UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K   þ
              ANNUAL REPORT UNDER
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year
      ended December 31, 2009o
              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.(Name
      of small business issuer as specified in its
  charter)
  Colorado
              
              84-1506325(State
      or other jurisdiction of incorporation or organization)
              
              (IRS
      Employer Identification No.)





2451
      McMullen Booth Road, Suite 242, Clearwater, FL
            
            33759(Address
      of principal executive offices)
            
            (Zip
      Code)





Issuer’s
telephone number: (727)
592-9400





Securities
registered under Section 12(b) of the Exchange Act: None


Securities
registered under Section 12(g) of the Exchange Act: Common Stock, $.001 par
value





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act  Yes o    No
þ





Check
whether the Registrant is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. o





þ o





Indicate
by check mark whether the Registrant has submitted electronically and posted on
it corporate Web site, if any, every Interactive data file required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes o   No o





Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in part III of this
Form 10-K or any amendment to this Form 10-K o. 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company as
defined by Rule 12b-2 of the Exchange Act: smaller reporting company þ.
 
 Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes o  No þ
 
 The aggregate market value of the Common Stock held by non-affiliates of
approximately32,864,242shares of Common Stock as of June 30, 2009 was approximately $985,927
based on a closing sales price of $.03 per share of Common Stock on June 30,
2009, the last business day of the Registrant’s most recently completed third
quarter.
 
 The
number of shares outstanding of the issuer’s Common Stock, $.001 par value, as
of March 31, 2010 was 50,586,142 shares.













PART I





CAUTIONARY
STATEMENT IDENTIFYING IMPORTANT FACTORS


THAT
COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO


DIFFER
FROM THOSE PROJECTED IN FORWARD LOOKING STATEMENTS





Readers
of this document and any document incorporated by reference herein are advised
that this document and documents incorporated by reference into this document
contain both statements of historical facts and forward looking
statements.  Forward looking statements are subject to certain risks
and uncertainties, which could cause actual results to differ materially for
those indicated by the forward looking statements.  Examples of
forward looking statements include, but are not limited to (i) projections of
revenues, income or loss, earning or loss per share, capital expenditures,
dividends, capital structure and other financial items, (ii) statements of the
plans and objectives of the Company or its management or Board of Directors,
including the introduction of new products, or estimates or predictions of
actions by customers, suppliers, competitors or regulatory authorities, (iii)
statements of future economic performance, and (iv) statements of assumptions
underlying other statements and statements about the Company or its
business.




This
document and any documents incorporated by reference herein also identify
important factors which could cause actual results to differ materially from
those indicated by forward looking statements.  These risks and
uncertainties include price competition, the decisions of customers, the actions
of competitors, the effects of government regulation, possible delays in the
introduction of new products and services, customer acceptance of products and
services, the Company’s ability to secure debt and/or equity financing on
reasonable terms, and other factors which are described herein and/or in
documents incorporated by reference herein.




The
cautionary statements made above and elsewhere by the Company should not be
construed as exhaustive or as any admission regarding the adequacy of
disclosures made by the Company.  Forward looking statements are
beyond the ability of the Company to control and in many cases the Company
cannot predict what factors would cause results to differ materially from those
indicated by the forward looking statements.


ITEM
1.BUSINESS


General





BlastGard®
International, Inc., a Colorado corporation, operates through its wholly-owned
subsidiary, BlastGard Technologies, Inc., a Florida corporation established in
September 2003. BlastGard®
International, Inc. acquired BlastGard Technologies, Inc. effective
January 31, 2004, in a transaction that was accounted for as a reverse
acquisition, which is a capital transaction and not a business
combination.




1




We have
developed and designed proprietary blast mitigation materials. Patent-pending
BlastWrap® has
been designed to mitigate blasts and suppress flash fires resulting from
explosions, regardless of the material or compound causing the explosion. We
believe that this technology can be used to create new finished products or
designed to retrofit existing products. While the need for this technology has
always been present, the security and safety concerns resulting from the
September 11, 2001 terrorist acts make the timing of BlastGard’s emergence
even more important.




Company
History




Incorporated
by reference is our corporate history which may be found in item 1 of our Form
10-KSB for the fiscal year ended December 31, 2006.




Introduction




An
explosion results from the rapid conversion of chemical energy into rapidly
expanding high-pressure gases. The rapidly expanding gases compress the
surrounding air much like a piston and create a shock wave that travels ahead of
the explosive gases. The “overpressure” (pressure above ambient) in a shock wave
acts to “pre-condition” the air as it passes through to make the following
accelerated gas “piston” more damaging. This high intensity, short duration
overpressure wave transfers impulse (momentum) stresses, damages or destroys
structures in its path. Impulse follows the shock wave but lingers and decays
with time. The negative phase is a partial vacuum that “whips” lighter
structures to magnify damage. A shock wave can be likened to an initial hard
punch, while the impulse is more like a powerful bulldozer. Any reduction in the
effective power of the shock wave will increase the target’s capability to
withstand the destructive impulse.




Blast
Solutions




Blast
management solutions generally fall into one of two categories: hardening or
mitigation. Hardening is a method of blast mitigation by which an object is
placed around an explosive material to contain the blast, and is generally
accomplished through the use of armor, mass or both. Armor is used primarily for
its ballistic properties, with enhanced protection levels achieved by increasing
mass (thickness and/or weight). Hardening solutions include steel armor plate,
various synthetic fibers such as KevlarTM and
SpectraTM and
fiber-reinforced composites. Most blast containment systems employ
hardening.




Although
some energy is absorbed through deformation, hardening systems have the negative
effect of reflecting blast, which by the laws of physics actually magnifies
blast effect up to eight times. This is because the shock waves reflecting off a
solid surface add to the incident waves creating a destructive synergism of much
greater gas density, temperature, pressure, and overpressure duration— all
contributing to impulse (the “piston”). Reflected energy is a significant
problem, particularly in confined spaces. Hardening, which essentially is trying
to overmatch or resist a blast, has been widely practiced throughout the years
even though it is limited in its capabilities.




Mitigation
or attenuation of blast effects is the dissipation of blast energy so that
acoustic and shock waves, peak overpressure, reflected peak overpressure,
impulse and afterburn (the rapid burning of combustible materials in the “hot
zone”, including soot, occurring so fast that it adds to blast effect from the
original explosive) are reduced. This reduction is accomplished through both
physical and chemical processes that are triggered when a blast occurs. The
remaining energy is transmitted at a slower, more sustainable level. The amount
of reflected energy is significantly reduced with mitigation. Unlike hardening
systems, the performance of our products is not related directly to material
thickness and therefore we believe our products have a greater range of uses
producing the same or better effectiveness against blast effects.




2




BlastWrap®Background




BlastWrap® is a
concept for assemblies (not a chemical compound) from which blast protection
products are built to save lives and reduce damage to valuable assets from
explosions. BlastWrap® is
designed to not only substantially reduce blast impulse and pressure (including
reflected pressure and impulse), but quenches fireballs and suppresses
post-blast fires. Lethal fragments may be captured by adding anti-ballistic
armor layers on the product surface away from a blast.




Our
BlastGard®
technology is designed to mitigate blast and rapid combustion phenomena through
numerous mechanisms. The relative contribution of each mechanism depends upon
the intensity and nature of the impinging hazard. Shock wave attenuation, for
example, is dominant in mitigating mechanical explosions. Our products attempt
to emulate unconfined conditions and accelerate attenuating processes that occur
in free air. Thus BlastWrap® does
not try to resist blasts (which physically intensify blast phenomena); it
mitigates them. BlastWrap® can
be used as part of confining assemblies (containers and blast walls). In effect,
BlastWrap® is a
‘virtual vent’.




BlastWrap®Technology
Components




Our
BlastWrap®
products are made from two flexible films arranged one over the other and joined
by a plurality of seams filled with attenuating filler material (volcanic glass
bead or other suitable two-phase materials), configurable (designed for each
application) with an extinguishing coating. Together, this combination of
materials is designed to mitigate a blast while at the same time eliminate
fireballs or flame fronts produced by the blast.


We
believe that this system is unique because it:





1.  
Works 24 hours a day


2.  
Quenches fireballs and post blast fires


3.  
Reduces blast impulse and pressure


4.  
Does not dispense chemical extinguishants


5.  
Uses neither alarms, sensors, nor an activation system


6.  
Is nontoxic and ecologically friendly




Our
BlastGard®
Technology extracts heat, decelerates both blast wind and shock waves, and
quenches the hot gases in all blasts and fireballs. BlastWrap® does
not interact with the explosive elements, and is therefore not altered by them.
However, after a single intense detonation, BlastWrap® must
be replaced.




●
            For
      blasts that produce fireballs or intense hot gases at higher pressures,
      BlastGard®
      Technology has the ability, through testing, to cool the blast zone
      rapidly, thereby reducing structural
damage.




●
            In
      detonation of high explosives, where at least half of the energy released
      is in the shock wave, attenuation occurs even more rapidly, and in doing
      so substantially reduces explosion
phenomena.




Key BlastWrap®Features




●
            Lightweight,
      flexible, durable and environment
safe




●
            Requires
      no wires, electricity, detection devices and contains no
      sensors




●
            Customizable
      and easy to retrofit




●
            Materials
      are low in cost and are widely
available




●
            Extremely
      adaptable, without losing
effectiveness




●
            Compact
      structure




●
            Easily
      produced




●
            Can
      be constructed with additional environmental or specific blast conditions
      (e.g. weather or moisture barriers or dust free
  layers)




●
            Can
      be produced with armor (Kevlar, Spectra, etc) for ballistic or fragment
      situations




●
            Irreversibly
      dissipates energy from blast




●
            Eliminates
      need for dispensing of agents in blast mitigation
  process




●
            Neither
      contains nor creates hazardous
fragments




●
            Environmentally
      friendly, non-toxic core materials




3




Key BlastWrap®Benefits




BlastWrap® is
light in weight. It can be used to protect against outdoor explosions. Because
of the Montreal protocols banning production of Halon extinguishing agents,
BlastWrap®
technology offers a light weight and environmentally acceptable blast
suppression means available for most applications; and, it can even be adapted
to function underwater.




BlastWrap®
products are inherent sound absorbers and thermal insulators, and are typically
fire-tolerant. Any or all of these qualities are readily enhanced by bonding to
common materials, thereby further extending the wide range of applications which
BlastWrap® can
fulfill through a single product.




The
performance of BlastWrap®
proprietary technology is independent of scenario and environment, which means
that it does not matter where the physical location is, how the basic product
form is used or the environment in which the event takes place. The basic
product form can be used as a stand-alone material (as linings, curtain
barriers, or as structural material), or can be laminated or otherwise affixed
to a wide range of product forms such as insulation (thermal and acoustic),
ballistic armor such as KEVLARTM (a DuPont trademark), decorative stone, or
packaging materials. BlastWrap®
products can thus provide blast and fire protection in flooring, wall, and roof
constructions, in packaging, in storage cabinets and other containment
structures, and aboard all types of vehicles, ships, and aircraft.




Intellectual Property
Rights




Explosive
devices are increasingly being used in asymmetric warfare to cause destruction
to property and loss of life. These explosive devices sometimes can be
disrupted, but often there is insufficient warning of an attack. Our
BlastWrap®
products were created around this core concept. The BlastWrap®
patent application was filed with the U.S. Patent and Trademark Office on
July 31, 2003. The BlastWrap®
patent application was filed with Argentina on March 12, 2004; with Kuwait
on July 28, 2004, and with the European market, China, Japan, Singapore,
New Zealand, Indonesia, Korea, India, Australia, Israel, and Canada on February
27, 2004 and we also filed an application for this technology under the
Patent Cooperation Treaty on February 27, 2004. Under this treaty, we
expect to have patent protection in most industrialized countries when the
patent is issued in each individual country. A substantial number of countries
have been added to the list of the treaty members, including almost all of the
former Soviet republics and China; thus the new claims will be protected in more
than 40 countries. A second patent application for “Blast mitigating container
assemblies” was filed with the U.S. Patent and Trademark Office on
April 29, 2004 and a new U.S. Continuation-In-Part patent application for
“Blast mitigating container assemblies” on January 26, 2005. We also filed
an application for this “Blast mitigating container assemblies” technology under
the Patent Cooperation Treaty on January 26, 2006.




On
October 13, 2009, BlastGard was notified by its patent counsel that its patent
application for its BlastWrap material was granted from the Eurasian Patent
Office. The terms of this patent will expire on February 27, 2024. The patent
will be valid in all contracting states: Armenia (AM), Azerbaijan (AZ), Belarus
(BY), Kirgizstan (KG), Kazakstan (KZ), Moldova (MD), Russia (RU), Tajikistan
(TJ), and Turkmenistan (TM). In addition, we have been issued patents in
Argentina, granted on September 17, 2007, and in Singapore, granted on August
31, 2007 for our “improved acoustic/shock wave attenuating assembly” (i.e.
BlastWrap). On March 18, 2008, our patent-pending application (No. 11/042,318)
for our explosive effect mitigated containers (i.e. BlastGard MTR and MBR”) was
issued as U.S. Patent No. 7,343,843.





BlastWrap®Testing




BlastWrap®
prototypes have been evaluated in different test series, which have ranged from
semi-quantitative screenings to third-party instrumented trials. We have
consistently observed blast effect reductions of at least 50% in virtually every
activity in which BlastWrap® has
been involved. These tests have indicated that impulse (momentum transfer) and
peak pressure are reduced by nearly 50%. Impulse is the most destructive
explosive-related hazard for structures and vehicles. We have also conducted
further development design and testing of a series of products for blast
mitigation protection of rapid deployment barriers, walls, revetments and
bunkers (including overhead protection from inbound mortars) for the United
States military.




4




Significance of Test
Results




No
BlastWrap® tests
have been in small-scale. Every test series has involved standard products or
test facilities simulating service conditions—munitions containers, air cargo
containers, steel vessels comparable in size to commercial aircraft fuel tanks
and large secondary storage units, and vehicles, all with charge weights
reflecting actual hazards. Management believes that the test results provide
evidence that BlastWrap® can
protect vehicles, structures, and ships against very intense blasts. Tests have
also shown that certain design features (such as deflectors), combined with
additional BlastWrap®
material, can accomplish protection against larger blasts.




Government
Awards




As a
result of tests to date, our patent-pending blast-mitigating technology,
BlastWrap®, and
its BlastGard®
Mitigating Trash Receptacles were designated
as Qualified Anti-Terrorism Technologies and placed on the “Approved Products
List for Homeland Security.”We were issued the
“Designation” and “Certification” for our technology by the Department of
Homeland Security under the Support Anti-Terrorism by Fostering Effective
Technologies Act of 2002 (the SAFETY ACT) in July of 2006.




The SAFETY ACT “Designation”
and “Certification” are
intended to support effective technologies aimed at preventing, detecting,
identifying, or deterring acts of terrorism, or limiting the harm that such acts
might otherwise cause. The criteria technologies must meet to be awarded
“Designation” and “Certification” status include: the availability of the
technology for immediate deployment in public and private settings; the
magnitude of risk exposure to the public if the technology is not deployed; the
evaluation of scientific studies being feasibly conducted to assess the
technology’s capability to substantially reduce risks of harm; and the
technology’s effectiveness in facilitating the defense against acts of
terrorism. BlastWrap is designed to mitigate the blast effects of an explosion
by rapidly extinguishing the fireball, eliminating burns and post-blast fires,
and reducing the subsequent overpressures by more than 50%, thus reducing damage
to people and property.




The SAFETY ACT legislation was
designed to encourage the development and rapid deployment of life-saving
antiterrorism technologies by providing manufacturers or sellers with limited
risk to legal liability. It was also designed to harness the nation’s scientific
and technological resources to provide federal, state, and local officials with
the technology and capabilities to protect the United States from terrorist
acts. One area of focus for the Department of Homeland Security is catastrophic
terrorist threats to the nation’s security that could result in large-scale loss
of life and major economic impact. The SAFETY ACT fosters research of
technologies to counter threats both by evolutionary improvements to current
capabilities and development of revolutionary, new capabilities.




GSA
Approved Product




General
Services Administration enters into contracts with commercial firms to provide
supplies and services at stated prices. This streamlined procurement vehicle is
available to federal agencies and other organizations to obtain engineering and
environmental services from pre-qualified vendors. GSA has completed federally
mandated contracting requirements—competition, pricing, small business and other
contracting evaluations—normally required prior to obtaining services. Some of
BlastGard’s finished products are in the GSA System.




Applications




Our
BlastGard®
Technology works indoors or out, vented or un-vented, wet or dry, clean or
dirty, damaged or intact, and against strong or weak blasts from solid
explosives or flammable fluids. It is a lightweight, space-efficient
custom-engineered technology that can be produced with additional layers for
insulation, fragment/ballistic protection, environmental protection or impact
and cushioning barriers. Significantly, no new or high-cost fabrication
technologies or materials are required to produce BlastWrap®. In
addition, because of the Montreal protocol’s ban of Halon extinguishing agents,
we believe that our BlastGard®
Technology is the only blast and fire suppression means available for most
applications, including adaptation for underwater use. It is an inherently
effective sound absorber and thermal insulator.




5




Because
BlastWrap® is
customizable and offers protection against explosions of all types, its
potential for application cuts across a wide range of industries and government
agencies. Some potential applications for BlastGard®
Technology include:





●
                Transport and storage units containing chemicals and other explosive
      compounds.


●
            External
      wall linings to protect buildings, such as Embassies and other high value
      locations, against vehicle bombs and placed
  explosives.




●
            Aboard
      naval vessels and merchant ships to minimize damage from breaching blasts
      emanating from mines, cruise missiles, and
  torpedoes.




●
            Fireball
      and explosion-suppressing fuel tank jackets for natural and compressed
      natural gas, propane, fuel cells, fuel tanks and other “green fuel”
      vehicle systems.




●
            Dividers
      to suppress fireballs and fuel mist explosions from accidents aboard both
      aircraft and ships, in process
      facilities, and on offshore
platforms.




●
            Separators
      and partitions in explosives manufacturing and handling facilities, such
      as a load/assembly/pack depots, fireworks plants, and propellant
      manufacturing sites.




●
            Pallets
      and buffers between stacks of palletized munitions and
      ordnance.




●
            Lining
      of portable and fixed magazines.




●
            Missile
      launch boxes for military vehicles and naval
  vessels.




●
            Cabinets
      and containers for handling fuses, small rockets, and explosive
      devices.




●
            Internal
      walls of commercial buildings that house, research or produce explosive
      materials. An example would be chemical or energy
    companies.




●
            Quick-erect
      blast protection barriers and
revetments.




●
            Blast
      protection shields, armors, and structures with “stealth” (low-observable)
      camouflage properties.




●
            Blast/fire
      protection linings for commercial and military aircraft and air cargo
      containers.




●
            Blast
      and ballistic-protected modular buildings (barracks, accommodations for
      offshore facilities, field stations, tactical shelters and command
      facilities, monitoring stations for law
  enforcement).




●
            Underwater
      blast isolation units for offshore facility abandonment’s, coastal
      construction, and naval vessels.




●
            Neutral
      buoyancy jackets for deep water drilling risers, and Sub Sea manifold
      protection.




●
            Composite
      blast/fire protection structures and materials (blast walls, blast
      mitigation billboards, relief vents, reinforcement of masonry buildings)
      for hydrocarbon, process, mining, missile launch, and manufacturing
      facilities, and for building
demolitions.




●
            Explosives
      storage and shipping containers, portable magazines, and explosive
      disposal kits.




●
            Mine
      blast protection kits for vehicles.




●
            Safety
      shields and specialty protection for entertainment industry location sets
      such as in Hollywood, California sound stages, vehicles, on-location
      structures.




●
            Personnel
      and vehicle protective armor.




●
            Mining
      of coal, mineral extraction and processing
  safety.




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




6




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.




7




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.




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.




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.




8




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:




●
            The
      core product, BlastWrap®;




●
            BlastGard®
      MTR (mitigated trash receptacle);




●
            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.




Manufacturing




We have
three distinct production types:




●
            Serial
      Production – items that can be produced in quantity in an efficient,
      high-speed assembly line fashion.




●
            Contract
      Manufacturing – items that require special design or custom features
      requiring separate and special manufacturing
  processes.




●
            OEM
      (Original Equipment Manufacturer) Production – items that are licensed to
      OEM manufacturers enabling greater control over design, quality and
      production requirements specific to their
  industry.




Serial
Production




Manufacturing
is sub-contracted to a BlastGard-licensed and qualified production facility,
ideally in close proximity to the customer. This method facilitates customer
interaction in design, quality and distribution to affect the greatest level of
satisfaction and usefulness of the BlastWrap®
product.




Contract
Manufacturing




Although
the Production/Engineering team in BlastGard’s Technology Center will design
these items, we will sub contract manufacturing and assembly. This will be at
our discretion to ensure quality and adherence to custom design
requirements.




Original Equipment
Manufacturer Production




Original
equipment manufacturer production requires licensing agreements with contractors
for a specific industry product. There will be several licensing agreements
issued on a limited and non-exclusive basis to provide end-users with an
appropriate number of well-located original equipment manufacturer producers.
Once qualified and licensed by BlastGard®,
original equipment manufacturer producers will be directed to produce and
maintain quality standards per end user requirements. BlastWrap® products to be
manufactured with original equipment manufacturer production will likely
include:




9




Lining – Aircraft(B747- 400-
Royalty)- Once design and testing has been completed by our engineering and
design team, we will work closely with the certified and widely dispersed air
frame sub-contractors to integrate the use of BlastWrap® into
their internal systems, such as fuel tanks, cargo holds, cabin and fuselage.
Aircraft manufactures, similar to auto manufactures, typically require several
suppliers of each part. Therefore the license agreement for air frame
sub-contractors will need to be limited and non-exclusive providing us royalties
on a per-unit basis as well as continued design, manufacturing, and installation
consulting.




Insensitive Munitions (IM) Weapons
Containers – Once the design and testing of each product is complete, we
will license and train personnel on the fabrication of the various products
within the line. The Contractor chosen will manufacture this product line
in-house for each specific munition /weapon system. The contractor is expected
to pay a per unit royalty to us for use of the design and of the patented
product. In return, we will be retained on a consulting and design basis as part
of the license agreement.




Current manufacturing
arrangements for finished products




Currently,
we have several products that we consider to be completed and finished products.
Manufacturing arrangements for those products follow:




·
            Pro-Form
      Packaging, Inc., located in Dunellen, New Jersey manufactures
      BlastWrap®
      and the MTR and MBR lids and ships to Centerpoint Manufacturing for
      installation.




·
            Centerpoint
      Manufacturing, Inc., located in Robertsdale, Alabama manufactures the
      BlastGard®
      MTR receptacles and will manufacture the BlastGard Mitigated Bomb
      Receptacles (MBR 300) as well. We entered into a five year exclusive
      alliance agreement with Centerpoint Manufacturing in October 2004 for the
      joint development of reinforced, blast mitigated trash receptacles. We are
      not contractually bound to use Pro-Form Packaging to manufacture the
      receptacle lids, and we believe that there are alternative manufacturers
      in the United States.




·
            Geo
      Products, LLC has a license for the manufacture of the patented (by the US
      Army Corps of engineers) HDPE cellular core sections in their plant in
      Houston, TX, which are used in the BlastGard Barrier system
      (“BBS”).  We are not contractually bound to use this product,
      and there are at least four different core systems we can use for
      BBS.  However, BlastGard has an exclusive worldwide license for
      this core product which is used for any blast-mitigated system with
      BlastWrap®.




Quality
Assurance




Sub-contractors
and OEM producers have been and will continue to be trained, qualified and
monitored to obtain and sustain a license from BlastGard®. We
will ensure through continuous review of qualified producers and
sub-contractors, and through end user/customer surveys, that design and quality
standards are being maintained to specification. Licensing agreements will
stipulate that we will have the right to withhold future contracts until
mutually agreed upon standards of quality are achieved. End-users and customers
will be partnered in agreeing to and setting quality standards for end
products.




Purchasing




We rely
on various suppliers to furnish the raw materials and components used in the
manufacturing of our products. Management believes that there are numerous
alternative suppliers for all of the key raw material and virtually all
component needs.




10




Marketing
Analysis




Overall
Market




The
market for blast solutions includes commercial industries (accidental explosions
of chemicals, terrorist threats, demilitarization), militaries (weapons storage
and transport, barriers, revetments and bunkers and vehicle protection), and
governments and municipalities (bomb explosions and threats). We have examined
each of these markets to identify areas and industries within each that will
benefit most from BlastGard®
Technology.




