believe that there are no new or impending standards that may have an impact on our future filings.  The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.




Subsequent Events




These interim condensed financial statements were approved by management and were approved for issue on December 3, 2010.  Subsequent events have been evaluated through that date.


4




Convertible debt




On June 22, 2006, we borrowed the principal amount of $1,200,000 (the “June 2006 Debt”) from two non-affiliated persons (the “Lenders”) due June 22, 2008. The holders of this June 2006 Debt were issued subordinated convertible promissory notes and common stock purchase warrants in various classes. Pursuant to an agreement dated as of August 7, 2007 (the “August 2007 Agreement”), Robert F. Rose Investments and two other non-affiliated parties (collectively hereinafter referred to as the “Purchasers”) entered into an agreement with the Lenders to purchase the June 2006 Debt, which transaction was personally guaranteed by Mr. Rose. Upon the completion of said transaction, the Purchasers had agreed to automatically convert their June 2006 Debt into shares of our Common Stock at $.30 per share. To date, $795,000 of the $1,200,000 has been completed and converted into our Common Stock at $.30 per share and $50,000 in principal was paid back. Pursuant to an agreement dated as of September 21, 2007, the Purchasers agreed to assign the remaining $355,000 to be purchased pursuant to the August 2007 Agreement to five non-affiliated persons (collectively hereinafter referred to as the “Assignees”) and the Assignees deposited $355,000 in escrow with Lenders’ attorney, as Escrow Agent. Subsequently, the Assignees notified the Escrow Agent that it should not release the escrowed funds from escrow and demanded the return of their funds. Said $355,000 was the subject of a legal dispute and to our knowledge such funds were being held in escrow by the Lenders’ attorneys. Although there was a dispute as to the rights and obligations of the parties pursuant to the aforementioned agreements and the possible conversion of the June 2006 Debt into shares of our Common Stock, we had continued to make the quarterly interest payments on the June 2006 Debt so as to avoid any claim of default. However, on June 22, 2008, the June 22, 2006 debt became due and payable and no payment of principal or accrued interest thereon was made by us. It was management’s position, although no assurance can be given in this regard, that we do not owe the lenders the $355,000 and that we were obligated to deliver 1,183,333 shares of common stock to the assignees upon conversion thereof. Recently, we have learned that the lenders and the assignees agreed to settle their dispute and to release the funds from escrow with the net result that the lenders continue to own the June 2006 Debt and they have made demand for payment of all principal and accrued interest thereon from BlastGard. While we dispute that we owe the lenders the $355,000 plus interest since the case was settled without our consent as a third party beneficiary, the June 2006 Debt is shown (without accrued interest which could range from 8% per annum to a default interest rate of 15% per annum) on our consolidated balance sheet convertible at a price that could be as low as $.03 per share in order to reflect the worst case scenario.






(2)
Notes Payable




Convertible Promissory Notes




On December 2, 2004, the Company entered into agreements to borrow an aggregate principal amount of $1,420,000 and to issue to the investors secured convertible notes and common stock purchase warrants. The Company’s convertible promissory notes payable consist of the following at September 30, 2010:





$500,000 convertible promissory note issuedDecember 2, 2004, most recently due on November 30, 2009,8% annual interest rate, net of unamortizedDiscount of $0

$
150,166$93,096 convertible promissory note (1/4 ofprevious outstanding notes) issued December 2, 2004,most recently due on November 30, 2009, 8% interestNet of unamortized discount of $0

$
93,096$50,000 convertible promissory note issuedDecember 2, 2004, most recently due on November 30, 2009,8% annual interest rate, net of unamortizedDiscount of $0

$
17,325$50,000 convertible promissory note issuedDecember 2, 2004, most recently due on November 30, 2009,8% annual interest rate, net of unamortizedDiscount of $0

$
15,241$10,000 convertible promissory note issuedDecember 2, 2004, most recently due on November 30, 2009,8% annual interest rate, net of unamortizedDiscount of $0

$
3,464$
279,292Less: current maturities

$
(279,292
)


5












6



















Risk-free interest rate


1.0
%Dividend yield


0.00
%Volatility factor


194.26
%Weighted average expected life

1.61 years













(3)
Subordinated Convertible Notes Payable





On June 22, 2006, we borrowed the principal amount of $1,200,000 (the “June 2006 Debt”) from two non-affiliated persons (the “Lenders”) due June 22, 2008. The holders of this June 2006 Debt were issued subordinated convertible promissory notes and common stock purchase warrants in various classes. Pursuant to an agreement dated as of August 7, 2007 (the “August 2007 Agreement”), Robert F. Rose Investments and two other non-affiliated parties (collectively hereinafter referred to as the “Purchasers”) entered into an agreement with the Lenders to purchase the June 2006 Debt, which transaction was personally guaranteed by Mr. Rose. Upon the completion of said transaction, the Purchasers had agreed to automatically convert their June 2006 Debt into shares of our Common Stock at $.30 per share. To date, $795,000 of the $1,200,000 has been completed and converted into our Common Stock at $.30 per share and $50,000 in principal was paid back. Pursuant to an agreement dated as of September 21, 2007, the Purchasers agreed to assign the remaining $355,000 to be purchased pursuant to the August 2007 Agreement to five non-affiliated persons (collectively hereinafter referred to as the “Assignees”) and the Assignees deposited $355,000 in escrow with Lenders’ attorney, as Escrow Agent. Subsequently, the Assignees notified the Escrow Agent that it should not release the escrowed funds from escrow and demanded the return of their funds. Said $355,000 was the subject of a legal dispute and to our knowledge such funds were being held in escrow by the Lenders’ attorneys. Although there was a dispute as to the rights and obligations of the parties pursuant to the aforementioned agreements and the possible conversion of the June 2006 Debt into shares of our Common Stock, we had continued to make the quarterly interest payments on the June 2006 Debt so as to avoid any claim of default. However, on June 22, 2008, the June 22, 2006 debt became due and payable and no payment of principal or accrued interest thereon was made by us. It was management’s position, although no assurance can be given in this regard, that we do not owe the lenders the $355,000 and that we were obligated to deliver 1,183,333 shares of common stock to the assignees upon conversion thereof. Recently, we have learned that the lenders and the assignees agreed to settle their dispute and to release the funds from escrow with the net result that the lenders continue to own the June 2006 Debt and they have made demand for payment of all principal and accrued interest thereon from BlastGard. While we dispute that we owe the lenders the $355,000 plus interest since the case was settled without our consent as a third party beneficiary, the June 2006 Debt is shown (without accrued interest which could range from 8% per annum to a default interest rate of 15% per annum) on our consolidated balance sheet convertible at a price that could be as low as $.03 per share in order to reflect the worst case scenario.


