bci-10k_123111.htm

Certain Relationships and Related Transactions, and Director Independence.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Explanatory Note: Defined terms used elsewhere in this Annual Report on Form 10-K are not used in this Item 13. Instead, for ease of reference, any defined terms used in this Item 13 are defined below.

Letter Agreement and Amendment and Release with John J. Barry, IV.

The Company and John J. Barry, IV are parties to a letter agreement and Amendment and Release, which are described in more detail above under “DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY – Voting Arrangements” and “EMPLOYMENT AGREEMENTS AND POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE−IN−CONTROL.”

Former Agreements with Radnor Research and Trading.

We formerly were parties to a Restated Revenue Sharing Agreement with Radnor Research and Trading Company, LLC (“Radnor”). Pursuant to this agreement, we were obligated to pay Radnor an amount equal to 14% of all revenues generated from referrals made by Radnor. In the event George O’Krepkie, our current President and former Head of Sales, ceased to be an employee of the Company, such revenue share percentage would be increased to 35% minus the compensation paid to his replacement (but in no event less than 14%). This agreement had an initial term of three years, which term would have been automatically renewed for successive one year terms unless ninety days notice of termination was provided by either party before the termination date. Either party also had the right to terminate the agreement for a material breach by the other party. In the event of a termination of the agreement other than for material breach, the Company was required to continue paying the revenue sharing amounts to Radnor for a period of eighteen months. The Company’s strategic relationship with UBS Securities LLC was considered a Radnor referral. This meant that we were subject to this revenue share with respect to all revenue generated pursuant to such strategic relationship.

Radnor formerly was a party to an agreement with Edwin L. Knetzger, III, who is co−chairman of our Board of Directors, pursuant to which Radnor was required to pay Mr. Knetzger a percentage of the proceeds received by Radnor from the Company under the Restated Revenue Sharing Agreement. One of the principals of Radnor, Victor Angermueller, is Mr. Knetzger’s brother−in−law.

The Restated Revenue Sharing Agreement and the related agreement between Radnor and Mr. Knetzger were terminated on October 19, 2010 and there are no remaining obligations under such agreements.

In order to secure the termination of the Radnor Restated Revenue Sharing Agreement and in cancellation of an additional contractual obligation in the potential amount of $432,000, on October 19, 2010, the Company entered into a Termination and Release Agreement with Mark G. Hollo, The Fund LLC and Black-II Trust (the “Termination and Release Agreement”). Pursuant to the Termination and Release Agreement, among other things, the Company (a) issued to Black-II Trust a warrant to purchase 10,000,000 shares of our Common Stock at a purchase price of $0.24 per share, and (b) agreed to pay Black-II Trust an aggregate of $250,000 in four equal installments at such time, if ever, as the gross proceeds from the Company’s financing efforts (including the conversion of indebtedness) exceeded $5,000,000. In exchange, Mark G. Hollo provided his required consent to the termination of the Revenue Sharing Agreement, and The Fund LLC agreed to terminate the above-referenced contractual obligation. All payments under the Termination and Release Agreement have been made.

UBS Stockholders Agreement.

The Company, UBS Americas Inc. (“UBS”), John J. Barry, III, John J. Barry, IV, affiliates of John J. Barry, III and John J. Barry, IV and certain security holders of the Company are parties to a Stockholders Agreement dated January 11, 2010 (the “Series A Stockholders Agreement”), pursuant to which, among other things:

●

The Company was prohibited from selling its securities to any bank, bank holding company, broker or dealer prior January 11, 2011, unless agreed in writing by UBS. Such restriction did not apply to a change of control transaction in which the holders of the Company’s common stock received cash consideration of at least $4.00 per share and holders of Series A Preferred receive cash consideration for all of their shares of Series A Preferred equal to no less than the greater of $400.00 per share or 100 times the consideration per share received by holders of common stock.

●

The Company and each stockholder party to the Series A Stockholders’ Agreement (other than UBS) is prohibited from appointing or voting in favor of, as applicable, any nominee to the Company’s board of directors that is affiliated with another bank, bank holding company, broker or dealer unless UBS agrees in writing, except that the foregoing restriction shall not apply to Edwin L. Knetzger III or Michael O. Sanderson.

During the year ended December 31, 111 USB represented approximately 13% of total Revenue.

Agreements with the Former Holder of Certain Convertible Secured Promissory Notes.

Amendments to Certain Convertible Secured Promissory Notes.

On October 19, 2010, the Company entered into an Amendment No. 2 to Convertible Secured Promissory Notes with Burton W. Wiand, as Receiver of Valhalla Investment Partners (the “Receiver”), who is the holder of a majority in principal amount of our Convertible Secured Promissory Notes issued on September 24, 2008, an Amendment No. 1 to Convertible Secured Promissory Note with the holder of our Convertible Secured Promissory Note issued on April 30, 2009 and an Amendment No. 1 to Convertible Secured Promissory Notes with the holders of our Convertible Secured Promissory Notes issued on June 8, 2009 (collectively, the “Note Amendments”). The Note Amendments restructured approximately $2,990,636 of our outstanding Convertible Secured Promissory Notes (the “Subject Notes”) as follows:

●

The maturity date of each of the Subject Notes was extended until October 12, 2013; provided, however, that from and after April 12, 2012, the holders of the Subject Notes may make a written demand to the Company for the payment of the entire unpaid principal balance thereof together with all accrued but unpaid interest thereon and the Company shall be required to repay such outstanding principal and interest within ninety (90) days of its receipt of such demand.

●

The conversion price of the Subject Notes was fixed at $0.24 per share (which was the then current conversion price of the Subject Notes as a result of adjustments based on the price per share of Common Stock issued in the Company’s recently completed warrant exchange offer). As a result of the financing we consummated on February 2, 2011, this conversion price was subsequently reduced to $0.07 per share. However, the “full-ratchet” adjustment provision of the Subject Notes was eliminated.

●

Holders of the Subject Notes have the right to receive up to 12,460,983 shares of our Common Stock based on the revenue generated by our operations during the twelve-month period ending February 2, 2012 (“Contingent Performance Shares”). If we generate at least $7,500,000 in revenue, no performance shares will be issued, if we generate no revenue, all of the performance shares will be issued and if we generate revenue between $0 and $7,500,000, a pro rata portion of the performance shares will be issued.

On February 1, 2012, we entered into a letter agreement (the “Letter Agreement”) with the Receiver.Under the terms of the Letter Agreement, the Company paid the Receiver $2,250,000 and in exchange the Receiver (a) cancelled and terminated all indebtedness owed by the Company to the receivership, which constituted approximately $2,442,000 in outstanding principal and accrued interest, and (b) terminated any contingent rights the Receiver had to receive Contingent Performance Shares. Such termination included, among other things, a release of all liens in favor of the Receiver with respect to the assets of the Company. Additionally, under the termsof the Letter Agreement, the Company would pay the Receiver $5,000, and in consideration of such payment by the Company, the Receiver would transfer and surrender to the Company all outstanding shares of the Company’s equity securities held beneficially or of record by the Receiver, constituting 7,582,850 shares of Common Stock (the “Stock Repurchase”), which would occur, if ever, at such time at which the Company may legally repurchase the shares in accordance applicable law, except that if such repurchase does not occur prior to March 2013, the Receiver shall not be obligated to sell such shares to the Company.

Agreements Entered into in Connection with our February 2, 2011 Financing Transaction.

In February 2011, we consummated a group of related transactions pursuant to which, among other things, we raised capital through the sale of units comprised of preferred stock and warrants, exchanged newly issued shares of preferred stock for previously outstanding preferred stock, and acquired the assets of Beacon Capital Strategies. In connection with these transactions, we entered into certain agreements with related parties, which are summarized below.

February 2011 Unit Purchase Agreement

On February 2, 2011, we entered into a Unit Purchase Agreement (the “February 2011 Unit Purchase Agreement”) with Oak Investment Partners XII, Limited Partnership (“Oak”) and GFINet Inc. (“GFI”). Pursuant to the February 2011 Unit Purchase Agreement, among other things, we sold to Oak and GFI units comprised of Series D Preferred Stock and warrants to purchase Common Stock for a total purchase price of $6,500,000.In addition to providing for the sale of such units, the February 2011 Unit Purchase Agreement contains representations and warranties and covenants of the Company in favor of Oak and GFI.

February 2011 Exchange Agreement

On February 2, 2011, in connection with and as a condition to the transactions contemplated by the February 2011 Unit Purchase Agreement, we entered into an Exchange Agreement (the “February 2011 Exchange Agreement”) with UBS, Bonds MX, LLC, an affiliate of Edwin L. Knetzger, III, and Robert Jones. Pursuant to the February 2011 Exchange Agreement, among other things, we (a) issued units comprised of shares of Series D Convertible Preferred Stock and warrants to purchase Common Stock in exchange for all of the outstanding shares of our Series B Convertible Preferred Stock and certain outstanding warrants to purchase shares of our Common Stock, and (b) issued units comprised of shares of Series D-1 Convertible Preferred Stock and warrants to purchase Series A Preferred Stock in exchange for all of the outstanding shares of our Series B-1 Convertible Preferred Stock and certain outstanding warrants to purchase shares of Series A Preferred Stock.

Series D Stockholders Agreement

In connection with and as a condition to the transactions contemplated by the February 2011 Unit Purchase Agreement and the February 2011 Exchange Agreement, on February 2, 2011, the Company, Oak, GFI, UBS, Bonds MX, LLC and Robert Jones entered into a Series D Stockholders’ Agreement setting forth certain agreements among and between the Company and such stockholders (the “Series D Stockholders Agreement”). This Series D Stockholders’ Agreement was terminated and replaced by the Company’s Series E Stockholders’ Agreement discussed in more detail below.

Amended and Restated Registration Rights Agreement

In connection with and as a condition to the transactions contemplated by the February 2011 Unit Purchase Agreement and the February 2011 Exchange Agreement, on February 2, 2011, the Company entered into an Amended and Restated Registration Rights Agreement with Oak, GFI, UBS, Bonds MX, LLC and Robert Jones (the “Amended and Restated Registration Rights Agreement”). The Amended and Restated Registration Rights Agreement was terminated and replaced by the Second Amended and Restated Registration Rights Agreement discussed in more detail below.

Beacon Capital Strategies, Inc. Asset Purchase Agreement

In connection with and as a condition to the transactions contemplated by the February 2011 Unit Purchase Agreement and the February 2011 Exchange Agreement, on February 2, 2011, the Company entered into an Asset Purchase Agreement (the “Beacon Asset Purchase Agreement”) by and among the Company, Bonds MBS, Inc., an indirect wholly-owned subsidiary of the Company (“Bonds MBS”), and Beacon Capital Strategies, Inc. (“Beacon”). Oak was a significant stockholder of Beacon. Pursuant to the Beacon Asset Purchase Agreement, among other things, on February 2, 2011, the Company (through Bonds MBS) purchased substantially all of Beacon’s assets. As consideration for the purchase of the Beacon assets pursuant to the Beacon Asset Purchase Agreement, the Company, among other things, (a) issued to Beacon 10,000 shares of Series C Preferred, and (b) assumed certain limited liabilities of Beacon.Additionally, the Beacon Asset Purchase Agreement contains representations and warranties and covenants of both Beacon in favor of the Company and the Company in favor of Beacon.

In connection with the acquisition of the Beacon assets, the Company, Bonds MBS and Beacon entered into an Agreement With Respect to Conversion, dated as of February 2, 2011 (the “Determination Agreement”). The Determination Agreement, among other things, sets forth the provisions and procedures for determining the contingent number of shares of Common Stock issuable upon conversion of the Series C Preferred and the contingent liquidation preference of the shares of Series C Preferred.Additionally, pursuant to the Determination Agreement, the Company was required to use commercially reasonable efforts to support the operations of the Beacon business and to maximize the gross revenue of the Beacon business and the number of contingent conversion shares and the amount of the contingent liquidation preference. This support requirement included the requirement to provide working capital to the Beacon business of up to $2,000,000 for a certain period of time, with such working capital expenditures to be consistent with a budget agreed to among the parties. The Determination Agreement further provided that if the Company materially breached any of its support obligations, then the number of conversion shares and liquidation preference to which the shares of Series C Preferred are entitled shall be the maximum amounts thereof.

On December 5, 2011, the Company, Bonds MBS and Oak, as successor of Beacon, entered into the Amendment No. 1 to Agreement with Respect to Conversion (the “Determination Agreement Amendment”), which amended the Determination Agreement, among other things, to provide that (a) the contingent number of shares of Common Stock issuance upon conversion of the Series C Preferred will be calculated to be equal to 25,000,000 shares of Common Stock (subject to increase in the event the conversion price of the Series C Preferred is reduced pursuant to the antidilution provisions thereof), and (b) the Company is no longer be required to give any level of support to the operations of the business formerly engaged in by Beacon. The Company then ceased operations of the assets acquired by Beacon.

Agreements Entered into in Connection with our December 5, 2011 Financing Transaction.

On December 5, 2011, the Company consummated a group of related transactions pursuant to which, among other things, we:

●

sold 100 units for an aggregate purchase price of $10,000,000 to six accredited investors, with each unit (each a “Unit”) comprised of (a) warrants to purchase 1,428,571 shares of our Common Stock, par value $0.0001 per share, at an initial exercise price of $0.07 per share (“Common Stock Warrants”), and (b) 100 shares of a newly-created class of preferred stock designated as Series E-2 Convertible Preferred Stock, par value $0.0001 per share (“Series E-2 Preferred”), and agreed to sell an additional 66 Units for an aggregate purchase price of $6,600,000 to five accredited investors upon the satisfaction or waiver of certain closing conditions; and

●

issued (a) 11,831 shares of a newly-created class of preferred stock designated as Series E Convertible Preferred Stock, par value $0.0001 per share (“Series E Preferred”), in exchange for all outstanding shares of our Series D Convertible Preferred Stock, par value $0.0001 per share (“Series D Preferred”), plus all rights with respect to accrued dividends on such shares of Series D Preferred, and (b) 1,334 shares of a newly-created class of preferred stock designated as Series E-1 Convertible Preferred Stock, par value $0.0001 per share (“Series E-1 Preferred”), in exchange for all outstanding shares of our Series D-1 Convertible Preferred Stock, par value $0.0001 per share (“Series D-1 Preferred”), plus all rights with respect to accrued dividends on such shares of Series D-1 Preferred.

The foregoing transactions and certain related documents and matters are described in more detail below. The following descriptions of the foregoing transactions and related documents and matters are summaries only and are qualified in their entirety by reference to the applicable documents, which are included as exhibits to this Current Report and incorporated by reference herein.