We have
divided the commercial market into nine viable sectors as follows:




1.  
Energetic Materials (blasting agents, propellants, explosives)/Explosive
Manufacturers/ Pyrotechnic Manufacturers




“Energetic
materials” is a term used to encompass a wide range of materials that release
intense heat during decomposition or combustion reactions.




Manufacturers
of such devices are in need of protection against hazardous explosive situations
in the manufacture, transport and storage of these materials.




While
energetic manufacturers are a focus for BlastGard®
technology, the related industries are also target markets. For all groups, both
regulatory and insurance factors require strict storage and handling measures
that involve confinement or separation, BlastWrap®
products being specifically conceived for such roles. The propellant,
pyrotechnic, and explosive manufacturing groups are viewed as prime markets for
BlastWrap®.




2.  
Oil and Gas/Petrol Chemical/Chemical/Process Industries





To combat
the unique explosions associated with oil, gas and chemical companies,
BlastWrap® can
be updated and deployed to clients in these sectors to address the problems
involving explosive materials specific to the oil and gas industry with a
convenient structural and/or architectural technology that would suppress
explosions and minimize post-blast fire hazards with the following
features:





●
            Are
      always active and require no
maintenance;




●
            Comprised
      of flexible film formed by plurality of seams and filled with attenuating
      fillers that slow and cool impinging flame
  fronts;




●
            Act
      as ‘virtual blast vents’ without requiring actual wall penetration;
      and




●
            Light
      structure at less than .4 pounds per square foot of a 1”
      thickness.




3.  Manufacturing of
Munitions




The full
range of our products, from wall protection, barriers, and partitions to
containers, can be used to enhance the safety and productivity of facilities
that manufacture explosives, propellants, munitions and pyrotechnics. A number
of specialty units are being designed to meet the needs of this market segment,
such as the weapons container. Additionally, BlastWrap® is
easily retrofitted into existing containers and storage magazines.




4.  Commercial
Transport




Throughout
the world, commercial companies ship explosive materials via air, train, bus or
sea vessel. As determined by the National Highway Transportation Safety
Administration, roughly 10% of goods shipped (in terms of tonnage) are
classified as hazardous, meaning they can cause damage to other materials being
transported, the transport container and supporting personnel. Such shipped
products not only require insurance but also risk loss of money and
injury.




We
believe that BlastWrap®
offers the ability to convert these standardized shipping containers into
explosives storage units complying with the technical requirements of the US
Bureau of Alcohol, Tobacco, & Firearms Type 2 magazines. This would be
accomplished through universally available containers for which numerous
trailers, lift systems, stacking provisions, and international standards
exist.




While
actively searching for and detecting explosives is a right step in the
protection of our ports, it is clear that it cannot be the only step.
BlastWrap®
provides a solution that is not dependent on identifying the threat ahead of
time, and therefore we believe a significant opportunity is
present.




11





5.  Commercial
Aviation




Testing
in the United Kingdom by an agency of the Ministry of Defence under the auspices
of the UK Civil Aviation Authority proved that our technology performs better
than any other system tested in blast effect mitigation. BlastWrap® deals
with all of the blast effects – the incident and reflected shocks, the Mach Stem
shocks, the blast impulse, the blast flame front and blast after-burn. In spite
of the many dollars expended in this area, political, governmental and
scientific differences of opinion between United Kingdom and United States
authorities on the best way to address these threats have simply stymied any
meaningful solution being implemented for twin-aisle aircraft luggage
containers.




BlastWrap® is
not armor; however, properly configured, it does prevent fuselage shock holing,
the critical factor in an aircraft’s structural survival. In addition,
BlastWrap®
quenches thermal output very rapidly thereby addressing the other critical
aircraft survival factor. Rapid cooling is critical, as any spilled flammable
fluids or materials as well as escaping gas will re-ignite if heat is present.
Our new container design addresses both of these critical factors. In addition,
it is a much lower capital cost than the “hardened containers” on the market.
Finally, our design has a very small weight penalty, drastically lower overall
weight gain (compared to the “hardened containers”) from standard LD3 containers
thereby reducing the fuel and/or cargo penalty. The operating cost impact will
be extremely low with our LD3.




There are
numerous other applications within the commercial aviation market for our
BlastGard®
Technology, from lining the interior of an aircraft to providing an on-board
‘detonation center’ (e.g. outfitting a bathroom with BlastWrap® in
the event a bomb, such as a shoe bomb, were to make its way onto a plane). While
we will continue to pursue these various applications of the technology, we
believe the best and most direct approach for sales within this market will be
to market our new LD3 cargo containers lined with BlastWrap®.




There are
an estimated 600,000 containers in service in the fleet today. There are
approximately 40,000 units sold each year and each unit has an average useful
life of 5 years. The total number of units in service will likely continue to
rise over the next 10 years.




Working
with the world’s largest LD3 container manufacturer, Nordisk Aviation Products,
Inc. we have developed a low-cost highly effective solution for a new class of
“semi-hardened” blast mitigation LD3 containers. Blast mitigating LD3 containers
do not yet exist. Over the last 10 years, the FAA, Galaxy and TelAir, have built
and tested “hardened LD3 containers” (containers that fully contain the blast
inside the container walls). However, these products are simply not commercially
viable due to the extremely high capital and operating costs associated with the
materials utilized and the significant excess weight.




Our new
design differs from the hardened containers in the following ways:




●
            Like
      hardened LD3’s, they prevent shock holing of the aircraft
      fuselage




●
            They
      quench/kill afterburn and subsequent post-blast
  fires




●
            They
      are light-weight, weighing about 225
pounds




●
            They
      are affordable, with an expected retail price under
  $5,000





6.  Research
Facilities/Laboratories




Universities
and research facilities work with explosive elements on a daily basis, from
conducting tests to exploring new materials and compounds. Such installations
are in need of mitigation protection in storage and to prevent sympathetic
detonation or damage to property or persons. These products can reduce potential
damage for personnel and property during the use and storage of the explosive
elements.




While an
interesting and possibly large market, due to the specific requirements and
needs of each facility/laboratory, we believe sales opportunities the next two
years are limited, as sales personnel and resources must be dedicated to this
market space.




12




7.  Entertainment




We
believe that BlastWrap®
offers a unique ability to protect actors, stunt people, sets, and valuable
equipment against blast effects. One specialty firm that creates explosions and
fireballs for movies informed BlastGard® that
roughly one stunt person is hurt each day in incidents involving explosives and
pyrotechnics. The former California State Fire Marshal informed BlastGard®
management that studios wished to conduct larger explosions on sound stages near
Hollywood to keep production costs down, but are not able to do so because of
severe constraints on charge sizes. With competition to create ever-greater
blast effects in movie and television spectaculars, we believe that
BlastGard® can
capitalize on this opportunity by allowing industry players the ability to
safely perform such events on Hollywood, California back-lots.




BlastGard®
Technology can be used to create an assortment of props and structures, either
as integral walls or worked into the landscape or sound stage. Most Hollywood
explosions use black powder and gasoline in various combinations, with some
additives or special-purpose materials such as detonating cord. The low
explosive power of these materials would make BlastWrap®’s
protection role, including protection of cameras, relatively simple.
BlastGard® can
also provide blast protection of vehicles. Vehicle flipping or vehicle
destruction is fairly commonplace in films, and the charges used in connection
with these stunts are comparatively small. BlastWrap® can
protect stunt personnel and can be concealed or disguised, thereby enabling
dramatic destruction sequences without injuring the performers.




As
attractive as this market may be, it is not part of our initial marketing
strategy. Total sales, in terms of quantity, are not likely large; however, we
will respond to inquiries from the entertainment industry, and are aware of the
promotional value for BlastWrap®
products that are used in connection with “blockbuster” movies.




8.  Mining




Mining is
a potentially significant market for our products. In this industry, large
quantities of detonators and explosives are used every day. All of these require
suitable storage and transport. High explosives are used in some fields,
especially in metallurgical ores, which have harder formations.




The
greater mining industry opportunity is in the mines themselves, where
BlastWrap® can
be used as it would be in the oil industry: stopping and suppressing dust and
gas explosions before significant injury and damage can develop. For example,
methane gas is a very real and challenging hazard in coalmines. The cutting
machinery and electrical power components can easily ignite flammable dusts and
dust/gas mixtures, leading to disasters.




Mining
will not be an initial target market for us. Profit margins are estimated to be
low when compared to the potential of numerous other industries.




Military
Market




It is
understood in the defense industry that keeping up with cutting edge technology
is crucial for the protection of military personnel. We are actively seeking the
opportunity to showcase BlastWrap® to
the military high command.




BlastWrap® does
not distinguish between accidents and hostile action; it always functions when
there is blast pressure and when a fireball is generated.




We
believe that using BlastWrap® in
buildings, onboard ships, or in vehicles, barrier walls, revetments, barracks,
bunkers and command posts can efficiently achieve effective blast mitigation at
a low cost. In addition, BlastWrap® can
be used in a variety of ways within each of these categories. From lining
compartments in research and testing facilities to encasing engines to
insulating launch installations, we believe that BlastWrap® will
provide protection across a variety of platforms.




Other
BlastWrap® uses
would include munitions manufacturing, handling, (load/assembly/pack facilities)
and storage (a very broad range from large depots to small magazines),
explosives/munitions transport (again a wide array of small caliber ammunition
to large rockets and missiles), military structures (wide range), military
vehicles ((improvised explosive devices) and land mine protection),
shields/revetments and broad demilitarization efforts. Although this market is
huge, it is difficult to assess since typical military mind-set has been to
accept the dangers of Q-D (quantity/distance offsets) in transport and use, and
even in storage when in any conflict.




13




We have
divided the Military Market into the following sectors:




1.  Military
Logistics




In times
of both war and peace, military institutions require a substantial sealift
capability to transport potentially explosive and hazardous
materials.




As an
example of the amount of munitions carried on a single ship, the average US-flag
ship carried an average 23,390 tons of dry cargo per ship in the Gulf War—the
equivalent of 1,772 containers using the above 13.2 tons/container number. Thus,
the loss of any of the sealift ships mentioned above would result in the loss of
a month’s worth (or more) of munitions for the group conducting the shipping.
BlastGard®
Technology can be used to protect these sealifts from sympathetic detonation
within, offensive attacks from the enemy or friendly fire mistakes.




2.  Defense/Storage
of On-Base Munitions




The US
Department of Defense components are all major prospective markets for
BlastWrap®.
Additionally, demilitarization (“demil”—the destruction of excess or spent
munitions) is a major activity at numerous bases, munitions facilities, and test
ranges. Most important to our marketing plan is to take advantage of the
numerous, substantial opportunities created by base closures and “dense-packing”
of munitions, people, and high-value assets.




Our
products make munitions storage a large potential market because munitions
stored within BlastWrap®-lined
spaces would be shifted from the type 1.1 (mass-detonating) category, which
triggers the requirement for maximum separation, to the type 1.2
(non-mass-detonating) or 1.4 (insensitive) categories. The 1.2 and 1.3
categories require much less stringent storage requirements.




3.  Military
Vehicles




Our
products offer a means of protecting vehicles against ground mine blasts,
regardless of vehicle type or size, from small mini-pickups to heavy
tractor-trailer combinations, both armored and “soft-skinned”.




Since
World War 2, the majority of vehicle losses have been due to ground mines. Since
the Arab-Israeli War of 1973, more than 90% of vehicles lost have been due to
mines, however, in the War on Terror, we have seen in recent years a significant
increase in vehicle loss due to improvised explosive devices.




The trend
in all modern armies is toward smaller and lighter vehicles, with thinner armor
or none at all. This trend reflects the worldwide conflict situation, where
hostilities involve guerilla or other dismounted forces widely scattered in
friendly terrain (the 1990-1 Persian Gulf campaign was the last major clash of
heavy armored forces). These smaller vehicles, such as the HMMWV “Humvee”, are
almost always destroyed by modern mines. Truck cabs of all sizes are also
destroyed by almost every type of anti-vehicle mine, not just damaged. Since
these vehicles are predominant in “peace-keeping” forces and rapid deployment
groups, the fatality and major injury percentage is very high compared with
tanks.




We
believe that BlastWrap® in a
simple casing offers the capability of mitigating all seven mechanisms for
achieving a vehicle “kill”. These mechanisms include total vehicle destruction
(major disintegration, internal explosion, fire), incapacitating the crew
(“g”-force accelerations that cause serious injury), loss of mobility
(destroying wheels, tracks, and/or drive train), loss of vehicle control
(steering damage or severe vehicle deformation), and immobilizing through fuel
loss (fuel tank or fuel line rupture). There are numerous locations for
BlastWrap®
products that would provide the necessary protection, including exterior
attachments, substitutions for existing vehicle “skins”, and behind-armor
BlastWrap®
material to mitigate internal blast effect and suppress internal fires. Our
efforts with Colt Rapid Mat LLC are specifically focused on this application,
especially for the United States Marine Corps.




14




4.  Defense/Combat
Systems




An
additional area of focus for us is in the Defense market is major US Department
of Defense system developments and upgrades. This includes the Air force’s
production of combat aircraft, the Navy’s combat fleet and the Army’s “Future
Combat Systems” family of C-130 air-transportable vehicles. While the US
Department of Defense presents a viable market for the use of blast mitigation
products that offer substantial system survivability, reduced weight, and other
advantages, the organization’s purchase cycles are too uncertain and invariably
prolonged, and the cost of participation for a contractor is very
high.




We are
quite interested in participating in aircraft and vehicle programs when its
efforts and materials are paid as a subcontractor, and/or when there is tangible
marketing value that can be clearly defined if we are involved in such programs.
One such area is in retrofits and replacement programs for the Army’s medium and
heavy truck fleets (dominated by Oshkosh and Stewart &
Stevenson).




We have
limited influence within this market.




5.  Naval
Vessels




Newer
warships primarily use gas turbine engines, which use the same fuel as jet
aircraft. These engines are confined in a noise/heat reducing enclosure. Most of
the remaining types use diesel engines, as do most military vehicles and
trucks.




Diesel or
kerosene-type fuels’ vapors can generate explosive pressure in confined spaces.
This is less of a problem in ground combat vehicles (where pool fires are more
of a threat), but is a serious problem aboard a ship. Both accidents and hostile
action can generate a fuel mist in a confined space, which can then ignite the
flammable mix. The most likely severe hazard scenario is a fireball involving a
fuel mist.




BlastWrap® in
locations distributed around a shipboard or a vehicle engine compartment can
suppress fireballs and minimize heating of metal surfaces by a flash fire. Using
BlastWrap® can
manage fireballs and flash fires created in fuel mists that could rapidly
incapacitate personnel in the compartment. If the compartment is open to outside
air (through a hull rupture, missile entrance, or to another compartment), any
Halon fire systems, if used, will rapidly escape and the compartment fire will
rapidly become uncontrollable.




While
BlastWrap® can
be effectively applied on board and throughout naval ships, this target market
will not be pursued during our initial marketing efforts.




Government/Municipal
Market




We have
divided the Government/Municipal Market into the following sectors:




1.  Government
Buildings/Structures (Embassies)




The
explosion, that ripped through the Alfred P. Murrah Federal Building in Oklahoma
City on April 19, 1995 killed 168 people, injured more than 500 others and
damaged more than 300 buildings. While the probability of becoming the victim of
a terrorist attack has changed recently, it still remains low, but the cost of
such an attack continues to skyrocket. According to The Sentinel (Vol. 1,
No. 3, Third Quarter 1993), a publication of the Industrial Risk Insurers,
explosion has the highest average dollar loss of all hazardous events.
Therefore, another cost factor entering today’s construction and building
operation economy is blast mitigation costs. Since September 11, 2001,
insurance costs have risen dramatically as the threat of terrorism becomes a
reality. We believe that BlastWrap® may
help companies reduce these costs and related liabilities from unexpected
explosions.




2.  Research
Facilities and Laboratories





Research
facilities deal with a large amount of explosive and hazardous materials. Both
universities and government facilities work with explosive elements on a daily
basis, from conducting tests to exploring new materials and compounds. Such
installations are in need of mitigation protection in storage and to prevent
sympathetic detonation or damage to property or persons. BlastWrap® is
ideally suited for these environments. These products can reduce potential
damage for personnel and property during the use and storage of the explosive
elements.




15




Competition





The
market for blast containment and mitigation is not well defined. Competitors
range from niche architectural and engineering firms that provide specialized
design and construction techniques for buildings to fire systems manufacturers.
We have identified the top nine established companies that offer blast
mitigation solutions, each of which may be a potential competitor in one or more
of the various markets that we are pursuing. Each of these companies has been in
business longer, and has substantially greater resources than BlastGard®:




•
            AISIS
      Ltd.


•
            CINTEC


•
            Corus
      Group PLC


•
            Firexx
      Corporation


•
            General
      Plastics Manufacturing


•
            Line-X


•
            Mistral
      Security, Inc.


•
            Suppress
      X-S, LLC


•
            Terre-Armee
      Israel Co.





Governmental
Regulation




We are
not aware of any existing or probable governmental regulations that would affect
our business, except to the extent that we voluntarily design products to meet
various governmental guidelines. For example, our products can be designed to
conform to the United States Bureau of Alcohol, Tobacco and Firearm’s
requirements for the containment of explosive materials.





Research
and Development









Employees





As of
March 31, 2010, we had two officers who are full-time employees. Additional
sales and marketing personnel may be hired in the future as our sales efforts
require such additional personnel.





SEC Reports Available on
Website





The SEC
maintains an Internet site (http://www.sec.gov)
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.  Our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K and other SEC filings are available on the SEC’s website as well as our
company website at www.blastgardintl.com.




16





ITEM
1.A  RISKFACTORS


An
investment in our common stock involves major risks. Before you invest in our
common stock, you should be aware that there are various risks, including those
described below.  You should carefully consider these risk factors
together with all of the other information included in this Form 10-K before you
decide to purchase shares of our common stock.





Purchase of our stock is a highly
speculative and you could lose your entire investment.  We have
been operating at a loss since inception, and you cannot assume that our plans
and business prospects described herein will either materialize or prove
successful.  Accordingly, you may lose all or a substantial part of
your investment.  The purchase of our stock must be considered a
highly speculative investment.























If we are unable to compete
effectively with our competitors, we will not be successful generating revenues
or attaining profits.The blast mitigation industry is highly
competitive. Our ability to generate revenues and profitability is directly
related to our ability to compete with our competitors. Currently, we believe
that we have a competitive advantage because of our unique technology, our
product performance, product mix and price. Our beliefs are based only on our
research and development testing and we currently have only four completed and
finished products. We face competition in our markets from competing
technologies and direct competition from additional companies that may enter
this market with greater financial resources than we have.  If we are
unable to compete effectively, we will not be successful in generating revenues
or attaining profits.




17





We have not yet hired sales and
marketing personnel, which may hinder our ability to generate revenues.
Our primary sales focus is to distribute our products through strategic
partners, direct sales and through information and education by our executive
officers. Through our executive officers, we have entered into agreements with
several strategic partners and our officers have been working with them to
attempt to generate significant sales, although we can provide no assurances
that these efforts will be successful. In the future, we may develop our own
sales and marketing department in the event that management believes that such
efforts would be meaningful and within our budget requirements. The failure to
form a sales and marketing department and hire qualified sales personnel may
adversely affect our sales efforts and could cause us not to meet operating
projections.




Loss of key personnel could cause a
major disruption in our day-to-day operations and we could lose our
relationships with third-parties with whom we do business.Our
future success depends in a significant part upon the continued service of our
executive officers as key management personnel.  Competition for such
personnel may be intense, and to be successful we must retain our key managerial
personnel.  The loss of key personnel or the inability to hire or
retain qualified replacement personnel could have cause a major disruption in
our day-to-day operations and we could lose our relationships with third-parties
with whom we do business, which could adversely affect our financial condition
and results of operations.




If future market acceptance of our
products is poor, we will not be able to generate adequate sales to achieve
profitable operations.  Our future is dependent upon the
success of the current and future generations of one or more of the products we
sell or propose to sell.  Since inception, we have had limited sales
of any of our products.  If future market acceptance of our products
is poor, we will not be able to generate adequate sales to achieve profitable
operations.




Dependence on outside manufacturers
and suppliers could disrupt our business if they fail to meet our
expectations.  Currently, we rely on outside manufacturers and
suppliers for our finished products and intend to rely on outside supplies for
our other intended products.  We have entered into preliminary
agreements with several outside suppliers and with a contract manufacturer for
the manufacture of our products. In the event that any of our suppliers or
manufacturers should become too expensive or suffer from quality control
problems or financial difficulties, we would have to find alternative
sources.




Our products may be subject to
technological obsolescence, which would adversely affect our business by
increasing our research and development costs and reducing our ability to
generate sales.  Considerable
research is underway into blast mitigation. Discovery of another new technology
could replace or result in lower than anticipated demand for our products and
could materially adversely affect our operations.




We may not be able to successfully
use or defend our intellectual property rights, which would prevent us from
developing an advantage over our competitors.  We rely on a
combination of patent applications, trademarks, copyright and trade secret laws,
and confidentiality procedures to protect our intellectual property rights,
which we believe will give us a competitive advantage over our competitors.
However, we have not been granted any patents and we may never be granted any
patents if our applications are denied.  Even if a patent is issued,
use of our technology may infringe upon patents issued to third-parties, which
would subject us to the cost of defending the patent and possibly requiring us
to stop using the technology or to license it from a third party.  If
a third party infringes on a patent issued to us, we will bear the cost of
enforcing the patent. If we are not able to successfully use or defend our
intellectual property rights, we may not be able to develop an advantage over
our competitors.





18


We do not expect to be able to pay
cash dividends in the foreseeable future, so you should not make an investment
in our stock if you require dividend income.The payment of cash
dividends, if any, in the future rests within the discretion of its Board of
Directors and will depend, among other things, upon our earnings, our capital
requirements and our financial condition, as well as other relevant factors. We
have not paid or declared any cash dividends upon our Common Stock since our
inception and by reason of our present financial status and our contemplated
future financial requirements does not contemplate or anticipate making any cash
distributions upon our Common Stock in the foreseeable future.




We have a limited market for our
common stock which causes the market price to be volatile and to usually decline
when there is more selling than buying on any given day.  Our
common stock currently trades on the over the counter bulletin board under the
symbol “BLGA.”  However, at most times in the past, our common stock
has been thinly traded and as a result the market price usually declines when
there is more selling than buying on any given day. As a result, the market
price has been volatile, and the market price may decline immediately if you
decide to place an order to sell your shares.




The market price of our common stock
is highly volatile and several factors that are beyond our control, including
our common stock being historically thinly traded, could adversely affect its
market price.  Our common stock has been historically thinly
traded and the market price has been highly volatile.  For these and
other reasons, our stock price is subject to significant volatility and will
likely be adversely affected if our revenues or earnings in any quarter fail to
meet the investment community’s expectations. Additionally, the market price of
our common stock could be subject to significant fluctuations in response
to:





●
            announcements of new products or sales offered by BlastGard® or its
      competitors;


●
            actual or anticipated variations in quarterly operating
    results;


●
            changes in financial estimates by securities
  analysts;


●
            changes in the market’s perception of us or the nature of our
      business; and


●
            sales of our common stock.










“Penny Stock” regulations may
adversely affect your ability to resell your stock in market
transactions. The SEC has adopted penny stock regulations which apply to
securities traded over-the-counter.  These regulations generally
define penny stock to be any equity security that has a market price of less
than $5.00 per share or an equity security of an issuer with net tangible assets
of less than $5,000,000 as indicated in audited financial statements, if the
corporation has been in continuous operations for less than three years. Subject to certain
limited exceptions, the rules for any transaction involving a penny stock
require the delivery, prior to the transaction, of a risk disclosure document
prepared by the SEC that contains certain information describing the nature and
level of risk associated with investments in the penny stock
market.  The broker-dealer also must disclose the commissions payable
to both the broker-dealer and the registered representative and current
quotations for the securities.  Monthly account statements must be
sent by the broker-dealer disclosing the estimated market value of each penny
stock held in the account or indicating that the estimated market value cannot
be determined because of the unavailability of firm quotes. In addition, the
rules impose additional sales practice requirements on broker-dealers who sell
such securities to persons other than established customers and institutional
accredited investors (generally institutions with assets in excess of
$5,000,000).  These practices require that, prior to the purchase, the
broker-dealer determined that transactions in penny stocks were suitable for the
purchaser and obtained the purchaser’s written consent to the
transaction.




19





Our
common stock is currently subject to the penny stock
regulations.  Compliance with the penny stock regulations by
broker-dealers will likely result in price fluctuations and the lack of a liquid
market for the common stock, and may make it difficult for you to resell your
stock in market transactions.


Lack of Product Liability
Insurance.