7









$600,000 subordinated, convertible promissory noteissued June 22, 2006, due on June 22, 2008,8% annual interest rate, net of unamortizeddiscount of $0

$
355,000Less: current maturities

$
(355,000
)$
—


























Principal balance of the notes

$
1,200,000Less debt discounts:Fair value of warrants


(768,000
)Fair value of conversion option


(432,000
)Plus amortization of discounts to December 31, 2007


552,490Less the conversion of debt


(795,000
)Plus the revaluation of discount and conversion option


494,676Plus amortization of discounts in 2008


152,834Principal payment in 2008


(50,000
)Carrying value at September 30, 2010

$
355,000








8


Detachable common stock warrants issued with subordinated convertible promissory notes








Debt issue costs








(4)           Shareholders’ Equity
  Preferred stock






Share-based payment













Number

of Shares

Weighted

Average

Exercise

Price

Weighted

Average

Remaining

Contractual Life

Aggregate

Intrinsic

ValueOptions Outstanding – December 31, 2009
4,186,667

$
.10

2.9 years

1,505,033Granted
—Exercised
—Forfeited/expired/cancelled
(766,667)


.10Options Outstanding – September 30, 2010
3,420,000

$
0.10

1.4 years

1,374,700Outstanding Exercisable – December 31, 2009
3,420,000

$
0.10

2.9 years

1,405,500Outstanding Exercisable – September 30, 2010
3,420,000

$
0.10

1.4 years

1,374,700





(5)           Line of Credit









9




(6)           Income Taxes




The Company records its income taxes in accordance with Statement of Financial Accounting Standard No. 109, “Accounting for Income Taxes”. The Company incurred net operating losses during all periods presented resulting in a deferred tax asset, which was fully allowed for; therefore, no income tax benefit or expanse has been presented.




(7)           Commitments and Contingencies




Office Lease









Litigation
























not




10





(8)           Inventory





The Company’s manufacturing is sub-contracted to a BlastGard-licensed and qualified production facility. This method facilitates customer interaction in design, quality and distribution to affect the greatest level of satisfaction and usefulness of the BlastWrap® product. Our inventory is made up of raw materials, work in progress and finished goods. Out inventory is maintained at our manufacturing facilities.





September 30,


December 31,2010


2009(unaudited)Raw materials

$
16,688


$
17,185Work in process

$
-


$
-Finished Goods

$
33,922


$
49,941TOTAL

$
50,610


$
67,126




(9)           Subsequent events




On December 1, 2010, the Company entered into an agreement and received $165,000 in equity financing, representing anon-refundable initial funding of a $500,000 commitment from an unrelated third party at $.03 per share.  The agreement in principal includes additional installments for the remaining funding scheduled on December 15, 2010; January 3, 2011; January 17, 2011; and February 1, 2011. Further funding arrangements are dependent upon shareholder approval.





In December, 2010, the Company signed a settlement agreement on the 2006 debt (subordinated convertible promissory notes) to pay off the debt and the accrued interest at a discount, eliminate all claims to equity and warrants by the Lenders and free up the unissued shares for the conversion of the new funds noted above.  The Company has until December 20, 2010 to make the agreed upon payment or the lenders can void the settlement agreement.





11







Item 2.
Management’s Plan of Operation




Statements contained herein that are not historical facts are forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, the forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and those actual results may differ materially from those in the forward-looking statements. Such risks and uncertainties include, without limitation: well-established competitors who have substantially greater financial resources and longer operating histories, regulatory delays or denials, ability to compete as a start-up company in a highly competitive market, and access to sources of capital.




The following discussion should be read in conjunction with the Company's financial statements and notes thereto included elsewhere in this Form 10-Q. Except for the historical information contained herein, the discussion in this Form 10-Q contains certain forward looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear herein. The Company's actual results could differ materially from those discussed here.




The financial information furnished herein has not been audited by an independent accountant; however, in the opinion of management, all adjustments (only consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the period ended September 30, 2010, have been included.




Reorganization with BlastGard Technologies, Inc.




On January 31, 2004, pursuant to an Agreement and Plan of Reorganization, we acquired 100% of the issued and outstanding common stock of BlastGard Technologies, Inc., a Florida corporation, from BlastGard Technologies’ shareholders, in exchange for an aggregate of 18,200,000 (adjusted to reflect subsequent stock split) shares of our common stock. BTI is a development stage company that was created to develop, design, manufacture, and market proprietary blast mitigation materials. BlastGard Technologies’ patent-pending BlastWrap® technology is designed to effectively mitigate blasts and suppress fires resulting from explosions. As a result of the Reorganization Agreement, a change in control and change in management of the Company occurred and BTI became a wholly-owned subsidiary of the Company. The Reorganization Agreement also provided that the Company hold a shareholder meeting to (i) change the name of the corporation to BlastGard® International, Inc., and (ii) approve a reverse split of the outstanding common stock on a 5:1 basis. A Special Shareholder meeting was held on March 12, 2004, and both proposals were approved. The name change and the reverse split of the outstanding common stock became effective on March 31, 2004.




