HighCom Global Security, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - HighCom Global Security, Inc.	Financial_Report.xls
EX-31.1 - XBRL PRESENTATION FILE - HighCom Global Security, Inc.	ex_31-1.htm
EX-32.1 - XBRL PRESENTATION FILE - HighCom Global Security, Inc.	ex_32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

———————

(March One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
	ACT OF 1934
For the quarterly period ended: June 30, 2012
OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
	ACT OF 1934
For the transition period from: _____________ to _____________

Commission file number: 333-47924

———————

BLASTGARD INTERNATIONAL, INC.

(Exact name of small business issuer as specified in it charter)

———————

Colorado	84-1506325
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

2451 McMullen Booth Road, Suite 242, Clearwater, Florida 33759-1362

(Address of principal executive offices)

(727) 592-9400

(issuer’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T during the 12 preceding months (or such shorter period that the registrant was required to submit and post such file). Yes þ No ¨

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ¨		Accelerated Filer ¨
Accelerated Filer ¨		Smaller Reporting Company þ

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨No þ

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of August 3, 2012 the issuer had 90,386,036 shares of $.001 par value common stock outstanding.

Transitional Small Business Disclosure Format (Check one): Yes ¨ No þ

BLASTGARD INTERNATIONAL, INC.

INDEX

		PAGE
PART 1 – FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheets, June 30, 2012 (unaudited) and December 31, 2011 (audited)	3

	Consolidated Statements of Operations, for the three and six months ended June 30, 2012 and 2011 (unaudited)	4

	Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011 (unaudited)	5

	Notes to condensed financial statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.	Controls and Procedures	22

	PART I1 – OTHER INFORMATION

Item 1.	Legal Proceedings.	23

Item 1A.	Risk Factors	23

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 3.	Defaults Upon Senior Securities	23

Item 4.	Mining Safety Disclosures	23

Item 5.	Other Information	23

Item 6.	Exhibits	23

Signatures		24

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

BlastGard International Inc.
Consolidated Balance Sheets

	June 30,			December 31,
	2012			2011
	(unaudited)			(audited)
Assets
Current assets
Cash	$	308,487		$	253,221
Accounts receivable, net		41,048			26,178
Inventory		982,446			523,557
Prepaid and other current assets		710			1,897
Net related party loans receivable		121,654			181,138
Prepaid expenses		30,471			-
Total current assets		1,484,816			985,991

Property & equipment, net of accumulated depreciation of ($278,322) and ($236,533), respectively		127,035			100,462
Intangible property, net of accumulated amortization of ($285,986) and ($4,642), respectively		378,000			476,524
Deferred patent costs		209,896			209,896
Investments		112,832			112,832
Goodwill		2,061,649			2,061,649
Deposits		5,758			6,544
Total Assets	$	4,379,986		$	3,953,898

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	1,015,216		$	1,034,237
Accrued expenses		390,220			444,979
Customer deposits		857,021			-
Current portion notes payable		2,338,507			1,820,485
Total current liabilities		4,600,964			3,299,701

Contingent liability		1,238,781			1,238,781
Derivative liability, net		244,045			1,709,955
Notes payable, net of current portion		103,168			500,000
Total liabilities		6,186,958			6,748,437

Stockholders' Equity

Preferred Stock, 1,000,000 shares authorized; $100 par value; 0 and 0 issued and outstanding		-			-
Common Stock, $.001 par value, 100,000,000 shares authorized; 90,386,036 and 90,386,036 shares issued and outstanding, respectively		90,386			90,386
Additional paid-in capital		14,694,710			14,694,710
Minority interest		(40,814	)		(39,118	)
Accumulated deficit		(16,551,254	)		(17,540,517	)
Total stockholders' deficit		(1,806,972	)		(2,794,539	)

Total Liabilities and Stockholders' Equity	$	4,379,986		$	3,953,898

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

BlastGard International Inc.

Consolidated Statements of Operations

(unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011

Revenues	$	640,885		$	3,052		$	990,706		$	23,293
Direct costs		442,180			991			704,524			22,131

Gross Profit		198,705			2,061			286,182			1,162

Operating expenses:
General and administrative		157,087			204,410			374,820			777,471
Research and Development		37,284			1,191			40,461			1,191
Amortization and depreciation		56,472			93,929			117,579			137,691
Total operating expenses		250,843			299,530			532,860			916,353
Operating loss		(52,138	)		(297,469	)		(246,678	)		(915,191	)

Non-operating activity
Other income (expense)		8,106			37,718			7,318			2,287
Gains (losses) on settlement of debt		-			-			-			248,754
Gain (loss) on derivative liability		157,052			(66,203	)		1,721,813			(240,344	)
Gain (loss) on settlement of assets		-			(70,621	)		-			(70,621	)
Interest expenses		(192,751	)		(772,585	)		(494,888	)		(894,649	)
Interest income		-			1			2			1
Total other income (expense)		(27,593	)		(871,690	)		1,234,245			(954,572	)

Income(loss) before income taxes		(79,731	)		(1,169,159	)		987,567			(1,869,763	)

Less minority interest income(loss)		608			(6,014	)		(1,696	)		(9,581	)

Net Income(loss)	$	(80,339	)	$	(1,163,145	)	$	989,263		$	(1,860,182	)

Earnings (loss) per share:
Basic	$	(0.00	)	$	(0.02	)	$	0.01		$	(0.03	)
Dilutive	$	(0.00	)	$	(0.02	)	$	0.01		$	(0.03	)

Weighted average shares outstanding
Basic		90,386,036			76,448,911			88,532,611			69,525,071
Dilutive		90,386,036			76,448,911			141,929,008			69,525,071

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

BlastGard International Inc.
Consolidated Statements of Cash Flows
(unaudited)