Due to lack
of financing, the Company's product liability insurance has lapsed. In the event
additional financing is received by the Company, of which there can be no
assurances given in this regard, Management intends to use its best efforts to
obtain product liability insurance coverage. We can provide no assurances that
the current lack of private liability insurance will not adversely affect the
Company in the event claims are made in connection with prior product sales or
that the Company will successfully obtain new product liability insurance
coverage in the future.


ITEM
1.B.UNRESOLVED
STAFF COMMENTS


Not applicable .





ITEM
2.DESCRIPTION OF
PROPERTY


We do not own any real estate
properties. Effective July 1, 2007, we entered into a one-year lease for
approximately 150 square feet of office space for our headquarters located in
Clearwater, Florida. We were paying $600 per month over a term of one year under
the lease. The Company entered into a new lease agreement in January 1, 2009 for
similar office space in Clearwater Florida.  Rental payments under the
new lease are $300 per month on a month to month basis.  The Company
also had sales office space in Orangeville, Ontario and paid $1,200 per month on
a month to month agreement.  The lease of office space in Ontario
ended on November 30, 2008. Rent expense for 2009 and 2008 was approximately
$3,700 and $20,400 respectively.





ITEM
3.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. Since
entering into the Settlement Agreement in April 2009, the Company has paid Verde
a total of $31,250 and is in arrears for $44,212.04 as of March 31,
2010.


ITEM 4.  RESERVED




20





PART II





5.   Market for Common Stock and
Related Shareholder Matters





There is
a limited public market for our Common Stock. Our common stock has been quoted
on the OTC Bulletin Board under the symbol “BLGA” since March 29, 2004 (on
some internet-based services such as http://finance.yahoo.com, stock quotes can
be accessed using the symbol BLGA.OB).The following table sets forth the range
of high and low sales prices for our Common Stock for each quarterly period
indicated, in the last two fiscal years.




Quarter
      Ended
            
            High Sales
            
            
            Low SalesMarch
      31, 2008
            
            $
            0.18
            
            
            $
            0.10June
      30, 2008
            
            $
            0.16
            
            
            $
            0.05September
      30, 2008
            
            $
            0.13
            
            
            $
            0.07December
      31, 2008
            
            $
            0.10
            
            
            $
            0.02March
      31, 2009
            
            $
            0.07
            
            
            $
            0.01June
      30, 2009
            
            $
            0.06
            
            
            $
            0.02September
      30, 2009
            
            $
            0.07
            
            
            $
            0.01December
      31, 2009
            
            $
            0.04
            
            
            $
            0.01





The
source of this information is the OTC Bulletin Board and other quotation
services. The quotations reflect inter-dealer prices, without retail markup,
markdown or commission.





Holders










Dividends





To date,
we have not paid any dividends on its common stock and do not expect to declare
or pay any dividends on such common stock in the foreseeable future. Payment of
any dividends will be dependent upon future earnings, if any, our financial
condition, and other factors as deemed relevant by our Board of
Directors.





Repurchases of equity
securities





During
the past three years, we did not repurchase any of our outstanding equity
securities.





21







From
January 1 2009 to December 31, 2009, we had no sales or issuances of
unregistered common stock, 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 2009
              
              Class G Common Stock Purchase Warrants
              
              1,800,000
              
              Debt extension; no commissions paid
              
              Section 4(2)
              
              Warrants expire June 22, 2011 and are exercisable at $.03
      per shareMarch 2009
              
              Class G Common Stock Purchase Warrants
              
              11,000,334
              
              Warrant exchange
              
              Section3(a)(9); Exchange of securities of the same issuer without any
      commissions being paid.
              
              Warrants expire June 22, 2011 and are exercisable at $.03 per
      shareJan. – Sept.
                2009
              
              Common
                Stock
              
              1,225,000
              
              Services rendered; no
                commissions
                paid
              
              Section 4(2)
              
              Not applicableApril 2009
              
              Common Stock
              
              3,000,000
              
              $90,000 (cash
                and services; no
                commissions paid
              
              Rule 506, Section 4(2)
              
              Not applicableMay 2009
              
              Common Stock
              
              3,116,164
              
              Debt conversions; no
                Commissions
                paid
              
              Section 3(a)(9)
                Exchange of securities
                Of same issuer without
                Any commissions being paid.
              
              Debt conversion
                At $.03 per share


ITEM
6.  SELECTED FINANCIAL DATA


Not applicable.





ITEM
7.MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION


Statements
contained herein that are not historical facts are forward-looking statements.
Although we believe 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. We caution investors that any forward-looking statements made by us
are not guarantees of future performance and 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.




22




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





Introduction





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 shareholders 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.




We intend
to focus exclusively on the business plan of BlastGard Technologies. BlastGard
Technologies was formed on September 26, 2003, and is 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 Chief Operating
Officer, and President, and James F. Gordon, our Chief Executive Officer, 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





Year  Ended
December 31, 2009 vs. 2008















23




BlastGard’s
products are currently being tested (or have recently 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




Marketing
Strategy




We
believe that our BlastGard®
Technology can provide blast mitigation solutions for numerous industries across
various market segments. However, we recognize that some industries will have
significant barriers to entry and/or long lead times or conversely, provide an
immediate revenue source. Having limited resources, we have researched each
target market, ranked each market and divided the markets into two groups;
markets that will require a strategic partnership to penetrate and markets we
will sell directly to. We have developed a two-pronged approach to market our
BlastGard®
Technology.




The
two-pronged approach will maximize market penetration while minimizing cost. Our
approach is to:




●
            Develop
      Strategic Partners
      in existing well-defined markets.




●
            Initiate
      a Direct SalesApproach. We are focused on the top four markets, which we
      currently consider to be (1) military, (2) aviation industry,
      (3) oil and gas industry and (4) homeland defense. In addition,
      we are retaining commercial representatives who will be licensed to sell
      BlastGard®
      Technology to specific markets.





Business Prospects/Recent
Developments





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.




24




On
September 22, 2008 BlastGard 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. BlastGard and U.S. Explosive are joining forces to create
storage and transportation boxes that will prevent sympathetic detonation
through BlastWrap’s unique proprietary technology. Initial testing was completed
the week of March 23, 2009. The US ARMY Department of Defense Explosive Safety
Board (“DDESB”) sponsored 2 of our tests for the purpose of getting DDESB
certification. DDESB wants ISO certified blast mitigated containers for major
storage and special ISO containers to store grenades, etc. 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.




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,
2010.  We anticipate additional sales in 2010.




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.




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.





Liquidity
and Capital Resources.









At
December 31, 2008, we had cash of $1,477, accounts receivable of $267,964,
a retained deficit of $12,506,498 and shareholder equity of $(506,980). During
2008, net cash was used in operating activities of $1,060,483. This resulted
primarily from our net loss of $1,493,945, partially reduced by a stock based
compensation non-cash charge of $114,000 and depreciation and amortization of
debt discounts of $297,734. During 2008, net cash was used in investing
activities of $77,546, primarily payments for deferred costs.




At
December 31, 2008, we had cash of $1,477. At that date, we owed
approximately $372,000 pursuant to our December 2004 Debt (described
herein). As of March 15, 2009, we had cash of approximately $3,594. As
described under “Recent Developments” in this Item 7, we recently issued
Class G Warrants to purchase 1,800,000 shares of the Company to the
December 2, 2004 Note Holders in exchange for an extension of the due date
of the Notes through November 30, 2009, and that all of these Warrants and
one-half of the principal amount of the Notes were then sold to third
parties.




25














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. 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 to our knowledge
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 (exclusive of interest after June 22, 2008) on our
consolidated balance sheet in order to reflect the worst case
scenario.




To date,
we have relied on management’s ability to raise capital through equity private
placement financings to fund our operations.  We also have relied on
borrowings from our Chief Executive Officer/Chief Financial Officer who has
loaned the Company approximately $10,000 and from our financial institution with
a personal guaranty of our Chief Executive Officer/Chief Financial Officer, in
the amount of approximately $94,000, each as of April 13, 2010. We anticipate
that our current and future liquidity requirements will arise from the need to
finance our operations, accounts receivable and inventories, and from the need
to fund our growth from operations, current debt obligations and capital
expenditures. The primary sources of funding for such requirements are expected
to be cash generated from operations and raising additional capital from the
sale of equity and/or debt securities and/or the sale of exclusive licenses for
our intellectual properties. We estimate that we will require between $1.5
million and $2.0 million in additional financing and cash flow from operations
to support our operations and to meet our debt obligations as they become due
and payable over the next 15 months of operations. We can provide no assurances
that cash generated from operations will occur or additional financing will be
obtained on terms satisfactory to us, if at all, or that additional debt
conversions will occur.




26





Recent
Developments





On
October 17, 2008, in order to reduce the Company’s monthly expenses, the Board
and its Chief Executive Officer, Andrew McKinnon, agreed to pay Mr. McKinnon his
monthly salary, effective December 1, 2008, pursuant to his employment contract
in BlastGard common stock based on a 15% discount to the fair market value of
the Company’s Common Stock based on the ten preceeding trading days prior to the
conversion date. The fair market value of the Company’s Common Stock is defined
as the average of the closing sales price of the Company’s Common Stock on the
OTC Electronic Bulletin Board for the ten trading days preceeding the last day
of each month (conversion date of the monthly salary).  The salary
conversion shall not at any time be convertible at a conversion price below $.10
per share (the “Floor Price”). Between December 2008 and August 31, 2009, the
Company issued Mr. McKinnon 187,500 shares of restricted Common Stock per month
based upon the Floor Price of $.10 per share for a total of 1,500,000
shares.




On August
10, 2009, the Board of Directors accepted the resignation of Andrew McKinnon
from the position of Chief Executive Officer of the Corporation and elected
Michael J. Gordon to replace Mr. McKinnon as Chief Executive
Officer.









salaries
      and benefits:
            
            $
            17,000legal
      fees (patents & Verde)
            
            
            11,000professional
      fees
            
            
            8,000office
      overhead
            
            
            3,000Travel
            
            
            5,000research
      and development
            
            
            3,000Miscellaneous
            
            
            3,000Total
            
            $
            50,000





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.




27




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
            —Class A
            —Class C
            1,921,500Class D
            324,000Class E
            162,000Class F
            2,097,620Class G
            12,244,164





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.




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.





2007
Private Placement Transactions





Between
April 20, 2007 and May 4, 2007, the Company completed two concurrent Offerings
and raised a total of $3,968,810 as described below.




The
Company sold 11,529,368 units, each unit consisting of one share of its
unregistered Common Stock at $.30 per share and one-half warrant, with a full
warrant exercisable at $.45 per share in an offshore offering to non-US Persons
through D &D Securities Company, its placement agent. The offering raised
$3,458,810 in gross proceeds through the issuance of 11,529,368 shares and
5,764,684 warrants.  In addition, the Company issued broker warrants
to purchase 1,322,937 units. Exemption from registration is claimed under
Regulation S of the Securities Act of 1933, as amended.




The
Company also sold 1,700,000 shares of its unregistered Common Stock at $.30 per
share and issued 850,000 warrants exercisable at $.45 per share, pursuant to a
Regulation D offering. The offering raised $510,000 in gross proceeds. Exemption
from registration is claimed under Rule 506 of Regulation D promulgated under
Section 4(2) of the Securities Act of 1933, as amended. All of the
aforementioned securities have not been registered under the Securities Act and
may not be offered or sold in the United States absent registration or an
applicable exemption from registration requirements. The securities sold
pursuant to its concurrent plans of financing contain certain registration
rights and penalty warrants for failure to meet certain registration or trading
conditions by October 15, 2007. Since the Company did not register these
securities or have them listed on one of two Canadian Exchanges by October 15,
2007, the Company issued to each investor an additional 10% in shares of Common
Stock and an additional 10% Warrants on what they purchased in the 2007 Private
Placement.




28





Other
Recent Financings





December 2004 Debt
Financing





In
December 2004, we raised $1,420,000 from five investors in a convertible debt
financing, and issued to the investor’s secured convertible notes due
October 31, 2007 and common stock purchase warrants.  The notes
each bear an interest rate of 8% per annum. Aggregate monthly payments of
1.2% of the principal amount were due commencing November 1, 2005 through
April 30, 2006, then aggregate monthly payments of 3% of the principal
amount were scheduled for payment commencing May 1, 2006 through
October 31, 2006, and then aggregate monthly payments of 6% of the
principal amount were scheduled for payment commencing November 1, 2006
through October 31, 2007. Payments are applied first to accrued interest
and then to principal. The balance of the unpaid principal and any unpaid
interest is due on October 31, 2007. However, as a result of the
June 22, 2006 debt financing, the payment arrangements were modified.
Monthly payments of interest only (8%) based on the principal amount were paid
from June 1, 2006 through May 31, 2007, and then aggregate monthly
payments of 6% of the principal amount were paid from June 1, 2007 through
March 31, 2008. A Modification Agreement was entered into in
March 2007 so that each Note became due and payable on March 20, 2008.
Pursuant to a further Modification Agreement and a $150,000 payment towards
principal, the balance of the unpaid principal of the Notes and any unpaid
interest thereon was due and payable on August 29, 2008. However, pursuant
to a Revised and Amended Sixth Waiver and Modification Agreement dated as of
September 16, 2008, the Senior Lenders received the payment of default
interest calculated at the rate of 21% per annum (versus 8%) for the period
April 1, 2008 through September 30, 2008 as consideration to extend
the Maturity Date of the Notes to November 1, 2008. Accordingly, all
accrued interest had been paid in full as of September 30, 2008. Commencing
October 1, 2008 and thereafter, the interest rate shall revert to an amount
equal to 8% per annum. In addition, the holders of the December 2004 Debt
agreed to convert an aggregate of $124,093 in principal and accrued interest
therein at a conversion price of $.10 per share.




The
individual note holders have the right, at their option, to convert the
principal amount of the note, together with all accrued interest thereon in
accordance with the provisions of and upon satisfaction of the conditions
contained in the note, into fully paid and non-assessable shares of the
Company’s common stock at a conversion price per share set forth below, subject
to adjustment in certain circumstances if the notes are then outstanding, such
as a stock split, combination or dividend; or in the event the Company issues
shares of common stock for consideration of less than the exercise price. From
March 20, 2008 through October 20, 2008, the Note holder could have
elected at any time to convert through the Maturity Date of the Notes and
thereafter until the Notes were paid in full, the unpaid principal of the Notes
and the accrued interest thereon at a 10% discount (15% discount if the average
trading volume per day over the ten preceding trading days prior to a conversion
date is 60,000 shares per day or less) to the fair market value of the Company’s
Common Stock. The fair market value of the Company’s Common Stock is defined as
the average of the closing sales price of the Company’s Common Stock on the OTC
Electronic Bulletin Board for the ten trading days preceding each respective
conversion date of the Note(s). Notwithstanding anything contained herein to the
contrary, the Notes shall not at any time be convertible at a conversion price
below $.10 per share (the “Floor Price”) or above a ceiling price of $.25 per
share (the “Ceiling Price”). In October 2008, the conversion price was fixed at
$.10 per share pursuant to anti-dilution provisions of the Note. During
March 2009, the holders of certain senior convertible securities originally
issued on December 2, 2004, extended the due date of the debt to
November 30, 2009 in exchange for the issuance of Class G warrants to
purchase 1,800,000 shares of common stock in the Company.  In March
2009, the conversion price of the Notes was also lowered to $.03 per share.
Concurrently, the Class A, C, D, E and F warrants held by these investors
were cancelled and an equal number of Class G warrants were issued as
replacements.




In May,
2009, $93,097 of the Notes and $388 in interest was converted at $.03 per share
into 3,116,164 shares of the Company’s Common Stock, reducing the principal
balance of the debt underlying the 2004 Notes to $279,292 as of December 31,
2009.




The notes
are secured by all of the Company’s assets until the notes have been fully paid
or fully converted into common stock.  See “Recent Developments” under
this “Item 6” for additional information.




29




June 2006 Debt
Financing





On
June 22, 2006, we entered into a series of simultaneous transactions with
two investors, whereby we borrowed an aggregate principal amount of $1,200,000
due June 22, 2008 and issued to the investors subordinated convertible 8%
notes (secured by the assets of our company and subsidiary) and we issued the
following series of warrants:




(i)
            Five-year Class C
      warrants purchasing an aggregate of 1,200,000 shares originally
      exercisable at $1.00 per share;(ii)
            Five-year Class D
      warrants purchasing an aggregate of 1,200,000 shares originally
      exercisable at $1.50 per share;(iii)
            Five-year Class E
      warrants to purchase an aggregate of 600,000 shares originally exercisable
      at $2.00 per share; and(iv)
            Five-year
      Class F warrants purchasing an aggregate of 1,066,666 shares originally
      exercisable at $.75 per share. The Class F warrants were originally
      redeemable at a nominal price under certain circumstances if the volume
      weighted average price for our common stock is at least $1.10 for ten
      consecutive trading days. The Class C warrants, Class D warrants, Class E
      warrants and Class F warrants contain anti-dilution protection in the case
      of stock splits, dividends, combinations, reclassifications and the like
      and in the event that we sell common stock below the applicable exercise
      price. The warrants also contain immediate registration rights and
      cashless exercise provisions in the event that there is no current
      registration statement commencing one year after issuance. An additional
      666,667 Class F warrants were issued in connection with this transaction
      to the holders of our December 2004 debt to consent to this financing
      transaction and to agree to modify certain of their existing
      rights.




The
aforementioned notes and warrants are protected against dilution in the event of
certain events including, without limitation, the sale of common stock below the
applicable conversion or exercise price as the case may be.




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 to our knowledge 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 (exclusive of interest after June 22, 2008) on our
consolidated balance sheet in order to reflect the worst case
scenario.




30




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.





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, FIN 48 and various Accounting
Standards Codification updates which are described in Note 1, “Recent Accounting
Pronouncements” of the Notes to Financial Statements contained in our latest
annual report on Form 10-K filed with the Security and Exchange commission on
March 15,  2010. Reference is made to these recent accounting
pronouncements as if they are set forth therein in their entirety.





ITEM
8.FINANCIAL
STATEMENTS


The
information required by Item 7 and an index thereto commences on page F-1, which
pages follow this page.





31


INDEX
 
 PageReport
      of Independent Registered Public Accounting Firm
                
                
                F-2Report
      of Independent Registered Public Accounting Firm
                
                
                F-3Balance
      Sheets at December 31, 2009 and 2008
                
                
                F-4Statements
      of Operations for the years ended December
      31, 2009 and 2008
                
                
                F-5Statement
      of Changes in Shareholders' Deficit for the years ended December
      31, 2009 and 2008
                
                
                F-6Statements
      of Cash Flows for the years ended December
      31, 2009 and 2008
                
                
                F-7Notes
      to Financial Statements
                
                
                F-8
 F-1
 
 Report
of Independent Registered Public Accounting Firm
 
 To the
Board of Directors and Shareholders:
 Blastgard
International, Inc.
 
 I have
audited the balance sheets of BlastGard International, Inc. as of December 31,
2009 and the related statement of operations, changes in stockholders’ deficit,
and cash flows for the years then ended. These financial statements were the
responsibility of the Company’s management. My responsibility was to express an
opinion on these financial statements based on our audits. The financial
statements of BlastGard International, Inc., as of December 31, 2008, were
audited by other auditors, whose report dated April 14, 2009 expressed an
unqualified opinion on those financial statements with explanatory paragraph
regarding substantial doubt about the Company's ability to continue as a going
concern. My opinion on the statement of operations, changes in stockholders'
deficit and cash flows for the year ended December 31, 2008 insofar as it
relates to amounts for the periods through December 31, 2008 is based solely on
the report of other auditors.
 I
conducted my audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that I plan and perform the audits to obtain reasonable assurance about whether
the financial statements were free of material misstatement.  The
Company was not required to have, nor was I engaged to perform, an audit of its
internal control over financial reporting.  My audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that were appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, I express no
such opinion.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  I
believe that my audit provide a reasonable basis for my
opinion.
 
 In my
opinion, the financial statements, referred to above, present fairly, in all
material respects, the financial position of BlastGard International, Inc. as of
December 31, 2009, and the results of its operations and its cash flows for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
 
 The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern.  As discussed in Note 1 to the financial
statements, the Company has incurred recurring losses and has used significant
cash in support of its operating activities.  These conditions raise
substantial doubt about the Company’s ability to continue as a going
concern.  Further information and management’s plans in regard to this
uncertainty were also described in Note 1.  The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
 
 
 Peter
Messineo, CPA
 Palm
Harbor, Florida
 March 31,
2010
 
 F-2
 
 Report
of Independent Registered Public Accounting Firm
 
 To the
Board of Directors and Shareholders:
 Blastgard
International, Inc.
 
 We have
audited the balance sheet of BlastGard International, Inc. as of December 31,
2008, and the related statements of operations, changes in stockholders’
deficit, and cash flows for the year then ended. These financial statements are
the responsibility of the Company’s management.  Our responsibility is
to express an opinion on these financial statements based on our
audits.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  We
believe that our audit provide a reasonable basis for our
opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of BlastGard International, Inc. as of
December 31, 2008, and the results of its operations and its cash flows for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
 
 The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern.  As discussed in Note 1 to the financial
statements, the Company has incurred recurring losses and has used significant
cash in support of its operating activities.  These conditions raise
substantial doubt about the Company’s ability to continue as a going
concern.  Further information and management’s plans in regard to this
uncertainty are also described in Note 1.  The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
 
 
 Cordovano
and Honeck LLP
 Englewood,
Colorado
 April 14,
2009
 
 F-3
 
 Balance
Sheets
 December
31, 2009 and 2008
 
 2009
                    
                    
                    2008AssetsCurrent
      assets:Cash
                    
                    $
                    1,739
                    
                    
                    $
                    1,477Receivables:Trade,
      net
                    
                    
                    —
                    
                    
                    
                    267,964Other
                    
                    
                    —
                    
                    
                    
                    —Inventory
                    
                    
                    67,126
                    
                    
                    
                    77,893Prepaid
      expenses
                    
                    
                    —
                    
                    
                    
                    17,644Total
      current assets
                    
                    
                    68,865
                    
                    
                    
                    364,978Property
      and equipment, net
                    
                    
                    320
                    
                    
                    
                    1,096Other
      assets:Debt
      issue costs, net
                    
                    
                    —
                    
                    
                    
                    -Intangibles,
      net
                    
                    
                    26,277
                    
                    
                    
                    18,303Deferred
      costs
                    
                    
                    179,112
                    
                    
                    
                    153,900Deposits
                    
                    
                    817
                    
                    
                    
                    1,096$
                    275,391
                    
                    
                    $
                    539,373Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Current
      maturities on convertible notes payable, net ofunamortized
      discount of $0 and $0
                    
                    $
                    634,292
                    
                    
                    $
                    727,389Line
      of Credit
                    
                    
                    91,380
                    
                    
                    
                    82,881Accounts
      payable
                    
                    
                    139,603
                    
                    
                    
                    84,728Accrued
      payroll
                    
                    
                    111,956
                    
                    
                    
                    26,355Short
      term portion of settlement payable
                    
                    
                    75,000
                    
                    
                    
                    62,500Related
      party loans
                    
                    
                    26,544
                    
                    
                    
                    —Total
      current liabilities
                    
                    
                    1,078,775
                    
                    
                    
                    983,853Long
      term portion of settlement payable
                    
                    
                    —
                    
                    
                    
                    62,500Shareholders’
      equityPreferred
      stock, $.001 par value; 1,000 shares authorized,-0-
      shares issued and outstanding
                    
                    
                    —
                    
                    
                    
                    —Common
      stock, $.001 par value; 100,000,000 shares authorized,50,086,142
      and 42,369,978 shares issued and outstanding
                    
                    
                    50,086
                    
                    
                    
                    42,370Additional
      paid-in capital
                    
                    
                    12,351,249
                    
                    
                    
                    11,957,148Retained
      deficit
                    
                    
                    (13,204,719
                    )
                    
                    
                    (12,506,498
                    )Total
      shareholder’s equity
                    
                    
                    (803,384
                    )
                    
                    
                    (506,980
                    )$
                    275,391
                    
                    
                    $
                    539,373
 
 F-4
 
 Statements
of Operations Years
ended December 31, 2009 and 2008
 2009
                  
                  
                  2008Revenues:Sales
                  
                  $
                  49,893
                  
                  
                  $
                  732,044Cost
      of goods sold
                  
                  
                  28,586
                  
                  
                  
                  622,147Gross
      profit
                  
                  
                  21,307
                  
                  
                  
                  109,897Operating
      expenses:General
      and administrative
                  
                  
                  591,566
                  
                  
                  
                  989,352Research
      and development
                  
                  
                  25,110
                  
                  
                  
                  148,133Depreciation
      and amortization
                  
                  
                  2,338
                  
                  
                  