BlastGard Technologies was formed on September 26, 2003, and was a development stage company. BTI acquired its only significant asset, a patent application for BlastWrap®, in January 2004, from co-inventors John L. Waddell, Jr., our former Chief Operating Officer and President, and James F. Gordon, our Chairman and President, who assigned the patent to BlastGard Technologies in consideration of the consummation of the Reorganization Agreement. For accounting purposes, we assigned no monetary value to the patent application that was assigned to BlastGard Technologies. Our current management team, which was the management team of BlastGard Technologies prior to the reorganization, had operated a corporation called BlastGard, Inc., which was dissolved in 2004. BlastGard, Inc. had a license from a third-party to certain technology which is different from the technology owned by BlastGard Technologies.




Pursuant to the Reorganization Agreement, BlastGard Technologies became a wholly-owned subsidiary of our company. However, for accounting purposes, the acquisition was treated as a recapitalization of BlastGard Technologies, with our company the legal surviving entity.




Results of Operations




Since emerging from our development stage operations in 2005, our BlastGard MTR blast mitigated trash receptacles have been sold to government service advantage (“GSA”) clients located in the United States. We received orders for MTRs from AmTrak, the U.S. Holocaust Memorial Museum, GSA for Federal Buildings, NYC Transit, major airport and for BlastWrap® from the Naval Weapons Station Earle, Sandia National Labs, and several domestic and international entities. A major U.S. airport ordered 156 BlastGard MTR Blast Mitigated Receptacles, which order resulted in gross revenues to the Company of over $700,000.  For the quarter ended September 30, 2010, we recognized sales of $43,315 and a gross profit of $12,150. For the nine months ended September 30, 2010, we recognized sales of $87,698 and a gross profit of $22,114.





12




For the quarter ended September 30, 2010, our overall operating and non operating expenses dropped significantly from the prior year due to a reduction in general and administrative costs of $249,240 for the nine months ended September 30, 2010 compared to $488,325 for the nine months ended September 30, 2009.




Our net loss for the quarter ended September 30, 2010 was $(63,719) as compared to $(114,553) for the comparable period of the prior year. The decreases in net loss are due to a decrease in operating and non-operating expenses.





BlastGard’s products have in the past few years  been tested and evaluated by many military and defense contractors and commercial companies in the United States and abroad as described under Business Prospects. As we experience anticipated growth and expansion of our operations, we will experience an increase in operating expenses and costs of doing business.




Business Prospects




On February 13, 2008, we introduced a new product for perimeter and structure protection. The BlastGard Barrier System (“BBS”) is an innovative combination of three patented technologies, an HDPE cellular core, BlastWrap® and an aesthetically pleasing novel fascia system. BBS has extraordinary blast, ballistic, fragment, shaped charge jet and breaching resistance capabilities and it is beautiful, low cost, configurable and “stealthy”. The cellular core material, patented by the U.S. Army, has been used extensively by the U.S. military and commercial clients worldwide for building roads, for shoring up unstable roads, for extensive soil stabilization projects and for revetments and barriers. After the core is placed and filled, BlastWrap® is attached to the “threat side(s)” of the BBS structure, and finally, the fascia system encloses the entire structure, thereby creating an effective “stealth” characteristic for the entire BBS structure...that is, the extreme capabilities of this system are not at all visually apparent. BlastGard’s new high-capacity Clients with concerns about heavy blast, breaching, ballistic, fragment and shaped charge jet threats to their facilities can now effectively address all of those threats with our economical solution.” Optional electronic security capabilities can also be integrated into the system.




On February 25, 2008, we introduced a new product for Airport Security, transit stations, convention centers, and other transportation centers’ with security requirements, the BlastGard® Gard Cart. The BlastGard® MBR Gard Cart (Mobile Suspect Package Removal Unit), which houses BlastGard’s MBR 300, provides security personnel with an effective tool for safe removal of an explosive device after it is discovered. The MBR Gard Cart contains and protects against all lethal threats posed by the detonation of an improvised explosive device (IED) and also provides rapid removal of the threat using a Mobile Removal Unit Cart. When a suspect package or device is discovered, the airports now have a safe means of securing that package and removing it from public exposure until the bomb squad arrives. In this way, the MBR Gard Cart can help prevent long airport facility shut-down times presently experienced when a suspect package is discovered.




On July 17, 2008 BlastGard announced receipt of a formal purchase agreement for 156 BlastGard MTR blast mitigated receptacles valued at approximately $700,000 for a major United States airport. BlastGard’s blast mitigating receptacles were installed throughout the facility and this very important transaction has opened the door to the Airport Security market for our Blast Mitigating Receptacles. Receptacles, which are a necessity for waste management, pose a serious threat to public safety considering how easily they can conceal an explosive device. The installation of these blast mitigating receptacles is another step toward USA airport's emphasis on safety, reliability, enhanced cleanliness and improved customer service. In addition to a $2,000,000 order from Miami Airport, which is pending the securing of grant funds. We are attempting to secure funding for pending MTR orders from Houston Airport, San Francisco Airport, and Chicago Airport.




In February 2009, Precision Operations Systems India Pvt. Ltd., which has been supplying security, surveillance, counter surveillance and special ops equipment to various Government entities in India, purchased BGI’s MBR (mitigated bomb receptacle) for testing. Precision is our commercial representative for India and represented BlastGard at the 12th India International Security Expo, which was held from February 22-25, 2009.




In March 2009, BlastGard entered into a commercial representative agreement with Lindner & Co. as our exclusive sales and marketing representative for Iraq. Lindner’s alliance with an Iraqi company, which has a credentialed history with US Corps of Engineers, KBR, and other Iraqi national companies as well as business relationships with companies in Saudi Arabia, the Emirates, Jordan and other Middle Eastern countries, will operate in Iraq as the authorized installer for BlastGard in Iraq.