	For the Six Months Ended June 30,
	2012			2011

Cash Flows from Operating Activities:
Net (loss) income	$	989,263		$	(1,860,182	)
Adjustment to reconcile Net Income to net cash provided by operations:
Minority interest loss		(1,696	)		(9,681	)
Depreciation and amortization		117,579			137,691
Amortization of debt discount		395,939			845,945
Other stock comp		-			377,944
Gain on conversion of debt		-			(248,754	)
Gain on disposal of equipment		-			70,621
Gain(loss) on derivative		(1,721,813	)		240,344
Changes in assets and liabilities:
Accounts receivable		(14,870	)		114,116
Note receivable		59,484			(46,351	)
Inventory		(458,889	)		(30,163	)
Other operating assets		(28,498	)		(6,738	)
Accounts payable and accruals		(73,780			(230,669	)
Customer deposits		857,021			-
Other liabilities		253

Net Cash (Used) Provided by Operating Activities		119,993			(645,877	)

Cash Flows from Investing Activities:
Purchase of property and equipment		(45,628	)		(5,686	)
Payments for deferred costs		-			(61,361	)
Proceeds from sales of assets and intangibles		-			12,355
Cash purchased		-			843
Net Cash Used by Investing Activities		(45,628	)		(53,849	)

Cash Flows from Financing Activities:
Proceeds from issuance of stock		(0	)		275,000
Proceeds from issuance of note payable		50,000			760,000
Repayments of notes payable		(69,099	)		(178,781	)
Net Cash Provided by Financing Activities		(19,099	)		856,219

Net increase/decrease in Cash		55,266			156,493

Cash at beginning of period		253,221			46,382

Cash at end of period	$	308,487		$	202,875

Supplemental cash flow information:
Interest paid	$	68,128		$	56,177
Taxes paid	$	800		$	0

Supplemental Schedule of Noncash Investing and Financing Activities

Issuance of common stock in exchange of debt	$	-	$	203,09
Issuance of common stock in exchange for payables	$	-	$	769,829
Issuance of common stock for compensation	$	-	$	50,000

On March 4, 2011, the Company issued 9,820,666 shares of common stock, $196,400 in notes and $1,262,000 contingent liabilities in exchange for the stock of HighCom Security, Inc. valued as follows:

Cash	$	834
Accounts receivable		116,910
Performance bond		50,500
Inventory		119,233
Investments		121,287
Property and equipment – net		206,159
Related party loans		224,696
Other assets		37,738
Accounts payable and accrued expenses		(1,668,695	)
Customer deposits		(19,884	)
Long term debt		(665,607	)
Deficit equity acquired		1,476,829
		-

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

BLASTGARD INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) Basis of Presentation

The consolidated balance sheet as of June 30, 2012, the consolidated statements of operations for the three months and six months ended June 30, 2012 and 2011, and consolidated statements of cash flows for the six months ended June 30, 2012 and 2011 have been prepared by us without audit. In the opinion of Management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly in all material respects our financial position as of June 30, 2012 and results of operations for the six months ended June 30, 2012 and 2011, and cash flows for the six months ended June 30, 2012 and 2011. The results of operations and cash flows for the six months ended June 30, 2012 are not necessarily indicative of the results to be expected for the full year.

This report should be read in conjunction with our Form 10-K for our fiscal year ended December 31, 2011.

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. On March 4, 2011, the Company completed the acquisition of HighCom Securities, Inc. and subsidiaries. The income of HighCom and subsidiaries is included from January 25, 2011, the date of the binding letter of intent. These financial statements include the assets liabilities and activity of the following:

BlastGard International, Inc. BlastGard® International, Inc. is a Colorado corporation that has developed and designed proprietary blast mitigation materials. The Company operates from offices in Clearwater, Florida and uses contract manufacturers in various locations for production.

BlastGard Technologies Inc. is a dormant Florida corporation.

HighCom Securities, Inc. HighCom Securities, Inc. (HighCom), originally located in San Francisco California, is a global provider of security equipment and a leader in advanced ballistic armor manufacturing. The Company has a manufacturing facility in Columbus, Ohio for production and has moved the corporate offices to Clearwater, Florida as of May 1, 2011.

HighCom Online HighCom Online was a division offering an online outlet for HighCom Security products. The Company operated out of the HighCom offices. This division was closed as of December 31, 2011.

HC Ballistics, LLC HC Ballistics LLC was a joint venture with a related party to produce products for HighCom customers. The Company operated out of HighCom offices and used a production facility in South Florida. The agreement with the related party was terminated as of December 31, 2010.

All material intercompany transactions have been eliminated.

Going Concern

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

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

Accounting Policies

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 June 30, 2012 or December 31, 2011.

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. . Receivables are determined to be past due, based on payment terms of original contracts or invoices. 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. The Company does not typically charge interest on past due receivables.

As of June 30, 2012 and December 31, 2011, management believes an allowance for uncollectible accounts in the amount of $24,355 and $28,228, respectively, was adequate.

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 product and finished goods ready for sale.

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. Depreciation expense for the periods ended June 30, 2012 and 2011 was $19,055 and $55,255, respectively.

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 is not materially different from that calculated under the effective interest method.

Deferred Costs

Patent and trademark application costs are 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.

Revenue Recognition

The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met:

(i)	persuasive evidence of an arrangement exists,

(ii)	the product has been shipped or the services have been rendered to the customer,

(iii)

the sales price is fixed or determinable, and

(iv)	collectability is reasonably assured.

Research and Development

Research and development costs were expensed as incurred.

Advertising

Advertising costs were expensed as incurred. Advertising costs of $12,012 and $4,729 were incurred during the six months ended June 30, 2012 and 2011, respectively.

Shipping and Freight Costs

The Company includes shipping costs in cost of goods sold.

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 FASB ASC 740-10-25, Recognition, for reporting uncertain tax provisions.

Stock-based Compensation

The Company uses 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. Compensation expense for stock based compensation is recognized over the vesting period.