                  5,348Total
      operating expenses
                  
                  
                  619,014
                  
                  
                  
                  1,142,833Operating
      loss
                  
                  
                  (597,707
                  )
                  
                  
                  (1,032,936
                  )Non-operating
      income/(expense):Gain
      on derivative liability (Note 6)
                  
                  
                  —
                  
                  
                  
                  34,000Interest
      income
                  
                  
                  2
                  
                  
                  
                  10,030Rental
      income
                  
                  
                  1,200
                  
                  
                  
                  —Loss
      on conversion of debt
                  
                  
                  —
                  
                  
                  
                  (5,562
                  )Loss
      on disposal of assets
                  
                  
                  —
                  
                  
                  
                  —Settlement
      loss and royalty expense
                  
                  
                  (508
                  )
                  
                  
                  (125,000
                  )Interest
      expense (Notes 4 and 5):Amortized
      debt issue costs
                  
                  
                  —
                  
                  
                  
                  (56,530
                  )Amortized
      debt discount
                  
                  
                  (64,332
                  )
                  
                  
                  (235,856
                  )Other
                  
                  
                  (36,876
                  )
                  
                  
                  (82,091
                  )Loss
      before income taxes
                  
                  
                  (698,221
                  )
                  
                  
                  (1,493,945
                  )Income
      tax provision (Note 3)
                  
                  
                  —
                  
                  
                  
                  —Net
      loss
                  
                  $
                  (698,221
                  )
                  
                  $
                  (1,493,945
                  )Basic
      and diluted loss per share
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.04
                  )Basic
      and diluted weighted averagecommon
      shares outstanding
                  
                  
                  47,354,199
                  
                  
                  
                  40,714,954
 
 F-5
 
 Statement of Changes in Stockholders
Equity
 For the
Years ended December 31, 2009 and 2008
 
 AdditionalCommon
      Stock
                    
                    
                    Common
      Stock
                    
                    
                    Paid
      in
                    
                    
                    RetainedDescription
                    
                    No.
      of Shares
                    
                    
                    Par
      Value
                    
                    
                    Capital
                    
                    
                    Deficit
                    
                    
                    TotalBalance
      - 12/31/07
                    
                    
                    39,786,554
                    
                    
                    $
                    39,787
                    
                    
                    $
                    11,644,632
                    
                    
                    $
                    (11,012,553
                    )
                    
                    $
                    671,866-Conversion
      of debt
                    
                    
                    2,395,924
                    
                    
                    
                    2,395
                    
                    
                    
                    248,420
                    
                    
                    
                    —
                    
                    
                    
                    250,815Stock
      in lieu of salary
                    
                    
                    187,500
                    
                    
                    
                    188
                    
                    
                    
                    18,562
                    
                    
                    
                    —
                    
                    
                    
                    18,750Modification
      of compensatory warrants and options
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    45,534
                    
                    
                    
                    —
                    
                    
                    
                    45,5342008
      loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,493,945
                    )
                    
                    
                    (1,493,945
                    )Balance
      - 12/31/08
                    
                    
                    42,369,978
                    
                    
                    
                    42,370
                    
                    
                    
                    11,957,148
                    
                    
                    
                    (12,506,498
                    )
                    
                    
                    (506,980
                    )—Sale
      of stock
                    
                    
                    3,000,000
                    
                    
                    
                    3,000
                    
                    
                    
                    87,000
                    
                    
                    
                    
                    
                    
                    
                    90,000Stock
      in lieu of salary
                    
                    
                    1,125,000
                    
                    
                    
                    1,500
                    
                    
                    
                    148,500
                    
                    
                    
                    —
                    
                    
                    
                    150,000Conversion
      of debt
                    
                    
                    3,116,134
                    
                    
                    
                    3,116
                    
                    
                    
                    90,369
                    
                    
                    
                    —
                    
                    
                    
                    93,485Stock
      for services
                    
                    
                    100,000
                    
                    
                    
                    100
                    
                    
                    
                    3,900
                    
                    
                    
                    
                    
                    
                    
                    4,000Discount
      on convertible debt assumed
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    64,332
                    
                    
                    
                    —
                    
                    
                    
                    64,3322009
      loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (698,221
                    )
                    
                    
                    (698,221
                    )-Balance
      - 12/31/09
                    
                    
                    49,711,112
                    
                    
                    $
                    50,086
                    
                    
                    $
                    12,351,249
                    
                    
                    $
                    (13,204,719
                    )
                    
                    $
                    (803,384
                    )
 
 F-6
 Statements
of Cash Flows
 Years
ended December 31, 2009 and 2008
 2009
                    
                    
                    2008Cash
      flows from operating activities:Net
      loss
                    
                    $
                    (698,221
                    )
                    
                    $
                    (1,493,945
                    )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
      and amortization
                    
                    
                    2,338
                    
                    
                    
                    5,348Amortization
      of debt issue costs
                    
                    
                    64,332
                    
                    
                    
                    56,530Revalue
      warrants
                    
                    
                    —
                    
                    
                    
                    5,534Stock-based
      compensation
                    
                    
                    154,000
                    
                    
                    
                    58,750Stock
      given for interest
                    
                    
                    388
                    
                    
                    
                    49,716Discount
      on convertible notes payable
                    
                    
                    —
                    
                    
                    
                    235,856Loss
      on conversion of debt
                    
                    
                    —
                    
                    
                    
                    5,562Gain/(loss)
      on derivative liability
                    
                    
                    —
                    
                    
                    
                    (34,000
                    )Changes
      in operating assets and liabilities:Accounts
      receivable
                    
                    
                    267,964
                    
                    
                    
                    (236,719
                    )Inventory
                    
                    
                    10,767
                    
                    
                    
                    43,330Other
      operating assets
                    
                    
                    17,923
                    
                    
                    
                    36,238Accounts
      payable and accruals
                    
                    
                    90,476
                    
                    
                    
                    207,317Related
      party payable
                    
                    
                    26,544
                    
                    
                    
                    —Net
      cash used inoperating
      activities
                    
                    
                    (63,489
                    )
                    
                    
                    (1,060,483
                    )Cash
      flows from investing activities:Payments
      for deferred costs
                    
                    
                    (34,748
                    )
                    
                    
                    (77,546
                    )Net
      cash used ininvesting
      activities
                    
                    
                    (34,748
                    )
                    
                    
                    (77,546
                    )Cash
      flow from financing activities:Net
      proceeds from line of credit
                    
                    
                    8,499
                    
                    
                    
                    82,881Proceeds
      from sale of stock
                    
                    
                    90,000
                    
                    
                    
                    —Payments
      for debt principal
                    
                    
                    —
                    
                    
                    
                    (328,354
                    )Net
      cash provided byfinancing
      activities
                    
                    
                    98,499
                    
                    
                    
                    (245,473
                    )Net
      change in cash
                    
                    
                    262
                    
                    
                    
                    (1,383,502
                    )Cash,
      beginning of period
                    
                    
                    1,477
                    
                    
                    
                    1,384,979Cash,
      end of period
                    
                    $
                    1,739
                    
                    
                    $
                    1,477Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Interest
                    
                    $
                    36,488
                    
                    
                    $
                    32,375Income
      taxes
                    
                    $
                    —
                    
                    
                    $
                    —
 
 
 F-7
 
 BLASTGARD
INTERNATIONAL, INC.
 Notes
to Financial Statements
 (1)
                  Organization,
      Basis of Presentation, and Summary of Significant Accounting
      Policies
 
 Organization
      and Basis of Presentation
 
 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.
 
 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. 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 currently 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. Nevertheless, we have continued to include the principal of the
June 2006 Debt (exclusive of interest after June 22, 2008) on our
consolidated balance sheet in order to reflect the worst case
scenario.
 
 F-8
 
 BLASTGARD
INTERNATIONAL, INC.
 Notes
to Financial Statements
 Use
      of Estimates
 
 The
preparation of financial statements in accordance with generally accepted
accounting principles required management to make estimates and assumptions that
affected the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting
period.  Actual results could differ from those
estimates.
 
 Cash
      and Cash Equivalents
 
 The
Company considered all highly liquid debt instruments with original maturities
of three months or less when acquired to be cash equivalents.  The
Company had no cash equivalents at December 31, 2009.
 
 Financial
      Instruments
 
 The
carrying amounts of cash, receivables and current liabilities approximated fair
value due to the short-term maturity of the instruments.  Debt
obligations were carried at cost, which approximated fair value due to the
prevailing market rate for similar instruments.
 
 Fair
      Value Measurement
 
 All
financial and nonfinancial assets and liabilities were recognized or disclosed
at fair value in the financial statements.  This value was evaluated
on a recurring basis (at least annually).  Generally accepted
accounting principles in the United States define fair value as the exchange
price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on a measurement
date. The accounting principles also established a fair value hierarchy which
required an entity to maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value.  Three levels of
inputs were used to measure fair value.
 
 Level 1:
Quotes market prices in active markets for identical assets or
liabilities.
 Level 2:
Observable market based inputs or unobservable inputs that were corroborated by
market data.
 Level 3:
Unobservable inputs that were not corroborated by market
data.
 
 Accounts
      Receivable
 
 Accounts
receivable consisted of amounts due from customers (mostly government agencies)
based in the United States and abroad.  The Company considered
accounts more than 30 days old to be past due. The Company used the
allowance method for recognizing bad debts. When an account was deemed
uncollectible, it was written off against the allowance. The Company generally
does not require collateral for its accounts receivable. As of December 31,
2009, management believes an allowance for uncollectible accounts in the amount
of $3,873 was adequate.
 
 F-9
 BLASTGARD
INTERNATIONAL, INC.
 Notes
to Financial Statements
 
 Inventory
 
 Inventory
was stated at the lower of cost (first-in, first-out) or
market.  Market was generally considered to be net realizable
value.  Inventory consisted of materials used to manufacture the
Company’s BlastWrap®
product and finished goods ready for sale.  The breakdown of inventory
at December 31, 2009 and 2008 was as follows:
 
 2009
                  
                  
                  2008Finished
      goods
                  
                  $
                  49,941
                  
                  
                  $
                  63,368Materials
      and supplies
                  
                  
                  17,185
                  
                  
                  
                  14,525Total
      inventory
                  
                  $
                  67,126
                  
                  
                  $
                  77,893
 
 Property
and Equipment
 
 Property
and equipment were stated at cost. Depreciation was calculated using the
straight-line method over the estimated useful lives of the related assets,
ranging from three to seven years.  Expenditures for additions and
improvements were capitalized, while repairs and maintenance costs were expensed
as incurred.  The cost and related accumulated depreciation of
property and equipment sold or otherwise disposed of were removed from the
accounts and any gain or loss was recorded in the year of
disposal.
 
 Impairment
of Long-Lived Assets
 
 The
Company evaluates the carrying value of its long-lived assets at least
annually.  Impairment losses were recorded on long-lived assets used
in operations when indicators of impairment were present and the undiscounted
future cash flows estimated to be generated by those assets were less than the
assets’ carrying amount.   If such assets were impaired, the
impairment to be recognized was measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.  Assets to
be disposed of were reported at the lower of the carrying value or fair value,
less costs to sell.
 
 Debt
      Issue Costs
 
 The costs
related to the issuance of debt were capitalized and amortized to interest
expense using the straight-line method over the lives of the related
debt.  The straight-line method results in amortization that was not
materially different from that calculated under the effective interest
method.
 
 Deferred
Costs
 
 Patent
and trademark application costs were capitalized as deferred
costs.  If a patent or trademark application was denied or expires,
the costs incurred were charged to operations in the year the application was
denied or expires.  Amortization commences once a patent or trademark
was granted.
 
 F-10
 BLASTGARD
INTERNATIONAL, INC.
 Notes
to Financial Statements
 Revenue
      Recognition
 
 Sales
revenue was recognized upon the shipment of product to
customers.  Allowances for sales returns, rebates and discounts were
recorded as a component of net sales in the period the allowances were
recognized.
 
 Research
      and Development
 
 Research
and development costs were expensed as incurred.
 
 Advertising
 
 Advertising
costs were expensed as incurred.  Advertising costs of $0 and $5,500
were incurred during the years ended December 31, 2009 and 2008,
respectively.
 
 Income
      Taxes
 
 Income
      taxes were provided for the tax effects of transactions reported in the
      financial statements and consist of taxes currently due plus deferred
      taxes related primarily to differences between the recorded book basis and
      the tax basis of assets and liabilities for financial and income tax
      reporting.  Deferred tax assets and liabilities represent the
      future tax return consequences of those differences, which will either be
      taxable or deductible when the assets and liabilities were recovered or
      settled.  Deferred tax assets were also recognized for operating
      losses that were available to offset future taxable income and tax credits
      that were available to offset future federal income taxes, less the effect
      of any allowances considered necessary. The company use guidance provided
      by FIN 48, Accounting
      for Uncertainty in Income Taxes, for reporting uncertain tax
      provisions.
 
 Stock-based
Compensation
 
 Effective
      January 1, 2006, the Company adopted the provisions of Statement of
      Financial Accounting Standards (“SFAS”) No. 123 (R), “Share-Based
      Payment.” Prior to the adoption of SFAS 123(R) we accounted for stock
      option grants using the intrinsic value method prescribed in APB Opinion
      No. 25, “Accounting for Stock Issued to Employees,” and accordingly,
      recognized no compensation expense for stock option
  grants.
 
 We
      use the Black-Scholes option pricing model to estimate the fair value of
      stock-based awards on the date of grant, using assumptions for volatility,
      expected term, risk-free interest rate and dividend yield. We have used
      one grouping for the assumptions as our option grants were primarily basic
      with similar characteristics. The expected term of options granted has
      been derived based upon our history of actual exercise behavior and
      represents the period of time that options granted were expected to be
      outstanding. Historical data was also used to estimate option exercises
      and employee terminations. Estimated volatility was based upon our
      historical market price at consistent points in a period equal to the
      expected life of the options. The risk-free interest rate was based on the
      U.S. Treasury yield curve in effect at the time of grant and the dividend
      yield was based on the historical dividend
  yield.
 
 Loss
per Common Share
 
 Basic net
loss per share excludes the impact of common stock
equivalents.  Diluted net loss per share utilizes the average market
price per share when applying the treasury stock method in determining common
stock equivalents.  As of December 31, 2009, there were 3,420,000
vested common stock options outstanding, which were excluded from the
calculation of net loss per share-diluted because they were anti-dilutive. In
addition, at December 31, 2009 the Company had 16,749,284 warrants outstanding
issued in connection with convertible promissory notes and stock sales that were
also excluded because they were anti-dilutive.
 
 F-11
 BLASTGARD
INTERNATIONAL, INC.
 Notes
to Financial Statements
 Recent
Accounting Pronouncements
 
 The
Financial Accounting Standards Board ("FASB") issued FASB Accounting Standards
Codification ("ASC") effective for financial statements issued for interim and
annual periods ending after September 15, 2009. The ASC was an aggregation of
previously issued authoritative U.S. generally accepted accounting principles
("GAAP") in one comprehensive set of guidance organized by subject
area.  In accordance with the ASC, after June 30, 2009, references to
previously issued accounting standards have been replaced by ASC references.
Subsequent revisions to GAAP will be incorporated into the ASC through
Accounting Standards Updates (ASU).  The ASC did not have an effect on
the Company's results of operations or financial
condition.
 
 In June
2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-02, Omnibus
Update—Amendments to Various Topics for Technical Corrections. This omnibus ASU
detailed amendments to various topics for technical corrections. The adoption of
ASU 2009-02 will not have a material impact on our condensed financial
statements.
 
 In August
2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-04,
Accounting for Redeemable Equity Instruments — Amendment to Section 480-10-S99.
This ASU represents an update to Section 480-10-S99, Distinguishing Liabilities
from Equity, per Emerging Issues Task Force Topic D-98, “Classification and
Measurement of Redeemable Securities.” The adoption of ASU 2009-04 will not have
a material impact on our condensed financial
statements.
 
 In August
2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, Fair
Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair
Value. This Accounting Standards Update amends Subtopic 820-10, Fair Value
Measurements and Disclosures - Overall, to provide guidance on the fair value
measurement of liabilities. The adoption of ASU 2009-05 is not expected to have
a material impact on our condensed financial
statements.
 
 In
September 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-08,
Earnings Per Share Amendments to Section 260-10-S99. This Codification Update
represents technical corrections to Topic 260-10-S99, Earnings per Share, based
on EITF Topic D-53, Computation of Earnings Per Share for a Period that Includes
a Redemption or an Induced Conversion of a Portion of a Class of Preferred Stock
and EITF Topic D-42, The Effect of the Calculation of Earnings per Share for the
Redemption or Induced Conversion of Preferred Stock. The adoption of ASU 2009-08
will not have material impact on our condensed financial
statements.
 
 In
September 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-09,
Accounting for Investments-Equity Method and Joint Ventures and Accounting for
Equity-Based Payments to Non-Employees. This Accounting Standards Update
represents a correction to Section 323-10-S99-4, Accounting by an Investor for
Stock-Based Compensation Granted to Employees of an Equity Method Investee.
Section 323-10-S99-4 was originally entered into the Codification incorrectly.
The adoption of ASU 2009-09 will not have material impact on our condensed
financial statements.
 
 In
September 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-12,
Fair Value Measurements and Disclosures (Topic 820), Investments in Certain
Entities that Calculate Net Asset Value per Share (or Its Equivalent). This
Accounting Standards Update amends Subtopic 820-10, Fair Value Measurements and
Disclosures Overall, to provide guidance on the fair value measurement of
investments in certain entities that calculate net asset value per share (or its
equivalent). The adoption of ASU 2009-12 will not have material impact on our
condensed financial statements.
 
 F-12
 BLASTGARD
INTERNATIONAL, INC.
 Notes
to Financial Statements
 In
October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13,
Multi-Deliverable Revenue Arrangements, (Topic 605) Revenue
Recognition.  This Accounting Standards Update amends subtopic 605-25
to allow vendors to account for products or services separately rather than as a
combined unit.  The amendment addresses how to separate deliverables
and how to measure and allocate arrangement consideration to one or more units
of accounting.  The adoption of ASU 2009-13 will not have material
impact on our condensed financial statements.
 
 In
November 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-15,
Accounting for Own Share Lending arrangements in Contemplation of Convertible
Debt Issuance or Other Financing. This Accounting Standards Update amends
certain provisions in Topic 470 to include own-share lending
arrangements.  The adoption of ASU 2009-15 will not have material
impact on our condensed financial statements.
 
 In
December 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-16,
Transfers and Servicing, (Topic 860), Accounting for Transfers of Financial
Assets. This Accounting Standards Update amends certain language throughout the
topic for changes made by FASB statement 166, above.  The adoption of
ASU 2009-16 will not have material impact on our condensed financial
statements.
 
 (2)
                  Property
      and Equipment
 
 Property
and equipment consisted of the following at December
31:
 
 2009
                  
                  
                  2008Equipment
                  
                  $
                  60,707
                  
                  
                  $
                  60,707Furniture
                  
                  
                  15,057
                  
                  
                  
                  15,057Gross
      property
                  
                  
                  75,764
                  
                  
                  
                  75,764Less
      accumulated depreciation
                  
                  
                  (75,444
                  )
                  
                  
                  (74,668
                  )$
                  320
                  
                  
                  $
                  1,096
 
 Depreciation
expense totaled $776 and $4,021, respectively, for the years ended December 31,
2009 and 2008.
 
 (3)
                  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 consisted of the following at December 31, 2009 and
2008:
 
 F-13
 
 BLASTGARD
INTERNATIONAL, INC.
 Notes
to Financial Statements
 2009
                  
                  
                  2008$500,000
      convertible promissory note issuedDecember 2,
      2004, due on November 30, 2009,8%
      annual interest rate, net of unamortizedDiscount
      of $0 and $0, respectively
                  
                  $
                  150,166
                  
                  
                  $
                  300,331$93,096
      convertible promissory note (1/4 ofprevious
      outstanding notes) issued December2,
      2004, due November 30, 2009, 8% interestNet
      of unamortized discount of $0 and $0, respectively
                  
                  
                  93,096
                  
                  
                  
                  -$50,000
      convertible promissory note issuedDecember 2,
      2004, due on November 30, 2009,8%
      annual interest rate, net of unamortizedDiscount
      of $0 and $0, respectively
                  
                  
                  17,325
                  
                  
                  
                  34,650$50,000
      convertible promissory note issuedDecember 2,
      2004, due on November 30, 2009,8%
      annual interest rate, net of unamortizedDiscount
      of $0 and $0, respectively
                  
                  
                  15,241
                  
                  
                  
                  30,481$10,000
      convertible promissory note issuedDecember 2,
      2004, due on November 30, 2009,8%
      annual interest rate, net of unamortizedDiscount
      of $0 and $0, respectively
                  
                  
                  3,464
                  
                  
                  
                  6927279,292
                  
                  
                  
                  372,389Less:
      current maturities
                  
                  
                  (279,292
                  )
                  
                  
                  (372,389
                  )$
                  -
                  
                  
                  $
                  -
 
 Each note
carries a default interest rate of 15% per annum. Aggregate monthly payments of
1.2% of the principal amount were paid from November 1, 2005 through
April 30, 2006, then aggregate monthly payments of 3% of the principal
amount were originally payable from May 1, 2006 through October 31,
2006, and then aggregate monthly payments of 6% of the principal amount were
originally payable commencing November 1, 2006 through October 31,
2007. However, as a result of the June 22, 2006 debt financing, the payment
arrangements were modified. Monthly payments of interest only (8%) based on the
principal amount were paid from June 1, 2006 through May 31, 2007, and
then aggregate monthly payments of 6% of the principal amount were paid from
June 1, 2007 through March 31, 2008. A Modification Agreement was
entered into in March 2007 so that each Note became due and payable on
March 20, 2008. Pursuant to a further Modification Agreement and a $150,000
payment towards principal, the balance of the unpaid principal of the Notes and
any unpaid interest thereon was due and payable on August 29, 2008.
However, pursuant to a Revised and Amended Sixth Waiver and Modification
Agreement dated as of September 16, 2008, the Senior Lenders received the
payment of default interest calculated at the rate of 21% per annum (versus 8%)
for the period April 1, 2008 through September 30, 2008 as
consideration to extend the Maturity Date of the Notes to November 1, 2008.
Accordingly, all accrued interest had been paid in full as of September 30,
2008. Commencing October 1, 2008 and thereafter, the interest rate shall
revert to an amount equal to 8% per annum. In addition, the holders of the
December 2004 Debt agreed to convert an aggregate of $124,093 in principal
and accrued interest therein at a conversion price of $.10 per
share.
 
 F-14
 
 BLASTGARD
INTERNATIONAL, INC.
 Notes
to Financial Statements
 The
individual note holders have the right, at their option, to convert the
principal amount of the note, together with all accrued interest thereon in
accordance with the provisions of and upon satisfaction of the conditions
contained in the note, into fully paid and non-assessable shares of the
Company’s common stock at a conversion price per share set forth below, subject
to adjustment in certain circumstances if the notes were then outstanding, such
as a stock split, combination or dividend; or in the event the Company issues
shares of common stock for consideration of less than the exercise price. From
March 20, 2008 through October 20, 2008, the Note holder could have
elected at any time to convert through the Maturity Date of the Notes and
thereafter until the Notes were paid in full, the unpaid principal of the Notes
and the accrued interest thereon at a 10% discount (15% discount if the average
trading volume per day over the ten preceding trading days prior to a conversion
date was 60,000 shares per day or less) to the fair market value of the
Company’s Common Stock. The fair market value of the Company’s Common Stock was
defined as the average of the closing sales price of the Company’s Common Stock
on the OTC Electronic Bulletin Board for the ten trading days preceding each
respective conversion date of the Note(s). Notwithstanding anything contained
herein to the contrary, the Notes shall not at any time be convertible at a
conversion price below $.10 per share (the “Floor Price”) or above a ceiling
price of $.25 per share (the “Ceiling Price”). In October 2008, the conversion
price was fixed at $.10 per share pursuant to anti-dilution provisions of the
Note. During March 2009, the holders of certain senior convertible
securities originally issued on December 2, 2004, extended the due date of
the debt to November 30, 2009 in exchange for the issuance of Class G
warrants to purchase 1,800,000 shares of common stock in the
Company.  In March 2009, the conversion price of the Notes was also
lowered to $.03 per share. Concurrently, the Class A, C, D, E and F
warrants held by these investors were cancelled and an equal number of
Class G warrants were issued as replacements.
 
 In May,
2009, $93,097 of the Notes and $388 in interest was converted at $.03 per share
into 3,116,164 shares of the Company’s Common Stock, reducing the principal
balance of the debt underlying the 2004 Notes to $279,292 as of December 31,
2009.
 