13




Various Product Lines Identified For BlastWrap®- We have Several Completed and Finished Products




We are currently manufacturing our core product, BlastWrap®, for sale in various forms to non-affiliated third-parties. The primary application for BlastWrap® is as an intermediate good for numerous civilian and military applications and uses.




Our technology is being customized for specific industries and applications. We have examined the various markets where explosions occur, selected targeted applications and focused on development of products for those businesses and agencies at risk. While designing finished products engineered with BlastWrap®, we have taken into account that some products must be portable, while others will remain at a fixed location. Some products have been designed to contain identified explosive agents, while others are designed to mitigate unidentified explosive threats. With these standards in mind, we have developed or are developing the following product lines to address the needs of customers and targeted markets:




●
Mitigated Bomb Receptacles and MBR Gard Cart;




●
Blast Mitigated Unit Load Device (“BMULD”) – LD3 Container;




●
Lining – Aircraft;




●
Insensitive Munitions (IM) Weapons Container;




●
Mitigated Trash Receptacle; and




●
BlastGard Barrier System (“BBS”).




MBR 300 and MBR Gard Cart




The BlastGard Mitigated-Bomb Receptacle (MBR 300) is intended to provide airport security personnel with an effective tool, if and when an explosive is discovered. The MBR 300 will dramatically contain and protect against all lethal threats posed by the detonation of an IED; namely, primary fragments, secondary fragments, mechanical effects (shock/blast pressure) and thermal effects (contact and radiation burn) from the fireball, after burn and resultant post-blast fires. If a suspect package or bomb is discovered, the airports will use the MBR 300 as a safe means of securing that package until the bomb squad arrives, or remove the suspicious device from the area, allowing airport operations to continue.




The BlastGard® MBR Gard Cart (Mobile Suspect Package Removal Unit), which houses BlastGard’s MBR 300, provides security personnel with an effective tool for safe removal of an explosive device after it is discovered. The MBR Gard Cart contains and protects against all lethal threats posed by the detonation of an improvised explosive device (IED) and also provides rapid removal of the threat using a Mobile Removal Unit Cart. When a suspect package or device is discovered, the airports now have a safe means of securing that package and removing it from public exposure until the bomb squad arrives. In this way, the MBR Gard Cart can help prevent long airport facility shut-down times presently experienced when a suspect package is discovered. The United States Transportation Security Administration has worked hard to secure U.S. airports against a range of threats that includes attacks against both aircraft and ground facilities. The largest and most visible investment made by the agency has been in enhancing the passenger screener force and in massively expanding the number of explosive detection systems (EDS) required to examine checked luggage for bombs. Effective security, therefore, includes not only deterrent and preventive measures but also efforts to mitigate casualties, damage, and disruption. Since deterrence and prevention are sometimes difficult to achieve given the nature of terrorism and the inherent vulnerabilities of public transportation, great emphasis is also placed upon the mitigation of casualties through design of facilities and upon effective, rapid response that ensures safety while minimizing disruption. We believe that the MBR 300 is an ideal incident / security management technology for airports when dealing with bomb threats and suspicious objects or packages, especially in passenger carryon baggage.




Twin-Aisle (containerized) Aircraft – Blast Mitigated Unit Load Devices (BMULDs)




LD3 Cargo Containers are used primarily on twin aisle/wide body aircraft such as the B747. These luggage or cargo containers are manufactured by a few well-established companies throughout the world. The market is extremely competitive with low margins. In accordance with an agreement with Nordisk Aviation Products, we have combined our BlastWrap® blast-mitigating technology with Nordisk’s LD3 containers to create superior blast mitigating products for the air cargo and unit loading device (ULD) market called BlastGard BMULD. ULDs are pallets and containers used to load luggage, freight, and mail onto wide-body aircraft that facilitate the bundling of cargo into large units. The alliance has developed a new line of ULDs that include BlastWrap®. The introduction of this product line enables us to provide the airline industry an important new line of defense to increase airline safety of passengers and crewmembers. This revolutionary new container design incorporating BlastWrap® will prevent shock holing of the fuselage, effectively retaining the structural integrity of the aircraft; prevent post-blast fires and conflagration in the hold; and add little or only negligible weight to the ULD.





14






Lining – Single-Aisle (non-containerized) Aircraft






Working in conjunction with aircraft and shipping manufacturers, we are designing products and component assemblies to be used in the cargo holds of single-aisle aircraft. Due to the heightened security surrounding aircraft safety, we are diligently working to demonstrate the effectiveness of our product on this large sector which is estimated at about 70% of the commercial fleet.




Insensitive Munitions (IM) Weapons Containers




Weapons containers require specialty design. We have developed several of these containers for evaluation and testing by the United States, United Kingdom and other military clients. Although we do not have a development or supply contract with any military agencies at this time, we anticipate important prototype testing of these designs will ensue in 2009 with our strategic partner Lancer Systems and with the National Warheads and Energetics Consortium (NWEC) / Defense Ordnance Technology Consortium (DOTC). This product line will have numerous versions for military weapons including bombs, rockets, medium and large caliber ammunition and missiles. In addition, in September 2008, we announced an agreement with U. S. Explosive Storage to provide them with BlastWrap for insensitive munitions packaging of ammunition storage, ordnance storage, pyrotechnics storage, and other explosive materials storage, utilized, among other things, for military, governmental, and commercial use. Prototype testing is planned to begin in the 4th quarter of 2008. We will be installing BlastWrap inside storage boxes and inside the magazines. U.S. Explosives is forecasting sales of $5-6 million in year one and approximately $8 million in year two. The BlastWrap component in the new product line represents approximately $1.8 million in year one and 2.4 million in year two with ever increasing sales on a year over year basis.