Income (Loss) per Common Share

Basic net loss per share excludes the impact of common stock equivalents. Diluted net income (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, 2011 and June 30, 2012, there were 8,500,000 and 7,050,000, respectively 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, 2011 and June 30, 2012 the Company had 104,333,335 warrants outstanding issued in connection with convertible promissory notes and stock sales that were also excluded because they were anti-dilutive.

Recent Accounting Pronouncements

We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration. Reference is made to these recent accounting pronouncements as if they are set forth therein in their entirety.

(2)

Notes Payable

Convertible Promissory Notes

On December 2, 2004, the Company entered into agreements to borrow an aggregate principal amount of $1,420,000 and to issue to the investors secured convertible notes and common stock purchase warrants. The Company’s convertible promissory notes payable consist of the following at June 30, 2012 and December 31, 2011:

	June 30, 2012 (unaudited)			December 31, 2011

Convertible promissory note, $93,097 (1/4 of previous outstanding notes) issued December 2, 2004, due November 30, 2009, 8% interest, net of unamortized discount of $0	$	93,097		$	93,097

Convertible promissory note, $50,000, issued December 2, 2004, due on November 30, 2009, 8% annual interest rate, net of unamortized discount of $0		17,325			17,325

Convertible promissory note, $50,000, issued December 2, 2004, due on November 30, 2009, 8% annual interest rate, net of unamortized discount of $0		15,241			15,241

		125.663			279,292
Less: current maturities		(125,663	)		(279,292	)
	$	-		$	-

At June 30, 2012, there were 0 warrants outstanding and exercisable associated with the 2004 debt. These warrants were valued at $0.

New Financing

Alpha Capital Aktiengesellschaft, a holder of 2004 Debt, loaned us $160,000 in February 2010, an additional $300,000 in March 2011, an additional $300,000 in June 2011 and an additional $500,000 in November 2011 pursuant to secured convertible promissory notes convertible. With respect to the November 2011 financing transaction, all outstanding loans had the conversion price of the notes lowered to $.01 per share and the exercise price of all outstanding warrants extended to seven years, exercisable at $.01 per share. A finder’s fee of 4,000,000 shares was issued by the Company.

At June 30, 2012, we had convertible secured debt of $1,210,000. The secured debt has mandatory redemption provisions. A large portion of the secured debt provides that in the event (i) the Company is prohibited from issuing Conversion Shares, (ii) upon the occurrence of any other Event of Default (as defined in the Transaction Documents), that continues beyond any applicable cure period, (iii) a Change in Control (as defined below) occurs, or (iv) upon the liquidation, dissolution or winding up of the Company or any Subsidiary, then at the Secured Debt Holder’s election, the Company must pay to the Secured Debt Holder not later than ten (10) days after request by such Secured Debt Holder, a sum of money determined by multiplying up to the outstanding principal amount of the Note designated by the Secured Debt Holder, at the Secured Debt Holder’s election, the greater of (i) 120%, or (ii) a fraction the numerator of which is the highest closing price of the Common Stock for the thirty days preceding the date demand is made by Secured Debt Holder and the denominator of which is the lowest applicable conversion price during such thirty (30) day period, plus accrued but unpaid interest and any other amounts due under the Transaction Documents ("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be received by the Secured Debt Holder on the same date as the Conversion Shares otherwise deliverable or within ten (10) days after request, whichever is sooner ("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory Redemption Payment, the corresponding Note principal, interest and other amounts will be deemed paid and no longer outstanding. The Secured Debt Holder may rescind the election to receive a Mandatory Redemption Payment at any time until such payment is actually received. Liquidated damages calculated that have been paid or accrued for the ten day period prior to the actual receipt of the Mandatory Redemption Payment by such Secured Debt Holder shall be credited against the Mandatory Redemption Payment provided the balance of the Mandatory Redemption Payment is timely paid. “Change in Control” is defined as (i) the Company becoming a Subsidiary of another entity (other than a corporation formed by the Company for purposes of reincorporation in another U.S. jurisdiction), (ii) the sale, lease or transfer of substantially all the assets of the Company or any Subsidiary, (iii) a majority of the members of the Company’s board of directors as of the Closing Date no longer serving as directors of the Company, except as a result of natural causes or as a result of hiring additional outside directors in order to meet appropriate stock exchange requirements, or (iv) Michael Gordon, the Chief Executive Officer of the Company is no longer serving as Chief Executive Officer unless prior written consent of the Secured Debt Holder had been obtained by the Company. The foregoing notwithstanding, the Secured Debt Holder may demand and receive from the Company the amount stated above or any other greater amount which the Secured Debt Holder is entitled to receive or demand pursuant to the Transaction Documents.

In connection with the aforementioned loan transactions, we also issued to our Secured Debt Holder, warrants to purchase 104,333,335 shares of the Company’s Common Stock which warrants are currently exercisable over a seven year period at an exercise price of $.01 per share, which exercise price is subject to adjustment pursuant to the provisions of the warrant. In the event a fundamental transaction occurs as defined in the warrants, which includes without limitation any person or group acquiring 50% of the aggregate Common Stock of the Company, then the holder of the warrants may have the right to have the warrants redeemed at a price equal to the Black-Scholes value of said warrants.

The most recent subscription agreement dated in November 2011 pursuant to which the Secured Debt Holder advanced financing to the Company included a 12-month right of first refusal, a most favored nations provision which may result in additional securities being issued to the Secured Debt Holder and prohibitions against filing a registration statement with the Securities and Exchange Commission without the Secured Debt Holder’s consent. The aforementioned provisions that have been agreed to with our Secured Debt Holder may make it very difficult or impossible in the future to obtain additional financing for the Company to support its operations and remaining a going concern.

Conversion of Accrued Expenses.