December 2011 Unit Purchase Agreement

On December 5, 2011, we entered into a Unit Purchase Agreement (the “December 2011 Unit Purchase Agreement”) with Daher Bonds Investment Company (“DBIC”), Mida Holdings (“Mida”), Oak, GFI, and certain other investors. Pursuant to the December 2011 Unit Purchase Agreement, among other things, (a) we sold to DBIC, Mida, Oak, GFI and certain other investors an aggregate of 100 Units for a total purchase price of $10,000,000, and (b) we agreed to sell, and DBIC, Mida, Oak, GFI and certain other investors agreed to purchase, an additional 66 Units for an aggregate purchase price of $6,600,000 (the “Additional Sale”). The Additional Sale, if any, would take place at a future date upon the satisfaction or waiver of certain closing conditions. Such closing conditions include, without limitation, the following:

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The Company shall have achieved revenue and cash burn closing milestones on, as of or before June 30, 2012. Such revenue and cash burn closing milestones will be satisfied if both (a) the Company’s gross operating revenue for any month ending after December 5, 2011 and on or prior to June 30, 2012 is at least $800,000, and (b) the Company’s operating losses for the same month are less than $200,000.

●	There shall not have occurred any material adverse effect with respect to the Company or any of its subsidiaries, taken as a whole.

●

The Company’s representations and warranties shall be true and correct in all respects as of the date when made and as of any closing with respect to the Additional Sale, except for such failures to be true and correct which in the respective buyer’s reasonable judgment, individually or in the aggregate, have not resulted in and would not reasonably be expected to result in a material adverse effect.

In addition to providing for the sale of the Units, the Unit Purchase Agreement contains representations and warranties and covenants of the Company in favor of DBIC, Mida, Oak, GFI and certain other investors. The covenants set forth in the Unit Purchase Agreement include, without limitation, the following:

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For so long as DBIC, Mida, Oak or GFI own any of the shares of Series E-2 Preferred, Common Stock Warrants or the shares of Common Stock issuable upon conversion or exercise thereof, the Company is required to timely file all reports it is required to file with the SEC pursuant to the Securities Exchange Act of 1934 (as amended, the “1934 Act”), and the Company is prohibited from terminating its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would otherwise permit such termination.

●

Other than the Common Stock Warrants, any Units issued in connection with any closing on the Additional Sale under the Unit Purchase Agreement and any Units issued in connection with any exercise of preemptive rights by certain holders of the Company’s shares of capital stock, the Company is prohibited from selling any warrants, convertible debt or other securities convertible into the Company’s Common Stock that include dilution protection provisions other than provisions relating to stock splits, reclassifications, stock dividends and other like kind events.

●

The Company is required to use the proceeds from the sale of the Units in accordance with certain specified uses that were previously approved by the Company’s Board of Directors (“Board”); provided, however, the Company may deviate from such proposed uses with the approval of the Board, including the consent of at least one director designated to the Board by Oak, GFI or DBIC.

●	From December 5, 2011 until December 31, 2012, the Company may not appoint a Chief Executive Officer unless such appointment is approved by a majority of the Board including at least any one of the directors designated to the Board by DBIC.

The purchase and sale of the Units under the Unit Purchase Agreement gives rise to preemptive rights held by certain holders of the Company’s capital stock under the terms of the Series D Stockholders’ Agreement dated as of February 2, 2011, by and among the Company and the other parties thereto. Among those holders was Bonds MX, LLC, an affiliate of Edwin L. Knetzger, III. The Company consummated a sale of $200,000 of Units to Bonds MX, LLC and $100,000 of Units to another investor on January 24, 2012.

The December 2011 Exchange Agreement

On December 5, 2011, in connection with and as a condition to the transactions contemplated by the December 2011 Unit Purchase Agreement, we entered into an Exchange Agreement (the “December 2011 Exchange Agreement”) with GFI, Oak, UBS, Bonds MX, LLC, an affiliate of Edwin L. Knetzger, III, Jefferies & Company, Inc. (“Jefferies”) and all other holders of Series D Preferred. Pursuant to the December 2011 Exchange Agreement, among other things, we issued (a) 11,831 shares of Series E Preferred in exchange for all outstanding shares of our Series D Preferred plus all rights with respect to accrued dividends on such shares of Series D Preferred, and (b) 1,334 shares of Series E-1 Preferred in exchange for all outstanding shares of our Series D-1 Preferred plus all rights with respect to accrued dividends on such shares of Series D-1 Preferred.

In addition to providing for the issuance of the Series E Preferred and Series E-1 Preferred in exchange for the Series D Preferred and the Series D-1 Preferred, respectively, the December 2011 Exchange Agreement contains representations and warranties of the Company in favor of GFI, Oak, UBS, Bonds MX, LLC, Jefferies and all other holders of Series D Preferred. The covenants set forth in the Exchange Agreement include, without limitation, the following:

•

For so long as UBS, Bonds MX, GFI, Oak or Jefferies own any of the shares of Series E Preferred or Series E-1 Preferred, the Company is required to timely file all reports it is required to file with the SEC pursuant to the 1934 Act, and the Company is prohibited from terminating its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would otherwise permit such termination.

Series E Stockholders’ Agreement

In connection with and as a condition to the transactions contemplated by the Unit Purchase Agreement and the Exchange Agreement, on December 5, 2011, the Company, DBIC, Mida, Oak, GFI, UBS, Bonds MX, LLC, Jefferies and each other holder of the securities acquired pursuant to the Exchange Agreement or the Unit Purchase Agreement entered into a Series E Stockholders’ Agreement setting forth certain agreements among and between the Company and such stockholders (the “Series E Stockholders’ Agreement”).

Pursuant to the Series E Stockholders’ Agreement, in the event that DBIC, Mida, Oak, GFI, UBS, Bonds MX, Jefferies or any other holder of the securities acquired pursuant to the Exchange Agreement or the Unit Purchase Agreement (the “Series E Stockholders”) seeks to sell his or its shares of Series E Preferred, Series E-1 Preferred or Series E-2 Preferred, as the case may be, each other Series E Stockholder shall have the right to sell a pro rata portion of its similar securities along with the selling Series E Stockholder. Alternatively, the Company, at its option, may redeem the applicable securities from the other Series E Stockholders and the selling Series E Stockholder would be permitted to sell his or its shares free of such obligation. The foregoing obligations do not apply to transfers pursuant to Rule 144, transfers to certain permitted transferees, bona fide pledges and pledges outstanding as of the date of the Series E Stockholders’ Stockholders’ Agreement. Such obligations also do not apply to sales of less than 10% of the securities held by the selling Series E Stockholder.

The Series E Stockholders’ Stockholders Agreement requires the Company to offer the Series E Stockholders the right to participate on a pro rata basis (based on its fully diluted shares of preferred stock relative to the total number of fully diluted shares of the Company) in future issuances of equity securities by the Company.The foregoing right does not apply to issuance of equity securities (a) in connection with any acquisition of assets of another person, whether by purchase of stock, merger, consolidation, purchase of all or substantially all of the assets of such person or otherwise approved by the Company’s Board of Directors and the requisite holders of the Series E Preferred and Series E-2 Preferred to the extent required under the Certificate of Designation of the Series E Convertible Preferred Stock, Series E-1 Convertible Preferred Stock and Series E-2 Convertible Preferred Stock, (b) Exempted Securities (as such term is defined in the Certificate of Designation of the Series E Convertible Preferred Stock, Series E-1 Convertible Preferred Stock and Series E-2 Convertible Preferred Stock), (c) in an underwritten public offering with gross proceeds of at least $50,000,000 and a market capitalization of at least $175,000,000, and (d) approved by holders of a majority of the shares of Series E Preferred and Series E-2 Preferred. The Company may elect to consummate the issuance of equity securities and subsequently provide the Series E Stockholders their right to participate. The foregoing right to participate under the Stockholders Agreement shall terminate on such date as of which less than 25% of the shares of Series E Preferred and Series E-2 Preferred collectively remain outstanding.

The Series E Stockholders Agreement also sets forth the voting provisions discussed in more detail above under ““DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY – Voting Arrangements”.

Second Amended and Restated Registration Rights Agreement

In connection with and as a condition to the transactions contemplated by the Unit Purchase Agreement and the Exchange Agreement, on December 5, 2011, the Company entered into a Second Amended and Restated Registration Rights Agreement with DBIC, Mida, Oak, GFI, UBS, Bonds MX, Jefferies and each other holder of the securities acquired pursuant to the Exchange Agreement or the Unit Purchase Agreement (the “Second Amended and Restated Registration Rights Agreement”). Under the terms of the Second Amended and Restated Registration Rights Agreement, if at any time after the earlier of (a) one (1) year after the date of such agreement or (b) one hundred eighty (180) days after the date the Company’s shares of Common Stock are listed on a national securities exchange, the Company receives a written request from holders of 66.6% of the Series E Preferred, Series E-1 Preferred and the Series E-2 Preferred (such holders, the “Initiating Investors”) to file with the Securities and Exchange Commission a registration statement with respect to at least ten percent (10%) of such Common Stock then outstanding, then the Company is obligated within ten (10) days after the date of receipt by the Company of such written request, to give notice thereof to all of the other holders of Series E Preferred, Series E-1 Preferred or Series E-2 Preferred (such holders, the “Other Investors”). As soon as practicable thereafter (and in any event within sixty (60) days after the date of receipt by the Company of such written request), the Company shall file such registration statement with the Securities and Exchange Commission covering all Common Stock that are requested to be registered by the Initiating Investors and any additional Common Stock as specified by notice given to the Company by any Other Investors within twenty (20) days of the date the Other Investors received notice from the Company.

The Second Amended and Restated Registration Rights Agreement also provides DBIC, Mida, Oak, GFI, UBS, Bonds MX, Jefferies and each other holder of the securities acquired pursuant to the Exchange Agreement or the Unit Purchase Agreement with “piggy back” registration rights with respect to certain registration statements filed by the Company for its own sale of shares of Common Stock or resales of shares of Common Stock by other stockholders, and also contains other customary undertakings and restrictions with respect to the Company.

Additional Related Party Transactions.

On February 2, 2011, the Company issued three warrants to related parties or their affiliates or related parties: (a) a warrant to purchase 6,500,000 shares of the Company’s Common Stock at a purchase price of $0.07 per share for a period of 5 years, which was issued to Edwin L. Knetzger, III for prior services rendered (in addition to his services as a director of the Company), (b) a warrant to purchase 6,500,000 shares of the Company’s Common Stock at a purchase price of $0.07 per share for a period of 5 years, which was issued to Tully Capital Partners, LLC, a member of Bonds MX, LLC, for prior services rendered, and (c) a warrant to purchase 15,000,000 shares of the Company’s Common Stock at a purchase price of $0.10 per share for a period of 5 years, which was issued to Laidlaw & Co (UK), Inc., a related party of Laidlaw Venture Partners III, LLC.

See “EMPLOYMENT AGREEMENTS AND POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL” above for summaries of our Employment Agreements with Thomas Thees, George O’Krepkie, John M. Ryan and David J. Weisberger and summaries of our Separation Agreement, Release and Covenant Not to Sue with Michael Sanderson and certain arrangements with John J. Barry, IV.

Related Party Transactions Policies and Procedures.

On April 8, 2010, our Board adopted written related party transaction policies and procedures (the “Policy”). For purposes of the Policy, “related party transactions” include transactions that involve more than $5,000 in any calendar year in which the Company is a participant and any related party has a direct or indirect interest, and “related party” includes our officers, directors or 5 percent shareholders and their immediate family members.

Except as described below, our Audit Committee (excluding any interested director) (the “Committee”) will review the material facts of all related party transactions. The Committee will either approve or disapprove of the entry into the related party transaction after taking into account, among other factors it deems appropriate, whether the related party transaction is on terms no less favorable than terms generally available to an unaffiliated third−party under the same or similar circumstances and the extent of the related party’s interest in the transaction. If advance Committee approval of a related party transaction is not feasible, the Committee will consider, and if it deems appropriate, ratifying the transaction at the Committee’s next regularly scheduled meeting. The Audit Committee has delegated authority to its Chair to approve related party transactions in which the amount involved is expected to be less than $25,000.

The following related party transactions are deemed to be pre−approved or ratified by the Committee (subject to the specific requirements and limitations set forth in the Policy):

(a) certain employment arrangements with our executive officers;

(b) certain compensation arrangements with our directors;

(d) transactions involving competitive bids;

(e) regulated transactions; and

(f) banking transactions.

DIRECTOR INDEPENDENCE

Currently, the Company is not subject to the requirements of a national securities exchange or an inter−dealer quotation system with respect to the need to have a majority of our directors be independent. Our Corporate Governance Guidelines provide that our Board of Directors shall include one or more directors who are neither officers or employees of the Company or its subsidiaries (and have not been officers or employees within the previous three years), do not have a relationship which, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, and who are otherwise “independent” under the listing requirements of either the New York Stock Exchange (“NYSE”) or The NASDAQ Stock Market (“NASDAQ”) or under such other requirements as may be established by our Board of Directors from time to time.

The Board of Directors has determined that each of David S. Bensol and George P. Jameson are independent under the current NYSE and NASDAQ listing standards and the other requirements of our Corporate Governance Guidelines. In making this determination, the Board of Directors evaluated whether there exists any transactions, relationships or arrangements between these individuals and the Company and determined that no material transactions, relationships or arrangements exist between the Company and any of the independent directors.

Item 14.

Principal Accountant Fees and Services.

COMPANY’S RELATIONSHIP WITH INDEPENDENT AUDITORS

On December 28, 2011, Daszkal Bolton LLP ("Daszkal") notified the Company that it resigned as our independent registered public accounting firm. On January 20, 2012, the Audit Committee of the Company’s Board of Directors engaged EisnerAmper LLP (“EisnerAmper”) to replace Daszkal Bolton LLP as the Company’s independent registered public accounting firm for the fiscal year ended December 31, 2011. In addition, the Company also engaged SEC Solutions Group, LLC to replace Daszkal Bolton as the Company’s tax preparation service provider.

Set forth below are the fees and expenses for Daszkal and EisnerAmper for each of the last two years for the following services provided to us:

Daszkal Bolton LLP

	2011		2010
Annual Audit Fees	$	-	$	133,949
Audit-Related Fees	$	58,807	$	60,000
Tax Fees	$	24,818	$	7,500
Other Fees	$	18,600	$	11,730
Total Fees	$	102,230	$	213,179

EisnerAmper LLP

	2011		2010
Annual Audit Fees	$	350,000	$	-
Audit-Related Fees	$	-	$	-
Tax Fees	$	-	$	-
Other Fees	$	-	$	-
Total Fees	$	350,000	$	-

Our audit committee approves each non−audit engagement or service with or by our independent auditor. Prior to approving any such non−audit engagement or service, it is the audit committee’s practice to first receive information regarding the engagement or service that (a) is detailed as to the specific engagement or service, and (b) enables the audit committee to make a well−reasoned assessment of the impact of the engagement or service on the auditor’s independence.

PART IV

ITEM 15.

EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES

a)	The financial statements included as part of this Form 10-K are identified in the index to the financial statements appearing in Item 8 of this Form 10-K and which index is incorporated in this Item 15 by reference.

b)	Exhibits

Exhibit Number and Document Description

Exhibit		Description

2.1		Agreement and Plan of Merger and Reorganization by and among IPORUSSIA, Inc., Bonds.com Holdings Acquisition, Inc. and Bonds.com Holdings, Inc., dated December 21, 2007 (1)

2.2		Stock Purchase Agreement dated on August 21, 2007 among Bonds.com Holdings, Inc. and Hanover Capital Partners 2, Ltd., and with respect to Article IV thereof, Hanover Capital Mortgage Holdings, Inc., relating to the purchase and sale of all of the capital stock of Pedestal Capital Markets, Inc. (1)

3.1		Certificate of Incorporation of IPORUSSIA, INC., as filed with the Secretary of State of Delaware on April 1, 2002 (2)

3.2		Certificate of Amendment of Certificate of Incorporation Before Payment of Capital, as filed with the Secretary of State of the State of Delaware on April 12, 2002 (2)

3.3		Certificate of Amendment of Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on December 18, 2007 (6)

3.4		Certificate of Ownership and Merger, as filed with the Secretary of State of the State of Delaware on December 21, 2007 (1)

3.5		Certificate of Correction, as filed with the Secretary of State of the State of Delaware on December 23, 2009 (6)

3.6		Certificate of Designation of the Series A Participating Preferred Stock of Bonds.com Group, Inc., as filed with the Secretary of State of the State of Delaware on January 11, 2010 (20)

3.7		Certificate of Amendment of Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on March 31, 2010 (6)

3.8		Certificate of Increase of Series A Participating Preferred Stock, as filed with the Secretary of State of Delaware on October 19, 2010

3.9		Certificate of Designation of the Series B Convertible Preferred Stock and Series B-1 Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware on October 19, 2010 (23)

3.10		Certificate of Designation of the Series C Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware on February 2, 2011 (24)

3.11		Certificate of Designation of the Series D Convertible Preferred Stock and Series D-1 Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware on February 2, 2011 (24)

3.12		Certificate of Correction, as filed with the Secretary of State of the State of Delaware on June 20, 2011 (26)

3.13		Certificate of Increase of Series A Participating Preferred Stock, as filed with the Secretary of State of the State of Delaware on December 5, 2011 (29)

3.14		Certificate of Designation of Series E Convertible Preferred Stock, Series E-1 Convertible Preferred Stock and Series E-2 Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware on December 5, 2011 (29)

3.15		Amended and Restated Bylaws of the Company (25)

4.1		Specimen Common Stock Certificate (3)

4.2		Specimen of Series A Participating Preferred Stock (6)

4.3		Bonds.com Group, Inc. 2006 Equity Plan (1) **

4.4		Stock Option Agreement between Bonds.com Holdings, Inc. (f/k/a Bonds Financial, Inc.) and William M. Bass dated as of February 1, 2007 (1) **

4.5		Bonds.com Group, Inc. 2011 Equity Plan (24)**

4.6		First Amendment to Bonds.com Group, Inc. 2011 Equity Plan (30)**

4.7		Form of Ordinary Purchase Rights Certificate (19)

4.8		Form of Special Purchase Rights Certificate (6)

4.9		Form of Additional Purchase Rights Certificate (6)

4.10		Form of Preferred Stock Purchase Rights Certificate (20)

4.11		Form of Common Stock Warrant (24)

4.12		Form of Series A Preferred Stock Warrant (24)

4.13		Agreement with Respect to Conversion dated February 2, 2011 (24)

4.14		Amendment No. 1 to Agreement with Respect to Conversion dated December 5, 2011 (31)

10.1		Contribution Agreement (Domain Name Bonds.com) (1)

10.2		Software License Agreement dated as of August 16, 2006 between Decision Software, Inc. and Bonds.com Holdings, Inc. (f/k/a Bonds Financial, Inc.)* (1)

10.3		License Agreement dated as of February 19, 2007 between Valubond Securities, Inc. and Bonds.com Holdings, Inc. (f/k/a Bonds Financial, Inc.)* (1)

10.4		Agreement entered into as of September 11, 2006 between Radianz Americas, Inc. and Bonds.com Holdings, Inc. (f/k/a Bonds Financial, Inc.) (1)

10.5		Office Lease Agreement dated as of October 1, 2007 by and between 1515 Associates, Ltd. and Bonds.com Holdings, Inc. (Boca Raton, FL Lease) (1)

10.6		Commercial Term Loan Agreement, dated March 31, 2009, between MBRO Capital LLC and Bonds.com Group, Inc. (12)

10.7		Amendment No. 1. Waiver and Consent to Commercial Term Loan Agreement, dated December 31, 2009, between MBRO Capital LLC and Bonds.com Group, Inc. (6)

10.8		Commercial Term Promissory Note, dated March 31, 2009, issued to MBRO Capital LLC (12)

10.9		Bonds.com Holdings, Inc. Guaranty in favor of MBRO Capital LLC, dated March 31, 2009 (12)

10.10		Grid Promissory Note with John Barry III dated January 29, 2008 (4)

10.11		Amendment dated March 26, 2009 to Promissory Note dated January 29, 2009 issued to John Barry III (12)

10.12		Amendment and Forbearance Agreement, dated January 11, 2010, by John Barry III with respect to January 29, 2008 Grid Promissory Note (6)

10.13		Secured Convertible Note and Warrant Purchase Agreement dated September 24, 2008 (7)

10.14		Security Agreement dated September 24, 2008 (7)

10.15		Form of Bonds.com Group, Inc. Secured Convertible Promissory Note (7)

10.16		Amendment dated December 1, 2008 to the Secured Convertible Note and Warrant Purchase Agreement (7)

10.17		Amendment dated as of February 3, 2009 to the Secured Convertible Note and Warrant Purchase Agreement and the Security Agreement (7)

10.18		Promissory Note issued to Keating Investments, LLC dated December 21, 2007 (1)

10.19		Amendment dated September 17, 2008 to the Promissory Note of Bonds.com Group, Inc. originally issued to Keating Investments, Inc. on December 21, 2007 (8)

10.20		Second Amendment to Promissory Note, dated March 1, 2010, to the Promissory Note of Bonds.com Group, Inc. originally issued to Keating Investments, LLC on December 21, 2007 (6)

10.21		Grid Promissory Note with Christopher D. Moody dated January 29, 2008 (4)

10.22		Grid Secured Promissory Note with Christopher D. Moody dated April 24, 2008. (11)

10.23		Amendment to Grid Secured Promissory Note with Christopher D. Moody dated July 8, 2008 (9)

10.24		Grid Secured Promissory Note with Valhalla Investment Partners dated April 24, 2008. (11)

10.25		Amendment to Grid Secured Promissory Note with Valhalla Investment Partners dated July 8, 2008 (9)

10.26		Separation and General Release among Roger Rees, Bonds.com Group, Inc., Bonds.com Holdings, Inc. and Bonds.com Inc. dated May 12, 2008. (10)

10.27		Secured Convertible Note and Warrant Purchase Agreement dated April 30, 2009 (13)

10.28		Secured Convertible Promissory Note dated April 30, 2009 (13)

10.29		Common Stock Warrant dated April 30, 2009 (13)

10.30		Amended and Restated Security Agreement, dated April 30, 2009, relating to the Security Agreement dated September 24, 2009 (14)

10.31		Secured Convertible Note and Warrant Purchase Agreement dated June 8, 2009 (14)

10.32		Secured Convertible Promissory Note dated June 8, 2009 (14)

10.33		Common Stock Warrant dated June 8, 2009 (14)

10.34		Secured Convertible Note and Warrant Purchase Agreement dated June 30, 2009 (15)

10.35		Secured Convertible Promissory Note dated June 30, 2009 (15)

10.36		Common Stock Warrant dated June 30, 2009 (15)

10.37		Unit Purchase Agreement, dated August 28, 2009, between Fund Holdings, LLC and Bonds.com Group, Inc. (17)

10.38		Amendment Letter, dated December 23, 2009, to August 28, 2009 Unit Purchase Agreement with Fund Holdings, LLC (18)

10.39		Unit Purchase Agreement, dated December 31, 2009, between Laidlaw Venture Partners III, LLC and Bonds.com Group, Inc. (19)

10.40		Unit Purchase Agreement, dated January 11, 2010, between UBS Americas Inc. and Bonds.com Group, Inc. (20)

10.41		Stockholders Agreement, dated January 11, 2010, between UBS America Inc. Bonds.com Group, Inc., Fund Holdings LLC, Laidlaw Venture Partners III, LLC, affiliates of John Barry III and affiliates of John J. Barry, IV (20)

10.42		Letter Agreement, dated January 11, 2010, between Bonds.com Group, Inc. Fund Holdings LLC, affiliates of John Barry III and affiliates of John J. Barry, IV, relating to Stockholders Agreement dated January 11, 2010 (6)

10.43		Letter Agreement, dated February 26, 2010, between Bonds.com Group, Inc., John Barry III, Holly A.W. Barry and John J. Barry, IV (21) **

10.44		Settlement Agreement and Release, dated March 19, 2010, between Bonds.com Group, Inc. and William Bass (22)

10.45		Stock Option Agreement, dated March 19, 2010, issued to William Bass (22)

10.46		Software License, Hosting, Joint Marketing, and Services Agreement, dated as of July 8, 2009, between InterDealer Securities, LLC, InterDealer Information Technology, LLC, InterDealer IP Holding, LLC and Bonds.com Group, Inc. (6)*

10.47		Letter Agreement, dated December 31, 2009, between Bonds.com Group, Inc., InterDealer Information Technologies, LLC, InterDealer Securities LLC and InterDealer IP Holdings LLC (6) *

10.48		Licensing and Services Agreement, dated January 11, 2010, between Bonds.com Group, Inc. and UBS Securities LLC (6)*

10.49		Secured Note and Warrant Purchase Agreement dated May 28, 2010 (27)

10.50		Form of Secured Convertible Promissory Note dated May 28, 2010 (27)

10.51		Second Amended and Restated Security Agreement dated May 28, 2010 (27)

10.52		Amendment No. 1 to Secured Convertible Note and Warrant Purchase Agreement and Exercise of Extension Right dated June 22, 2010 (26)

10.53		15% Promissory Note dated July 26, 2010 in favor of Bonds MX, LLC (28)

10.54		Amended 15% Promissory Note, dated August 20, 2010 in favor of Bonds MX, LLC (29)

10.55		Amendment No. 1 to Secured Convertible Promissory Notes dated September 21, 2010 (26)

10.56		Amendment No. 1 to Second Amended and Restated Grid Secured Promissory Note dated September 21, 2010 (26)

10.57		Separation Agreement, Release and Covenant Not to Sue, dated September 29, 2010, between the Company and Christopher Loughlin (30)

10.58		Separation Agreement, Release and Covenant Not to Sue, dated September 29, 2010, between the Company and Joseph Nikolson (30)

10.59		Unit Purchase Agreement, dated as of October 19, 2010, by and between the Company and Bonds MX, LLC (23)

10.60		Unit Purchase Agreement, dated as of October 19, 2010, by and between the Company and UBS Americas Inc. (23)

10.61		Series B Stockholders’ Agreement, dated as of October 19, 2010, by and among the Company, UBS Americas Inc. and Bonds MX, LLC (23)

10.62		Registration Rights Agreement, dated as of October 19, 2010, by and among the Company UBS Americas Inc. and Bonds MX, LLC (23)

10.63		Amendment No. 2 to Convertible Secured Promissory Notes, dated as of October 19, 2010 (23)

10.64		Amendment No. 1 to Convertible Secured Promissory Note, dated as of October 19, 2010 (23)

10.65		Amendment No. 1 to Convertible Secured Promissory Notes, dated as of October 19, 2010 (23)

10.66		Amendment and Release, dated as of October 19, 2010, by and among the Company and John J. Barry III (23)

10.67		Amendment and Release, dated as of October 19, 2010, by and among the Company and John J. Barry IV (23)

10.68		Common Stock Purchase Warrant, dated as of October 19, 2010, by and among the Company and Black-II Trust (23)

10.69		Common Stock Purchase Warrant, dated as of October 19, 2010, by and among the Company and Bonds MX, LLC (23)

10.70		Series A Preferred Stock Purchase Warrant, dated as of October 19, 2010, by and among the Company and Bonds MX, LLC (23)

10.71		Termination and Release Agreement, dated as of October 19, 2010, by and among the Company, Mark G. Hollo and The Fund, LLC (23)

10.72		Exchange Agreement, dated as of October 19, 2010, by and among the Company and UBS Americas Inc. (23)

10.73		Unit Purchase Agreement, dated as of February 2, 2011, by and among the Company, Oak Investment Partners XII, Limited Partnership and GFINet Inc. (24)

10.74		Exchange Agreement, dated as of February 2, 2011, by and among the Company, UBS Americas, Inc., Bonds MX, LLC and Robert Jones (24)

10.75		Series D Stockholders’ Agreement, dated as of February 2, 2011, by and among the Company, Oak Investment Partners XII, Limited Partnership, GFINet Inc., UBS Americas Inc., Bonds MX, LLC and Robert Jones (24)

10.76		Amended and Restated Registration Rights Agreement, dated as of February 2, 2011, by and among the Company, Oak Investment Partners XII, Limited Partnership, GFINet Inc., UBS Americas Inc., Bonds MX, LLC and Robert Jones (24)

10.77		Form of Common Stock Warrant (24)

10.78		Form of Series A Warrant (24)

10.79		Asset Purchase Agreement, dated as of February 2, 2011, by and among the Company, Bonds MBS, Inc. and Beacon Capital Strategies, Inc. (24)
10.80		Agreement With Respect to Conversion, dated as of February 2, 2011, by and among the Company, Bonds MBS, Inc. and Beacon Capital Strategies, Inc. (24)

10.81		Form of Indemnification Agreement (24) **

10.82		Employment Agreement, dated as of February 2, 2011, between the Company and Michael O. Sanderson (24) **

10.83		Employment Agreement, dated as of February 2, 2011, between the Company and Jeffrey M. Chertoff (24) **

10.84		Employment Agreement, dated as of February 2, 2011, between the Company and John Ryan (24) **

10.85		Bonds.com Group, Inc. 2011 Equity Plan (24) **

10.86		Form of Non-Qualified Stock Option Agreement between the Company and George O’Krepkie (24) **

10.87		Bonds.com Group, Inc. Form of Stock Option Agreement (24) **

10.88		Form of Unit Purchase Agreement for individual investors, dated March 7, 2011 (26)

10.89		Amendment No. 1 to Series D Stockholders Agreement dated June 23, 2011 (31)

10.90		Marketing Agreement with Red Kite Americas LLC dated August 11, 2011 (32)

10.91		Form of Common Stock Warrant Issued to Red Kite Americas LLC (32)

10.92		Unit Purchase Agreement dated December 5, 2011 (29)

10.93		Form of Common Stock Purchase Warrant (29)

10.94		Exchange Agreement dated December 5, 2011 (29)

10.95		Series E Stockholders’ Agreement dated December 5, 2011 (29)

10.96		Second Amended and Restated Registration Rights Agreement dated December 5, 2011 (29)

10.97		Amendment No. 1 to Agreement with Respect to Conversion dated December 5, 2011 (29)

10.98		Separation Agreement with Michael O. Sanderson dated December 5, 2011 (29) **

10.99		Form of Indemnification Agreement (29)

10.100		Amended and Restated Employment Agreement of George O’Krepkie dated December 5, 2011 (29) **

10.101		Letter Agreement with Receiver dated February 1, 2021 (33)

10.102		Sub-Sublease Agreement dated February 24, 2012 (34)

10.103		Employment Agreement with Thomas Thees dated May 16, 2012 (30) **

10.104		Amendment No. to Series E Stockholders’ Agreement dated May 16, 2012 (30)

10.105		First Amendment to 2011 Equity Plan (30) **


14		Code of Business Conduct and Ethics (26)

21		Subsidiaries of the Company (26)

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (26)

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (26)

32.1		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (26)

32.2		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (26)

* Confidential treatment requested withrespect to portions of this document.