Trash Receptacles




We have four models of mitigated trash receptacles, the BlastGard® MTR 81, MTR 91, MTR 96 and MTR 101. These containers have been designed and proof tested to drastically mitigate blast pressures and thermal output and to capture bomb fragments.




On October 25, 2004, the Company had entered into an Alliance Agreement with Centerpoint Manufacturing whereas Centerpoint would provide the Company with proprietary reinforced trash receptacles and the Company would provide proprietary composite blast mitigation material technologies to offer an enhanced reinforced trash receptacle product. All of the costs related to the testing and development of the BlastGard MTR® and BlastGard MBR® series, totaling $262,404.60 and $62,808.63 respectively, were paid by the Company. The Alliance Agreement commenced on October 25, 2004 and was in full force and effect for five years. The Alliance Agreement automatically terminated on October 25, 2009 since neither party renewed the Agreement. Nevertheless, the Company continued to rely on Centerpoint as their vendor for blast resistant receptacles for the Company’s MTR and MBR line of products and Centerpoint continued to supply their receptacles to the Company. During the 5-year Alliance Agreement, the Company’s line of blast-mitigated products were marketed to third parties while Centerpoint continued to market the same blast resistant receptacle under their own name but without the blast-mitigating properties of BlastWrap. In May 2010, BlastGard notified Centerpoint that it intended to create a new blast resistant receptacle component for the Company to use in its BlastGard MTR® and BlastGard MBR® product line unless Centerpoint could reach agreement with BlastGard on continuing to use its existing receptacle. On May 18, 2010, BlastGard concluded that Centerpoint would not continue its relationship with BlastGard.





15





As a result of the Company's failure to reach a mutually acceptable agreement for continuing its relationship with Centerpoint, a new blast resistant receptacle for our BlastGard MTR®and MBR® series of products has been designed for the Company which incorporates our core product, BlastWrap® into each product. The Company is in the process of finalizing manufacturing arrangements with one or more vendors, which will result in substantial cost savings over the Company's previous agreement with Centerpoint. Testing of the new design is anticipated to occur upon receipt of additional financing.




Vehicle Improvised Explosive Devices and Mine Protection




Military vehicles (such as MRAPs, HMMWVs, HEMMT, M915 and FMTV) are or can be “up-armored” for improvised explosive devices and land mine protection. BlastGard® and Colt Rapid Mat LLC have developed and are now offering a new product called BATS. These specialty Colt Rapid Mat fiberglass-cased BlastWrap® products are easy to retro-fit to armored vehicles to provide protection for occupants from blast thermal output and head, neck and spine injuries from blast pressures. Initial durability testing of BATS by the Nevada Automotive Test Center (NATC) for the Office of Naval Research has been concluded successfully. Further testing awaits selection and funding by NATC/ONR for blast testing.  An important additional partner in these vehicle applications is Cellular Materials International, Inc. which has a periodic cellular material shown to be effective in managing the heavy G-loads typical of under-vehicle blast threats.




BlastGard Barrier System (“BBS”) High-Capacity Wall System for Perimeter and Structure Protection




The BBS product is an innovative combination of three patented technologies, an HDPE cellular core, BlastWrap® and an aesthetically pleasing novel fascia system. BBS has extraordinary blast, ballistic, fragment, shaped charge jet and breaching resistance capabilities and it is beautiful, low cost, configurable and “stealthy”. The cellular core material, patented by the U.S. Army, has been used extensively by the U.S. military and commercial clients worldwide for building roads, for shoring up unstable roads, for extensive soil stabilization projects and for revetments and barriers. After the core is placed and filled, BlastWrap® is attached to the “threat side(s)” of the BBS structure, and finally, the fascia system encloses the entire structure, thereby creating an effective “stealth” characteristic for the entire BBS structure that is, the extreme capabilities of this system are not at all visually apparent. Clients with concerns about heavy blast, breaching, ballistic, fragment and shaped charge jet threats to their facilities can now effectively address all of those threats with our economical solution. Optional electronic security capabilities can also be integrated into the system.




In summary, we have developed either finished products or working prototypes of BlastWrap® products for each of the product lines described above. All of these products have been successfully tested and evaluated in-house, by third-parties and by interested clients and strategic partners. Prototypes may require further modifications based on the test results and client and partner feed-back. However, we have the following products that are completed and finished products, available for sale that we are currently manufacturing and marketing, except as otherwise noted:




●
The core product, BlastWrap®;




●
BlastGard® MTR (mitigated trash receptacle,(Note- Testing of the new design is anticipated to occur upon receipt of additional financing.);





●
BlastGard MBR 300 (mitigated bomb receptacle) and MBR Gard Cart;




●
BMULD (Blast Mitigated Unit Load Device - LD3 Container); and




●
BlastGard Barrier System (“BBS”) high-capacity wall system for perimeter and structure protection.







16





Liquidity and Capital Resources.





At September 30, 2010, we had cash of $1,082, working capital of $(1,263,445), an accumulated deficit of $(13,488,171) and shareholder equity of $(1,036,836).




For the nine months ended September 30, 2010, net cash provided by operating activities was $23,194 primarily due to our net loss of $(283,452), partially offset by a $50,000 in stock based compensation and $274,178 increase in accounts payable. During the nine months ended September 30, 2010, we used cash in investing activities for payment of deferred costs of $(24,423). During the nine months ended September 30, 2010, we received $572 from our credit line.





For the nine months ended September 30, 2009, net cash used in operating activities was $(48,805) primarily due to our net loss of $(465,719) offset by $116,500 in stock based compensation and collection of $267,668 in accounts receivables. During the nine months ended September 30, 2009, we used cash in investing activities for payment of deferred costs of $(17,157). During the nine months ended September 30 2009, we received $90,000 from the sale of stock and paid $22,881 on our line of credit.