On March 8, 2011, BlastGard’s Board of Directors ratified, adopted and approved that James F. Gordon’s accrued salary of $160,000 (20 months at $8,000 per month covering May-December 2009, January-October 2010 and January-February 2011); Michael J. Gordon’s accrued salary of $160,000 (20 months at $8,000 per month covering May-December 2009, January-October 2010 and January-February 2011); and Morse & Morse, PLLC’s accrued legal bill of $67,025.30 be converted into a Convertible Non-Interest Bearing Demand Note, convertible into Common Shares of BlastGard at $.05 per share at the noteholder(s) discretion. On May 3, 2011, BlastGard’s Board of Directors ratified, adopted and approved $100,000 in additional compensation to Michael J. Gordon as CEO, of which $50,000 be converted into a Convertible Non-Interest Bearing Demand Note, convertible into Common Shares of BlastGard at $.05 per share at the noteholder(s) discretion and $50,000 issued in Common Stock at $.05 per share.

The 2011 convertible promissory notes consisted of the following at June 30, 2012 and December 31, 2011:

	June 30, 2012 (unaudited)			December 31, 2011

Convertible promissory note, $160,000, issued February 3, 2011, due on March 31, 2012, 10% annual interest rate, net of unamortized discount of $0 and $0, respectively	$	110,000		$	110,000

Convertible promissory note, $300,000, issued March 3, 2011, due on March 3, 2012, 10% interest, net of unamortized discount of $0 and $80,984, respectively		300,000			219,016

Convertible promissory note, $300,000, issued June 17, 2011, due on June 17, 2012, 10% interest, net of unamortized discount of $0 and $28,934, respectively		300,000			271,066

Convertible promissory note, $500,000, issued November 10, 2011, due on February 10, 2013 10% interest, net of unamortized discount of $122,817 and $222,162, respectively		377,183			277,838

Convertible promissory note, $210,000, issued January 31, 2011, due on September 30, 2011, 6% annual interest rate, net of unamortized discount of $0 and $24,331, respectively		210,000			185,669

Convertible promissory note, $160,000, issued January 31, 2011, due on January 31, 2012, 6% annual interest rate, net of unamortized discount of $0 and $37,699, respectively		160,000			122,301

Convertible promissory note, $67,025, issued January 31, 2011, due on September 30, 2011, 6% annual interest rate, net of unamortized discount of $0 and $10,192		67,025			56,833
		1,524,208			1,242,723
Less: current maturities		(1,421,040	)		(742,723	)
	$	103,168		$	500,000

The Company issued 104,333,335 warrants with the convertible debt. These warrants are exercisable at $0.01 and expire in 2018. Due to changes in the terms, the warrants are re-valued, using the Black-Scholes method each quarter. At June 30, 2012 the warrants were valued at approximately $2,085,000. These warrants have created a derivative liability in the amount of approximately $2,085,000. This liability is included in accrued liabilities on the balance sheet, net of the unamortized warrant value.

The Company also acquired various revolving credit facilities in the acquisition of HighCom Security, Inc. HighCom had been paying interest only on the loans. Two of these loans are not transferable and all have been called by the lenders. The revolving credit facilities consist of the following at June 30, 2012 and December 31, 2011:

	June 30, 2012 (unaudited)			December 31, 2011

Line of credit from Regions Bank, $100,000, interest only at 8% annually, due on demand	$	84,200		$	88,968

Line of credit from Fifth Third Bank, $450,000, interest only at 6.2% annually, due on demand		428,235			434,011

Revolving credit card facility with Wells Fargo Bank, $150,000, interest only at 7.5% annually, due on demand		147,726			148,376

Revolving credit card facility with California Bank & Trust (non-assumable), $50,000, interest only at 5%, due on demand		42,973			49,750

Three credit card accounts with major financial institutions varying monthly minimum payments including interest, due on demand		58,669			38,887

		761,803			759,992
Less: current maturities		(761,803	)		(759,992	)
	$	-		$	-

(3) Acquisition Debt

On March 4, 2011, the Company issued a note payable in association with the purchase of HighCom Security Inc. and on March 31, 2011, the Company issued a note payable in association with the purchase of Acer product designs. These acquisition notes have the following balances at June 30, 2012 and December 31, 2011;

	June 30, 2012 (unaudited)			December 31, 2011

Security, original balance, $194,600, paid down to $156,400, net of receivables from seller	$	-		$	-

Acquisition note for the purchase of Acer product designs, original amount $30,000, interest at 8%		30,000			30,000

		30,000			30,000
Less: current maturities		(30,000	)		30,000
	$	-		$	-

(4) 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

No shares were issued during the 2nd quarter of 2012 ending June 30, 2012.

Stock Compensation

The Company periodically offered options to purchase stock in the company to vendors and employees. No options were granted during the 2nd quarter of 2012 ending June 30, 2012.

The Board’s policy with respect to options is to grant options 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, 2011 and 2010 there were 6,550,555 and 0 options granted, respectively and 900,000 and 570,000 expired un-exercised, respectively. In addition, 766,667 options expired when sales goals were not met in 2010.

There were no net cash proceeds from the exercise of stock options during the three months ended June 30, 2012. At June 30, 2012 and December 31, 2011, 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, 2011:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Options Outstanding - January 1, 2012		8,500,000	$	0.10		1.0years		—
Granted		—		—
Exercised		—		—
Forfeited/expired/cancelled		1,450,000

Options Outstanding – December 31, 2011		7,050,000	$	0.03		4.8 years	$	0

Outstanding Exercisable – January 1, 2012		8,500,000	$	0.10		4.8 years	$
Outstanding Exercisable – June 30, 2012		7,050,000	$	0.03		3.3 years	$	0

The total grant date fair value of options vested during the three months ended June 30, 2012 $0.

(5) Line of Credit

The Company has a $100,000 credit line, which was secured by a personal guarantee of its Chief Financial Officer. Currently, $84,200 was owed pursuant to the line of credit (inclusive of interest at 5%). Credit available at June 30, 2012 was $15,800 on the line of credit and revolving line respectively.