** Indicates management contract orcompensatory plan or arrangement.

(1)	Incorporated by reference from the Company’s Registration Statement on Form S-1 (formerly Form SB-2) filed with the SEC on December 28, 2007 (File No. 333-148398) and any and all amendments thereto

(2)	Incorporated by reference from the Company’s Registration Statement on Form SB-2 filed with the SEC on August 16, 2002 (File No. 333-98247)

(3)	Incorporated by reference from the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2008 (File No. 000-51076)

(4)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on February 1, 2008 (File No. 000-51076)

(5)	Incorporated by reference from the Company’s Annual Report on Form 10-K filed with the SEC on April 1, 2010 (File No. 000-51076)

(6)	Incorporated by reference from the Company’s Current Report on Form 8K filed with the SEC on February 5, 2009 (File No. 000-51076)

(7)	Incorporated by reference from the Company’s Current Report on Form 8K filed with the SEC on September 2, 2008 (File No. 000-51076)

(8)	Incorporated by reference from the Company’s Current Report on Form 8K filed with the SEC on July 14, 2008 (File No. 000-51076)

(9)	Incorporated by reference from the Company’s Current Report on Form 8K filed with the SEC on May 15, 2008, 2008 (File No. 000-51076)

(10)	Incorporated by reference from the Company’s Current Report on Form 8K filed with the SEC on April 30, 2008 (File No. 000-51076)

(11)	Incorporated by reference from the Company’s Annual Report on Form 10-K filed with the SEC on April 1, 2009 (File No. 000-51076)

(12)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2009 (File No. 000-51076)

(13)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on June 12, 2009 (File No. 000-51076)

(14)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on July 7, 2009 (File No. 000-51076)

(15)	Incorporated by reference from the Company’s Current Report on Form 8-K/A filed with the SEC on September 3, 2009 (File No. 000-51076)

(16)	Incorporated by reference from the Company’s Current Report on Form 8-K/A filed with the SEC on December 30, 2009 (File No. 000-51076)

(17)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on January 7, 2010 (File No. 000-51076)

(18)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on January 14, 2010 (File No. 000-51076)

(19)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on March 4, 2010 (File No. 000-51076)

(20)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on March 25, 2010 (File No. 000-51076)

(21)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on October 25, 2010 (File No. 000-51076)

(22)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on February 8, 2011 (File No. 000-51076)

(23)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on May 28, 2010 (File No. 000-51076)

(24)	Filed herewith.

(25)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on June 4, 2010 (File No. 000-51076)

(26)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on July 29, 2010 (File No. 000-51076)

(27)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on August 26, 2010 (File No. 000-51076)

(28)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on October 5, 2010 (File No. 000-51076)

(29)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on December 9, 2011 (File No. 000-51076)

(30)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on May 16, 2012 (File No. 000-51076)

(31)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on June 28, 2011 (File No. 000-51076)

(32)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on August 15, 2011 (File No. 000-51076)

(33)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on February 7, 2012 (File No. 000-51076)

(34)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on February 28, 2012 (File No. 000-51076)

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	BONDS.COM GROUP, INC.

Dated: May 21, 2012	By:	/s/ George O’Krepkie
		George O’Krepkie
		President and Principal Executive Officer

	By:	/s/ John M. Ryan
		John M. Ryan
		Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Edwin L. Knetzger, III		May 21, 2012
Edwin L. Knetzger, III, Director /s/ H. Eugene Lockhart		May 21, 2012
H. Eugene Lockhart, Director /s/ Patricia Kemp		May 21, 2012
Patricia Kemp, Director /s/ Michel Daher		May 21, 2012
Michel Daher, Director /s/ Henri J. Chaoul		May 21, 2012
Henri J. Chaoul, Ph.D., Director /s/ Michael Gooch		May 21, 2012
Michael Gooch, Director /s/ George O'Krepkie		May 21, 2012
George O'Krepkie, Director

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

TABLE OF CONTENTS

Reports of Independent Registered Public Accounting Firms	F-2

Consolidated Balance Sheets as of December 31, 2011 and 2010	F-4

Consolidated Statements of Operations for the years ended December 31, 2011 and 2010	F-5

Consolidated Statements of Changes in Stockholders’ Deficit for years ended December 31, 2011 and 2010	F-6

Consolidated Statements of Cash Flows for the years ended December 31, 2011 and 2010	F-7

Notes to Consolidated Financial Statements	F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Bonds.com Group, Inc.

We have audited the accompanying consolidated balance sheet of Bonds.com Group, Inc. and subsidiaries (the “Company”) as of December 31, 2011, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the year then ended. The consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

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 audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of the Company's 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 consolidated financial statements. An audit also includes 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 provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bonds.com Group, Inc. and subsidiaries at December 31, 2011, and the consolidated results of their operations and their cash flows for the year then ended are in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has sustained recurring losses and negative cash flows from operations, and has a working capital deficiency and a stockholders’ deficiency. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described n Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/EisnerAmper LLP

New York, New York

May 21, 2012

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Bonds.com Group, Inc.

We have audited the accompanying consolidated balance sheets of Bonds.com Group, Inc. as of December 31, 2010, and the related consolidated statements of operations, changes in stockholders’ (deficit) and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company has determined that it 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bonds.com Group, Inc. at December 31, 2010, and the results of its operations and its cash flows for the year then ended are in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has sustained recurring losses and has negative cash flows from operations that raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/Daszkal Bolton LLP

Boca Raton, Florida

April 29, 2011

F-3

BONDS.COM GROUP, INC.

CONSOLIDATED BALANCE SHEETS

	As of December 31,
	2011			2010
Assets

Current assets
Cash	$	2,405,162		$	548,030
Receivable from clearing organizations		5,904,030			373,128
Deferred tax assets		-			2,306
Prepaid expenses and other assets		185,757			92,227
Total current assets		8,494,949			1,015,691

Property and equipment, net		159,439			83,167
Intangible assets, net		908,850			939,759
Other assets		60,267			66,983
Deferred tax asset		-			172,614
Total assets	$	9,623,505		$	2,278,214

Liabilities and Stockholders’ Deficit

Current liabilities
Accounts payable and accrued expenses	$	4,887,973		$	4,867,861
Notes payable, other		-			82,000
Notes payable, related parties		100,000			-
Convertible notes payable, other, net of debt discounts		-			24,243
Convertible notes payable, related parties		1,740,636			-
Preferred stock dividend payable		127,649			-
Other liabilities		107,032			-
Liability under derivative financial instruments		7,479,000			464,844
Total current liabilities		14,442,290			5,438,948
Long-term liabilities
Notes payable, related parties		-			300,000
Convertible notes payable, other, net of debt discount		391,038			1,227,486
Convertible notes payable, related parties		-			2,390,636
Deferred rent		25,899			41,506
Total liabilities		14,859,227			9,398,576
Commitments and contingencies
Stockholders’ Deficit
Preferred stock Series A $0.0001 par value; 508,000 authorized; 85,835 and 85,835 issued and outstanding, respectively (aggregate liquidation value of $858 and $469, respectively)		8			5
Convertible preferred stock Series B $0.0001 par value; 20,000 authorized, 0 and 2,250 issued and outstanding, respectively (aggregate liquidation value of $0 and $2,736,000, respectively)		-			2
Convertible preferred stock Series B-1 $0.0001 par value; 6,000 authorized, 0 and 1,250 issued and outstanding, respectively (aggregate liquidation value of $0 and $1,520,000, respectively)		-			1
Convertible preferred stock Series C $0.0001 par value;10,000 authorized, 10,000 and 0 issued and outstanding, respectively (aggregate liquidation value of $6,500,000 and $0, respectively)		1			-
Convertible preferred stock Series E $0.0001 par value; 12,000 authorized, 11,831 and 0 issued and outstanding, respectively (aggregate liquidation value of $23,729,420 and $0, respectively)		1			-
Convertible preferred stock Series E-1 $0.0001 par value; 1,400 authorized, 1,334 and 0 issued and outstanding, respectively (aggregate liquidation value of $2,675,602 and $0, respectively)		-			-
Convertible preferred stock Series E-2 $0.0001 par value; 20,000 authorized, 10,000 and 0 issued and outstanding, respectively (aggregate liquidation value of $20,056,986 and $0, respectively)		1			-
Common stock $0.0001 par value; 1,500,000,000 authorized; 104,354,190 and 103,694,139 issued and outstanding, respectively		10,435			10,369
Additional paid-in capital		39,628,080			21,464,512
Accumulated deficit		(44,874,248	)		(28,595,251	)
Total stockholders’ deficit		(5,235,722	)		(7,120,362	)
Total liabilities and stockholders’ deficit	$	9,623,505		$	2,278,214

See the accompanying notes to the consolidated financial statements.

F-4

BONDS.COM GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2011			2010

Revenue	$	4,322,775		$	2,711,512

Operating expenses
Payroll and related costs		6,995,422			8,852,757
Technology and communications		2,957,319			2,809,847
Rent and occupancy		917,267			669,326
Professional and consulting fees		2,709,765			1,524,260
Marketing and advertising		109,903			350,379
Other operating expenses		652,301			392,855
Impairment on intangible		924,061			-
Clearing and executing cost		544,495			412,346
Total operating expenses		15,810,533			15,011,770
Loss from operations		(11,487,758	)		(12,300,258	)

Other income (expense)

Interest expense, net		(386,829	)		(1,010,107	)
Financing costs - exchange offer		-			(1,897,069	)
Gain on settled derivatives		465,952			2,803,914
Change in value of derivative financial instruments		(3,132,107	)		2,265,215
Other income (expense), net		258,106			(486,218	)
Total other income (expense)		(2,794,878	)		1,675,735
Loss before income tax expense		(14,282,636	)		(10,624,523	)
Income tax expense		(174,922	)		(1,890,223	)
Net loss		(14,457,558	)		(12,514,746	)
Preferred stock dividend		(1,821,439	)		-
Net loss applicable to common stockholders	$	(16,278,997	)	$	(12,514,746	)
Net loss per common share - basic and diluted	$	(0.16	)	$	(0.15	)
Weighted average number of shares of common stock outstanding		104,354,190			84,173,316

See the accompanying notes to the consolidated financial statement

F-5

BONDS.COM GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

	Preferred Stock				Common Stock				Paid-In			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital			(Deficit)			Deficit)
Balances, January 1, 2010		-	$	-		74,727,257	$	7,472	$	12,453,689		$	(16,080,505	)	$	(3,619,344	)

Issuance of preferred series “A” shares from purchase agreement, net of issuance costs		85,835		5		-		-		1,541,995			-			1,542,000

Issuance of common stock from purchase agreement, net of issuance costs		-		-		1,840,230		184		655,316			-			655,500

Issuance of common stock for consulting services		-		-		25,667		3		9,622			-			9,625

Recognition of option grant relating to litigation settlement		-		-		-		-		174,093			-			174,093

Recognition of compensation expense on date of grant relating to stock options		-		-		-		-		888,700			-			888,700

Stock - based compensation		-		-		-		-		245,792			-			245,792

Fair value of common stock warrants issued in conjunction with purchase agreement, net of tax effect		-		-		-		-		(1,222,846	)		-			(1,222,846	)

Fair value of additional common stock warrants issued in conjunction with financing agreement		-		-		-		-		41,547			-			41,547

Fair value of common stock warrants issued in conjunction with May 2010 financing		-		-		-		-		(36,029	)		-			(36,029	)

Fair value of common stock issued in conjunction with October 2010 Exchange Offer		-		-		27,100,985		2,710		1,894,359			-			1,897,069

Issuance of convertible preferred series B shares from purchase agreement, net of issuance costs		2,250		2		-		-		2,217,974			-			2,217,976

Issuance of convertible preferred series B-1 shares from purchase agreement, net of issuance costs		1,250		1		-		-		1,192,357			-			1,192,358

Recognition of severed executives stock - based compensation		-		-		-		-		1,407,943			-			1,407,943

Net (loss)		-		-		-		-		-			(12,514,746	)		(12,514,746	)
Balances, December 31, 2010		89,335	$	8		103,694,139	$	10,369	$	21,464,512		$	(28,595,251	)	$	(7,120,362	)

Issuance of series C convertible preferred stock for the acquisition of Beacon’s assets		10,000		1		-		-		1,071,999			-			1,072,000

Issuance of convertible preferred series D shares of Unit sale, net of issuance cost of $331,625		8,900		1		-		-		8,561,374			-			8,561,375

Fair value of common stock warrants issued in conjunction with February, March, June and December 2011 Unit sales		-		-		-		-		(4,103,001)			-			(4,103,001	)

February 2011 Exchange Offer – issurance of convertible preferred series D shares (2,250) for series B (2,250) and convertible preferred series D-1 (1,250) for series B-1 (1,250) resulting in preferred stock dividend		-		-		-		-		708,336			(930,501)			(222,165)

Common stock associated with the October 2010 exchange offer		-		-		660,051		66		46,138				-		46,204
Fair value of common stock warrants issued in conjunction with February 2011 Exchange Offer, classified as derivative financial instruments		-		-		-		-		(23,335	)		-			(23,335	)

Stock - based compensation expense		-		-		-		-		1,396,752			-			1,396,752

Issuance of common stock warrants for consulting services		-		-		-		-		221,514			-			221,514

Issuance of convertible preferred series E-2 shares of Unit sale, net of issuance cost of $480,000		10,000		1		-		-		9,519,999			-			9,520,000

December 2011 Exchange Offer – issuance of convertible preferred series E shares (11,831) for series D (11,150) and convertible preferred series E-1(1,334) for series D-1 (1,250) including an accrued preferred stock dividend		765		-		-		-		763,792			(763,792)			-

Dividends to preferred shareholders		-		-		-		-		-			(127,146)			(127,146)

Net (loss)		-		-		-		-		-			(14,457,558	)		(14,457,558	)
Balances at December 31, 2011		119,000	$	11		104,354,190	$	10,435	$	39,628,080		$	(44,874,248	)	$	(5,235,722	)

See the accompanying notes to the consolidated financial statements.