 The notes
were secured by all of the Company’s assets until the notes have been fully paid
or fully converted into common stock.
 
 Detachable
common stock warrants issued with 2004 convertible promissory
notes
 
 In
March 2009, the Company issued 1,800,000 warrants to new investors who
assumed one half of the 2004 debt from the existing holders. The Company used
the Black-Scholes model to estimate the value of these warrants at $58,612. The
assumptions used to value the warrants were as
follows:
 
 Risk-free
      interest rate
                  1.0%Dividend
      yield
                  0.00%Volatility
      factor
                  194.26%Weighted
      average expected life
                  1.61
      years
 
 The
relative fair value of these warrants was calculated at $44,579. This relative
fair value was recorded as a discount to the assumed debt and amortized to
interest over the remaining life of the loans. The relative fair value of
previously issued detachable warrants associated with the convertible notes was
charged to additional paid-in capital with a corresponding discount on the
convertible notes payable. The discount was amortized over the original life of
the debt.
 
 At
December 31, 2009, there were 9,292,158 warrants outstanding and exercisable
associated with this debt. These warrants were valued at
$302,569.
 
 F-15
 
 BLASTGARD
INTERNATIONAL, INC.
 Notes
to Financial Statements
 
 (4)
                  Subordinated
      Convertible Notes Payable
 
 On June
22, 2006, the Company entered into agreements to borrow an aggregate principal
amount of $1,200,000 and to issue to the investors’ subordinated, convertible
promissory notes and common stock purchase warrants.  In April 2007,
the Company lowered the exercise price on the conversion and the warrants and
revalued warrants and the associated discount on the convertible debt. On August
8, 2007, one-half of the debt was acquired by unrelated parties. The new holders
converted $600,000 of the debt on August 8, 2007 and later an additional
$195,000 in September 2007 at $.30 per share. The Company also paid $50,000 to
reduce the outstanding principal amount of the debt to $355,000.  All
the holders agreed to unwind the changes made in April 2007 to reduce the number
of warrants outstanding to previous levels and to reset the exercise price to
amounts consistent with the other convertible debt and
warrants.  Also, the holders of the 2006 convertible debt agreed to
cancel their “D” and “E” warrants.
 
 The
Company’s subordinated, convertible promissory notes payable consist of the
following at December 31, 2009 and 2008:
 
 $600,000
      subordinated, convertible promissory note
                  
                  2009
                  
                  
                  2008issued
      June 22, 2006, due on June 22, 2008,8%
      annual interest rate, net of unamortizeddiscount
      of $0 and $0, respectively
                  
                  $
                  355,000
                  
                  
                  $
                  355,000355,000
                  
                  
                  
                  355,000Less:
      current maturities
                  
                  
                  (355,000
                  )
                  
                  
                  (355,000
                  )$
                  -
                  
                  
                  $
                  -
 
 These
notes were subordinated to the convertible promissory notes listed above, which
were collateralized by all of the Company’s assets until the notes have been
fully paid or fully converted into common stock.
 
 The
individual note holders have the right, at their option, to convert the
principal amount of the note into fully paid and non-assessable shares of the
Company’s common stock at a conversion price per share described below, subject
to adjustment in certain circumstances if the notes were then outstanding, such
as a stock split, combination or dividend; or in the event the Company issues
shares of common stock for consideration of less than the exercise
price.
 
 The
convertible notes, which aggregate in principal $355,000, were currently the
subject of a legal dispute. The original holders of these notes agreed to sell
these notes to third parties, which parties assigned a portion of these rights
to five assignees. The third parties and their assignees agreed at each closing
to convert their debt into BlastGard common stock at a fixed conversion price of
$.30 per share. The original owners of these notes and the third parties (but
not the assignees) have entered into agreements with BlastGard such that in the
event they were determined by a court of law or settlement agreement to be the
owners of the notes, each note shall be convertible into common stock based upon
the same formulas and conversion rights as those then held by the holders of the
December 2004 notes currently due August 29, 2008. In the event the assignees
were determined to be the rightful owners of the notes due June 22, 2008, then
these notes would continue to convert at a fixed conversion price of $.30 per
share.
 
 F-16
 BLASTGARD
INTERNATIONAL, INC.
 Notes
to Financial Statements
 
 Carrying
value of subordinated, convertible notes payable
 
 The
conversion of the subordinated, convertible notes payable was fixed at $0.10 per
share of the Company’s common stock.  Options embedded in contracts
containing the price of a specific equity instrument were not clearly and
closely related to an investment in an interest-bearing note and the embedded
derivative was separated from the host contract.  As a result, the
Company bifurcated the option resulting from the conversion feature and
classified it as a derivative liability.  At December 31, 2009,
$355,000 in principal of the subordinated convertible notes was awaiting
conversion.
 
 The
following table presents the allocation of proceeds from the financing and the
subsequent revaluation of the warrants and derivative
liability.
 
 Principal
      balance of the notes
                  
                  $
                  1,200,000Less
      debt discounts:Fair
      value of warrants (below)
                  
                  
                  (768,000
                  )Fair
      value of conversion option (below)
                  
                  
                  (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
                  
                  
                  494,676Current
      year-to-date amortization of discounts
                  
                  
                  152,834Principle
      payment in 2008
                  
                  
                  (50,000
                  )Carrying
      value at December 31, 2009
                  
                  $
                  355,000
 
 Derivative
Financial Instrument
 
 The
Company generally does not use derivative instruments to hedge exposures to
cash-flow risks or market-risks that may affect the fair values of its financial
instruments. However, certain other financial instruments, such as embedded
conversion features, where an embedded option in a debt security contains the
price of a specific equity instrument, were bifurcated and were classified as
derivative liabilities. Such financial instruments were initially recorded at
fair value and subsequently adjusted to fair value at the close of each
reporting period.
 
 Number
      of SharesIn
      Which TheDerivative
                  
                  
                  Derivative
      LiabilityLiability
                  
                  
                  Can
      Be SettledEmbedded
      conversion feature, June 22, 2006
                  
                  $
                  432,000
                  
                  
                  
                  1,600,000Embedded
      conversion feature, December 31, 2006
                  
                  
                  160,000
                  
                  
                  
                  1,600,000Embedded
      conversion feature, December 31, 2007
                  
                  
                  34,000
                  
                  
                  
                  1,600,000Embedded
      conversion feature, December 31, 2008
                  
                  
                  0
                  
                  
                  
                  2,000,000Embedded
      conversion feature, December 31, 2009
                  
                  
                  0
                  
                  
                  
                  0Current
      year to date change
                  
                  $
                  -
 
 F-17
 BLASTGARD
INTERNATIONAL, INC.
 Notes
to Financial Statements
 The
change on the derivative liability resulted in a gain of $ 0 and $34,000 for the
years ended December 31, 2009 and 2008.
 
 Detachable
common stock warrants issued with subordinated convertible promissory
notes
 
 The
warrants were detachable and were valued separately from the convertible notes
payable. Therefore, the total fair value of the warrants, $1,200,000, was
charged to additional paid-in capital with a corresponding discount on the
convertible notes payable. Changes to the value of the warrants were also
charged to additional paid-in-capital and discount on convertible notes payable.
The remaining discount was amortized over the life of the debt. At December 31,
2009, there were 7,457,126 warrants outstanding and exercisable associated with
this debt. These warrants were valued at $182,012.
 
 Debt
issue costs
 
 The
subordinated, convertible debt discounts and related debt issue costs have been
fully amortized.
 
 (5)
                  Detachable
      common stock warrants issued with convertible and subordinated convertible
      promissory notes
 
 The
Company issued warrants with both the convertible promissory notes, in 2004 and
the subordinated convertible promissory notes in 2006.  The company
issued additional warrants in 2004 for a consulting agreement and in 2007 with
the sale of stock and a penalty.  The information contained in this
Note 5 was as of December 31, 2009 unless otherwise
noted.
 
 The fair
value of detachable warrants issued with the convertible notes was charged to
additional paid-in capital with a corresponding discount on the convertible
notes payable.  The discount was amortized over the life of the debt.
 As the discount was amortized, the reported outstanding principal balance
of the notes approached the remaining unpaid value ($279.292 and $355,000 at
December 31, 2009 for the 2004 and 2006 debt
respectively.).
 
 The
warrants were revalued twice in 2007 and once in 2008 due to changes in the
agreements with the note holders.  The original number of warrants
issued and the exercise price were as follows:
 
 Number
                  
                  
                  
                  
                  
                  ExerciseDescription
                  
                  Issued
                  
                  
                  
                  
                  
                  Price2004
      debt “A”, “B”, “C”, “D”, “E”, “F” warrants
                  
                  
                  2,113,758
                  
                  
                  $
                  
                  
                  
                  $
                  1.00
      - $2.002006
      debt “C”, “D”, “E” and “F” warrants
                  
                  
                  4,066,666
                  
                  
                  $
                  
                  
                  
                  $
                  0.75
      - $2.002004
      Consulting agreement
                  
                  
                  150,000
                  
                  
                  $
                  
                  
                  
                  $
                  5.002007
      sale of stock
                  
                  
                  6,614,688
                  
                  
                  $
                  
                  
                  
                  $
                  0.452007
      10% penalty on sale of stock
                  
                  
                  661,479
                  
                  
                  $
                  
                  
                  
                  $
                  0.452007
      Broker warrants
                  
                  
                  1,988,815
                  
                  
                  $
                  
                  
                  
                  $
                  0.32Total
                  
                  
                  16,198,106
 
 On
OctobOn October 17, 2008, the Board of Directors agreed to extend the expiration
date for an additional 92 days of certain unclassified warrants to purchase
9,264,970 shares that would otherwise have expired at the close of business on
October 20, 2008. These warrants which were exercisable at $.45 per share will
now be exercisable at a reduced exercise price of $.10 per share through the
close of business on January 20, 2009.
 
 F-18
 
 BLASTGARD
INTERNATIONAL, INC.
 Notes
to Financial Statements
 
 As a
result of the Board’s action in the preceding paragraph, the anti-dilution
provisions of all other outstanding warrants will result in the reduction of the
exercise price of our outstanding Class A, Class C, Class D, Class E and Class F
Warrants to an exercise price of $.10 per share. In the case of the Class C, D,
E and F Warrants, it will also cause there to be an increase in the number of
shares purchasable there under.  As a result of the Board’s actions,
the total number of Class A warrants for the holders of the December 2004 Debt
remained at 473,336 but the exercise price was reduced from $.45 to $.10 per
share; and the total number of Class F warrants for the holders of the December
2004 Debt increased from 666,667 to 3,333,335 and the exercise price was reduced
from $.50 to $.10 per share. No assurances can be given that any warrants will
be exercised.
 
 The fair
value for the warrants was estimated at the date of revaluation using the
Black-Scholes option-pricing model with the following
assumptions:
 
 Risk-free
      interest rate
                  0.83%
      - 1.64%Dividend
      yield
                  0.00%Volatility
      factor
                  136.22%
      - 187.85%Expected
      life
                  0.3
      – 1.84 years
 
 The
number of warrants outstanding, the associated exercise price and value after
the revaluation was as follows:
 
 Number
                  
                  
                  Exercise
                  
                  
                  FairDescription
                  
                  Issued
                  
                  
                  Price
                  
                  
                  ValueClass
      “A” warrants
                  
                  
                  556,170
                  
                  
                  $
                  0.10
                  
                  
                  $
                  10,571Class
      "C" warrants
                  
                  
                  5,498,999
                  
                  
                  
                  0.10
                  
                  
                  
                  104,839Class
      “D” warrants
                  
                  
                  324,000
                  
                  
                  
                  0.10
                  
                  
                  
                  6,177Class
      “E” warrants
                  
                  
                  162,000
                  
                  
                  
                  0.10
                  
                  
                  
                  3,089Class
      "F" warrants
                  
                  
                  8,964,285
                  
                  
                  
                  0.10
                  
                  
                  
                  170,906Undefined
      warrants
                  
                  
                  9,414,970
                  
                  
                  $
                  0.10
                  
                  
                  
                  114,15824,920,424
                  
                  
                  
                  
                  
                  Total
                  $ 409,739
 
 In
March 2009, the Company issued 1,800,000 warrants to new investors who
assumed one half of the 2004 debt from the existing holders. The Company used
the Black-Scholes model to estimate the value of these warrants at $58,612. The
assumptions used to value the warrants were as
follows:
 
 Risk-free
      interest rate
                  1.0%Dividend
      yield
                  0.00%Volatility
      factor
                  194.26%Weighted
      average expected life
                  1.61
      years
 
 The
relative fair value of these warrants was calculated at $44,579. This relative
fair value was recorded as a discount to the assumed debt and amortized to
interest over the remaining life of the loans. The relative fair value of
previously issued detachable warrants associated with the convertible notes was
charged to additional paid-in capital with a corresponding discount on the
convertible notes payable. The discount was amortized over the original life of
the debt.
 
 Also,
during March 2009, the holders of certain senior convertible securities
originally issued on December 2, 2004, extended the due date of the debt to
November 30, 2009 in exchange for the issuance of Class G warrants to
purchase 1,800,000 shares of common stock in the
Company.
 
 In March
2009, the conversion price of the Notes was also lowered to $.03 per share.
Concurrently, the Class A, C, D, E and F warrants held by these investors
were cancelled and an equal number of Class G warrants were issued as
replacements.
 
 F-19
 BLASTGARD
INTERNATIONAL, INC.
 Notes
to Financial Statements
 
 The
number of warrants outstanding, the associated exercise price and value after
the reallocation was as follows:
 
 Number
                  
                  
                  Exercise
                  
                  
                  FairDescription
                  
                  Issued
                  
                  
                  Price
                  
                  
                  ValueClass
      “A” warrants
                  
                  
                  -
                  
                  
                  $
                  0.10
                  
                  
                  $
                  -Class
      "C" warrants
                  
                  
                  1,921,500
                  
                  
                  
                  0.10
                  
                  
                  
                  36,634Class
      “D” warrants
                  
                  
                  324,000
                  
                  
                  
                  0.10
                  
                  
                  
                  6,177Class
      “E” warrants
                  
                  
                  162,000
                  
                  
                  
                  0.10
                  
                  
                  
                  3,089Class
      "F" warrants
                  
                  
                  2,097,620
                  
                  
                  
                  0.10
                  
                  
                  
                  39,991Class
      “G” warrants
                  
                  
                  12,244,164
                  
                  
                  $
                  0.10
                  
                  
                  
                  398,690Total
                  
                  
                  16,749,284
                  
                  
                  
                  
                  
                  
                  $
                  484,581
 
 (6)
                  Shareholders’
      Equity
 
 Preferred
      stock
 
 The
Company was authorized to issue 1,000 shares of $.001 par value preferred
stock.  The Company may divide and issue the Preferred Shares in
series.  Each Series, when issued, shall be designated to distinguish
them from the shares of all other series. The relative rights and preferences of
these series include preference of dividends, redemption terms and conditions,
amount payable upon shares of voluntary or involuntary liquidation, terms and
condition of conversion as well as voting powers.
 
 Common
stock issuances
 
 During
2008, various note holders accepted a total of 2,395,924 shares of stock in lieu
of interest and principal payments on their debt.  The total principal
and interest payments converted to stock totaled
$245,253.
 
 In
December 2008, an officer accepted 187,500 shares in lieu of his salary for the
month of December.  This stock was accepted at a negotiated price of
$0.10 per share rather then the lower market value of the stock so as not to
trigger anti-dilution provisions in the debt and warrants.  The total
salary converted to stock was $18,750.  The value of the stock when
issued was less than $5,000.  The Company did not record a gain on the
issuance of stock because the transaction was with a related
party.  The difference between the salary and the value of the stock
was applied to additional paid in capital.
 
 From
January through August 2009, an officer accepted 187,500 shares per month in
lieu of his salary for the first eight months of 2009.  This stock was
accepted at a negotiated price of $0.10 per share rather than the lower market
value of the stock so as not to trigger anti-dilution provisions in the debt and
warrants.  The total salary converted to stock was
$150,000.  The value of the stock when issued was less than $40,000.
The Company did not record a gain on the issuance of stock because the
transaction was with a related party.  The difference between the
salary and the value of the stock was applied to additional paid in
capital.
 
 In April,
2009, 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 CEO at that time,
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.
 
 F-20
 
 BLASTGARD
INTERNATIONAL, INC.
 Notes
to Financial Statements
 
 Also in
April 2009, the company issued 100,000 shares of stock in exchange for $4,000 of
consulting services.
 
 In May,
2009, $93,097 of the 2004 Notes and $388 in interest was converted at $.03 per
share into 3,116,164 shares of the Company’s Common Stock, reducing the
principal balance of the debt underlying the 2004 Notes to $279,292 as of
December 31, 2009.
 
 Stock
      Compensation
 
 The
Company periodically offered options to purchase stock in the company to vendors
and employees.
 
 Options
were granted at the fair market value of the stock on the date of grant. Options
generally become fully vested after one year from the date of grant and expire
five years from the date of grant. During the years ended December 31, 2009 no
options were granted and 1,266,667 options expired when sales goals were not
met.
 
 On
October 17, 2008, the board agreed to change the exercise price for all options
to $0.10 per share.  The revaluation of the options created an
additional $40,000 in compensation costs on options that were ready
vested.  These costs were included in the compensation costs for
2008.  In addition, the revaluation of certain stock warrants,
discussed above, created $5,534 in compensation
costs.
 
 Our
results of operations include stock-based compensation for the twelve months
ended December 31, as follows:
 
 Twelve
      months ended December 31,2009
                  
                  
                  2008General and administrative
                  
                  $
                  -
                  
                  
                  $
                  45,534Less: Tax effect of non-qualified options
                  
                  
                  -
                  
                  
                  
                  -$
                  -
                  
                  
                  $
                  45,534
 
 We used the Black-Scholes option pricing model to
estimate the fair value of stock-based awards on the date of grant. The
assumptions employed in the calculation of the fair value of share-based
compensation expense for the years ended December 31, 2009 and 2008 were
calculated as follows:
 
 ●
                  
                  Expected
      dividend yield — based on the Company’s historical dividend
      yield.
 
 ●
                  
                  Expected
      volatility — based on the Company’s historical market price at consistent
      points in a period equal to the expected life of the
    options.
 
 ●
                  
                  Risk-free
      interest rate — based on the U.S. Treasury yield curve in effect at the
      time of grant.
 
 ●
                  
                  Expected
      life of options — calculated using the simplified method as prescribed in
      Staff Accounting Bulletin No. 107, where the expected life was equal
      to the sum of the vesting period and the contractual term divided by
      two.
 
 The
following table summarizes the assumptions used to estimate the fair value of
stock options granted during the years ended December 31, 2009 and
2008:
 
 F-21
 
 BLASTGARD
INTERNATIONAL, INC.
 Notes
to Financial Statements
 
 2009
                  
                  
                  2008Expected
      dividend yield
                  
                  
                  -
                  %
                  
                  
                  -
                  %Expected volatility
                  
                  
                  -
                  %
                  
                  
                  136.22
                  %Risk-free interest rate
                  
                  
                  -
                  %
                  
                  
                  0.83 – 1.64
                  %Expected life of options
                  
                  
                  -
                  
                  
                  
                  2-3
 
 There
were no net cash proceeds from the exercise of stock options for the twelve
months ended December 31, 2009 or 2008.  At December 31, 2009, there
was no unrecognized compensation cost related to share-based payments which was
expected to be recognized in the future.
 
 The
following table represents stock option activity as of and for the twelve months
ended December 31, 2009 and 2008:
 
 Number
                    of
      Shares
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price
                  
                  Weighted
                    Average
                    Remaining
                    Contractual Life
                  
                  Aggregate
                    Intrinsic
                    ValueOptions
      Outstanding - January 1, 2009
                  
                  
                  5,578,334
                  
                  
                  $
                  0.10
                  
                  2.9
      yearsGranted
                  
                  
                  -
                  
                  
                  
                  -Exercised
                  
                  
                  -
                  
                  
                  
                  -Forfeited/expired/cancelled
                  
                  
                  (1,391,667
                  )
                  
                  
                  0.10Options
      Outstanding – December 31, 2009
                  
                  
                  4,186,667
                  
                  
                  $
                  0.10
                  
                  2.2 years
                  
                  $
                  91,456Outstanding
      Exercisable – January 1, 2009
                  
                  
                  3,545,000
                  
                  
                  $
                  0.10
                  
                  2.9
      years
                  
                  $Outstanding
      Exercisable – December 31, 2009
                  
                  
                  3,420,000
                  
                  
                  $
                  0.10
                  
                  2.2
      years
                  
                  $
                  73,630
 
 The total
grant date fair value of options vested during the twelve months ended December
31, 2009 and 2008 was $0 and $0, respectively.
 
 The
following table represents our non-vested stock option activity for the twelve
months ended December 31, 2009:
 
 Number
                    of
      Shares
                  
                  
                  Weighted Average
                    Grant
      Date
                    Fair
      ValueNonvested
      options - January 1, 2009
                  
                  
                  2,033,334
                  
                  
                  $
                  0.10Granted
                  
                  
                  -
                  
                  
                  
                  -VestedForfeited/expired/cancelled
                  
                  
                  (1,266,668
                  )
                  
                  
                  0.45-Nonvested
      Options – December 31, 2009
                  
                  
                  766,666
                  
                  
                  $
                  0.10
 
 (6)
Related Party Transactions
 
 During
the twelve months ended December 31, 2009, the Company borrowed approximately
$98,000 against its $100,000 credit line, which was secured by a personal
guarantee of its Chief Financial Officer. Currently, $91,380 was owed pursuant
to the line of credit (inclusive of interest) at December 31,
2009.
 
 (7)         Income
Taxes
 
 A
reconciliation of U.S. statutory federal income tax rate to the effective rate
follows:
 
 December
      31, 2009
                  
                  
                  December
      31, 2008U.S.
      statutory federal rate, graduated
                  
                  
                  34.00
                  %
                  
                  
                  34.00
                  %State
      income tax rate, net of Federal
                  
                  
                  3.6
                  %
                  
                  
                  3.6
                  %Permanent
      book-tax differences
                  
                  
                  (0.03
                  %)
                  
                  
                  (0.03
                  %)Net
      operating loss(NOL) for which no tax benefit was
available.
                  
                  
                  -37.57
                  %
                  
                  
                  -37.57
                  %Net
      tax rate
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %
 
 At
December 31, 2009, deferred tax assets consisted of a net tax asset of
approximately $4,951,000, due to operating loss carryforwards of approximately
$13,167,000, which was fully allowed for, in the valuation allowance of
$4,951,000.  The valuation allowance offsets the net deferred tax
asset for which it was more likely than not that the deferred tax assets will
not be realized.  The change in the valuation allowance for the years
ended December 31, 2009 and 2008 totaled approximately $249,000 and $560,000
respectively.  The current tax benefit also totaled $249,000 and
$560,000 for the years ended December 31, 2009 and 2008,
respectively.  The net operating loss carryforwards expire through the
year 2029.
 
 The
valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the deferred tax asset will be
realized.  At that time, the allowance will either be increased or
reduced; reduction could result in the complete elimination of the allowance if
positive evidence indicates that the value of the deferred tax assets was no
longer impaired and the allowance was no longer
required.
 
 Should
the Company undergo an ownership change as defined in Section 382 of the
Internal Revenue Code, the Company’s tax net operating loss carryforwards
generated prior to the ownership change will be subject to an annual limitation,
which could reduce or defer the utilization of these
losses.
 
 F-22
 BLASTGARD
INTERNATIONAL, INC.
 Notes
to Financial Statements
 
 (8)         Concentration
of Credit Risk for Cash
 
 The
Company has concentrated its credit risk for cash by maintaining deposits in a
financial institution, which may at times exceed the amounts covered by
insurance provided by the United States Federal Deposit Insurance Corporation
(“FDIC”).  At December 31, 2009, the Company had no funds in excess of
the FDIC insurance limits.
 
 (9)         Commitments
and Contingencies
 
 Office
Lease
 
 The
Company entered into a new lease agreement in June 2007 for office space in
Clearwater Florida.  Rental payments under the lease were $600 per
month on a month to month basis.  The Company entered into a new lease
agreement in January 1, 2009 for similar office space in Clearwater
Florida.  Rental payments under the new lease were $300 per month on a
month to month basis.  The Company also had sales office space in
Orangeville, Ontario and paid $1,200 per month on a month to month
agreement.  The lease of office space in Ontario ended on November 30,
2008. Rent expense for 2009 and 2008 was approximately $3,700 and $20,400
respectively.
 