(6) Income Taxes

The Company realized a profit in the current quarter due to a gain on the derivative liability associated with the warrants but incurred net operating losses during all prior periods presented. Due to the deferred tax attributes of the derivatives and a deferred tax asset from prior periods, which was fully allowed for,, no income tax benefit or expanse has been presented. Any tax liability associated with the gain was offset by the deferred tax assets and changing in the valuation allowance on those tax assets.

(7) Commitments and Contingencies

Office Lease

The Company entered into a lease agreement in January 1, 2009 for office space in Clearwater Florida. Rental payments under the lease were $300 per month on a month to month basis. In May 2011, the Company leased additional office space in Clearwater on a month to month basis for $300 per month. During February and March 2011, the Company was also paying for office space in San Francisco, California at monthly rate of $15,000. This office was closed in April 2011. In February 2011, the Company entered into a six month lease agreement for approximately 11,200 square feet of office and warehouse space in Columbus, OH, which lease is currently on a month-to-month basis. In June 2012, the Company entered into a one year lease agreement for approximately 16,200 square feet of office and warehouse space in Columbus, OH. In May 2011, the Company entered into a month to month lease for approximately 300 square feet of office space in Aurora, CO for $965 per month.

Rent expense for the six months ended June 30, 2012 and 2011 was approximately $28,903 and $26,070 respectively.

Prior Litigation Matter

Verde Partners Family Limited Partnership

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 (which expired in the 2nd quarter of 2012), 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 makes 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 June 30, 2012, the Company was in arrears on the final twelve monthly payments on the settlement.

(8) Inventory

The Company’s manufacturing is sub-contracted to licensed and qualified production facilities. Our inventory is made up of raw materials, work in progress and finished goods. Our inventory is maintained at

our manufacturing facilities.

	June 30,		December 31,
	2012		2011
	(unaudited)
Raw materials	$	366,112	$	489,733
Work in process		18,381		-
Finished Goods		597,953		33,824

TOTAL	$	982,446	$	523,557

(9) Acquisition of HighCom Security, Inc.

On March 4, 2011, the Company issued notes in the amount of $196,400 and issued 9,820,666 shares of common stock as initial consideration for 98.2% of the outstanding stock of HighCom Security, Inc. The activity of HighCom Security in included as on January 25, 2011, the date of the initial agreement.

The pro forma results for the six months ended June 30, 2011 as though HighCom was acquired on January 1, 2011 are as follows:

	BlastGard International			HighCom Security			Combined

Revenues	$	3,000		$	264,394		$	267,394

Net income	$	(873,081	)	$	(833,433	)	$	(1,706,514	)

Earnings per share							$	(0.02	)

WA shares outstanding								69,525,071

The unaudited pro forma results disclosed in the tables above are based on various assumptions and are not necessarily indicative of the results of operations that would have occurred had the Company completed this acquisition on January 1, 2011.

(10) Transaction with Affiliate

Sales Contract

Phoenix Alliance Corporation (“Phoenix”), owned by one of our board members Andrew McKinnon, was engaged in April 2011 by BlastGard to operate as an independent contractor for all HighCom sales. Phoenix has set up a sales operation complete with CRM, telephone sales system and will cover all associated costs from daily operating expenses i.e. payroll costs, health costs, advertising and marketing costs, tradeshow costs etc. BlastGard’s COO Michael Bundy provides initial training to all independent contractors, including an overview process for regulatory compliance. BlastGard has agreed to assist Phoenix with initial start-up costs of $7,500 per month for 3 months and an implementation fee of $5,000 for an additional 3 months. At the completion of the first six months, Phoenix becomes entirely a performance based operation. The commission structure is based on sales generated and margins of HighCom’s product line. As of August 31, 2011, HighCom sales were brought in-house and overseen by our COO and CEO. Commissions paid to Phoenix or accrued for the three months ended September 30, 2011 was $3,321.

Stock issued

Subsequent to March 31, 2011, 800,000 shares of common stock were issued in lieu of preferred shares for the remaining $24,000 in scheduled investment by Phoenix Alliance. Also, 3,333,333 shares of common stock were issued in lieu of preferred shares for services as authorized by the board in December 2010.

On April 18, 2011, the Company issued 800,000 shares of common stock in lieu of preferred shares authorized by the board in December, 2010 for the $24,000 of additional investment by Phoenix Alliance, a related party.

On May 3, 2011, the Company issued 1,000,000 shares of common stock authorized by the board in May 2011 as additional compensation to Michael J. Gordon as CEO.

On May 10, 2011, the Company issued 3,333,333 shares of common stock in lieu of preferred shares authorized by the board in December, 2010 for services rendered in connection with performance of BlastGard’s due diligence investigation of HighCom by Phoenix Alliance, a related party.

(11) Subsequent Events

None.

Item 2.

Management’s Plan of Operation

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

The following discussion should be read in conjunction with the Company's financial statements and notes thereto included elsewhere in this Form 10-Q and in our Form 10-K for the fiscal year ended December 31, 2011. Except for the historical information contained herein, the discussion in this Form 10-Q contains certain forward looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear herein. The Company's actual results could differ materially from those discussed here.

The financial information furnished herein has not been audited by an independent accountant; however, in the opinion of management, all adjustments (only consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the three months and six months ended June 30, 2012 have been included.

Summary.

BlastGard International, Inc. is in the business of providing protection for individuals and property. We have developed and have been marketing BlastWrap products to protect people and property against explosive forces. We have recently acquired a 98.2% new subsidiary (HighCom Security, Inc.) that provides a wide range of security and personal protective gear. A description of each company can be found below and a description of our acquisition can be located under "Item 13" of our Form 10K for the fiscal year ended December 31, 2011. We believe that the products of the two companies have a certain synergy and that BlastGard International is poised to be a full service provider for defensive and protective product needs. The term "the Company" shall include BlastGard and HighCom unless the context indicates otherwise.