At September 30, 2010, we had cash of $1,082 and we owed $680,999 in principal and $46,707 in accrued interest to the holders of our December 2004 Debt and 2006 debt. We also owed payables in the amount of $665,744.





In regards to the September 2006 Debt, we filed a Form 8-K on July 2, 2008.  On September 22, 2006, we borrowed the principal amount of $1,200,000 (the “June 2006 Debt”) from two non-affiliated persons (the “Lenders”) due June 22, 2008. Pursuant to an agreement dated as of August 7, 2007 (the “August 2007 Agreement”), Robert F. Rose Investments and two other non-affiliated parties (collectively hereinafter referred to as the “Purchasers”) entered into an agreement with the Lenders to purchase the June 2006 Debt, which transaction is personally guaranteed by Mr. Rose.  Upon the completion of said transaction, the Purchasers had agreed to automatically convert their June 2006 Debt into shares of our Common Stock at $.30 per share.  To date, $795,000 of the $1,200,000 has been completed and converted into our Common Stock at $.30 per share and $50,000 in principal was paid back. Pursuant to an agreement dated as of September 21, 2007, the Purchasers agreed to assign the remaining $355,000 to be purchased pursuant to the August 2007 Agreement to five non-affiliated persons (collectively hereinafter referred to as the “Assignees”) and the Assignees deposited $355,000 in escrow with Lenders’ attorney, as Escrow Agent. Subsequently, the Assignees notified the Escrow Agent that it should not release the escrowed funds from escrow and demanded the return of their funds. Said $355,000 is currently the subject of a legal dispute and such funds are being held in escrow by the Lenders’ attorneys. Although there is a dispute as to the rights and obligations of the parties pursuant to the aforementioned agreements and the possible conversion of the June 2006 Debt into shares of our Common Stock, we had continued to make the quarterly interest payments on the June 2006 Debt so as to avoid any claim of default. However, on June 22, 2008, the June 22, 2006 debt became due and payable and no payment of principal or accrued interest thereon was made by us. It is management’s position, although no assurance can be given in this regard, that we do not owe the lenders the $355,000 and that we were obligated to deliver 1,183,333 shares of common stock to the assignees upon conversion thereof. Nevertheless, we have continued to include the principal of the June 2006 Debt and accrued interest on our consolidated balance sheet in order to reflect the worse case scenario. See “Note 1” and “Recent Developments.”





To date, we have relied on management’s ability to raise capital through equity private placement financings to fund our operations. The Company has also borrowed about $96,000 from a credit line, which was secured by a personal guarantee of Michael Gordon, its Chief Financial Officer, new Chief Executive Officer and a director. The Company has not been able to generate significant orders from sales to fund its operations nor has it been successful in raising approximately up to $1,500,000 in additional funds sufficient to carry on its operations for a period of approximately one year. We have an immediate need of cash to support our operations, current debt obligations and capital expenditures and to continue as a going concern. The Company is continuing to attempt to obtain cash to finance its operations through the sale of equity, debt borrowing and/or through the receipt of product licensing fees. We can provide no assurances that we will be able to generate sufficient cash flow from operations and/or obtain additional financing on terms satisfactory to us, if at all, to remain a going concern. We can provide no assurances that a mutually acceptable licensing agreement will be entered into on terms satisfactory to us, if at all. The Company’s executive officers have not been paid any salary and have had their salaries accrued since May 2009. We can provide no assurances that they will continue to be able to provide their time and effort to the Company without the timely payment of their salaries (including accruals thereof). Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis and ultimately to attain profitability. In this respect, see “Note 1 – Going Concern” in our audited financial statements for the year ended December 31, 2009 included in our Form 10-K filing for additional information as to the possibility that we may not be able to continue as a “going concern.”








17





Recent Developments




As of September 30, 2010, BlastGard’s salary accruals and benefits to its executive officers totaled $237,908 and its other account payable totaled $290,782.  Excluding our cash needs to meet these and other debt obligations, we have a monthly cash budget broken down as follows:







salaries and benefits:

$
19,000legal fees (patents & Verde)


12,000professional fees


11,000office overhead


3,000Travel


7,000research and development


4,000Miscellaneous


3,000Total

$
59,000





On March 10, 2009, the Company lowered the exercise price of its issued and outstanding Class A, C, D, E and F Warrants to an exercise price of $.03 per share on a temporary basis until the close of business on March 20, 2009, which was later extended to March 30, 2009 (the “Warrant Reduction Period”). Subsequent to that date, the exercise price of the aforementioned classes of Warrants reverted to $.10 per share. During the Warrant Reduction Period, none of these Warrants were exercised. During the Warrant Reduction Period, the holders of certain outstanding Senior convertible securities originally issued on December 2, 2004 granted BlastGard an extension of the due date of their notes until the close of business on November 30, 2009, in exchange for the issuance of Class G Warrants to purchase 1,800,000 restricted shares of Common Stock of the Company. Contemporaneously, certain other person(s) were assigned these Warrants and sold one-half of their $372,000 of outstanding principal of the notes and related security agreements and guarantees at a purchase price of about $186,000. Each Class G Warrant entitles the holder to purchase one share of the Company’s Common Stock at an exercise price of $.03 per share through the close of business on June 22, 2011. Since March 2009, the Notes are convertible at $.03 per share. On May 22, 2009, $93,097.25 of the outstanding principal and $387.69 in interest was converted into 3,116,164 shares of the Company’s Common Stock.