 Litigation
 
 Verde
Partners Family Limited Partnership
 
 The
Company was served with a lawsuit that was filed on September 12, 2005 in
the Second Judicial District Court in Washoe County, Nevada as case number
CV-05-02072. The plaintiff in the lawsuit was Verde Partners Family Limited
Partnership (“Verde”). The lawsuit makes a variety of claims and contends that
the Company and certain officers of the Company misappropriated certain
technology, including two patents, and seeks damages “in excess of
$10,000”.  The action was removed to federal court in Nevada.  A
motion was pending to have the case dismissed as to Blastgard International,
Inc., and all other defendants, for lack of personal jurisdiction.  There
was also a motion pending for a more definite statement in that three of the
claims by Verde were conclusory, vague and
ambiguous.
 
 On July
14, 2006, the United States District Court rendered its decision in this case.
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 was moot. The Court entered judgment on
July 17, 2007 in favor of all Defendants and against the Plaintiff. The
Plaintiff had 30 days from the date of the judgment (July 17) to file a notice
of appeal. No notice was filed.
 
 On
July 19, 2006, the Company filed a lawsuit in the Circuit Court of the
Sixth Judicial Circuit in Pinellas County, Florida. The Defendants in the
lawsuit were 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 was 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 was 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.  At December 31, 2009, the Company was in arrears on three
monthly payments on the settlement.
 
 F-23
 
 ITEM
9.CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  (1) Previous Independent
Auditors:





a.
            On
      February 8, 2010, the Company dismissed our independent registered
      auditor, Cordovano and Honeck LLP of Englewood Colorado (“C & H”),
      based on their notification to us of their partner service
      limitation.


b.
            C
      & H’s report on the financial statements for the years ended December
      31, 2008 and 2007 contained no adverse opinion or disclaimer of opinion
      and was not qualified or modified as to audit scope or accounting. The
      auditor’s opinion letter did include an uncertainty paragraph regarding
      the Company’s ability to continue as a going concern
              .


c.
            Our
      Board of Directors participated in and approved the decision to change
      independent accountants. Through the period covered by the financial audit
      for the years ended December 31, 2008 and 2007 and any subsequent interim
      period through February 8, 2010, including its review of financial
      statements of the quarterly periods through September 30, 2009, there have
      been no disagreements with C & H on any matter of accounting
      principles or practices, financial statement disclosure, or auditing scope
      or procedure, which disagreements if not resolved to the satisfaction of C
      & H would have caused them to make reference thereto in their report
      on the financial statements.


d.
            During
      the two most recent fiscal years and any subsequent interim period through
      February 8, 2010, including the most recent review period of September 30,
      2009, there have been no reportable events with us as set forth in Item
      304(a)(i)(v) of Regulation S-K.


e.
            We
      requested that C & H furnish us with a letter addressed to the SEC
      stating whether or not it agrees with the above statements.  A
      copy of such letter is filed as an Exhibit to this Form
    8-K.




(2)
New Independent Accountants:




a.
            We
      engaged Peter Messineo, CPA of Palm Harbor Florida, as our new independent
      registered auditor on February 10, 2010.


b.
            Prior
      to February 10, 2010, we did not consult with  Mr. Messineo
      regarding (i) the application of accounting principles, (ii) the type of
      audit opinion that might be rendered by Mr. Messineo, or (iii) any other
      matter that was the subject of a disagreement between us and our former
      auditor or was a reportable event (as described in Items 304(a)(1)(iv) or
      Item 304(a)(1)(v) of Regulation S-K,
  respectively).





ITEM 9A(T).  CONTROLS AND
PROCEDURES


The Chief
Executive Officer/Chief Financial Officer has evaluated the effectiveness of our
disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as
of the end of the period covered by this report. Based on that evaluation, the
Chief Executive Officer/Chief Financial Officer has concluded that these
disclosure controls and procedures are effective.





REPORT
OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting for the company. Internal control over
financial reporting is a process to provide reasonable assurance regarding the
reliability of our financial reporting for external purposes in accordance with
accounting principles generally accepted in the United States of America.
Internal control over financial reporting includes maintaining records that in
reasonable detail accurately and fairly reflect our transactions Under the
supervision and with the participation of our management, including the Chief;
providing reasonable assurance that transactions are recorded as necessary for
preparation of our financial statements; providing reasonable assurance that
receipts and expenditures of company assets are made in accordance with
management authorization; and providing reasonable assurance that unauthorized
acquisition, use or disposition of company assets that could have a material
effect on our financial statements would be prevented or detected on a timely
basis. Because of its inherent limitations, internal control over financial
reporting is not intended to provide absolute assurance that a misstatement of
our financial statements would be prevented or detected.




Management
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management concluded that the
Company’s internal control over financial reporting was effective as of
December 31, 2009. There were no changes in our internal control over
financial reporting during the quarter ended December 31, 2009 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.




32





ITEM 9B.  OTHER
INFORMATION.


Not
Applicable.





PART III





ITEM 10.  DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.


The
Company has a Board of Directors which is currently comprised of four members
and three vacancies in our Board of Directors. Each director holds office until
the next annual meeting of shareholders or until a successor is elected or
appointed. The members of our Board of Directors and our executive officers and
their respective age and position are as follows:





Name
            
            Age
            
            Position
      with Registrant
            
            Director
      ofRegistrant
      SinceAndrew
      R. McKinnon
            
            63
            
            Director
            
            October
      2007James
      F. Gordon (1)
            
            67
            
            President,
      Chairman of the Board and Director
              of
      Blast Mitigating Receptacles
            
            January
      2004Michael
      J. Gordon (1)
            
            52
            
            CEO,
      CFO, VP – Corporate Administration and Director
            
            January
      2004Paul
      Henry
            
            58
            
            Director
            
            February
      2010


__________


(1)  James
F. Gordon and Michael J. Gordon are brothers.





Indemnification of Executive
Officers





James F.
Gordon is President and Director of Blast Mitigating Receptacles, and Michael J.
Gordon is Chief Executive Officer and Chief Financial Officer. The biographies
of our directors and executive officers are provided below.




Andrew R. McKinnon – Was
BlastGard’s Chief Executive Officer from April 2007 through June 30, 2009 and a
Board member since October 2007. Mr. McKinnon has been CEO of Phoenix Alliance
Corp. and PAC Business Group since 2004. Mr. McKinnon is an internationally
known public speaker and has been a turn-a-round specialist for the past twenty
years. Mr. McKinnon and his wife, own one of Canada’s Premier Thoroughbred
Breeding operations. As a past member of The International Speakers Bureau, Mr.
McKinnon has spoken on various topics in 14 countries and participated in the
re-organization of companies varying in size from multi-national to small
franchise operations. Mr. McKinnon founded Horsebrokers International in 1995
and was its Chief Executive Officer until 2000. In 1980 Mr. McKinnon founded
what was to become one of Canada’s largest specialty furniture franchise
companies and subsequently sold the company in 1986. In 1973 Mr. McKinnon
co-founded a small Floor Coverings Company that by 1978 had become the largest
volume retailer in Canada and subsequently sold the company in 1979. Mr.
McKinnon has served as a sponsor and advisor to the fundraising committee of
Olds College, Alberta Horse Industries Branch, the re-election campaign fund in
Western Canada for the late Prime Minister Pierre Elliot Trudeau and as a
Sponsor of The Calgary Stampede.




James F. Gordon – Executive
Officer and Board member since January 2004. As co-inventor of BlastWrap®,
Mr. Gordon is responsible for the overall policies, management development
and the Company’s future expansion and promotion of BlastWrap®
products. Mr. Gordon has 25 years of sales and marketing experience as a
licensed real estate broker and appraiser. He co-founded and was Vice President
of Sea Gull Ltd. Builders, a successful land development and construction
company. For sixteen years, Mr. Gordon designed and constructed executive
single-family homes. He later focused on the design, construction and sale of
Medical Condo office buildings, and is considered by the New Jersey Courts as an
expert in zoning and land development issues. From December 2000 to January
2004, Mr. Gordon was CEO of BlastGard, Inc. (an entity not related to our
company, that had a license to a different blast mitigation technology that was
different that the technology owned by our company). From 1995 to 2003, he was
the President of Purple’s Inc. an award winning, 275 seat 1920’s Art Deco
restaurant that he and his wife Bonnie, designed and built in 1995.
Mr. Gordon received his Bachelor of Science Degree from Monmouth
University, West Long Branch, New Jersey. Mr. Gordon is also a U.S. Army
veteran.




33




Michael J. Gordon –Executive
Officer and Board member since January 2004. From January 2003 to January 2004,
Mr. Gordon devoted a majority of his time in the development and marketing
of BlastGard, Inc. (an entity not related to our company, that had a license to
a different blast mitigation technology that was different that the technology
owned by our company). From April 1998 through December 2002, Mr. Gordon
was Vice President and a Board member of BBJ Environmental Solutions, which
conducts research on the causes of, and develops solutions to, biologically
related indoor air quality problems, including research in bio-defense and
emerging infectious diseases, such as Anthrax. From August 1987 through December
1997, Mr. Gordon was employed by Phoenix Information Systems Corp., where
he was responsible for overseeing administrative operations, the filing of all
SEC reports and documents, company news releases and public relations. Before
joining Phoenix, Mr. Gordon served as Director of Legacies and Planned
Giving for the American Cancer Society. Mr. Gordon received his Bachelor of
Science degree from the State University of New York in 1980.




Paul W. Henry - In
February 2010, Paul Henry was appointed to fill a vacancy on the board of
directors. Mr. Henry has served since 2008 in new business development for
Colchis Capital Management of San Francisco, an alternative investment
management firm.  Since 1987, Mr. Henry has served as an investment banker,
business advisor, and/or director of several start-up and emerging companies,
including the following: Caithness Energy, an independent power producer based
in New York City; Essex Investment Management Company, an investment advisory
firm based in Boston, Massachusetts; Phoenix Information Systems, an information
technology and services company based in St. Petersburg, Florida; DragonHorse
International, a China business development company based in Florida; and
Prescott & Forbes, a start-up materials science company based in
Indianapolis, Indiana. From 1983 to 1987, Mr. Henry was employed by Connecticut
Financial Management Company in Boston as a personal financial advisor.
 Mr. Henry has a BA in economics from Yale University and an MBA from
Northeastern University Graduate School of Business.





Family
Relationships




James F.
Gordon and Michael J. Gordon are brothers.




Code of
Ethics




On August
4, 2004, the Board of Directors established a written code of ethics that
applies to our senior executive and financial officers. A copy of the code of
ethics is posted on our website at www.blastgardintl.com and or may be obtained
by any person, without charge, who sends a written request to BlastGard®
International. Inc., c/o Investor Relations, 2451 McMullen Booth Road, Suite
242, Clearwater, FL 33759.




COMMITTEES




We have
no standing or nominating committees of the Board of Directors or committees
performing similar functions. In February 2006, we established a Compensation
Committee and Audit Committee and in March 2007, we established a Management
Committee.





Compensation
Committee





Our
Compensation Committee consists of its members, namely, James F. Gordon and two
vacancies. Our Compensation Committee has such powers and functions as may be
assigned to it by the Board of Directors from time to time; however, such
functions shall, at a minimum, include the following:




34





●
            to
      review and approve corporate goals and objectives relevant to senior
      executive compensation, evaluate senior executive performance in light of
      those goals and objectives, and to set the senior executive compensation
      levels based on this evaluation;


●
            to
      approve employment contracts of its officers and employees and consulting
      contracts of other persons;


●
            to
      make recommendations to the Board with respect to incentive compensation
      plans and equity-based plans, including, without limitation, the Company’s
      stock options plans; and


●
            to
      administer the Company’s stock option plans and grant stock options or
      other awards pursuant to such
plans.





Management
Committee





In March
2007, our Board of Directors established a Management Committee and adopted a
written charter. The members of our Management Committee consist of James F.
Gordon, Michael J. Gordon and Andrew McKinnon . The charter includes, among
other things, the following responsibilities of the Management
Committee:





·
            Administer
      the business of the Corporation and generally supervise its day-to-day
      activities.


·
            Control
      and manage the funds and other property of the Corporation and have
      general oversight of business matters affecting the Corporation,
      consistent with the strategic directions established by the Board of
      Directors.


·
            Designate
      banks to be used as depositories of Corporation funds, upon the
      recommendation of the auditors and approval by the
  Board.


·
            Review
      the budget as submitted by the CFO and submit its recommendations to the
      Board for approval.


·
            Make
      recommendations concerning the Corporation’s fiscal structure, resource
      allocations and other financial matters to the
  Board.


·
            Make
      recommendations to the Board on the appointment of Corporate
      Executives.


·
            Undertake
      any other duties as may be assigned from time to time by the
      Board.





Corporate
Governance
 
 Our business, property and affairs are managed by, or under the direction of,
our Board, in accordance with the General Corporation Law of the State of
Colorado and our By-Laws. Members of the Board are kept informed of our business
through discussions with the Chief Executive Officer and other key members of
management, by reviewing materials provided to them by
management.
 
 We continue to review our corporate governance policies and practices by
comparing our policies and practices with those suggested by various groups or
authorities active in evaluating or setting best practices for corporate
governance of public companies. Based on this review, we have adopted, and will
continue to adopt, changes that the Board believes are the appropriate corporate
governance policies and practices for our Company. We have adopted changes and
will continue to adopt changes, as appropriate, to comply with the
Sarbanes-Oxley Act of 2002 and subsequent rule changes made by the SEC and any
applicable securities exchange.
 
 Director Qualifications and
Diversity
 
 The board seeks independent directors who represent a diversity of backgrounds
and experiences that will enhance the quality of the board’s deliberations and
decisions. Candidates shall have substantial experience with one or more
publicly traded companies or shall have achieved a high level of distinction in
their chosen fields. The board is particularly interested in maintaining a mix
that includes individuals who are active or retired executive officers and
senior executives, particularly those with experience in the defense, sales and
marketing and capital market industries.
 
 In evaluating nominations to the Board of Directors, our Board also looks for
certain personal attributes, such as integrity, ability and willingness to apply
sound and independent business judgment, comprehensive understanding of a
director’s role in corporate governance, availability for meetings and
consultation on Company matters, and the willingness to assume and carry out
fiduciary responsibilities. Qualified candidates for membership on the Board
will be considered without regard to race, color, religion, sex, ancestry,
national origin or disability.
 
 Risk
Oversight
 
 Enterprise risks are
identified and prioritized by management and each prioritized risk is assigned
to a board committee or the full board for oversight as
follows:
 
 Full Board - Risks
and exposures associated with corporate governance, and management and director
succession planning, strategic, financial and execution risks and other current
matters that may present material risk to our operations, plans, prospects
or reputation.
 
 Audit Committee -
Risks and exposures associated with financial matters, particularly financial
reporting, tax, accounting, disclosure, internal control over financial
reporting, financial policies, investment guidelines and credit and liquidity
matters.
 
 Compensation
Committee - Risks and exposures associated with leadership assessment,
and compensation programs and arrangements, including incentive
plans.
 
 Board
Leadership Structure
 
 The Chairman of the Board presides at all meetings of the Board. The Chairman is
appointed on an annual basis by at least a majority vote of the remaining
directors. Currently, the offices of Chairman of the Board and Chief Executive
Officer are not separated. The company has no fixed policy with respect to the
separation of the offices of the Chairman of the Board and Chief Executive
Officer. The Board believes that the separation of the offices of the Chairman
of the Board and Chief Executive Officer is part of the succession planning
process and that it is in the best interests of the company to make this
determination from time to time.
 
 Review
of Risks Arising from Compensation Policies and Practices
 
 We have reviewed our compensation policies and practices for all employees and
concluded that any risks arising from our policies and practices are not
reasonably likely to have a material adverse effect on the Company.


Audit
Committee





The sole
member of the Company’s audit committee is Paul Henry. Joel Gold was the sole
member before he resigned from the Board in February 2010. Management believes
that Mr. Henry is an independent director and he may be deemed to be a
“Financial Expert” within the meaning of Sarbanes Oxley Act of 2002, as amended.
Under the National Association of Securities Dealers Automated Quotations
(“NASDAQ”) definition, an “independent director means a person other than an
officer or employee of the Company or its subsidiaries or any other individuals
having a relationship that, in the opinion of the Company’ board of directors,
would interfere with the exercise of independent judgment in carrying out the
responsibilities of the director. The board’s discretion in determining director
independence is not completely unfettered.” Further, under the NASDAQ
definition, an independent director is a person who (1) is not currently (or
whose immediate family members are not currently), and has not been over the
past three years (or whose immediate family members have not been over the past
three years), employed by the company; (2) has not (or whose immediate family
members have not) been paid more than $60,000 during the current or past three
fiscal years;  (3) has not (or whose immediately family has not) been a
partner in or controlling shareholder or executive officer of an organization
which the company made, or from which the company received, payments in excess
of the greater of $200,000 or 5% of that organizations consolidated gross
revenues, in any of the most recent three fiscal years; (4) has not (or whose
immediate family members have not), over the past three years been employed as
an executive officer of a company in which an executive officer of BlastGard has
served on that company’s compensation committee; or (5) is not currently (or
whose immediate family members are not currently), and has not been over the
past three years (or whose immediate family members have not been over the past
three years) a partner of BlastGard’s outside auditor.





35





The term
“Financial Expert” is defined as a person who has the following attributes: an
understanding of generally accepted accounting principals and financial
statements; has the ability to assess the general application of such principals
in connection with the accounting for estimates, accruals and reserves;
experience preparing, auditing, analyzing or evaluating financial statements
that present a breadth and level of complexity of accounting issues that are
generally comparable to the breadth and complexity of issues that can reasonably
be expected to be raised by the Company’s financial statements, or experience
actively supervising one or more persons engaged in such activities; an
understanding of internal controls and procedures for financial reporting; and
an understanding of audit committee functions.




We can
provide no assurances that we will be able to in the future fill the Audit
Committee vacancy with an "independent director" who may be deemed a "financial
expert." Until this vacancy is filled, our Board of Directors will function as
its own Audit Committee.




Effective
February 16, 2006, the Board adopted a written charter for its Audit
Committee.  The charter includes, among other things:





annually reviewing and reassessing the adequacy of the committee’s
      formal charter;





reviewing the annual audited financial statements with the Company's
      management and its independent auditors and the adequacy of its internal
      accounting controls;





reviewing analyses prepared by the Company's management and
      independent auditors concerning significant financial reporting issues and
      judgments made in connection with the preparation of its financial
      statements;




being directly responsible for the appointment, compensation and
      oversight of the independent auditor, which shall report directly to the
      Audit Committee, including resolution of disagreements between management
      and the auditors regarding financial reporting for the purpose of
      preparing or issuing an audit report or related
work;


reviewing the independence of the independent
  auditors;





reviewing the Company's auditing and accounting principles and
      practices with the independent auditors and reviewing major changes to its
      auditing and accounting principles and practices as suggested by the
      independent auditor or its management;





reviewing all related party transactions on an ongoing basis for
      potential conflict of interest situations;
and





all responsibilities given to the Audit Committee by virtue of the
      Sarbanes-Oxley Act of 2002 (which was signed into law by President George
      W. Bush on July 30, 2002) and all amendments
thereto.





36


Compliance with Section
16(a) of the Exchange Act





Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our officers
and directors, and persons who own more than ten percent of a registered class
of our equity securities, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission (the
“Commission”).  Officers, directors and greater than ten percent
stockholders are required by the Commission's regulations to furnish us with
copies of all Section 16(a) forms they file. During fiscal 2009, none of our
officers, directors or 10% or greater stockholders filed any forms late to the
best of our knowledge





ITEM 11.  EXECUTIVE
COMPENSATION.


Summary Compensation
Table








Name and
      Principal Position
                Fiscal
      Year
                
                Salary ($)
                
                
                
                Bonus
      ($)
                
                
                Stock
      Awards
                
                
                Options
      Awards ($)  (1)
                
                
                Non-Equity
      Incentive Plan Compensation ($)
                
                
                Nonqualified
      Deferred Compensation Earnings ($)
                
                
                All Other
                  Compensation
                  ($) (2)
      (3)
                
                
                Total ($)James F.  Gordon,
      President,
                2009
                
                
                78,610
                (4
                )
                
                $
                0
                
                
                
                0
                
                
                $
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                78,6102008
                
                $
                102,894
                (4
                )
                
                
                0
                
                
                
                0
                
                
                $
                5,376
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                $
                102,898Michael
      J. Gordon, CEO/CFO
                2009
                
                
                78,305
                (4
                )
                
                
                0
                
                
                
                0
                
                
                $
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                78,3052008
                
                $
                103,65
                (4
                )
                
                
                
                
                
                
                0
                
                
                $
                3,556
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                $xx,432Andrew
      R.
                  McKinnon,
      formerly CEO
                2009
                
                $
                0
                
                
                
                $
                0
                
                
                
                112,500
                
                
                $
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                112,5002008
                
                $
                206,250
                
                
                
                
                0
                
                
                $
                18,750
                
                
                $
                3,901
                
                
                
                -0
                
                
                
                0
                
                
                
                0
                
                
                $
                225,000
 ___________





(1)
            The
      options and restricted stock awards presented in this table reflects the
      entire amount to be expensed over the service period as if the total
      dollar amount were earned in the year of grant. However, the accompanying
      financial statements reflect the dollar amount expensed by the company
      during applicable fiscal year for financial statement reporting purposes
      pursuant to guidance issued by the FASB. Such guidance requires the
      company to determine the overall value of the stock awards and options as
      of the date of grant. The stock awards are valued based on the fair market
      value of such shares on the date of grant and are charged to compensation
      expense over the related vesting period. The options are valued at the
      date of grant based upon the Black-Scholes method of valuation, which is
      expensed over the service period over which the options become
      vested. As a general rule, for time-in-service-based options, the
      company will immediately expense any option or portion thereof which is
      vested upon grant, while expensing the balance on a pro rata basis over
      the remaining vesting term of the option. For a description of the
      guidance issued by the FASB and the assumptions used in determining the
      value of the options under the Black-Scholes model of valuation, see the
      notes to the consolidated financial statements included with this Form
      10-K.




37




(2)
            Includes
      all other compensation not reported in the preceding columns, including
      (i) perquisites and other personal benefits, or property, unless the
      aggregate amount of such compensation is less than $10,000; (ii) any
      “gross-ups” or other amounts reimbursed during the fiscal year for the
      payment of taxes; (iii) discounts from market price with respect to
      securities purchased from the company except to the extent available
      generally to all security holders or to all salaried employees; (iv) any
      amounts paid or accrued in connection with any termination (including
      without limitation through retirement, resignation, severance or
      constructive termination, including change of responsibilities) or change
      in control; (v) contributions to vested and unvested defined contribution
      plans; (vi) any insurance premiums paid by, or on behalf of, the company
      relating to life insurance for the benefit of the named executive officer;
      and (vii) any dividends or other earnings paid on stock or option awards
      that are not factored into the grant date fair value required to be
      reported in a preceding column.




(3)
              Includes
      compensation for service as a director described under Director
      Compensation, below.


(4)
              Includes
      commissions.


For a
description of the material terms of each named executive officers’ employment
agreement, including, without limitation, the terms of any common share purchase
option grants, any agreement, plan or other arrangement that provides for any
payment to a named executive officer in connection with his or her resignation,
retirement or other termination, or a change in control of the company see
“Employment Agreements”.




All of
the outstanding common share purchase option or other equity-based award granted
to or held by any named executive officer in 2009 were re-priced or otherwise
materially modified, including extension of exercise periods, the change of
vesting or forfeiture conditions, the change or elimination of applicable
performance criteria, or the change of the bases upon which returns are
determined, nor was there any waiver or modification of any specified
performance target, goal or condition to payout.





Executive Officer
Outstanding Equity Awards At Fiscal Year-End




The following table provides certain
information concerning any common share purchase options, stock awards or equityincentive plan awards held by each of our named executive officers that
were outstanding as of December 31, 2009.