HighCom provides a wide range of security products and personal protective gear (including tactical armor) that are tailored and offer protection solutions to specific customer requirements. HighCom caters to local law enforcement agencies, correctional facilities and municipal authorities. Given the equipment and ballistic protection solutions provided by HighCom, compliance with the U.S. Department of Commerce, U.S. Department of State, U.S. Department of the Treasury and all other governmental agencies' regulations is a high priority. HighCom has sold its products in the defense and law enforcement sectors and is known for innovative technology, exceptional customer service and superior quality performance. We export our products throughout the world and have in the past sold products in Asia, Africa, Europe, Latin America and the Middle East. Many of our products are controlled for export purposes and we require end user details prior to all sales. Strict compliance with U.S. and International laws and regulations is mandatory.

As discussed under "Background of HighCom" under "Item 1"of our Form 10K for the fiscal year ended December 31, 2011. HighCom's sales revenues in 2008 were approximately $17 million. Revenues in 2009 suffered a large decrease largely attributable to a May 2009 fire in its Columbus, OH facility. This destructive fire caused significant disruption to HighCom operations which was forced to relocate to new premises to restart its manufacturing activities. The combination of decreased spending in law enforcement and homeland security sectors experienced by the industry, the US financial crisis and the destructive effects of the factory fire, revenues decreased to $4 million. In the second half of 2009, HighCom was able to reestablish its operations in OH and began to regain its market presence both with customers and vendors. The result of which was the receipt of a $6 million contract award through an open bid process for the supply of hard armor plates and soft armor vests to United Nations Peacekeeping Forces. This was the first UN contract won by HighCom as a prime contractor. Shipments under this contract began in late 2009 with the majority of the contract revenues scheduled to be earned in 2010. Reference is made to “Item 1” – Foreign Corrupt Practices Act of our Form 10K for the fiscal year ended December 31, 2010 for a discussion of material events that effected HighCom in fiscal 2010 and the first quarter of 2011.

In March 2011, BlastGard’s management team officially assumed operational control of HighCom. Since this time we have accomplished a number of key compliance tasks and are currently in the process of finalizing manufacturing agreements with several key partners. As stated in the paragraph above, BlastGard has received official communication from the U.S. State Department that HighCom’s export authority has been reinstated. In addition to this, BlastGard has completed registration through both the Directorate of Defense Trade Controls as well as the Bureau of Industry and Security ("BSI"). The purpose of these registrations is to allow BlastGard control over the export management and compliance program moving forward. HighCom also completed their ISO certification which had been revoked under HighCom due to missed audits. BlastGard management has been able to complete an internal audit and management review, in addition to meeting with BSI for the external audit review and in March 2012 HighCom secured ISO certification. Communication with the United Nations is ongoing. On February 6, 2012, the Company was notified by letter that the United Nation’s Vendor Review Committee (“VRC”) had recommended to immediately place on hold the registration status of HighCom Security. This VRC decision to place on hold our registration status was based on integrity/ethical issues surrounding the former CEO’s actions. Soon after this decision was made, we were notified that on February 21, 2012 the government dismissed all the charges against the former CEO. The Company has been in communication with the United Nations Procurement Division regarding this matter and on March 15, 2012, the Company was informed that the VRC had met regarding our request for re-instatement and that its recommendation is currently under consideration. BlastGard has also made significant personnel changes within HighCom and restructuring of operating locations and costs. Since the completion of our acquisition of HighCom, the Company has focused its employee time and capital resources primarily on the development of the business of HighCom. We expect future results of operations to show the benefits of these changes. For the quarter ended June 30, 2012, our result of operations only includes revenues and expenses of HighCom Securities for the quarter ended March 31, 2010 from March 4, 2011 onward.

Results of Operations

Our consolidated net revenues increased substantially as a direct result of our acquisition of HighCom Security in March 2011, which included a change in management. The increase for the quarter ending June 30, 2012 was primarily the result of increased sales of our HighCom Security product line due to a higher demand from our third party customers for certain personal protective equipment products. The sales increase was primarily due to two of our major product categories: ballistic plates and ballistic helmets. Management instituted a number of action steps over the past nine months to realize this increase in sales, namely: a visible presence at industry tradeshows, cultivation of former customers, aggressive pricing, new in-house production facility, greater cost control over raw materials as well as a new marketing and sales program. We also secured our ISO 2012 certification. The International Organization for Standardization (“ISO”) is the world’s largest developer of voluntary International Standards. International Standards give state of the art specifications for products, services and good practice, helping to make industry more efficient and effective. Developed through global consensus, our ISO certification breaks down the barriers to international trade which is a major focus of our new sales strategy.

For the three months ended June 30, 2012 and 2011, we recognized sales of $640,885 and $3,052 and a gross profit of $198,705 and $2,061, respectively. Our operating expenses were $250,843 and $299,530 and our other income (expense) were $(27,593) and $(871,690), respectively. Our net loss for the three months ended June 30, 2012and 2011 was $(80,339) as compared to $(1,163,145), respectively. The increase in net loss is due to the amortization of debt discounts on the new notes issued during the year and an increase in operating expenses related to the acquisition of HighCom Security, Inc. See “Recent Developments.”

For the six months ended June 30, 2012 and 2011, we recognized sales of $990,706 and $23,293 and a gross profit of $286,182 and $1,162, respectively. Our operating expenses were $532,860 and $916,353 and our other income (expense) were $1,234,245 and $(954,572), respectively. Our net loss for the six months ended June 30, 2012 and 2011 was $989,263 as compared to $(1,860,182), respectively. The net income for 2012 is due to a gain on a derivative liability and decrease in operating expenses due to our streamlined operations. The net loss in 2011 is due to the amortization of debt discounts on the new notes issued during the year and an increase in operating expenses related to the acquisition of HighCom Security, Inc. See “Recent Developments.”

Sales Backlog

As of July 1, 2012, the Company had $1.8 million of sales orders in production that were expected to ship in July and August, 2012. The Company has hired temporary personnel to complete these orders and this will substantially increase our operating expenses in the third quarter. Management is optimistic that additional sales will occur in the third quarter of 2012, although no assurances can be given in this regard.