F-6

BONDS.COM GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Year Ended December 31,
	2011			2010
Cash Flows From Operating Activities
Net loss	$	(14,457,558	)	$	(12,514,746)
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred income taxes		174,920			1,890,226
Depreciation		56,786			87,988
Amortization		178,848			104,616
Share-based compensation		1,396,752			2,726,153
Gain on settled derivatives		(465,952)			(2,803,915	)
Change in value of on derivative financial instruments		3,132,107			(2,255,296	)
Amortization of debt discount		14,310			418,369
Exchange offer financing		46,207			1,897,069
Consulting services for warrants		147,705			-
Extinguishment of debt		209,952			-
Impairment on intangible		924,061			-
Changes in operating assets and liabilities:
Deposit with clearing organization		(5,530,902	)		938,092
Prepaid expenses and other assets		(19,721	)		232,162
Security deposit		6,716			-
Accounts payable and accrued expenses		(189,840	)		2,244,241
Other liabilities		107,032			-
Deferred rent		(15,608	)		(2,742	)
Net cash used in operating activities		(14,284,185	)		(7,037,783	)
Cash Flows From Investing Activities
Purchase of property and equipment		(133,058	)		(7,601	)
Purchase of intangible assets		-			(17,150	)
Net cash used in investing activities		(133,058	)		(24,751	)
Cash Flows From Financing Activities
Proceeds received from issuance of common stock		-			655,500
Proceeds received from issuance of preferred stock, net		18,081,375			3,752,334
Proceeds received from convertible notes payable		-			650,000
Proceeds received from notes payable		-			1,220,000
Repayments of notes payable, other		(82,000	)		(1,089,500	)
Repayments of notes payable, related parties		(200,000	)		(250,000	)
Repayments of convertible notes payable, related parties		(850,000	)		-
Repayments of convertible notes payable, other		(675,000	)		-
Net cash provided by financing activities		16,274,375			4,938,334
Net increase (decrease) in cash		1,857,132			(2,124,200	)
Cash, beginning of year		548,030			2,672,230
Cash, end of year	$	2,405,162		$	548,030

Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	171,466		$	275,588
Debt discount on convertible notes payable	$	-		$	231,277
Debt discount on warrants issued with notes payable - related party	$	-		$	36,029
Cancellation of unvested share-based compensation awards	$	-		$	1,266,339
Debt discount on convertible notes payable - related parties	$	-		$	106,527
Transfer of notes payable - related parties	$	-		$	550,000
Realized gain on settled derivatives - Exchange offer	$	-		$	2,803,915
Exchange offer financing	$	-		$	1,943,273
Warrants issued in connection with unit sales	$	4,103,001		$	-
Warrants issued at Exchange offer	$	23,335		$	-
Issuance of preferred stock for assets acquisition	$	1,072,000		$	-
Exchange of promissory note for Series B Preferred Stock	$	-		$	1,200,000

See the accompanying notes to the consolidated financial statements.

F-7

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Description of Business Summary

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Bonds.com Group, Inc. (a Delaware Corporation), Bonds.com Holdings, Inc. (a Delaware Corporation), Bonds.com, Inc. (a Delaware Corporation), Bonds MBS, Inc. (a Delaware Corporation), Bonds.com, LLC (an inactive Delaware Limited Liability Company) and Insight Capital Management, LLC, (an inactive Delaware Limited Liability Company) included through its dissolution on January 19, 2010. These entities are collectively referred to as the “Company”.

All material intercompany transactions have been eliminated in consolidation.

Description of Business

Bonds.com, Inc. a Financial Industry Regulatory Authority (“FINRA”) registered broker-dealer, offers corporate bonds, through its proprietary electronic trading platforms, via its www.Bondpro.com website, and other electronic interfaces.

Bonds.com, Inc., commenced trading on it BondsPRO electronic platform during 2010 as it reduced and discontinued its support and use of BondStation its prior trading platform. This platform offers professional traders and large institutional investors an alternative trading system to trade odd-lot fixed income securities. Users are able to customize screens and utilize dynamic filtering capabilities to quickly and easily select and view only those market areas that meet their criteria. The platform supports a broad range of trading opportunities, offering cutting edge technology solutions for list trading, Application Programming Interface (“API”) based order submission(s), and user portfolio specific market views. These securities include corporate bonds including emerging market debt. The BondsPRO platform provides users the ability to obtain real-time executable bids or offers on thousands of bond offerings sourced directly from broker-dealers and other end users. Unlike other electronic trading platforms that charge subscription fees, access charges, ticket fees, or commissions in order to generate revenue, our model allows us to generate revenue through mark-ups or mark-downs on secondary market securities.

On February 2, 2011, the Company, through Bonds MBS, Inc., (“Bonds MBS”) a wholly-owned subsidiary of the Company, entered into an asset purchase Agreement with Beacon Capital Strategies, Inc., a broker-dealer (“Beacon”) acquiring Beacon’s electronic platform. The Beacon electronic platform integrates full function trading capability for all classes of asset-backed securities (“ABS”), mortgage-backed securities (“MBS”), and commercial mortgage-backed securities (“CMBS”). In December 2011, the Company operations of Beacon ceased. Accordingly, intangible assets, net of amortization of $147,939, of $924,061 were considered impaired and charged to operations, in the fourth quarter, during the year ended December 31, 2011.

Note 2 - Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated 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 considers all highly liquid investments with original maturities of three months or less when acquired to be cash equivalents.

F-8

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deposits with Clearing Organizations

Deposits with Clearing Organizations consist of (a) cash proceeds from commissions and fees related to securities transactions net of all associated costs, and (b) a cash deposit by the Company to satisfy our broker-dealer’s regulatory net capital requirements. The balance primarily is comprised of cash and cash equivalents.

Revenue Recognition

The Company executes transactions between its clients and liquidity providers. It acts as an intermediary in these transactions by serving as a trading counterparty to both the buyer and the seller in matching back-to-back trades, which are then settled through a clearing firm. Securities transactions and the related revenues and expenses are recorded on a trade-date basis. Interest income is recorded on the accrual basis.

Fair Value Financial Instruments

The carrying values of the Company’s cash and cash equivalents, accounts payable and accrued expenses approximate their fair values based on the short-term nature of such items. The carrying values of notes payable approximate their fair values based on applicable market interest rates. Investments and the liability under derivative instruments are carried at fair value as described in Note 4.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the estimated useful lives of the assets per the following table. Leasehold improvements are amortized over the shorter of the estimated useful lives or related lease terms. The Company periodically reviews property and equipment to determine that the carrying values are not impaired.


Category	Lives
Leased property under capital leases	3 years
Computer equipment	3 years
Furniture and fixtures	5 years
Office equipment	5 years
Leasehold improvements	5.25 years

Intangible Assets

Intangible assets are initially recorded at cost, or fair value if acquired in a business combination. Amortization is provided for on a straight-line basis for definite-lived intangible assets over the estimated useful lives of the assets. The Company’s domain name (www.bonds.com) has an indefinite life and is not subject to amortization. The Company evaluates the recoverability of intangible assets periodically and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. When events or circumstances indicate impairment may exist, the Company assesses the recoverability of its definite lived intangible assets by determining whether the unamortized balance can be recovered over the assets remaining life though undiscounted forecasted cash flows.

Category	Lives
Software	3 years
Capitalized website development costs	3 years
Technology	5 years
Customer relations	10 years
Trade name	10 years
Domain name	Indefinite
Broker dealer license	Indefinite

F-9

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impairment of Long-Lived Assets

The Company reviews its long-lived assets, both property and equipment and definite-lived intangible assets, for impairment whenever events or changes indicate that the carrying amount of an asset or group of assets may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows related to the long-lived assets. An impairment loss of $924,061 was recognized relating to Beacon's intangibles during the year ended December 31, 2011.

Income Taxes

Current income taxes are based on the year’s taxable income for federal and state income tax reporting purposes. Deferred income taxes are provided on a liability basis whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax law and rates on the date of enactment. The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. The Company’s policy is to recognize interest and penalties related to income tax matters as a component of income tax expense. The Company’s 2008, 2009, and 2010 tax year remains subject to examination by taxing authorities. The Company has determined that it does not have any significant uncertain tax positions at December 31, 2011 and 2010.

Marketing and Advertising Costs

Marketing and advertising costs are expensed as incurred. Marketing and advertising expenses for the year ended December 31, 2011 and 2010 were $109,903 and $350,379, respectively.

Share-Based Compensation

Equity-based awards granted by the Company are recorded as compensation. These costs are measured at the grant date (based upon an estimate of the fair value of the equity instrument granted) and recorded to expense over the requisite service period, which generally is the vesting period. The fair value of share-based compensation arrangements are estimated using the Black-Scholes option pricing model.

Reclassification

Prior year numbers have been regrouped or reclassified to conform to the current year presentation.

Recent Issued Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a significant effect on the accompanying financial statements.

In May 2011, the Financial Accounting Standards Board issued new guidance which amends fair value disclosures for fiscal years beginning after December 15, 2011. Such amendments include a consistent definition of fair value, enhanced disclosure requirements for Level 3 fair value adjustments and other changes to required disclosures. The Company does not expect this amendment to have a material effect on its consolidated financial statements and will comply with the disclosure enhancements of this amendment when the amendment is effective.

Note 3 - Going Concern

Since its inception, the Company has generated limited revenues and has an accumulated deficit of approximately $45,000,000 and a working capital deficit of approximately $6,000,000 at December 31, 2011, used approximately $14,000,000 of cash in operations for the year ended December 31, 2011 and at December 31, 2011 had a stockholders' deficiency of approximately $5,000,000. Operations have been funded using proceeds received from the issuance of common and preferred stock and the issuance of notes to related and unrelated parties.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company raised $10,300,000 of new capital funded in December 2011 ($10,000,000) and January 2012 ($300,000) and received a commitment from the same investors for a total of an additional $6,700,000 upon achieving certain performance benchmarks. While the achievement of those benchmarks is not certain, the Company expects that its business will continue to grow and meet its plan for 2012 and beyond, and therefore it will be in a position to receive this additional capital in July, 2012. If the Company does not obtain this additional capital, its ability to continue to implement its business plan may be limited.

F-10

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying financial statements have been prepared on the basis that the Company will continue as a going concern, which assumes the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the resolution of this contingency.

Note 4 - Fair Value of Financial Instruments

Authoritative accounting guidance defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements.

The fair value hierarchy measures the financial assets in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

●	Level 1 – Valuations for assets and liabilities traded in active exchange markets, or interest in open-end mutual funds that allow a company to sell its ownership interest back at net asset value (“NAV”) on a daily basis. Valuations are obtained from readily available pricing sources for market transactions involving identical assets, liabilities or funds.

●	Level 2 – Valuations for assets and liabilities traded in less active dealer, or broker markets, such as quoted prices for similar assets or liabilities or quoted prices in markets that are not active. Level 2 includes U.S. Treasury, U.S. government and agency debt securities, and mortgage-backed securities. Valuations are usually obtained from third party pricing services for identical or comparable assets or liabilities.

●	Level 3 – Valuations for assets and liabilities that are derived from other valuation methodologies, such as option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealers, or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

The availability of observable inputs can vary from instrument to instrument and in certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to measuring the fair value of an instrument requires judgment and consideration of factors specific to the instrument.

Derivative Financial Instruments

The Company’s derivative financial instruments consist of conversion options embedded in convertible promissory notes and warrants issued in connection with the sale of common and preferred stock that contain “down round” protection to the holders. These derivatives are valued with pricing models using inputs that are generally observable. The Company considers these models to involve significant judgment on the part of management. The fair values of the Company’s derivative financial instruments are considered to be in Level 3 of the fair value hierarchy. The Company estimates the fair value of derivatives utilizing the Binomial Lattice pricing model. This model is dependent upon several variables such as the expected instruments term, expected strike price, expected risk-free interest rate over the expected instrument term, the expected dividend yield rate over the expected instrument term and the expected volatility of the Company’s stock price over the expected term. The expected term represents the period of time that the instruments granted are expected to be outstanding. The expected strike price is based upon a weighted average probability analysis of the strike price changes expected during the term as a result of the down round protection. The risk-free rates are based on U.S. Treasury securities with similar maturities as the expected terms of the options at the date of issuance. Expected dividend yield is based on historical trends. During the year ended December 31, 2010, the Company estimated the volatility of its common stock based on an average of published volatilities contained in the most recent audited financial statements of other publicly reporting companies in the similar industry to that of the Company since the Company had determined in 2009 that the historical prices of its publicly-traded common stock no longer was the best proxy to estimate the Company’s volatility. Commencing in the quarter ended September 30, 2011, the Company determined that the prior methodology for measuring volatility of its common stock was no longer the best estimate of volatility. The Company began to measure volatility using a blended weighted average of the volatility rates for a number of similar publicly-traded companies along with the Company’s historical volatility.

F-11

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commencing with the quarter ended March 31, 2011, the Company changed its methodology for measuring the market price of its common stock which was previously based on its over-the-counter market trading price. The Company determined that the historical prices and trading volume of its publicly-traded common stock were no longer sufficient to determine the readily determinable fair value of the Company’s stock. The over-the-counter market has not been active and private sales of the Company’s shares sold are significantly lower than the historical trading price. The Company now obtains an independent valuation for determining the market price of its common stock.

Level 3 Assets and Liabilities

Level 3 liabilities include instruments whose value is determined using pricing models and for which the determination of fair value requires significant management judgment or estimation.

Fair values of assets measured on a recurring basis at December 31, 2011 and 2010 are as follows:

			Quoted Prices in Active Markets for Identical Assets / Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
December 31 , 2011

Liabilities
Derivative financial instruments	$	7,479,000	$	-		-	$	7,479,000
Total liabilities measured at fair value on a recurring basis	$	7,479,000	$	-	$	-	$	7,479,000

December 31, 2010

Liabilities
Derivative financial instruments	$	464,844	$	-	$	-	$	464,844
Total liabilities measured at fair value on a recurring basis	$	464,844	$	-	$	-	$	464,844

Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains for liabilities within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable and unobservable inputs. The following table presents additional information about Level 3 liabilities measured at fair value on a recurring basis for the years ended December 31, 2011 and 2010:

F-12

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Fair Value of Derivative Liabilities

Balance – December 31, 2009	$	3,527,393
Changes in fair value included in operations		(2,265,215)
Issurances and settlements		(797,334)
Balance – December 31, 2010		464,844

Changes in fair value included in operations		3,132,107
Issurances and settlments		3,882,049
Balance - December 31, 2011	$	7,479,000

The unrealized loss during 2011 and 2010 was related to Level 3 instruments held.

Note 5 - Property and equipment

Property and equipment consisted of the following at December 31, 2011 and 2010:

	December 31,			December 31,
	2011			2010
Leased property under capital leases	$	209,757		$	209,757
Computer equipment		349,534			216,476
Furniture and fixtures		46,904			46,904
Office equipment		111,177			111,177
Leasehold improvements		10,372			10,372
Total property and equipment		727,744			594,686
Less: accumulated depreciation and amortization		(568,305	)		(511,519	)
Property and equipment, net	$	159,439		$	83,167

Depreciation expense for the years ended December 31, 2011 and 2010 was $56,786 and $87,988 respectively.