Option
      Awards
              
              
              
              Stock AwardsEquity
      Incentive Plan Awards:Name
              
              Number of
      Securities Underlying Unexercised Options(#) Exercisable
              
              
              Number of
      Securities Underlying Unexercised Options(#) Unexercisable
              
              
              Equity
                Incentive
                Plan
                Awards:
                Number of
      Securities Underlying Unexercised Unearned
Options (#)
              
              
              Option
      Exercise Price ($)
              
              Option
      Expiration Date
              
              Number of
      Shares
                or
      Units of Stock
                That
      Have
                Not
      Vested
                (#)
              
              
              Market
      Value of Shares or Units of Stock That Have Not
      Vested
              
              
              Number
      of Unearned Shares, Units or Other Rights That
                Have
      Not Vested
              
              
              Equity
                Incentive
      Plan
                Awards:
                Market or
      Payout Value of Unearned Shares, Units  or Other
      Rights That Have
                Not
      VestedJames
      F. Gordon(1)
              
              
              100,000
              (1)
              
              
              0
              
              
              
              0
              
              
              $
              0.10
              
              11/29/2010
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0100,000
              (2)
              
              
              0
              
              
              
              0
              
              
              $
              0.10
              
              11/29/2011
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0375,000
              (3)
              
              
              0
              
              
              
              0
              
              
              $
              0.10
              
              03/31/2012
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0Michael
      J. Gordon (1)
              
              
              100,000
              (1)
              
              
              0
              
              
              
              0
              
              
              $
              0.10
              
              11/29/2010
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0100,000
              (2)
              
              
              0
              
              
              
              0
              
              
              $
              0.10
              
              11/29/2011
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0200,000
              (3)
              
              
              0
              
              
              
              0
              
              
              $
              0.10
              
              03/31/2012
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0AndrewMcKinnon
              
              
              375,000
              (1)
              
              
              0
              
              
              
              0
              
              
              $
              0.10
              
              03/31/2012
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0




(1)
            Options
      vested 50,000 on November 30, 2005 and 50,000 on November 30,
      2006.


(2)
            Options
      vested 50,000 on November 8, 2006 and 50,000 on November 8,
      2007.


(3)
            All
      options vested on April 1, 2007.




38





Employment
Agreements





The
Company entered into employment agreements with James Gordon, Michael Gordon,
John Waddell, Jr., Andrew McKinnon and Kevin J. Sharpe, its corporate officers
effective April 1, 2007.  These agreements committed the Company to
combined salaries of $950,000 and granted 1,450,000 options as signing bonuses.
Mr. McKinnon also received a cash signing bonus in the amount of
$160,000.  The employment agreements also contain provisions for the
grant of options to purchase 15,900,000 shares as performance bonuses based on
certain sales volumes. On November 9, 2007, our executives agreed to amend
their employment agreements to cancel 10,600,000 (equivalent to two-thirds) of
the performance based option incentives to reduce the potential dilution to our
shareholders. Effective December 31, 2007, Kevin J. Sharpe voluntarily
terminated his employment contract due to visa issues. Also effective February
1, 2008, James F. Gordon, John L. Waddell, Jr. and Michael J. Gordon, each
agreed to reduce their monthly salaries to approximately $8,000 per month in
exchange for the right to receive sales commissions.Mr. Waddell’s contract was
voluntarily terminated on November 25, 2008 when Mr. Waddell announced his
retirement. Each agreement is identical to the other, except in terms of
compensation. In December 2008, Andrew McKinnon agreed to begin accepting his
monthly fee of $18,750 in restricted common stock based upon the market value of
the Company’s Common Stock with a Floor Price of $.10 per share as more fully
described under Item 7. Mr. McKinnon’s contract was voluntarily terminated on
June 30, 2009 when Mr. McKinnon resigned as CEO/COO. The following summarizes
the employment agreements of Messrs. J. Gordon, and M. Gordon prior to the
amendments noted above. For purposes of the employment agreement, all references
to “cause,” “change in control”, “employment period”, “good reason” and “notice
of termination” are as defined in the employment agreements.





●
            Term-Each agreement is for a term of three years, originally expiring
      March 31, 2010 and is automatically renewed each first day of April for
      successive one-year terms unless the Company or Executive delivers written
      notice to the other party at least sixty (60) days preceding the
      expiration of the initial term or any one-year extension date of the
      intention not to extend the term of this Agreement.  Currently
      the contracts of James Gordon and Michael J. Gordon expire March 31,
      2011.





●
            Position-James F. Gordon is currently employed as President and
      Director of Blast Mitigation Receptacles, and Michael J. Gordon as Chief
      Executive Officer and Chief Financial
Officer.





●
            Compensation-For services rendered by Executive, and upon the
      condition that Executive fully and faithfully perform all of his duties
      and obligations set forth herein, Executive shall be compensated for his
      services as follows:





(i)
            Executive
      shall receive his annual Base Salary. “Base Salary”
      means:  $225,000 for James Gordon, and $150,000 for Michael
      Gordon. Effective February 1, 2008, James F. Gordon and Michael J. Gordon,
      each verbally agreed to reduce his monthly salary to approximately $8,000
      per month in exchange for the right to receive sales commissions. These
      sales commissions per person for James F. Gordon and Michael J. Gordon can
      range from 1% to 10% of sales based upon the type of product sold and the
      dollar amount sold of each product. The commissions on the first
      $1,000,000 and each increment of $1,000,000 thereafter shall decrease from
      the highest percentage amount to the lowest percentage amount until a
      fixed amount of commission is paid for sales in excess of $5,000,000 per
      type of product.  Sales of our BlastGard Barrier System carry
      the highest commission with us obligated to pay J. Gordon 10% on the first
      $1,000,000 in sales, 8% on the second $1,000,000 of sales, 6% on the third
      $1,000,000 of sales, 4% on the fourth $1,000,000 of sales and 2% on the
      fifth $1,000,000 or greater amount of sales. M. Gordon would receive
      one-half of the commissions paid to J.
Gordon.




39




(ii)
            Each
      Executive received a signing bonus of stock options granted on April 1,
      2007 at $.45 per share (exercise price was subsequently reduced to $0.10
      per share). James Gordon received 375,000 options and Michael Gordon
      received 200,000 options. All options were fully vested on July 31,
      2007.


(iii)
            Each
      Executive was eligible to receive performance bonuses payable in cash and
      options at $.45 per share (which exercise price was subsequently reduced
      to $0.10 per share) based upon hitting sales targets in the first, second
      and third 12-month periods of the agreement. In the event we achieve
      $5,000,000 in sales, James Gordon will receive $50,000 in cash and 375,000
      options, increasing to $150,000 in cash and 750,000 options in the event
      we achieve $10,000,000 in sales, and increasing to $300,000 in cash and
      1,500,000 options in the event we achieve $20,000,000 in sale; in the
      event we achieve $5,000,000 in sales, Michael Gordon will receive $37,500
      in cash and 200,000 options, increasing to $75,000 in cash and 400,000
      options in the event we achieve $10,000,000 in sales and increasing to
      $125,000 in cash and 800,000 options in the event we achieve $20,000,000
      in sales. All bonuses shall be paid within 90 days of any sales target
      being achieved. Effective November 2007, each executive voluntarily agreed
      to forfeit two-thirds of all performance based options described above
      that may be earned by each respective executive officer in the
      future.


(iv)
            In
      the event of termination without cause, James Gordon and Michael Gordon
      would receive a lump sum termination payment of $450,000 and $300,000,
      respectively.


(iv)
            Each
      Executive shall be entitled to indemnification with respect to matters
      relating to Executive’s services as an officer and/or director of the
      Company.





●
            Separation Benefits upon
      Termination. Executive shall be entitled to receive separation
      benefits upon such events and in such amounts as are set forth
      herein.






a.
            Termination upon Death. If the Employment Period is
      terminated by Executive's death, the Company shall pay Executive's
      surviving spouse, or if he leaves no spouse, his personal representative,
      as successor in interest, (i) an amount equal to the then current Base
      Salary (paid in one lump sum payment on or before the fifteenth day
      following the date of Executive's death), and (ii) any death benefit
      payable under any employee benefit plans, programs and arrangements of the
      Company in which Executive is a participant on the date of his
death.b.
            Termination upon Disability. If the Employment
      Period is terminated because of Executive's Disability (as defined in the
      employment agreement), the Company shall pay to Executive (or in the event
      of Executive's death after finding of Disability, his surviving spouse, or
      if he leaves no spouse, his personal representative, as successor in
      interest) all compensation and benefits specified for a period of one year
      from the Date of Termination, payable in the same manner as if the
      Employment Period had not been terminated.c.
            Additional Separation Benefit. For a period of Six (6) months
      following (i) the full completion of the Employment Period or (ii)
      following the Date of Termination of the Employment Period for any reason
      other than termination by the Company for Cause or termination by
      Executive for other than Good Reason, the Company shall permit, at the
      Company's expense, Executive, his spouse and dependents, as applicable
      (the "Benefit Participants"), to participate in all group medical health
      insurance plans and employee benefit plans, programs and arrangements now
      or hereafter made available to the senior executive employees of the
      Company (the "Plans") (including but not limited to such Plans in which
      Executive was entitled to participate immediately prior to the Date of
      Termination), in the same manner provided to its other senior executive
      employees; provided, however, that this paragraph shall not apply in the
      event that (i) the Company shall hereafter terminate the applicable Plan,
      or (ii) the participation of the Benefit Participants in such Plan is
      prohibited by law or, if applicable, would disqualify such Plan as a tax
      qualified plan pursuant to the Code, or (iii) the participation of the
      Benefit Participants violates the general terms and provisions of such
      applicable Plan.
              
              Review of Risks
      Arising from Compensation Policies and Practices
              
              We have reviewed our compensation policies and practices for all
      employees and concluded that any risks arising from our policies and
      practices are not reasonably likely to have a material adverse effect on
      the Company.




40





DIRECTOR
COMPENSATION





Compensation





Prior to
May 2007, no cash compensation has been paid to our Directors for any service
provided as a Director. Directors may be reimbursed for all reasonable expenses
incurred by them in conducting our business. These expenses would include
out-of-pocket expenses for such items as travel, telephone, and
postage.  On May 11, 2007, the non-employee directors were authorized
by the Board to receive an annual cash fee of $11,000 and quarterly fees of
$1,000 for 2007.  No cash was paid to the directors during 2008 and
2009 as compensation.





Stock
Options





Stock
options and equity compensation awards to our non-employee / non-executive
directors are at the discretion of our Board.




In
November 2005, upon initial appointment to the board and with the intention of
annual grants thereafter, each non-employee/non-executive director was entitled
to receive an option grant to purchase shares of our common stock at an exercise
price equal to no less than the fair market value of the common stock on the
date of grant, such options to vest in accordance with their terms established
on the date of grant. This program was not continued in Fiscal
2007.




Pursuant
to our director’s compensation program, on November 30, 2005, we granted
five-year Non-Statutory Stock Options to purchase 100,000 shares of our common
stock at an exercise price of $.98 per share to Joel Gold and our former
director, Howard Safir. Each of the options granted to our directors contain
cashless exercise provisions and shall vest 50% on the date of grant and the
remaining 50% shall vest on November 30, 2006, it being understood that the
options that vested or would have vested on November 30, 2006 terminated in
the event that the holder is no longer serving as a director of our company at
anytime between the date of grant and November 30, 2006, subject to our
Board’s right to accelerate the vesting date of the option.  On July
1, 2006, Howard Safir resigned from the Board terminating his unvested
options.




On August
3, 2006, Mr. Burns was granted a five-year Non-Statutory Stock Option to
purchase 100,000 shares of the Corporation’s Common Stock at an exercise price
of $1.00 per share. The Option granted contains cashless exercise provisions and
shall vested 50% on the date of grant and the remaining 50% on August 3, 2007,
it being understood that the Options that vested on August 3, 2007 would have
terminated in the event that the holder is no longer serving as a director of
our Company at anytime between the date of grant and August 3, 2007, subject to
our Board’s right to accelerate the vesting date of the Option.




On
November 6, 2006, Ambassador L. Paul Bremer, III, Arnold I. Burns and Joel Gold
were granted effective November 8, 2006, a five-year Non-Statutory Stock Option
to purchase 100,000 shares of our Common Stock at an exercise price of $1.00 per
share. The Option granted contains cashless exercise provisions and vested 50%
on November 8, 2006 and the remaining 50% shall vest on November 8, 2007, it
being understood that the Options that vested on November 8, 2007 would have
terminated in the event that the holder was no longer serving as a director of
our company at anytime between the date of grant and November 8, 2007, subject
to our Board’s right to accelerate the vesting date of the Option.




41




On
November 6, 2006, Board members Arnold I. Burns and Ambassador L. Paul Bremer,
III were each granted, effective November 8, 2006, a seven-year Non-Statutory
Stock Option to purchase 250,000 shares of our Common Stock at an exercise price
of $1.50 per share. The Options granted contain cashless exercise provisions and
are fully vested.




Restricted
Stock




During
2009, the Company did not issue shares of Common Stock to its directors in
consideration of their services as directors, However, the Board authorized the
monthly issuance of 187,500 shares of our Common Stock to Andrew McKinnon in
lieu of his monthly salary of $18,750 for the six months of January through June
2009.  In February 2010, the Board approved the grant of 250,000
shares to Andrew McKinnon and Paul Henry for services rendered.





Summary of Director
Compensation for 2009





The
following table shows the overall compensation earned for the 2009 fiscal year
with respect to each non-employee and non-executive director as of December 31,
2009.




Name and
      Principal Position
            
            Fees
      Earned or Paid in Cash ($)
            
            
            Stock
      Awards
              ($)(1)
            
            
            Option
      Awards
              ($) (2)
            
            
            Non-Equity
      Incentive
              Plan Compen-sation
      ($) (3)
            
            
            Nonqualified
      Deferred Compen-sation Earnings
              ($)
            
            
            All Other
      Compen-sation
              ($) (4)
            
            
            Total ($)Joel
      Gold
              Director
            
            $
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            $
            0Andrew
      McKinnon
              Director
            
            $
            0
            
            
            
            50,000
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            $
            50,000





2005 Employee and Consulting
Compensation Plan





On
November 30, 2005, we established an Employee Benefit and Consulting
Compensation Plan (the “2005 Plan”) covering 5,000,000 shares. Since stockholder
approval of the 2005 Plan will not be obtained by November 30, 2006, then no
Incentive Stock Options may be granted after that date under the 2005 Plan. As
of March 15, 2010, there were non-statutory stock options to purchase 4,186,666
shares outstanding under the 2005 Plan.


Administration


Our Board
of Directors, Compensation Committee or both, in the sole discretion of our
Board, administer the 2005 Plan. The Board, subject to the provisions of the
2005 Plan, has the authority to determine and designate officers, employees,
directors and consultants to whom awards shall be made and the terms, conditions
and restrictions applicable to each award (including, but not limited to, the
option price, any restriction or limitation, any vesting schedule or
acceleration thereof, and any forfeiture restrictions). The Board may, in its
sole discretion, accelerate the vesting of awards. The Board of Directors must
approve all grants of Options and Stock Awards issued to our officers or
directors.




42





Types of
Awards





The 2005
Plan is designed to enable us to offer certain officers, employees, directors
and consultants of us and our subsidiaries equity interests in us and other
incentive awards in order to attract, retain and reward such individuals and to
strengthen the mutuality of interests between such individuals and our
stockholders. In furtherance of this purpose, the 2005 Plan contains provisions
for granting non-statutory stock options (and originally incentive stock options
which have now become non-statutory stock options) and Common Stock
Awards.


Stock
Options




A
“stock option” is a contractual right to purchase a number of shares of Common
Stock at a price determined on the date the option is granted.  The
option price per share of Common Stock purchasable upon exercise of a stock
option and the time or times at which such options shall be exercisable shall be
determined by the Board at the time of grant. Such option price shall not be
less than 100% of the fair market value of the Common Stock on the date of
grant. The option price must be paid in cash, money order, check or Common Stock
of the Company. The Options may also contain at the time of grant, at the
discretion of the Board, certain other cashless exercise
provisions.




Options
shall be exercisable at the times and subject to the conditions determined by
the Board at the date of grant, but no option may be exercisable more than ten
years after the date it is granted. If the Optionee ceases to be an employee of
our company for any reason other than death, any option granted as an incentive
stock option exercisable on the date of the termination of employment may be
exercised for a period of thirty days or until the expiration of the stated term
of the option, whichever period is shorter. In the event of the Optionee’s
death, any option originally granted as an incentive stock option exercisable at
the date of death may be exercised by the legal heirs of the Optionee from the
date of death until the expiration of the stated term of the option or six
months from the date of death, whichever event first occurs.  In the
event of disability of the Optionee, any Options granted as an incentive stock
option shall expire on the stated date that the Option would otherwise have
expired or 12 months from the date of disability, whichever event first
occurs.  The termination and other provisions of a non-statutory stock
option shall be fixed by the Board of Directors at the date of grant of each
respective option.





Common Stock
Award





“Common
Stock Award” are shares of Common Stock that will be issued to a recipient at
the end of a restriction period, if any, specified by the Board if he or she
continues to be an employee, director or consultant of us. If the recipient
remains an employee, director or consultant at the end of the restriction
period, the applicable restrictions will lapse and we will issue a stock
certificate representing such shares of Common Stock to the participant. If the
recipient ceases to be an employee, director or consultant of us for any reason
(including death, disability or retirement) before the end of the restriction
period unless otherwise determined by the Board, the restricted stock award will
be terminated.


Eligibility


Our
officers, employees, directors and consultants of BlastGard®
International and our subsidiaries are eligible to be granted stock options, and
Common Stock Awards. Eligibility shall be determined by the Board; however, all
Options and Stock Awards granted to officers and directors must be approved by
the Board.





Termination or Amendment of
the 2005 Plan





The Board
may at any time amend, discontinue, or terminate all or any part of the 2005
Plan, provided, however, that unless otherwise required by law, the rights of a
participant may not be impaired without his or her consent, and provided that we
will seek the approval of our stockholders for any amendment if such approval is
necessary to comply with any applicable federal or state securities laws or
rules or regulations.





43


Awards





To date,
no options to purchase common shares have been exercised under the 2005 Plan.
Unless sooner terminated, the 2005 Plan will expire on November 30, 2015
and no awards may be granted after that date. It is not possible to predict the
individuals who will receive future awards under the 2005 Plan or the number of
shares of Common Stock covered by any future award because such awards are
wholly within the discretion of the Board. The table below contains information
as of December 31, 2009 on the known benefits provided to certain persons and
group of persons under the 2005 Plan (exclusive of options that terminated on
December 31, 2009).





Number of
              Shares
              subject
      to
              Options
            
            
            Average
              exercise
              price ($) per
              Share
            
            
            Value of
              unexercised
              options at
              December 31,
              2009 (1)Andrew
      R. McKinnon, Chief Operating Officer
            
            
            375,000
            
            
            
            0.10
            
            
            
            -0-James
      F. Gordon, Chief Executive Officer
            
            
            575,000
            
            
            
            0.10
            
            
            
            -0-John
      L. Waddell, Jr., President
            
            
            500,000
            
            
            
            0.10
            
            
            
            -0-Kevin
      J. Sharpe, Consultant
            
            
            400,000
            
            
            
            0.10
            
            
            
            -0-Michael
      J. Gordon, Chief Financial Officer, Vice President
            
            
            400,000
            
            
            
            0.10
            
            
            
            -0-Five
      Executive Officers as a group
            
            
            2,250,000
            
            
            
            0.10
            
            
            
            -0-Non-employee
      Directors
            
            
            1,050,000
            
            
            
            0.10
            
            
            
            -0-Non-Executive
      Officer Employees and Consultants
            
            
            120,000
            
            
            
            0.10
            
            
            
            -0-





(1)
            Value
      is calculated by multiplying (a) the difference between the market
      value per share at December 31, 2009 (based upon a last sales price of
      $.01 per share) and the option exercise price by (b) the number of
      shares of Common Stock underlying the
option.





44


ITEM
12.SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.


The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 2010 by all of our officers and
directors, both individually and as a group. Unless otherwise indicated, all
shares are directly beneficially owned and investing power is held by the
persons named.





Name
      and Address of Beneficial Owner (1)
            
            Amount
      and Nature of Beneficial Ownership (1)
            
            
            Percentage
      Outstanding
              (2)James F. Gordon (3)
            
            
            4,923,400
            
            
            
            9.6
            %Michael J. Gordon (4)
            
            
            2,100,000
            
            
            
            4.1
            %Paul Henry (5)
            
            
            565,000
            
            
            
            0
            %Andrew R. McKinnon (6)
            
            
            2,312,500
            
            
            
            4.5
            %Includes all of our officers and directors as a group (4
      persons)
            
            9,900,900
            
            
            
            19.1
            %John H. Waddell, Jr. (8)
            
            
            5,450,400
            
            
            
            10.8
            %Robocheyne Consulting  (7, 9)
            
            
            10,445,399
            
            
            
            14.5
            %Robert Rose (10)
            
            
            3,069,712
            
            
            
            6.1
            %Stan Baharti
            
            
            4,016,164
            
            
            
            7.9
            %


(1)
            
            Unless
      otherwise indicated, all shares are directly beneficially owned and
      investing power is held by the persons named. The address of each person
      is c/o BlastGard®
      International, Inc. at 2451 McMullen Booth Road, Ste., 242, Clearwater, FL
      33759.(2)
            
            Based
      upon 50,586,142 shares of Common Stock outstanding as of March 31, 2010,
      plus the amount of shares each person or group has the right to acquire
      under options, warrants, rights, conversion privileges, or similar
      obligations.(3)
            
            Includes
      options to purchase 575,000 shares of our common stock.(4)
            
            Includes
      options to purchase 400,000 shares of our common and 285,000 shares
      beneficially owned by his children..(5)
            
            No
      options or warrants outstanding(6)
            
            Includes
      options to purchase 375,000 shares.(7)
            
            Includes
      derivative securities to purchase 3,103,242 shares included in
      notes.(8)
            
            Includes
      options to purchase 500,000 shares.(9)
            
            Includes
      4,158,823 shares of Common Stock issuable upon exercise of
      Warrants.(10)
            
            Includes
      2,236,379 shares of Common Stock issuable upon exercise of
      Warrants.




45
 
 
 We do not
know of any arrangement or pledge of its securities by persons now considered in
control of us that might result in a change of control of us.





Equity Compensation Plan
Information





The
following summary information is as of March 28, 2010 and relates to our 2005
Stock Option Plan pursuant to which we have granted options to purchase our
common stock:





Plan
      category
            
            (a)
              Number
      of shares of common
              stock
      to be issued upon
              exercise
      of outstanding
              options
            
            
            (b)
              Weighted
      average
              exercise
      price of
              outstanding
              options
            
            
            (c)
              Number
              of
      securities
              remaining
      available for
              future
      issuance under
              equity
      compensation plans
              (excluding
      shares
              reflected
      in column (a)Equity
      compensation
              Plans
            
            
            4,186,667
            
            
            $
            .10
            
            
            
            813,333





ITEM 13.CERTAIN RELATIONSHIPS, RELATED
TRANSACTIONS AND DIRECTOR INDEPENDENCE







(i)   
On May 11, 2007, the Board authorized the issuance and sale of 30,000 shares of
our Common Stock to each non-employee/non executive in lieu of cash fees
totaling $15,000 for 2007.  See “Employment Agreements” for a
discussion of options granted to each executive officer in April 2007 as a
signing bonus for entering into new employment agreements.




(ii)   
In November 2007, each of our executive officers agreed to amend their
employment contracts to voluntarily waive two-thirds of their potential future
entitlement to performance-based options.




(iii)   
During the three months ended March 31, 2007, the Company borrowed $97,000
against its $100,000 credit line, which was secured by its Chief Financial
Officer. In April 2007, the Company retired this short-term loan.




(iv)   
During the nine months ended September 30, 2008, the Company borrowed $80,000
against its $100,000 credit line, which was secured by a personal guarantee of
its Chief Financial Officer.  The credit line was paid in full on
October 17, 2008.




46




(vi)   
On October 17, 2008, the Board of Directors agreed to reduce the exercise price
on all the options (which varied in exercise prices from $.45 to $2.00 per
share) to $.10 per share for all options granted to active consultants, legal,
board members and management.




(vii)   
During the fourth quarter of 2008, the Company borrowed $95,000 against its
$100,000 credit line, which was secured by a personal guarantee of its Chief
Financial Officer.  The credit line was paid in full on January 9,
2009




(viii)   
In December 2008, we eliminated our satellite offices located in Houston, Texas
and Toronto, Canada. In connection with the Toronto satellite office, we
eliminated company office rent of an aggregate of approximately $1,200 per
month.




(ix)   
During the twelve months ended December 31, 2009, the Company borrowed
approximately $98,000 against its $100,000 credit line, which was secured by a
personal guarantee of its Chief Financial Officer. As of April 12, 2010,
approximately $94,000 is owed pursuant to the line of credit.  Also,
as of April 12, 2010 we owe our Chief Financial Officer approximately
$10,000.




Other
Transactions




December
2004 Debt




In
December 2004, we raised $1,420,000 from five investors in a convertible debt
financing, and issued to the investors, secured convertible notes due
October 31, 2007 and common stock purchase warrants.