Recent Financings

None

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

Body armor is classified by the NIJ according to the level of protection it provides from various threats. The classifications are as follows:

·	Type IIA body armor- minimal protection against smaller caliber handgun threats.

·	Type II body armor – provides protection against many handgun threats, including many common smaller caliber pistols with standard pressure ammunition, and against many revolvers.

·	Type IIIA body armor- provides a higher level of protection and will generally protect against most pistol calibers including many law enforcement ammunitions, and against many higher powered revolvers.

·	Type III and IV body armor – provides protection against rifle rounds and are generally only used in tactical situations.

Our Security Products include the following:

§	Ballistic helmets

§	Body armor and hard armor plates

§	Riot helmets and shields

§	Mounted patrol, vehicular crew, and general duty helmets

§	Uniforms, Apparel and Duty Gear

§	Metal detectors: walk-through and handheld

§	Explosive ordinance disposal equipment: bomb suits & gear, hook & line kits, detectors and search mirrors, under vehicle surveillance systems

§	Range & training equipment: robots and targets

§	Safety equipment: gas masks, respirators, chemical detectors, medical equipment & supplies

§	X-Ray screening systems: luggage, parcel, freight and cargo scanners, mobile systems, transportation securities administration test objects

§	Dry storage systems for ordnance and heavy equipment

§	Outdoor equipment: gear, flashlights, GPS systems

§	Vision and optics: binoculars, goggles, night vision equipment

§	Communication systems

§	Emergency lighting and warning systems

Manufactured products versus products supplied by third party vendors.

HighCom manufactures ballistic plates, ballistic shields and blankets. Hard armor plates are HighCom manufactured products which either carry our brand name or a private label. Our ballistic vests, ballistic helmets and EOD bomb suits and gear are currently manufactured and private labeled by third party vendors for us. Our soft arm vests are manufactured by one of two major suppliers and they either carry the supplier brand name or the HighCom brand name. Our UN soft armor vest is co-manufactured by us with a third party vendor. Our ballistic packs are also manufactured by one of two manufacturers. We distribute the following products made by other manufacturers: metal detectors, x-ray machines, EOD kits and detection devices, law enforcement gear, uniforms and other clothing, optics and communications. In the future, we intend to manufacture PASGT (personal armored systems for ground troops) and ACH (advanced combat helmets) ballistic helmets as well as EOD suits. For a complete description of the HighCom product line, reference is made to our Form 10-K for the fiscal year ended December 31, 2011.

Liquidity and Capital Resources.

At June 30, 2012, we had cash of $308,487, working capital of $(3,116,148), an accumulated deficit of $(16,551,254) and shareholder deficit of $(1,806,972).

For the six months ended June 30, 2012, net cash provided by operating activities is $119,993 primarily due to our net income of $989,263, offset by a gain on derivative liability, stock based compensation, amortization and an increase in our accounts payables and accruals. During the six months ended June 30, 2012, we used cash in investing activities for payment of deferred costs and property of $(45,628) and we used cash from financing activities of $(19,099) from stock sales and notes.

For the six months ending June 30, 2011, net cash used in operating activities is $(645,877) primarily due to our net loss of $(1,860,182), partially offset by amortization of debt discount, stock based compensation and an increase in our accounts receivables. During the six months ended June 30, 2011, we used cash in investing activities for payment of deferred costs of $(53,849) and we received cash of $856,219 from financing activities.

At June 30, 2012, we had cash of $308,487 and we owed approximately $2.6 million in principal (without discounts) and approximately $2.3 million in payables and accruals.

We anticipate that our future liquidity requirements will arise from the need to finance our 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. However, we can provide no assurances that we will be able to generate sufficient cash flow from operations and/or obtain additional financing on terms satisfactory to us, if at all, to remain a going concern. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis and ultimately to attain profitability. The Company is attempting to obtain cash to finance its operations through the sale of equity, debt borrowing and/or through the receipt of product licensing fees. We can provide no assurances that financing will be available to us on terms satisfactory to us, if at all, or that we will be able to continue as a going concern. Further, we can provide no assurances that a mutually acceptable licensing agreement will be entered into on terms satisfactory to us, if at all. In this respect, see “Note 1 – Going Concern” in our financial statements for additional information as to the possibility that we may not be able to continue as a “going concern.”

To date, we have relied on management’s ability to raise capital through equity private placement financings to fund our operations. We estimate that we will require between $3.0 million and $3.5 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.

The Company is seeking financing. Our Agreements with the current Note holder states that in the event of default, change in control, change in a majority of directors and in the most recent Note investment of $500,000 a change in CEO would trigger a mandatory redemption of the Notes at 120% of the balance of the Notes and a buy out of their Warrants based upon a valuation of the Warrants as provided in the Agreement, which could be substantial.

Recent Developments - 2011 Debt

Alpha Capital Aktiengesellschaft, a holder of 2004 Debt, loaned us $160,000 in February 2011 and an additional $300,000 in March 2011 pursuant to secured notes convertible at the lesser of the applicable conversion price or eighty percent of the conversion price of any convertible note issued by the Company to anyone prior to or on the one year anniversary of the Issue Date of the Note, subject to adjustment as described therein. The February 2011 notes had a conversion price of $.03 per share and the March 2011 notes had a conversion price of $.05 per share. On June 17, 2011, we entered into an agreement with Alpha to borrow an aggregate principal amount of $300,000 and to issue to the investor a secured convertible note and common stock purchase warrant. The closing occurred on June 17, 2011. The note bears an interest rate of 10% per annum, with a default interest rate of 15% per annum. Alpha also had the right, at their option, to convert the principal amount of the note, together with all accrued interest into fully paid and non-assessable shares of our common stock at a then conversion price per share of (i) $0.03, or (ii) eighty percent of the conversion price of any convertible note issued by the Company to anyone prior to or on the one year anniversary of the Issue Date of the Note. Also in connection with this sale, we issued Alpha a warrant to acquire shares of our common stock. We issued to the investor a “Class A” Common Stock Purchase Warrant which entitles the investor to acquire an aggregate of 12,333,335 shares of our common stock at a then exercise price of $0.06 per share and then exercisable for a period of five years.