During the Warrant Reduction Period, the Company cancelled Class A, C, D, E and F Warrants totaling the rights to purchase 11,000,334 shares of the Company’s Common stock and issued an equal number of Class G Warrants in exchange thereof. Currently, the Company has outstanding the following Warrants:







Class of Warrant

Number of Warrants OutstandingUndefined


150,000Class A


—Class C


1,921,500Class D


324,000Class E


162,000Class F


2,097,620Class G


12,800,334





All shares of Common Stock issuable upon exercise of the aforementioned Warrants contain an appropriate restrictive legend. Exemption from registration for the issuance of the Class G Warrants as replacement Warrants and 3,116,164 shares of Common Stock issued upon conversion of the Notes were exempt under Section 3a(9) of the Securities Act of 1933, as amended (the “1933 Act”). The issuance of 1,800,000 Warrants to the Senior convertible debt holders was exempt under Section 4(2) of the Securities Act.






18




The Board of Directors approved the issuance of 3,000,000 restricted shares of Common Stock of the Company at a purchase price of $.03 per share ($90,000 in the aggregate). Mr. McKinnon, the Company’s then CEO, purchased the shares via a Subscription Agreement.  Approximately $1,200 of the subscription price was paid in exchange for services rendered and the balance of the subscription price was paid in cash. The issuance of 3,000,000 shares to Mr. Mckinnon was exempt under Section 4(2) of the Securities Act.




On December 1, 2010, the Company entered into an agreement and received $165,000 in equity financing, representing anon-refundable initial funding of a $500,000 commitment from an unrelated third party at $.03 per share.  The agreement in principal includes additional installments for the remaining funding scheduled on December 15, 2010; January 3, 2011; January 17, 2011; and February 1, 2011. Further funding arrangements are dependent upon shareholder approval.





In December 2010, the Company signed a settlement agreement on the 2006 debt (subordinated convertible promissory notes) to pay off the debt and the accrued interest at a discount, eliminate all claims to equity and warrants by the Lenders and free up the unissued shares for the conversion of the new funds noted above.  The Company has until December 20, 2010 to make the agreed upon payment or the lenders can void the settlement agreement.





Registration Statements





Our recent debt and equity financings are described above. We have in the past and currently relied principally on external financing to maintain our company as a going concern. All of our assets have been used as collateral to secure our indebtedness. Among the many risks of our business and an investment in our company, is the possibility that we will not be able to meet our obligations as they come due and remain as a going concern. We have also agreed to file a registration statement to register for resale by the holders of the June 2006 debt, the number of shares of common stock issuable to them upon conversion of their notes and exercise of their warrants (the obligation to the holders of the June 2006 Debt are collectively referred to as the “Registrable Securities”), as well as to register for resale by Source Capital (and its transferees) and the holders of the December 2004 debt, the shares of common stock issuable upon exercise of their warrants.  In September 2006, we obtained an effective registration statement pertaining to (i) a portion of the Registrable Securities, including the (x) shares of common stock issuable upon conversion of the June 2006 Debt based upon a conversion price of $.75 per share and (y) warrant shares underlying the (x) Class C and Class F Warrants held by the holders of the June 2006 Debt and (ii) all shares of common stock issuable upon exercise of the warrants held by Source Capital (and its transferees).  In September 2006, an amended agreement was entered into by and among the Company and the holders of the June 2006 Debt. This amendment requires us to register with the SEC the resale of the shares of common stock issuable upon exercise of the Class D and Class E Warrants and an additional 30% of the original Registrable Securities (as defined) upon receipt, in writing, of a written demand from such persons holding at least 51% of the outstanding Registrable Securities. To date, no such written demand has been received by us. Our original Registration Rights Agreement with the holders of the 2006 Debt (except as otherwise amended) requires us to maintain an effective Registration Statement pertaining to all Registrable Securities until all Registrable Securities covered by such Registration Statement have been sold, or may be sold, without volume restriction pursuant to Rule 144(k) (the “Effectiveness Period”). If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 90% of the number of shares of Common Stock then registered in a Registration Statement, then we are required to file as soon as reasonably practicable, but in any case prior to the 30th day following the date on which we first know, or should reasonably have known, that such additional Registration Statement is required, an additional Registration Statement covering the resale by the holders of not less than 130% of the number of such Registrable Securities. The agreement further provides that we may require each selling holder of Registrable Securities to furnish us a certified statement as to the number of shares of common stock beneficially owned by each holder and that during any period that we are unable to meet our obligations under the Registration Statement for the registration of the Registrable Securities solely because any holder fails to furnish us information within three trading days of our request, any liquidated damages that are accruing at such time to such selling holder only shall be tolled and that any event that may otherwise occur solely because of such delay shall be suspended as to such holder only, until such information is delivered to us.




19




Recently  Issued Accounting Pronouncements




During the past two years, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 160, FSAS No. 161, FSAS No. 162, FSAS No. 163, FSAS No. 164, FSAS No. 165, FSAS No. 166, FSAS No. 167 and FSAS No. 168 and FIN 48 which are described in Note 1, “Recent Accounting Pronouncements” of the Notes to Financial Statements contained in our latest annual report on Form 10-KSB filed with the Security and Exchange commission on April 14, 2009. Reference is made to these recent accounting pronouncements as if they are set forth therein in their entirety.




Item 3.  Quantitative And Qualitative Disclosures About Market Risk





Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our short term money market investments. The Company does not have any financial instruments held for trading or other speculative purposes and does not invest in derivative financial instruments, interest rate swaps or other investments that alter interest rate exposure. The Company does not have any credit facilities with variable interest rates.





Item 4.Disclosure Controls and Procedures





Disclosure Controls and Procedures





The Company carried out an evaluation under the supervision and with the participation of its management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2010. Based upon that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to the material information relating to the Company (or the Company’s consolidated subsidiaries) required to be included in the Company’s periodic filings with the SEC, such that the information relating to the Company required to be disclosed in SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.





Changes in Internal Controls





During the three and nine month periods ended September 30, 2010, there were no changes in internal controls over financial reporting that have materially affected, or are reasonably likely to affect, the Company’s internal controls over financial reporting.