The notes
each bear an interest rate of 8% per annum. Aggregate monthly payments of
1.2% of the principal amount were due commencing November 1, 2005 through
April 30, 2006, then aggregate monthly payments of 3% of the principal
amount were scheduled for payment commencing May 1, 2006 through
October 31, 2006, and then aggregate monthly payments of 6% of the
principal amount were scheduled for payment commencing November 1, 2006
through October 31, 2007. Payments are applied first to accrued interest
and then to principal. The balance of the unpaid principal and any unpaid
interest is due on October 31, 2007. However, as a result of the
June 22, 2006 debt financing, the payment arrangements were modified.
Monthly payments of interest only (8%) based on the principal amount were paid
from June 1, 2006 through May 31, 2007, and then aggregate monthly
payments of 6% of the principal amount were paid from June 1, 2007 through
March 31, 2008. A Modification Agreement was entered into in
March 2007 so that each Note became due and payable on March 20, 2008.
Pursuant to a further Modification Agreement and a $150,000 payment towards
principal, the balance of the unpaid principal of the Notes and any unpaid
interest thereon was due and payable on August 29, 2008. However, pursuant
to a Revised and Amended Sixth Waiver and Modification Agreement dated as of
September 16, 2008, the Senior Lenders received the payment of default
interest calculated at the rate of 21% per annum (versus 8%) for the period
April 1, 2008 through September 30, 2008 as consideration to extend
the Maturity Date of the Notes to November 1, 2008. Accordingly, all
accrued interest had been paid in full as of September 30, 2008. Commencing
October 1, 2008 and thereafter, the interest rate shall revert to an amount
equal to 8% per annum. In addition, the holders of the December 2004 Debt
agreed to convert an aggregate of $124,093 in principal and accrued interest
therein at a conversion price of $.10 per share.




The
individual note holders have the right, at their option, to convert the
principal amount of the note, together with all accrued interest thereon in
accordance with the provisions of and upon satisfaction of the conditions
contained in the note, into fully paid and non-assessable shares of the
Company’s common stock at a conversion price per share set forth below, subject
to adjustment in certain circumstances if the notes are then outstanding, such
as a stock split, combination or dividend; or in the event the Company issues
shares of common stock for consideration of less than the exercise price. From
March 20, 2008 through October 20, 2008, the Note holder could have
elected at any time to convert through the Maturity Date of the Notes and
thereafter until the Notes were paid in full, the unpaid principal of the Notes
and the accrued interest thereon at a 10% discount (15% discount if the average
trading volume per day over the ten preceding trading days prior to a conversion
date is 60,000 shares per day or less) to the fair market value of the Company’s
Common Stock. The fair market value of the Company’s Common Stock is defined as
the average of the closing sales price of the Company’s Common Stock on the OTC
Electronic Bulletin Board for the ten trading days preceding each respective
conversion date of the Note(s).




47





Notwithstanding
anything contained herein to the contrary, the Notes shall not at any time be
convertible at a conversion price below $.10 per share (the “Floor Price”) or
above a ceiling price of $.25 per share (the “Ceiling Price”). In October 2008,
the conversion price was fixed at $.10 per share pursuant to anti-dilution
provisions of the Note. During March 2009, the holders of certain senior
convertible securities originally issued on December 2, 2004, extended the
due date of the debt to November 30, 2009 in exchange for the issuance of
Class G warrants to purchase 1,800,000 shares of common stock in the
Company.  In March 2009, the conversion price of the Notes was also
lowered to $.03 per share. Concurrently, the Class A, C, D, E and F
warrants held by these investors were cancelled and an equal number of
Class G warrants were issued as replacements.




In May,
2009, $93,097 of the Notes and $388 in interest was converted at $.03 per share
into 3,116,164 shares of the Company’s Common Stock, reducing the principal
balance of the debt underlying the 2004 Notes to $279,292 as of September 30,
2009.




The notes
are secured by all of the Company’s assets until the notes have been fully paid
or fully converted into common stock.




The
following table sets forth, with respect to each holder of December 2004 debt,
the amount due under the convertible promissory note as of March 28,
2010.




INVESTOR
            
            PRINCIPAL
              AMOUNT
              CONVERTIBLE
              NOTEAlphaCapital Aktiengesellschaft
            
            $
            150,166Steven Gold
            
            $
            17,325Asher Brand
            
            $
            3,464TRW Holdings PTY Limited
            
            $
            15,241Stan Baharti
            
            $
            -0-Robocheyne Consulting Ltd.
            
            $
            93,096TOTAL
            
            $
            279,292









June
      2006 Debt




On
June 22, 2006, we entered into a series of simultaneous transactions with
two investors, whereby we borrowed an aggregate principal amount of $1,200,000
due June 22, 2008 and issued to the investors subordinated convertible 8%
notes (secured by the assets of our company and subsidiary) and we issued the
following series of warrants:




(i)
            Five-year
      Class C warrants to purchase an aggregate of 1,200,000 shares originally
      exercisable at $1.00 per share;




(ii)
            Five-year
      Class D warrants to purchase an aggregate of 1,200,000 shares originally
      exercisable at $1.50 per share;




(iii)
            Five-year
      Class E warrants to purchase an aggregate of 600,000 shares originally
      exercisable at $2.00 per share; and




(iv)
            Five-year
      Class F warrants to purchase an aggregate of 1,066,666 shares originally
      exercisable at $.75 per share. The class F warrants were redeemable at a
      nominal price under certain circumstances if the volume weighted average
      price for our common stock is at least $1.10 for ten consecutive trading
      days. The Class C warrants, Class D warrants, Class E warrants and Class F
      warrants contain anti-dilution protection in the case of stock splits,
      dividends, combinations, reclassifications and the like and in the event
      that we sell common stock below the applicable exercise price. The
      warrants also contain immediate registration rights and cashless exercise
      provisions in the event that there is no current registration statement
      commencing one year after issuance. An additional 666,667 Class F warrants
      were issued in connection with this transaction to the holders of our
      December 2004 debt to consent to this financing transaction and to agree
      to modify certain of their existing
rights.




48




The notes
issued on June 22, 2006 bear an interest rate of 8% per annum, payable
quarterly in arrears, in stock or cash at our discretion, in registered Common
Stock, at 90% of the average of the 10 days volume weighted average price
immediately prior to the interest payment date as long as the stock price is not
below the conversion price.




In April
2007, the holders of the June 2006 Debt agreed to waive their right of first
refusal in connection with our recently completed offerings in exchange for
150,000 restricted shares of Common Stock with “piggyback” registration rights
contemporaneously with their entering into the April 2007
Agreement.  As a result of the financing above, the conversion price
of the June 2006 debt and the exercise price of C, D, E and F warrants held by
the holders of the June 2006 debt were adjusted to $0.30 per share and the
number of warrants were adjusted from 1,200,000 for Class C & D, 600,000 for
Class E and 1,066,666 for Class F to 4,000,000 for Class C & E, 6,000,000
for Class D and 2,666,667 for Class F.  The increase in the number of
warrants was in an inverse relation to the decrease in the exercise
price.  Pursuant to an agreement dated August 7, 2007, the holders of
the June 2007 Debt agreed to retroactively cancel the increase in the number of
warrant shares effective April 20, 2007 and to adjust the exercise prices of the
Class C, Class D, Class E and Class F Warrants to $.45, $.45, $.45 and $.50 per
share, respectively, and to adjust the call price of the Class F Warrants to
$.73 per share.  Effective August 7, 2007, the holders of the June
2007 Debt also agreed to cancel all of their Class D and Class E Warrants,
thereby reducing the number of Warrants held by them to 1,200,000 Class C
Warrants and 1,066,666 Class F Warrants. On the same date, the then holders of
June 2006 Debt entered into agreements which had the following
affect:





·
            to
      sell their Class C and Class F Warrants and June 2006 Debt to certain
      non-affiliated parties;




·
            to
      terminate Andrew McKinnon’s (BlastGard’s Chief Executive Officer) prior
      obligation to purchase the aforementioned securities;
  and




·
            to
      have a first closing occur on August 8, 2008 as to one-have the securities
      and a second closing to occur no later than September 22, 2007. The
      purchasers of the June 2006 Debt agreed to convert their Debentures into
      shares of our Common Stock at $.30 per share effective at each
      closing.




In April
2007, the then holders of the June 2006 Debt agreed to waive their right of
first refusal in connection with our then completed offerings in exchange for
150,000 restricted shares of Common Stock with “piggyback” registration rights
contemporaneously with their entering into the April 2007
Agreement.




The
aforementioned notes and warrants are protected against dilution in the event of
certain events including, without limitation, the sale of common stock below the
applicable conversion or exercise price as the case may be.




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 to our knowledge 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 (exclusive of interest after June 22, 2008) on our
consolidated balance sheet in order to reflect the worst case
scenario.




49




Source
Capital Group, Inc. acted as a finder in connection with this transaction.
Source Capital was paid 25,000 shares of restricted common stock, a cash fee of
$72,000, which represents 6% of the gross proceeds and a 6% fee of each class of
warrants issued in connection with the June 2006 debt financing, which warrants
were issued by us and not deducted from those issued to any other party. The
following table sets forth with respect to each person the number of shares
underlying warrants issued to Source Capital and its associated persons as of
December 31, 2009.




NUMBER
      OF SHARES ISSUABLE UPON EXERCISE OF
              WARRANTSINVESTOR
            
            CLASS
      C
            
            
            CLASS
      D
            
            
            CLASS
      E
            
            
            CLASS
      FW.
      Todd Coffin
            
            
            103,680
            
            
            
            103,680
            
            
            
            51,840
            
            
            
            149,760William
      F. Butler
            
            
            110,160
            
            
            
            110,160
            
            
            
            55,080
            
            
            
            159,120Gary
      Sacks
            
            
            48,600
            
            
            
            48,600
            
            
            
            24,300
            
            
            
            70,200Source
      Capital Group
            
            
            61,560
            
            
            
            61,560
            
            
            
            30,780
            
            
            
            88,920TOTAL
            
            
            324,000
            
            
            
            324,000
            
            
            
            162,000
            
            
            
            468,000




Agreement with Quanstar
Group





On
October 3, 2006, we entered into an agreement (the “QuanStar Agreement”) with
QuanStar Group, LLC, (“Quanstar”) headquartered in New York, NY, and L. Paul
Bremer, III an individual, (“Quanstar-Bremer”) engaging them to serve as an
advisor to render strategic and consulting services to us, primarily in
connection with the commercialization of our proprietary BlastGard technology.
Arnold Burns, a director of the Company, is part owner of QuanStar Group,
LLC.




As
outlined in the agreement, the services to be provided to us by QuanStar-Bremer
are as follows:





●
            Provide to the Company’s senior management advice and counsel on
      strategic business issues;




●
            Assist in recruiting and hiring people for senior executive
      positions;




●
            Participate in business reviews and assist in formulating long-range
      business development plans;




●
            Assist the Company in marketing and selling BlastGard
    products;




●
            Help the Company in recruiting Board members of
  stature;




The
founders of the Company, namely, James F. Gordon, John L. Waddell, Jr., and
Michael J. Gordon have agreed to compensate Quanstar-Bremer by transferring
without cost from their own stock holdings a total of 625,000 shares of the
Company’s common stock. We agreed to pay to QuanStar-Bremer a commission fee of
20% of Net Sales for the first $2,000,000 in Net Sales; 15% for the next
$2,000,000 in sales and 10% on all additional Net Sales, except for sales of the
Company’s MTR and MBR product line which shall be limited to 9% of Net sales on
new orders and 4.5% of Net Sales on recurring orders. The term “Net Sales” is
defined as gross sales minus customer returns and excludes taxes and
shipping.




50





The term
of the agreement is 12 months and automatically renewed for successive one-year
terms. The agreement may be terminated by either party at any time, with or
without cause, by delivery of written notice of termination by the terminating
party to the non-terminating party. The termination date shall be effective 150
days after receipt of said written notice of termination. QuanStar-Bremer shall
have the right to be compensated for any transaction initiated by it and
consummated within 18 months from the date of termination.  This
agreement was terminated on April 23, 2008.





Board Members Who Are Deemed
Independent





Our board
of directors has determined that Paul Henry is an “independent director” as that
term is defined by the National Association of Securities Dealers Automated
Quotations (“NASDAQ”) and has a financial background. See “Audit Committee”
under” Item 9” regarding the definition of an “independent
director.”




Independent
Director





Paul Henry is considered by
the Board to be an "Independent Director" of the Company as defined under Rule
10-A.3 of the Exchange Act.In order to be considered to be independent
for purposes of Rule 10A-3, a member of an audit committee of a listed issuer
that is not an investment company may not, other than in his or her capacity as
a member of the audit committee, the board of directors, or any other board
committee: (A) accept directly or indirectly any consulting, advisory, or other
compensatory fee from the issuer or any subsidiary thereof, provided that,
unless the rules of the national securities exchange or national securities
association provide otherwise, compensatory fees do not include the receipt of
fixed amounts of compensation under a retirement plan (including deferred
compensation) for prior service with the listed issuer (provided that such
compensation is not contingent in any way on continued service); or (B) be an
affiliated person of the issuer or any subsidiary thereof.




51





ITEM
14.EXHIBITS


Exhibit No.
            
            Description2.1
            
            Agreement
      and Plan of Reorganization dated January 31, 2004, by and among the
      Registrant, BlastGard Technologies, Inc., (“BTI”) and the shareholders of
      BTI. (Incorporated by reference to Exhibit 2.4 to the Company’s current
      report on Form 8-K dated January 31, 2004.)3.1
            
            The
      Company’s Articles of Incorporation, as amended and currently in effect.
      (Incorporated by reference to Exhibit 3.7 to the Company’s quarterly
      report on Form 10-QSB dated March 31, 2004).3.2
            
            The
      Company’s Bylaws, as amended and currently in effect. (Incorporated by
      reference to Exhibit 3.8 to the Company’s quarterly report on Form 10-QSB
      dated March 31, 2004).4.1
            
            Subscription
      Agreement between the Company and the named investors dated December 2,
      2004. (Incorporated by reference to exhibit 4.01 of the current report on
      Form 8-K filed December 3, 2004.)4.2
            
            Form
      of Secured Convertible Note issued to the named investors. (Incorporated
      by reference to exhibit 4.02 of the current report on Form 8-K filed
      December 3, 2004.)4.3
            
            Form
      of Class A Common Stock Purchase Warrant. (Incorporated by reference to
      exhibit 4.03 of the current report on Form 8-K filed December 3,
      2004.)4.4
            
            Form
      of Class B Common Stock Purchase Warrant. (Incorporated by reference to
      exhibit 4.04 of the current report on Form 8-K filed December 3,
      2004.)4.5
            
            Form
      of Common Stock Purchase Warrant issued to Andrew Garrett, Inc. (Placement
      Agent). (Incorporated by reference to exhibit 4.05 of the current report
      on Form 8-K filed December 3, 2004.)4.6
            
            Security
      and Pledge Agreement between the Company and Barbara Mittman as collateral
      agent for the named investors dated December 2, 2004. (Incorporated by
      reference to exhibit 4.06 of the current report on Form 8-K filed December
      3, 2004.)4.7
            
            Security
      and Pledge Agreement between BlastGard Technologies, Inc. and Barbara
      Mittman as collateral agent for named investors dated December 2, 2004.
      (Incorporated by reference to exhibit 4.07 of the current report on Form
      8-K filed December 3, 2004.)4.8
            
            Collateral
      Agent Agreement among the Company, Barbara Mittman (the collateral agent)
      and the named investors dated December 2, 2004. (Incorporated by reference
      to exhibit 4.08 of the current report on Form 8-K filed December 3,
      2004.)4.9
            
            Guaranty
      Agreement between BlastGard Technologies, Inc. and Barbara Mittman as
      collateral agent for named investors dated December 2, 2004. (Incorporated
      by reference to exhibit 4.09 of the current report on Form 8-K filed
      December 3, 2004.)4.10
            
            Form
      of Securities Purchase Agreement (Incorporated by reference to the
      Registrant’s Exhibit 99.2 contained in our Form 8-K filed June 23,
      2006.)4.11
            
            Form
      of Registration Rights Agreement (Incorporated by reference to the
      Registrant’s Exhibit 99.3 contained in our Form 8-K filed June 23,
      2006.)4.12
            
            Form
      of Security Agreement. (Incorporated by reference to the Registrant’s
      Exhibit 99.4 contained in our Form 8-K filed June 23,
    2006.)





52




4.13
            
            Form
      of Subsidiary Guarantee (Incorporated by reference to the Registrant’s
      Exhibit 99.5 contained in our Form 8-K filed June 23,
      2006.)4.14
            
            Form
      of Debenture (Incorporated by reference to the Registrant’s Exhibit 99.8
      contained in our Form 8-K filed June 23, 2006.)4.15
            
            Form
      of Warrant (Incorporated by reference to the Registrant’s Exhibit 99.9
      contained in our Form 8-K filed June 23, 2006.)4.16
            
            Form
      of SPA Disclosure (Incorporated by reference to the Registrant’s Exhibit
      99.10 contained in our Form 8-K filed June 23, 2006.)4.17
            
            Form
      of Security Agreement Disclosure Schedule (Incorporated by reference to
      the Registrant’s Exhibit 99.11 contained in our Form 8-K filed June 23,
      2006.)4.18
            
            Form
      of Subsidiary Guarantee Disclosure Schedule (Incorporated by reference to
      the Registrant’s Exhibit 99.12 contained in our Form 8-K filed June 23,
      2006.)4.19
            
            Form
      of Class G Warrant.*10.1
            
            Employment
      Agreement with James F. Gordon dated January 31, 2004. (Incorporated by
      reference to Exhibit 10.13 to the Company’s quarterly report on Form
      10-QSB dated March 31, 2004).10.2
            
            Employment
      Agreement with Michael J. Gordon dated January 31, 2004. (Incorporated by
      reference to Exhibit 10.14 to the Company’s quarterly report on Form
      10-QSB dated March 31, 2004).10.3
            
            Employment
      Agreement with John L. Waddell, Jr. dated January 31, 2004. (Incorporated
      by reference to Exhibit 10.15 to the Company’s quarterly report on Form
      10-QSB dated March 31, 2004).10.4
            
            Employment
      Agreement with Kevin J. Sharpe dated January 31, 2004. (Incorporated by
      reference to Exhibit 10.16 to the Company’s registration statement on Form
      SB-2, pre-effective amendment no. 3 (File No.
  333-121455.)10.5
            
            Alliance
      Agreement with Centerpoint Manufacturing, Inc. dated October 25, 2004.
      (Incorporated by reference to Exhibit 10.17 to the Company’s registration
      statement on Form SB-2, pre-effective amendment no. 4 (File No.
      333-121455.)10.6
            
            Advisory
      Agreement with The November Group, Ltd., dated June 29, 2005.
      (Incorporated by reference to Exhibit 10.18 of the current report on Form
      8-K filed July 6, 2005.)10.7
            
            Modification
      and Waiver Agreement (Incorporated by reference to Exhibit 10.1 in our
      Form 8-K filed December 8, 2006).10.8
            
            Form
      of Amended and Restated Second Modification and Waiver Agreement
      (Incorporated by reference to the Registrant’s Exhibit 99.7 contained in
      our Form 8-K filed June 23, 2006.)10.9
            
            Form
      of Modification and Warrant Agreement (Incorporated by reference to the
      Registrant’s Exhibit 99.14 contained in our Form 8-K filed June 23,
      2006.)10.13
            
            Form
      of Third Modification and Waiver Agreement (Incorporated by reference to
      the Registrant’s Exhibit 10.25 contained in our Registration Statement,
      file no. 333-135815.)10.14
            
            Amendment
      Agreement dated September 15, 2006 to Exhibit 4.11 (Incorporated by
      reference to Exhibit 10.18 contained in our Form 10-QSB for the quarter
      ended September 30, 2006).




53




10.15
            
            Waiver
      Agreement, dated April 18, 2007. (Incorporated by reference to Exhibit
      10.1 of our Form 8-K filed with the SEC on April 25,
  2007.)10.16
            
            Fourth
      Waiver and Modification Agreement, dated March 20, 2007. (Incorporated by
      reference to Exhibit 10.2 of our Form 8-K filed with the SEC on April 25,
      2007.)10.17
            
            Management
      Committee Charter, dated March 23, 2007. (Incorporated by reference to
      Exhibit 10.3 of our Form 8-K filed with the SEC on April 25,
      2007.)10.18
            
            Employment
      Agreement for John L. Waddell, Jr., dated April 1, 2007. (Incorporated by
      reference to Exhibit 10.4 of our Form 8-K filed with the SEC on April 25,
      2007.)10.19
            
            Employment
      Agreement for James F. Gordon dated April 1, 2007. (Incorporated by
      reference to Exhibit 10.5 of our Form 8-K filed with the SEC on April 25,
      2007.)10.20
            
            Employment
      Agreement for Andrew McKinnon dated April 1, 2007. (Incorporated by
      reference to Exhibit 10.32 contained in our Form 10-QSB for the quarter
      ended March 31, 2007.)10.21
            
            Employment
      Agreement for Kevin J. Sharpe, dated April 1, 2007. (Incorporated by
      reference to Exhibit 10.7 of our Form 8-K filed with the SEC on April 25,
      2007.)10.22
            
            Employment
      Agreement for Michael J. Gordon dated April 1, 2007. (Incorporated by
      reference to Exhibit 10.9 of our Form 8-K filed with the SEC on April 25,
      2007.)10.23
            
            Source
      Capital March 9, 2007 and April 12, 2007 Waiver Agreements (Incorporated
      by reference to Exhibit 10.10 of our Form 8-K filed with the SEC on April
      25, 2007.)10.24
            
            Employee
      Benefit and Consulting Services Compensation Plan (Incorporated by
      reference to Exhibit 99.1to the Company’s Annual Report on Form 10-KSB for
      the fiscal year ended December 31, 2005).10.25
            
            Fifth
      Waiver and Modification Agreement with Senior Lenders dated March 20, 2008
      Plan (Incorporated by reference to Exhibit 99.1to the Company’s Annual
      Report on Form 10-K for the fiscal year ended December 31,
      2008).10.26
            
            Waiver
      Agreement with 2006 Lenders dated as of March 20, 2008 Plan (Incorporated
      by reference to Exhibit 99.1to the Company’s Annual Report on Form 10-K
      for the fiscal year ended December 31, 2008).21.1
            
            Subsidiaries
      of Registrant*31(a)
            
            Rule
      13a-14(a) Certification – Chief Executive and Chief Financial Officer
      *32(a)
            
            Section
      1350 Certification – Chief Executive and Chief Financial Officer
      *99.1
            
            Employee
      Benefit and Consulting Services Compensation Plan (Incorporated by
      reference to Exhibit 99.1to the Company’s Annual Report on Form 10-KSB for
      the fiscal year ended December 31,
2005).






54





ITEM
15.PRINCIPAL
ACCOUNTANT FEES AND SERVICES


On
February 8, 2010, the Company dismissed our independent registered auditor,
Cordovano and Honeck LLP of Englewood Colorado (“C & H”), based on their
notification to us of their partner service limitation. We engaged Peter
Messineo, CPA of Palm Harbor Florida, as our new independent registered auditor
on February 10, 2010.




The
consolidated financial statements of BlastGard International, Inc. as of, and
for the years ended, December 31, 2009 and 2008, appearing in this Form
10-K, were audited by Cordovano and Honeck, LLP, an independent registered
public accounting firm, as stated in their report thereon, and are included in
reliance upon such reports given on the authority of such firm as experts in
accounting and auditing.





Audit
Fees










Audit-Related
Fees





There
were no other fees billed by Cordovano & Honeck, LLP during the last two
fiscal years for assurance and related services that were reasonably related to
the performance of the audit or review of the Company’s financial statements and
not reported under “Audit Fees” above.





Tax Fees





There
were no tax related fees billed by Cordovano & Honeck LLP during 2009 or
2008.





All Other
Fees





There
were no other fees billed by Cordovano & Honeck, LLC during the last two
fiscal years for products and services provided by Cordovano & Honeck,
LLC.





55




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.




BLASTGARD®
      INTERNATIONAL, INC.Dated:April
      15, 2010
              By:
              /s/
      Michael J. GordonMichael
      J. GordonChief
      Executive and Chief Financial Officer




In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.





Dated:
            April
      15, 2010
            By:
            /s/
      Andrew R. McKinnonAndrew
      R. McKinnonDirectorDated:
            April
      15, 2010
            By:
            /s/
      James F. GordonJames
      F. GordonChairman
      of the Board, President and
              Director
      of Blast Mitigating ReceptaclesDated:
            April
      15, 2010
            By:
            /s/
      Michael J. GordonMichael
      J. GordonDirector,
      Vice President, Chief Executive and
              Chief
      Financial Officer and Principal Accounting OfficerDated:
            April
      15, 2010
            By:
            /s/
      Paul HenryPaul
      HenryDirector





56