F-13

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 - Intangible Assets

Intangible assets consisted of the following at December 31, 2011 and 2010:

	December 31, 2010
	Gross		Accumulated Amortization			Net
Non-amortizing intangible assets and goodwill:
Domain name (www.bonds.com)	$	850,000				$	850,000
Broker-dealer license		50,000					50,000
		900,000					900,000

Amortizing Intangible assets:
Software		431,996		(416,325	)		15,671
Capitalized website development costs		196,965		(172,877	)		24,088
Other		6,529		(6,529	)		-
		635,490		(595,731	)		39,759
	$	1,535,490	$	(595,731	)	$	939,759

	December 31, 2011
	Gross		Accumulated Amortization			Impairment			Net
Non-amortizing intangible assets and goodwill:
Domain name (www.bonds.com)	$	850,000							$	850,000
Broker-dealer license		50,000								50,000
Goodwill		99,000				$	(99,000	)		-
		999,000					(99,000	)		900,000

Amortizing Intangible assets:
Software		431,996		(424,139	)					7,858
Capitalized website development costs		196,965		(195,973	)					992
Other		979,529		(154,468	)		(825,061	)		-
		1,608,490		(774,580	)		(825,061	)		8,850
	$	2,607,490	$	(774,580	)	$	(924,061	)	$	908,850

F-14

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amortization expense for the year ended December 31, 2011 and 2010 was $178,848 and $104,616, respectively and is included in technology and communications in the consolidated statements of operations.

The remaining carrying value of amortizable intangible asset of $8,850 is expected to be amortized during the year ended December 31, 2012. Intangible assets of $924,061 of which $99,000 is goodwill, net of amortization of $147,939 were abandoned and charged to operations in the fourth quarter of 2011.

Note 7 - Business Acquisition

On February 2, 2011, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Beacon whereby it purchased substantially all of the assets of Beacon. Beacon previously was engaged in the development and offering of an electronic trading platform for trades in mortgage-backed and asset-backed securities. As consideration for the purchase of the Beacon assets, the Company issued to the former shareholders of Beacon 10,000 shares of Series C Convertible Preferred Stock (“Series C” Preferred). The shares of Series C Preferred issued to Beacon were convertible into shares of the Company’s Common Stock. The number of shares of Common Stock for which the Series C Preferred may be converted was contingent, and was to be determined based on the future performance of the Beacon platform.

As a result of an independent valuation, the fair value of the consideration given and the net assets and liabilities acquired, was determined to be $1,072,000.

On December 5, 2011, and as a condition to the consummation of the transactions contemplated by the Unit Purchase Agreement, the Company and Oak Investment Partners XII, Limited Partnership (“Oak”) as successor of Beacon, entered into an Amendment to the Asset Purchase Agreement (the "Agreement"). Prior to the Amendment the number of shares and liquidation preference were to be determined based on certain performance measures, with the number of shares ranging from zero to a maximum of 100,000,000 shares of Common Stock and the Company was required to provide specified levels of support for the Beacon platform. Pursuant to the Amendment, the number of shares will currently be equal to 25,000,000 shares of Common Stock (see Note 13) and the Company will no longer be required to give any level of support to the operations of the business of Beacon.

The following table summarizes management’s fair values of the assets acquired and liabilities assumed at the date of acquisition.

Assets acquired:
Intangible Assets
Trade Name / Trademarks	$	10,000
Technology		641,000
Customer Relationships		322,000
Goodwill		99,000
Total assets acquired	$	1,072,000

Liabilities assumed		-
Total net assets acquired	$	1,072,000

In 2011, the Company ceased operations of the assets acquired from Beacon. The financial statements reflect a charge to operations of $924,061 for the impairment of those assets. The following unaudited pro forma consolidated results of operations for the years ended December 31, 2011 and 2010 have been prepared as if the acquisition of Beacon had occurred as of the beginning of each period presented.

F-15

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Year Ended December 31,
	2011			2010
Revenue	$	4,322,775		$	2,726,618

Net loss applicable to common stockholders	$	(16,478,997	)	$	(14,940,578	)

Net loss per common share—basic and diluted	$	(0.16	)	$	(0.18	)

The unaudited pro forma consolidated results of operations do not purport to be indicative of the results that would have been obtained if the above acquisition had actually occurred as of the dates indicated. These unaudited pro forma consolidated results of operations were derived, in part, from the historical consolidated financial statements of Beacon and do not contemplate the cessation of Beacon's operations.

Note 8 - Notes Payable, Related Parties

The following is a summary of related party notes payable at December 31, 2011 and 2010:

	2011			2010
Note payable to former director	$	-		$	200,000
Note payable held by Receiver		100,000			100,000
Total		100,000			300,000
Less: current portion		(100,000	)		-
Long-term portion	$	-		$	300,000

Note payable to former director

In January and February 2008, one of the Company’s former directors, John Barry III, provided the Company with cash aggregating $250,000 for an unsecured promissory note payable, bearing interest at 15% per annum. The note was amended in January 2010 for principal and accrued interest to be due when either (a) the Company has at least 12 months cash reserve for working capital and regulatory capital requirements, or (b) once John Barry III was no longer a director of the Company. The Company repaid $50,000 in 2010 and the balance of $200,000 in 2011.

Note payable held by Receiver

In April 2008, the Company entered into a secured promissory note with Valhalla Investment Partners, L.P. (“Valhalla”), which provided the Company with $400,000 in proceeds, bearing interest at 9% per annum and due to mature on October 12, 2013.

On January 21, 2009, in the matter Securities and Exchange Commission v. Arthur Nadel, Scoop Capital, LLC and Scoop Management, Inc., which is pending in the U.S. District Court for the Middle District of Florida, a receiver was appointed to administer and manage the affairs of Valhalla Investment Partners, L.P. and its general partner Valhalla Management Inc. (the “Nadel Receiver”). As a result of the appointment of the Nadel Receiver, Christopher Moody and Neil V. Moody no longer have the right or authority to exercise any management or control over Valhalla Investment Partners, L.P., Valhalla Management Inc. or their respective assets or affairs and those entities are now under the control of the court-appointed receiver.

During 2009 and 2010, the Company repaid a portion of the note, which consisted of $300,000 in principal and $32,875 in accrued interest. The remaining balance of this note and accrued interest was paid off in April 2012.

Interest expense recognized on related party notes payable for the years ended December 31, 2011 and 2010 was $11,875 and $52,004, respectively.

F-16

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 - Convertible Notes Payable, Related Parties and Non-Related Parties

The following is a summary of related party and non-related party convertible notes payable at December 31, 2011 and 2010:

Related Parties	2011			2010
Convertible promissory note held by the Receiver	$	1,740,636		$	1,740,636
Convertible promissory notes, May 2010 financing		-			650,000
Total Related Parties		1,740,636			2,390,636

Non-Related Parties
Convertible promissory notes payable		400,000			1,275,000
Less: unamortized debt discount		(8,962	)		(23,271	)
Total Non-Related Parties		391,038			1,251,729

Total		2,131,674			3,642,365
Less: current portion		(1,740,636	)		(24,243	)
Long-term portion	$	391,038		$	3,618,122

Related Parties

During the period September 2008 through December 2008, the Company entered into several secured convertible promissory notes and warrant purchase agreements with Christopher Moody, Valhalla, the Neil Moody Revocable Trust and Christopher D. Moody Revocable Trust (collectively the "Receiver Notes"), the Notes issued contained (a) secured convertible promissory notes in the aggregate principal amount of $1,740,636 and (b) warrants to purchase 1,160,443 shares of the Company's common stock at an exercise price of $0.46875 per share. The Receiver Notes bear an interest of 10% per annum and due to mature on October 12, 2013.

On May 28, 2010, the Company entered into a secured convertible note and warrants purchase agreement (the “Purchase agreement”) with a group of accredited investors ("the Purchasers"). The Purchasers were issued (a) secured convertible promissory notes in the aggregate principal amount of $650,000 with an interest rate of 9% per annum and conversion price of $0.375 per share and (b) warrants to purchase 1,300,000 shares of the Company’s common stock at an exercise price of $0.375 per share and expiring on May 28, 2013. Pursuant to the Purchase agreement, upon early repayment, all principal balance of $650,000 and accrued interest plus a prepayment premium equal to 3.5% of the principal amount outstanding amounting to $90,514 and $22,750, respectively, was repaid on December 13, 2011.

During the year ended December 31, 2011 and 2010, the Company recognized $232,869 and $524,211 in interest expense related to the amortization of the debt discount associated with the warrants.

Non-Related Parties

During the period from September 24, 2008 through December 31, 2008, the Company also executed secured convertible promissory note and warrant agreements with certain third-party investors in the aggregate principal amount of $575,000 and warrants to purchase 383,337 shares of the Company's commons stock at an exercise price of $0.46875 per share.

On January 30, 2009, the Company executed secured convertible promissory note and warrant purchase agreements with unrelated third party investors, in the principal amount of $125,000 and warrants to purchase 83,334 shares of the Company's commons stock at an exercise price of $0.46875 per share.

During the period from April 1, 2009 through June 30, 2009, the Company also executed secured convertible promissory note and warrant purchase agreements with certain third-party investors in the aggregate principal amount of $575,000 (collectively the “Convertible Notes”). In connection with the execution of the convertible note and warrant purchase agreements, the third-party investors were issued warrants to purchase an aggregate of 383,341 shares of the Company's common stock.

Under the terms of the Convertible Notes, the entire principal amount of the Convertible Notes is due and payable on October 12, 2013 (the “Maturity Date”); bear interest at a rate of 10% per annum, with unpaid interest payable, in full, upon the earlier of the conversion of the Convertible Notes or on the Maturity Date. Holders of the Convertible Notes have the right to convert principal and interest due and payable into shares of common stock of the Company at a conversion price equal to the lesser of (1) $0.375 per share, as adjusted for stock splits, and reverse splits, or (2) the price paid for the Company’s common stock in any future sale of the Company’s securities while the Convertible Notes are outstanding, exclusive of certain excluded transactions.

F-17

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Convertible Notes are secured by all of the assets of Bonds.com Group, Inc. and Bonds.com Holdings. Inc pursuant to the terms and conditions of a Security Agreement, dated September 24, 2008, as amended on February 3, 2009.

On May 28, 2010, the Company again amended and restated the Security Agreement to among other things, add the holders of the related party notes purchased in May 2010 as secured parties.

The warrants (issued in conjunction with the convertible notes) were valued at the time of issuance using a Black-Scholes option pricing model with the following assumptions: (i) risk free interest rates ranging from 1.55 % to 2.91%, (ii) a contractual life of 5 years, (iii) expected volatility of 50% and (iv) a dividend yield of zero. The relative fair value of the warrants, based on an allocation of the value of the Convertible Notes and the value of the warrants issued in conjunction with the Convertible Notes, was recorded as a debt discount (with a corresponding increase to additional paid-in capital) in the amount of $355,472, and is being amortized to interest expense over the expected term of the Convertible Notes.

The Company has accounted for the conversion feature of the Convertible Notes as a debt discount. The conversion feature was valued at the time of issuance using a Black-Scholes option pricing model with the following assumptions: (i) risk free interest rates ranging from 0.78 % to 2.03%, (ii) a contractual life of 2 years, (iii) expected volatility of 50% and (iv) a dividend yield of zero. The fair value of the conversion feature was recorded as a debt discount in the amount of $719,338, and is being amortized to interest expense over the expected term of the Convertible Notes. The conversion feature is classified as a derivative liability as a result of the down-round provisions and resulted in the debt discount, which is being marked-to-market each reporting period with corresponding changes in the fair value being recorded as unrealized gains or losses on derivative financial instruments in the consolidated statement of operations.

Subsequent transactions affecting convertible notes

On October 19, 2010, the Company entered into an Amendment No. 2 to Convertible Secured Promissory Notes with the holder of a majority in principal amount of our Convertible Secured Promissory Notes issued on September 24, 2008, an Amendment No. 1 to Convertible Secured Promissory Note with the holder of our Convertible Secured Promissory Note issued on April 30, 2009 and an Amendment No. 1 to Convertible Secured Promissory Notes with the holders of the Company's Convertible Secured Promissory Notes issued on June 8, 2009 (collectively, the “Note Amendments”). The Note Amendments restructure approximately $2,990,636 of the outstanding Convertible Secured Promissory Notes to related and non-related parties (the “Subject Notes”) as follows:

●	The maturity date of each of the Subject Notes was extended until October 12, 2013; provided, however, that from and after April 12, 2012, the holders of the Subject Notes may make a written demand to the Company for the payment of the entire unpaid principal balance thereof together with all accrued but unpaid interest thereon and the Company shall be required to repay such outstanding principal and interest within ninety (90) days of its receipt of such demand;

●	The conversion price of the Subject Notes was fixed at $0.24 per share (which was the then current conversion price of the Subject Notes as a result of adjustments based on the price per share of Common Stock issued in the Company’s recently completed warrant exchange offer). Such conversion price is subject to further adjustment on the occurrence of certain events. However, the “full-ratchet” adjustment provision of the Subject Notes was eliminated; and

●	Holders of the Subject Notes shall have contingent rights to receive up to 12,460,983 shares of the Company's Common Stock if the Company fails to meet certain performance target based on the Company’s revenue for the twelve-month period ending in February 2012 (the “Contingent Performance Shares”). Through December 31, 2011, 5,800,170 shares have been earned.

On February 2, 2011, the Company sold securities with an effective price per common share of $0.07. Accordingly, the conversion price of the Subject Notes was set at $0.07 per common share and there was no longer a “full-ratchet” adjustment. As a result, the Company recorded a gain on settled derivative of $465,952.

On December 28, 2011, the Company entered into and consummated a Repayment and Termination Agreement with certain Note holders of the Company. The Noteholders had secured convertible promissory notes aggregating $1,109,106 of principal and accrued interest (the “Notes”), warrants to purchase an aggregate of 566,673 shares of the Company’s common stock; and Contingent Performance Shares up to an aggregate of 3,541,667 shares of the common stock.

F-18

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pursuant to the Repayment and Termination Agreement, the Company paid the Noteholders an aggregate of $873,037 and, in exchange, warrants and rights to Contingent Performance Shares were terminated. This agreement resulted in the Company recording a gain of $231,512 which was recorded in other expenses (net).

During the year ended December 31, 2011, the Company estimated 3,567,724 of Contingent Performance Shares may be issued based on projected gross revenue of $4,500,000 by February 2, 2012. The value of the common stock at December 31, 2011 resulted in a $107,032 finance charge.

During the year ended December 31, 2011 and 2010, the Company also recognized $126,861 and $279,763 in interest expense on the Convertible Notes Payable related parties and non-related parties, respectively.

On February 1, 2012, the Company entered into an agreement with the Receiver regarding the repayment of certain indebtedness, the termination of certain rights and the repurchase of certain securities in the Company owned beneficially or of record by the Receiver.