20








PART II – OTHER INFORMATION





Item 1.  Legal Proceedings.





On September 12, 2005, we were served with a lawsuit that was filed in the Second Judicial District Court in Washoe County, Nevada as case number CV-05-02072 (the “Nevada Action”). The plaintiff in the lawsuit was Verde Partners Family Limited Partnership. The lawsuit makes a variety of claims and contends that BlastGard and certain officers of BlastGard misappropriated certain technology, including two patents, and seeks damage “in excess of $10,000”. The action was removed to federal court in Nevada. We filed a motion to have the case dismissed as to BlastGard International, Inc., and all other defendants, for lack of personal jurisdiction. There was also a motion for a more definite statement in that three of the claims by Verde are conclusory, vague and ambiguous.




On July 14, 2006, the United States District Court rendered its decision in the Nevada Action. It was ordered and adjudged that the motion to dismiss the individual defendants and the motion to dismiss the BlastGard defendants was granted. Defendants’ motion for a more definite statement is moot. The Court entered judgment on July 17, 2006 in favor of all Defendants and against the Plaintiff. The Plaintiff had 30 days from the date of the judgment to file a notice of appeal and no filing was made.




On July 19, 2006, we filed a lawsuit in the Circuit Court of the Sixth Judicial Circuit in Pinellas County, Florida. The Defendants in the lawsuit are Sam Gettle, Guy Gettle and Verde Partners Family Limited Partnership (“Verde”). The lawsuit contends that the Defendants have committed defamatory acts against BlastGard International and its products. The lawsuit also asks for a declaration that BlastGard International is not liable for the acts complained of in the Nevada action. On BlastGard’s affirmative claims for defamation, the Florida action seeks injunctive relief and damages in excess of $15,000, exclusive of attorney’s fees and costs. Sam Gettle, Guy Gettle, and Verde counter claimed in the lawsuit alleging the same bad acts complained of in the Nevada action. The counterclaim seeks an award of unspecified damages and injunctive relief. On April 2, 2009, the company entered into a Settlement Agreement to settle our outstanding civil litigation. The company will pay the sum of $125,000 over 18 months. The first monthly payment was paid within 30 days after the Defendants deliver to the Company’s counsel an original executed version of the Agreement and a promissory note in the amount of the remaining principal balance to bear interest in the amount of 6% per annum. Upon Verde’s receipt of the payment and promissory note, the parties shall jointly dismiss with prejudice all litigation between them, including the Pinellas County action and the Federal action. The company and Verde also entered into a license agreement whereby BlastGard obtains a fully paid up non-exclusive license for the 2 Verde patents for the remaining life of those patents in exchange for the Company paying Verde a 2% royalty for the life of the patents, on the sales price received by BlastGard for BlastGard’s portion of all blast mitigation products sold by the company (the royalty is not on any third-party’s portion of any product containing blast mitigation products sold by BlastGard). The parties also agreed not to file any complaints with any state, federal or international agency or disciplinary body regarding any of the other parties or any person affiliated with any of the other parties or otherwise make negative statements about them (in other words, a broad non-disparagement clause). The company and Verde also signed mutual general releases (excepting the obligations above) and a covenant not to sue. The company and Verde also signed mutual general releases (excepting the obligations above) and a covenant not to sue. Since entering into the Settlement Agreement in April 2009, the Company has paid Verde a total of $44,858.97 and is in arrears for $87,360 as of December 3, 2010.





Item 1A. Risk Factors





As a  Smaller Reporting Company as defined Rule 12b-2 of the Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item 1A.





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





(a)         From January 2010 to September 30, 2010, we had no sales or issuances of unregistered securities, except we made sales or issuances of unregistered securities listed in the table below:





Date of Sale

Title of Security

Number Sold

Consideration

Received and
Description of

Underwriting or
Other Discounts

to Market Price or
Convertible Security,
Afforded to
Purchasers

Exemption from Registration
Claimed

If Option, Warrant

or Convertible Security,
terms

of exercise or conversionMarch 2010

Common stock for services

500,000

Outside board compensation

Section 4(2)

Not applicable.





(b)        Rule 463 of the Securities Act is not applicable to the Company.





(c)        In the nine months ended September 30, 2010, there were no repurchases by the Company of its Common Stock.





21







Item 3. Defaults Upon Senior Securities.None





Item 4.Reserved.





Item 5.  Other Information.




On December 1, 2010, the Company entered into an agreement and received $165,000 in equity financing, representing anon-refundable initial funding of a $500,000 commitment from an unrelated third party at $.03 per share.  The agreement in principal includes additional installments for the remaining funding scheduled on December 15, 2010; January 3, 2011; January 17, 2011; and February 1, 2011. Further funding arrangements are dependent upon shareholder approval.
 
 In December, 2010, the Company signed a settlement agreement on the 2006 debt (subordinated convertible promissory notes) to pay off the debt and the accrued interest at a discount, eliminate all claims to equity and warrants by the Lenders and free up the unissued shares for the conversion of the new funds noted above.  The Company has until December 20, 2010 to make the agreed upon payment or the lenders can void the settlement agreement.


Item 6.  Exhibits





Exhibit Number

Description10.1

TangoPoint Agreement, dated December 1, 2010*10.2

Settlement Agreement, dated December 1, 2010*11.1

Statement re: computation of earnings per share. See condensed consolidated statement of operations and notes thereto.31.1

Rule 13a-14(a) Certification – Chief Executive Officer and Chief Financial Officer *32.1

Section 1350 Certification – Chief Executive Officer and Chief Financial Officer *


———————


*
Filed herewith.






22





SIGNATURES





Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




Dated:  December 8, 2010

BLASTGARD INTERNATIONAL, INC.By:
/s/ Michael J. GordonMichael J. Gordon, Chief Executive and Chief Financial Officer