The documents for the June 2011 Note also reduced the conversion price on the March 2011 Note from $.05 to $.03 per share.

Each note bears an interest rate of 10% per annum, with a default interest rate of 15% per annum. Interest shall be payable quarterly in arrears on the last day of each calendar quarter commencing March 31, 2011, with a maturity date of August 31, 2011 in the case of the February 2011 issued note and a maturity date of March 3, 2012 in the case of the March 2011 issued note. The individual note holder has the right, at its option, to convert the principal amount of each note, together with all accrued interest thereon in accordance with the provisions of and upon satisfaction of the conditions contained in each note, into fully paid and non-assessable shares of our common stock at a conversion price per share as described above, subject to adjustment in certain circumstances if the notes are then outstanding, such as a stock split, combination or dividend; or in the event we issue shares of common stock for consideration of less than the exercise price. Each note is secured by all of the assets of BlastGard International, Inc, and its wholly-owned subsidiary, BlastGard Technologies, Inc., until the notes have been fully paid or fully converted into common stock. Also in connection with these transactions, we issued the note holder warrants to acquire up to 29.3 million shares of our common stock at prices then ranging from $0.03 per share to $0.08 per share, subject to anti-dilution protection over the life of the warrants.

On November 8, 2011, the Company agreed to a financing agreement in the amount of $500,000 with an existing shareholder and creditor. The financing agreement consists of a convertible note and warrants. The note bears interest at 12% and is convertible at $0.01 per share. The warrants allow for 75,000,000 shares at $0.01 and expire in seven years. As a result of this financing agreement, all outstanding loans with this lender have had its conversion price lowered to $.01 per share. Also, the exercise price of all outstanding warrants with this lender have been reduced to $.01 per share and the term of the warrants have been extended to seven years from the closing date of this financing. A finder’s fee of 4,000,000 shares was agreed upon by the parties to be issued by the Company. See “Notes to Consolidated Financial Statements.”

Purchase of HighCom Security Inc.

As previously reported, on January 25, 2011, BlastGard International, Inc. ("BlastGard") entered into a binding Letter of Intent (“LOI”) with HighCom Security, Inc. (“HighCom”) under which BlastGard will acquire 100% of the common stock of HighCom from the stockholders of HighCom, none of whom are affiliates of BlastGard. HighCom is a worldwide security equipment provider based in San Francisco, California. HighCom designs, manufactures and distributes a unique range of security products and personal protective gear. BlastGard and HighCom have agreed to consummate a Stock Purchase Agreement, subject to the approval of all necessary parties, agencies or regulatory organizations. As of the signing of the agreement, BlastGard immediately assumed the operations of HighCom and started to provide financing for the operations while a definitive agreement is drawn up over the next 90 days.

As stated above, the LOI contemplated several closing conditions and the closing in escrow with a possible of rescission if the State Department does not reinstate HighCom’s export license. On March 4, 2011, among other changes the LOI was amended as follows: 1) the LOI constitutes the definitive stock purchase agreement; 2) BlastGard issued 9,820,666 shares of its Common Stock and promissory notes totaling $196,400 to Robert Rimberg as trustee for an Irrevocable Trust FBO and Yochi Cohen and his wife, Yocheved Cohen–Charash (the "Trust") in exchange for 1,150 shares of the outstanding 1,171 shares of HighCom Common Stock, equivalent to 98.2% of the outstanding shares; 3) the parties agree to waive all closing conditions, escrow provisions and right of rescission; and 4) BGI agreed for a period of 30 days to offer to purchase Ron Peled 21 shares of HighCom from him or his transferee at a cost of 179,934 shares of BGI Common Stock and in exchange for promissory notes totaling $3,600, with terms identical to those received by the Trust plus 1.8% of the Earn-out provisions contained in the LOI.

BlastGard also agreed to an earn-out consisting of up to $100,000 in cash and up to 35,000,000 shares of common stock based on a pro-rata basis if revenue reaches certain goals. BlastGard management believes that the revenues goals are very achievable and have valued the contingent consideration at 68% of the market price at the time of the agreement. As of June 30, 2012, the first earn-out payment to be

Recently Issued Accounting Pronouncements

During the past two years, the Financial Accounting Standards Board (“FASB”) issued a number of new pronouncements, 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 30, 2012. Reference is made to these recent accounting pronouncements as if they are set forth therein in their entirety.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

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

Item 4.

Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 13a-15(e). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level at the end of our most recent quarter. There have been no changes in the Company's disclosure controls and procedures or in other factors that could affect the disclosure controls subsequent to the date the Company completed its evaluation. Therefore, no corrective actions were taken.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

We are currently not subject to any threatened or pending legal proceedings. Nevertheless, we may from time to time become a party to various legal proceedings arising in the ordinary course of our business.

Item 1A.

Risk Factors

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) From January 2011 to June 30, 2012, we had no sales or issuances of unregistered securities.

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

Item 3. Defaults upon Senior Securities

N/A

Item 4. Mining Safety Disclosures

N/A

Item 5. Other Information.

N/A

Item 6.

Exhibits

Except for the exhibits listed below, other required exhibits have been previously filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

Exhibit Number		Description
11.1		Statement re: computation of earnings per share. See condensed consolidated statement of operations and notes thereto.
31.1		Rule 13a-14(a) Certification – Chief Executive Officer and Chief Financial Officer *
32.1		Section 1350 Certification – Chief Executive Officer and Chief Financial Officer *

———————

*	Filed herewith.

SIGNATURES

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

	BLASTGARD INTERNATIONAL, INC.


Dated: August 3, 2012	By:	/s/ Michael J. Gordon
		Michael J. Gordon, Chief Executive and Chief Financial Officer

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