The Company agreed to pay the Receiver $2,250,000 and in exchange the Receiver would cancel and terminate all Notes owed by the Company, amounting to approximately $2,442,000 in principal and accrued interest, and terminate any rights to the “Contingent Performance Shares. Such termination includes, among other things, a release of all liens in favor of the Receiver with respect to the assets of the Company, and a termination of all of the Company’s obligations to the Receiver pursuant to all financing documents related to such indebtedness. The carrying value of the notes amounted to $1,840,636, inclusive of $100,000 included in notes payable.

This was approved by the Receiver and by the Courts in April 2012 and the $2,250,000 was paid by the Company.

Further, under the terms, and subject to the conditions, of the Agreement, the Company would pay the Receiver $5,000 and in consideration the Receiver would surrender to the Company all outstanding shares of held constituting 7,582,850 shares of the Company’s common stock. The agreement also includes terms to delay the Stock Repurchase if necessary to comply with Delaware law, but if the Stock Repurchase does not occur within one year after the entry of the Court Order, then the Company will promptly reimburse the Receiver for costs and expenses incurred by him to defer consummation of the Stock Repurchase. In addition, if the Stock Repurchase is not consummated on or prior to January 31, 2014, then the Receiver’s and the Company’s respective obligations with respect to the Stock Repurchase shall terminate.

Note 10 - Notes Payable-Other

The following is a summary of outstanding principal due on unrelated third party notes payable at December 31, 2011 and 2010:

	2011		2010
Note payable	$	-	$	82,000
Less: current portion		-		(82,000	)
Long-term portion	$		$	-

As a result of the Company’s reverse merger in 2007, it entered in to a $250,000 Note payable with an investment advisory firm for services rendered in relation to the Company’s reverse merger transaction. The interest rate on the note was interest at 10% per annum. On February 2, 2011, the Company paid in full, the Note payable, consisting of $82,000 in principal repayment and $9,678 in accrued interest.

On March 31, 2009, the Company entered into a Commercial Term Loan Agreement (the “Term Loan Agreement”) with an unrelated third party investor (the “March 2009 Investor”). Pursuant to the terms and conditions of the Term Loan Agreement, the Company raised gross proceeds of $1,000,000 in exchange for the issuance to such investor of a promissory note in the principal amount of $1,000,000 (the “March 2009 Note”), and a warrant to purchase 1,070,000 shares of the Company’s common stock at an initial exercise price of $0.375 per share, subject to adjustment (the “March 2009 Warrant”). The March 2009 Note, accrued interest at the rate of 15% per annum and had a maturity date of March 31, 2010. On March 5, 2010, the Company repaid the principal balance of the $1,000,000 note payable, along with all accrued interest to the investor.

F-19

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On January 7, 2010, the Company issued an additional 500,000 warrants to the March 2009 investor to purchase shares of the Company’s common stock at an initial exercise price of $0.375 per share. The warrants are exercisable at any time through and until January 7, 2015. The warrants were valued using a BlackScholes option pricing model and were recorded as interest expense (with a corresponding increase to additional paid-in capital) during the quarter ended March 31,2010 in the amount of $41,547.

Interest expense recognized on notes payable-other for the years ended December 31, 2011 and 2010 was $4,249 and $202,957, respectively.

Note 11 - Commitments and Contingencies

Operating Leases

The Company leases office facilities and equipment and obtains data feeds under long-term operating lease agreements with various expiration dates and renewal options. These data feeds and associated equipment provide information from financial markets that are essential to the Company’s business operations. The Company is a party to a short-term lease for temporary office space.. Subsequent to year end, the Company signed an agreement for new office space, which will be the Company’s new headquarters. The following is a schedule of future minimum rental payments required under operating leases as of December 31, 2011:

Year Ending December 31,
2012		764,730
2013		300,536
2014		167,000
Total minimum payments required	$	1,232,266

As part of its strategic plan, the Company moved its headquarters from Florida to New York in 2010. The Company, has since closed its Florida office but is still obligated under the lease through December 31, 2012. The lease provides for a base annual rent of approximately $201,000 plus taxes for the year beginning January 1, 2011; and base annual rent of approximately $211,000 plus taxes for the year beginning January 1, 2012. Rent expense for 2011 includes the amounts due under the Florida lease.

Rent expense for all operating leases for the years ended December 31, 2011 and 2010 was $917,267 and $669,326, respectively.

Customer Complaints and Arbitration

From time to time, the Company’s subsidiary broker-dealer, Bonds.com, Inc., may be a defendant or co-defendant in arbitration matters incidental to its retail and institutional brokerage business. Bonds.com, Inc may contest the allegations in the complaints in these cases and carries errors and omissions insurance policy to cover such incidences. The policy terms require that the Company pay a deductible of $50,000 per incidence. The Company is not currently subject to any customer complaints or arbitration claims and therefore has not accrued any liability with regards to these matters.

Indemnification Agreements

On February 2, 2011, our Board of Directors appointed Patricia Kemp and Eugene Lockhart to our Board of Directors. In connection with their appointment to the Board of Directors, the Company entered into Indemnification Agreements with each of Ms. Kemp and Mr. Lockhart. The Indemnification Agreements expand upon and clarify certain procedural and other matters with respect to the rights to indemnification and advancement of expenses provided to directors of the Company pursuant to applicable Delaware law and the Company’s Bylaws.

Pension and Other Postretirement Benefit Plans

In 2007, Holdings adopted the ADP TotalSource Retirement savings Plan covering voluntary contributions its employees into its 401(k) Plan and Holdings safe harbor matching contributions. Eligibility is extended to all full-time employees who have been with Holdings for more than three months.

F-20

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Holdings is obligated under the Internal Revenue Code to treat the Parent’s co-employees as its employees for purposes of any qualified retirement plan or welfare benefit plan sponsored by Holdings.

During 2011 and 2010, Holdings made employer-matching contributions of $17,780 and $14,956 respectively.

Employment Agreements

In February 2011, the Company entered into Employment agreements, as amended, with its certain executive officers. The term of these contracts was indefinite and committed the Company to the following:

●	Annual base salaries and a cash bonus at the discretion of the Compensation Committee of the Board;

●	Severance benefits as contained in the Agreements;

●	Option grants at various strike prices with vesting requirements. The options granted to the Company’s President amounted to approximately 41 million options at various strike prices ranging from $0.7 to $0.105. The options vest over a 4-year period from the grant date. The options granted to the Company’s Chief Financial Officer amounted to 8 million options at a strike price of $0.75. The options vest over a 4-year period from the grant date; and

●	The amount charged to operation with respect to these option in 2011 was $364,133.

In December 2011 the Company entered into an Amended employment agreement with the Company’s President. This agreement provided for a change in his base salary and eliminated the annual performance bonus based on a percentage of revenues and replaced it with eligibility for an annual bonus at the discretion of the Compensation Committee of the Board of Directors.

Marketing Agreement

On August 11, 2011, the Company entered into a Marketing Agreement with Red Kite Americas LLC (“Red Kite”). Pursuant to the Marketing Agreement, among other things, Red Kite has agreed to use its best efforts to market and promote the Company's trading platform to institutional investors whose principal places of business are located in Brazil, Mexico or Columbia, and the Company has agreed to compensate Red Kite for such efforts. Red Kite’s compensation comprised of (a) a flat fee in the amount of $175 for each transaction in fixed income instruments executed on our trading platform by clients referred to the Company by Red Kite (subject to certain limitations), (b) a warrant to purchase 2,857,143 shares of the Company’s common stock at an exercise price of $0.07 per share, which the Company issued to Red Kite immediately. The fair value of the warrants was $85,714 at the time of the issuance and it is being amortized to consulting expense over the contractual life. This agreement had an initial term of three years and was mutually terminated by both parties in 2012.

Settlement

On March 19, 2010, the Company entered into a Settlement Agreement with a former employee where by the Company agreed to pay (a) $315,000 in 41 monthly installments commencing in March 2010, (b) up to an additional $100,000 based on the performance of Bonds.com Inc. in 2010 and 2011, and (c) the issuance of an option to purchase 1,500,000 shares of our common stock at an exercise price of $0.375 per share, which is exercisable until January 31, 2017.

Litigation

On January 12, 2009, the Company learned that Duncan-Williams, Inc. filed a complaint against the Company and its subsidiaries in the United States District Court for the Western District of Tennessee, Western Division, under an alleged breach of contract. Duncan-Williams is seeking monetary damages, a declaration of ownership relating to certain intellectual property and an accounting of income earned by the Company. It is the Company’s position that Duncan-Williams’ claims are without merit. The Company plans to defend against the claims accordingly. As of the date of this report, the litigation is ongoing.

F-21

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying statement of operations does not include any charge related to the resolution of this matter.

Note 12 - Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. Management believes the financial risks associated with this financial instrument is not material. The Company places its cash with high credit quality financial institutions. The Company maintains its cash in bank deposit accounts that, at times, may exceed federally insured limits.

F-22

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 - Stockholders' Equity

Description of Authorized Capital

Preferred Stock activity for the years ended December 31, 2011 and 2010 are as follows:

	Series A		Series B			Series B-1			Series C		Series D			Series D-1			Series E		Series E-1		Series E-2
Balance at January 1 ,2010		-		-			-			-		-			-			-		-		-

Issued		85,835		2,250			1,250			-		-			-			-		-		-

Cancelled		-		-			-			-		-			-			-		-		-

Balance at December 31, 2010		85,835		2,250			1,250			-		-			-			-		-		-

Issued		-		-			-			10,000		11,150			1,250			11,831		1,334		10,000

Cancelled/Exchanged		-		(2,250	)		(1,250	)		-		(11,150	)		(1,250	)		-		-		-

Balance at December 31, 2011		85,835		-			-			10,000		-			-			11,831		1,334		10,000

Covenant violation

The Series D, D-1, E, E-1 and E-2 preferred unit purchase agreements each include a covenant which requires the Company to timely file all the required reports with the SEC pursuant to the Securities Exchange Act of 1934. The Company is currently in violation of this covenant.

Series A Participating Preferred Stock

On January 11, 2010, the Company amended its Certificate of Incorporation and authorized the issuance of 200,000 shares of Series A Participating Preferred Stock, $0.0001 par value. The shares of Series A Participating Preferred Stock (the “Series A Preferred) have the following rights, privileges and preferences, among others, as more fully set forth in the amended Certificate of Incorporation. Subject to the liquidation preference described below, the Series A Preferred ranks pari passu with the Company’s common stock with respect to dividends and distributions upon liquidation, winding-up and dissolution of the Company and junior to any class or series of capital stock that ranks senior to the Series A Preferred. The Company may not declare, pay or set aside any dividends on shares of its common stock unless the holders of the Series A Preferred then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series A Preferred in an amount at least equal to a rate per share of Series A Preferred determined by multiplying the amount of the dividend payable on each share of common stock by one hundred (100) (subject to standard adjustments) In the event of any liquidation, dissolution or winding up of the Company (including certain changes of control that are deemed a liquidation), subject to the rights of any series of preferred stock which may from time to time come into existence, the holders of Series A Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of common stock or the holders of any series of preferred stock expressly made junior to the Series A Preferred, an amount per share equal to $0.01 Thereafter, subject to the rights of any series of preferred stock, the remaining assets of the Company available for distribution to its stockholders are required to be distributed among the holders of shares of Series A Preferred and common stock, pro rata based on the number of shares held by each such holder, treating for this purpose each such share of Series A Preferred as if it had been converted into one hundred (100) shares of common stock immediately prior to such liquidation (including a deemed liquidation), dissolution or winding up of the Company. The Series A Preferred is non-voting capital stock of the Company, except as may otherwise be required by applicable law and except that the holders thereof have certain limited approval rights, including.

On October 19, 2010 and December 5, 2011, the Company amended its Certificate of Incorporation and increased the number of Series A Participating Preferred Stock to 450,000 shares, and 508,000 shares respectively.

F-23

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Series B and B-1 Convertible Preferred Stock

On October 19, 2010 the Company amended its Certificate of Incorporation and authorized the issuance of 20,000 shares of Series B Convertible Preferred Stock (the “Series B Preferred”) and 6,000 shares of Series B-1 Convertible Preferred Stock (the “Series B-1 Preferred”), $0.0001 par value.

The shares of Series B Preferred and Series B-1 Preferred Stock have the following rights, privileges and preferences, among others, as more fully set forth in the amended Certificate of Incorporation:

●	are initially convertible at the option of the holder into shares of Common Stock at a conversion price of $0.24 per share, for an initial conversion ratio of 4,167 shares of Common Stock for each share of Series B Preferred and Series B-1 Preferred;

●	is mandatorily convertible into shares of the Company’s Series A Preferred (at a conversion price of $24.00 per share and using the same $1,000 stated value) and are convertible upon the Common Stock attaining a closing trading price equal to 150% of the then applicable conversion price for 20 consecutive trading days on average daily trading volume of at least 250,000 shares;

●	dividends of 8% per annum shall accrue but only be payable as, if and when declared by the Company’s Board of Directors or as part of the liquidation or change of control preference summarized below;

●	holders shall be entitled to a preferential payment (prior to any payment to holders of Series A Preferred or Common Stock) upon a liquidation or change of control; and

●	holders have the right to vote with holders of Common Stock on an as-converted basis.

Series C Convertible Preferred Stock

On February 2, 2011, the Company amended its Certificate of Incorporation and authorized the issuance of 10,000 shares of Series C Convertible Preferred Stock (the "Series C Preferred"), $0.0001 par value.

The Shares of Series C Preferred have the following rights, privileges and preferences, among others, as more fully set forth in the amended Certificate of Incorporation:

●	subject to the Conversion Restriction, were initially convertible (in full but not in part) at the option of the holders of a majority into such number of shares Common Stock as equals the Conversion Value which is the dollar amount that is equal to the lesser of (a) $10,000,000, and (b) the trailing 18-month revenue of the Beacon Business as of the Determination Date) divided by the conversion price of $0.10 per share; provided that, for a period of 18 months following the date of the issuance of the Series C Preferred, if the Company issues shares of Common Stock (or is deemed to issue shares of Common Stock) for a price per share less than $0.10, then the conversion price of the Series C Preferred was to be reduced by a “weighted-average” anti-dilution formula (subject to certain exempted issuances);

●	subject to the Conversion Restriction, was mandatorily convertible into shares of our Common Stock upon certain milestones related to the trading of our common stock ;

●	in the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, and upon certain changes, subject to the rights of holders shares of Series D Preferred and Series D-1 Preferred, the holders shall be entitled to a liquidation preference;

●	prior to the Determination Date, holders have the right to vote with holders of Common Stock on the basis of 1,250 votes per share of Series C Preferred and, after the Determination Date, holders of Series C Preferred have the right to vote with holders of Common Stock on an as-converted basis; and

●	On December 5, 2011 the Company amended the conversion terms and fixed the Conversion Value of the Series C Preferred at $2,500,000 (as 25,000,000 shares at the current conversion price of $0.10 per share).

F-24

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Series D and D-1 Convertible Preferred Stock

On February 2, 2011, the Company amended its Certificate of Incorporation and authorized the issuance of 14,500 shares of Series D Convertible Preferred Stock (the "Series D Preferred") and 1,500 shares of Series D-1 Convertible Preferred Stock (the "Series D-1 Preferred"), $0.0001 par value.

The shares of Series D Preferred and Series D-1 Preferred have the following rights, privileges and preferences, among others, as more fully set forth in the amended Certificate of Incorporation:

●	are initially convertible at the option of the holder into shares Common Stock at a conversion price of $0.07 per share, for an initial conversion ratio of 14,286 shares of Common Stock for each share; provided that, for a period of 18 months following the date of their issuance, if the Company issues shares of Common stock (or is deemed to issue shares of Common Stock) for a price per share less than $0.07, then the exercise price of the Common Stock will be reduced by a “weighted-average” anti-dilution formula (subject to certain exempted issuances);

●	subject to certain restriction, is mandatorily convertible into shares of the Company's Common Stock upon certain milestones related to the trading of the Company’s common stock;

●	is mandatorily convertible into shares of our Series A Preferred upon the same mandatory conversion event applicable to the Series D-1 Preferred;

●	dividends of 8% per annum shall accrue but are be payable as, if and when declared by the Company’s Board of Directors, in connection with the conversion thereof (in which case payment shall be in-kind) or as part of the liquidation or change of control preference summarized below (this accruing dividend shall increase to 12% per annum if the Company fails to comply with its obligation with respect to the Authorized Share Increase);

●	holders shall be entitled to a preferential payment (prior to any payment to holders of Series C Preferred, Series A Preferred or Common Stock) upon a liquidation or change of control, as applicable under certain circumstances; and

●	holders have the right to vote with holders of Common Stock on an as-converted basis (regardless of the Conversion Restriction).

Series E, E-1 and E-2 Convertible Preferred Stock

On December 5, 2011, the Company amended its Certificate of Incorporation and authorized the issuance of 12,000 shares of Series E Convertible Preferred Stock (the "Series E Preferred"), 1,400 shares of Series E-1 Convertible Preferred Stock (the "Series E-1 Preferred") and 20,000 shares of Series E-2 Convertible Preferred Stock (the "Series E-2 Preferred"), $0.0001 par value.

The shares of Series E Preferred, Series E-1 Preferred and Series E-2 Preferred have the following rights, privileges and preferences, among others, as more fully set forth in the amended Certificate of Incorporation:

●	are initially convertible at the option of the holder into shares Common Stock at a conversion price of $0.07 per share, for an initial conversion ratio of 14,286 shares of Common Stock for each share; provided that, for a period of 18 months following the date of their issuance, if the Company issues shares of Common Stock (or is deemed to issue shares of Common Stock) for a price per share less than $0.07, then the exercise price will be reduced by a “weighted-average” antidilution formula (subject to certain exempted issuances);

●	is mandatorily convertible into shares of our Common Stock under certain milestones related to the trading of the Company’s common stock;

●	is mandatorily convertible into shares of our Series A Preferred upon the same mandatory conversion event applicable to the Series E-1 Preferred;

F-25

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

●	dividends of 8% per annum shall accrue but are payable only as, if and when declared by the Board, in connection with the conversion thereof (in which case payment shall be in-kind) or as part of the liquidation or change of control preference summarized below;

●	holders shall be entitled to a preferential payment (prior to any payment to holders of Series E Preferred, Series E-1 Preferred, Series C Preferred, Series A Preferred or Common Stock) upon a liquidation or change of control, as applicable, in certain circumstances; and

●	holders have the right to vote with holders of Common Stock on an as-converted basis.

Common Stock

On January 11, 2010, the Company amended the Company's Certificate of Incorporation to increase the number of shares of common stock authorized to 300,000,000, and on July 1, 2011, amended the Company’s Certificate of Incorporation to increase the number of shares of common stock authorized to 1,500,000,000.

Preferred Stock Series A Issuance

On January 11, 2010, the Company entered into a Unit Purchase Agreement (the “UBS UPA”) with UBS Americas Inc. (“UBS”). Pursuant to the UBS UPA, the Company sold 1,760 Units, with each unit consisting of 26.67 shares of our Series A Participating Preferred Stock and rights to purchase 72 shares of Series A Preferred (“Preferred Stock Purchase Rights”). UBS paid an aggregate purchase price of $1,760,000 for such Units, before the deduction of transaction fees and expenses which amounted to $218,000. Each Preferred Stock Purchase Right gives UBS the right to purchase shares of Series A Preferred at a purchase price of $37.50 per share. In the event the Company issues shares of its common stock at a price per share less than $0.375, the exercise price of the Preferred Stock Purchase Rights shall be decreased to a purchase price equal to such lower price per share of common stock multiplied by 100 and expires on or before January 11, 2013.

On October 19, 2010, the Company issued to UBS Americas 38,896 shares of Series A Preferred in exchange for the cancellation of its previously outstanding Ordinary Purchase Rights Certificate.

Preferred Stock Series B Issuance

On October 19, 2010, the Company entered into a Unit Purchase Agreement with Bonds MX LLC (the “Bonds MX Purchase Agreement”). Pursuant to the Bonds MX Purchase Agreement, among other things, the Company sold to Bonds MX LLC (“Bonds MX”) 12 “units” (each a “Series B Unit”), with each such Series B Unit comprised of (a) 100 shares of Series B Preferred, (b) a warrant to purchase 416,667 shares of Common Stock at a purchase price of $0.24 per share, and (c) the right to receive up to 416,667 shares of Common Stock if the Company fails to meet certain performance targets (“Performance Shares”). The purchase price for each Series B Unit was $100,000, and the aggregate purchase price for the 12 Series B Units sold was $1,200,000, before the deduction of transaction fees and expenses which amounted to $32,024. Bonds MX paid this purchase price through the cancellation of the 15% Promissory Note, dated August 20, 2010, in the principal amount of $1,200,000 issued by the Company to Bonds MX. Additionally, pursuant to the Bonds MX Purchase Agreement, Bonds MX purchased an additional 8 Series B Units pursuant to closings on November 1 and December 1, 2010 for $800,000.

Pursuant to the Bonds MX Purchase Agreement, the Company is required to issue Performance Shares to Bonds MX if and to the extent that it generates less than $7,500,000 in revenue during the 12-month period following the final closing of the Offering. If the Company generates at least $7,500,000 in revenue during such period, then it is not required to issue any Performance Shares. If the Company generates zero revenue during such period, then it is required to issue all Performance Shares. If the Company generates less than $7,500,000 but more than zero in revenue during such period, the Company is required to issue a pro rata portion of the Performance Shares.

F-26

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Also, on November 1 and December 1, 2010, the Company sold an additional 2.5 Series B Units to an accredited investor for $250,000.

On February 2, 2011, all of these shares of Series B Preferred were exchanged for shares of Series D Preferred and are no longer outstanding. Additionally, the right to receive the Performance Shares was terminated.

Preferred Stock Series B-1 Issuance

On October 19, 2010, concurrent with the Bonds MX Purchase Agreement, the Company entered into a Unit Purchase Agreement with UBS Americas Inc. (the “UBS Purchase Agreement”). Pursuant to the UBS Purchase Agreement, among other things, the Company sold to UBS Americas Inc. (“UBS Americas”) 7.5 “units” (each a “Series B-1 Unit”), with each such Series B-1 Unit comprised of (a) 100 shares of Series B-1 Preferred, (b) a warrant to purchase 4,166.67 shares of Series A Preferred at a purchase price of $24.00 per share, and (c) the right to receive up to 4,166.67 shares of Series A Preferred if the Company fails to meet certain performance targets (“Series A Performance Shares”), of which the terms were equivalent to Bond MX Purchase Agreement. The purchase price for each Series B-1 Unit was $100,000, and the aggregate purchase price for the 7.5 Series B-1 Units sold was $750,000, before the deduction of transaction fees and expenses which amounted to $57,642. Additionally, on November 1, 2010, UBS Americas purchased an additional 5 Series B-1 Units for an aggregate purchase price of $500,000.

The 12.5 Series B-1 Units sold to UBS Americas pursuant to this financing constituted, in the aggregate, (a) 1,250 shares of Series B-1 Preferred, and (b) a warrant to purchase 52,083 shares of Series A Preferred.

On February 2, 2011, all of these shares of Series B-1 Preferred were exchanged for shares of Series D-1 Preferred and are no longer outstanding. Additionally, the right to receive the Series A-1 Performance Shares was terminated.

Preferred Stock Series C Issuance

On February 2, 2011, in conjunction with the Asset Purchase Agreement for the acquisition of the Beacon assets (see note 7), the Company issued 10,000 shares of Series C Preferred as consideration with a fair value of the purchased price was $1,072,000.

Preferred Stock Series D Issuance

On February 2, 2011, the Company entered into a Unit Purchase Agreement (the "Unit Purchase Agreement") with Oak and GFINet Inc. ("GFI") and sold to Oak and GFI an aggregate of 65 Units for a total purchase price of $6,500,000, before the deduction of transaction fees and expenses which amounted to $271,962. Each unit (each a "Unit") comprised of (a) warrants to purchase 1,428,572 shares of Common stock, at an initial exercise price of $0.07 per share, and (b) 100 shares of Series D Preferred.

The Company determined that the Series D Preferred shares attached to the units are classified as equity instruments. In addition, the Company assessed the terms of the related common stock warrants and concluded that, as a result of the down-round provision related to the exercise price, the common stock warrants should be classified as a derivative liability instrument.

The proceeds from the sale of the Units were allocated between the instruments utilizing the residual method; (a) the proceeds were first allocated to the fair value of warrants deemed a derivative liability instrument equaling $1,151,429, and (b) the remaining balance was than allocated to the Series D Preferred, as a result $5,348,571 of the proceeds was allocated to Series D Preferred. The Company analyzed the effective conversion feature of the Series D Preferred and determined that there was no beneficial conversion features upon the issuance.

Also, on February 2, 2011, in connection with and as a condition to the transaction contemplated by the Unit Purchase Agreement, the Company entered into an Exchange Agreement with UBS Americas, Bonds MX and Robert Jones (the "Jones"). Pursuant to the Exchange Agreement the Company (a) issued 22.5 Units of Series D Preferred in exchange for all the outstanding shares of Series B Preferred and certain outstanding warrants to purchase shares of the Company's common stock. As a result of the exchange, the Company recorded $455,357 as preferred dividend expense for the market value of the additional common stock equivalent shares received by Series B Preferred Holders.

F-27

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On March 7, 2011, the Company entered into two separate Unit Purchase Agreement with two accredited investors pursuant to which, the Company sold 4 Units for an aggregate purchase price of $400,000. The Company allocated $71,429 and$328,571 of its proceeds to the warrants and Series D Preferred, respectively, using the residual method. The Company analyzed the effective conversion feature of the Series D Preferred and determined that there was no beneficial conversion features upon the issuance.

On June 23, 2011, the Company entered into a Unit Purchase Agreement with Jefferies & Company, Inc. ("Jefferies") pursuant to which, the Company sold 20 Units to Jefferies for an aggregate purchase price of $2,000,000, before the deduction of transaction fees and expenses which amounted to $66,664. The Company allocated $334,286 and $1,665,714 of its proceeds to the warrants and Series D Preferred, respectively, using the residual method. The Company analyzed the effective conversion feature of the Series D Preferred and determined that there was no beneficial conversion features upon the issuance.

On December 5, 2011, all of these shares of Series D Preferred were exchanged for shares of Series E Preferred and are no longer outstanding.

Preferred Stock Series D-1 Issuance

On February 2, 2011, the Company issued 12.5 units comprised of (a) warrants to purchase 14,286 shares of the Company’s Series A Preferred, with an initial exercise price of $7.00 per share (the "Series A Warrants") and (b) 100 shares of Series D-1 Preferred in exchange for (a) all of the outstanding shares of our Series B-1 Preferred and (b) certain outstanding warrants to purchase shares of the Company's Series A Preferred. As a result of the exchange, the Company recorded $252,976 as preferred dividend expense for the market value of the additional common stock equivalent shares received by Series B-1 Preferred Holders.

On December 5, 2011, all of these shares of Series D-1 Preferred were exchanged for shares of Series E-1 Preferred and are no longer outstanding.

Preferred Stock Series E Issuance

On December 5, 2011, the Company entered into an Exchange Agreement with GFI, Oak, Bonds MX, Jefferies and all other holders of Series D Preferred. Pursuant to the Exchange Agreement, the Company (a) issued 11,150 shares of Series E Preferred in exchange for all outstanding shares of Series D Preferred and (b) issued 681 shares of Series E Preferred in exchange for all rights with respect to accrued dividends on shares of Series D Preferred, which amounted to approximately $681,000.

Preferred Stock Series E-1 Issuance

On December 5, 2011, the Company entered into an Exchange Agreement with UBS. Pursuant to the Exchange Agreement, the Company (a) issued 1,250 shares of Series E-1 Preferred in exchange for all outstanding shares of Series D-1 Preferred and (b) issued 84 shares of Series E Preferred in exchange for all rights with respect to accrued dividends on shares of Series D-1 Preferred, which amounted to approximately $84,000.

Preferred Stock Series E-2 Issuance

On December 5, 2011, the Company entered into a Unit Purchase Agreement with Daher Bonds Investment Company ("DBIC"), Mida Holdings ("Mida"), Oak, GFI and certain other investors. Pursuant to the Unit Purchase Agreement, the Company sold to DBIC, Mida, Oak, GFI and certain other investors an aggregate of 100 Units for a total purchase price of $10,000,000, before the deduction of transaction fees and expenses which amounted to $480,000, with each unit comprised of (a) warrants to purchase 1,428,571 shares of our Common Stock and (b) 100 shares of newly-created class of preferred stock designated as Series E-2 Preferred and agreed to sell an additional 66 Units for an aggregate purchase price of $6,600,000 to five accredited investors upon the satisfaction or waiver of certain closing conditions. Such closing conditions include, without limitation, the following:

●

The Company shall have achieved certain revenue and cash burn closing milestones on, as of or before June 30, 2012. Such revenue and cash burn closing milestones will be satisfied if both (a) the Company’s gross operating revenue for any month ending after December 5, 2011 and on or prior to June 30, 2012 is at least $800,000, and (b) the Company’s operating losses for the same month are less than $200,000 and there shall not have occurred any material adverse effect with respect to the Company or any of its subsidiaries, taken as a whole.

F-28

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company allocated $3,485,714 and $6,514,286 of its proceeds to the warrants and Series E-2 Preferred, respectively, using the residual method. The Company analyzed the effective conversion feature of the Series E-2 Preferred and determined that there was no beneficial conversion features upon the issuance.

●	The Company is prohibited from selling any additional securities pursuant to the financing contemplated by the Unit Purchase Agreement without the prior written consent of DBIC, Mida, Oak and GFI; except as provided;

●	Other than the Common Stock Warrants, and as provided,, the Company is prohibited from selling any warrants, convertible debt or other securities convertible into the Company’s Common Stock that include dilution protection provisions other than provisions relating to stock splits, reclassifications, stock dividends and other like kind events;

●	The Company is required to use the proceeds from the sale of the Units in accordance with certain specified uses that were previously approved by the Company’s Board of Directors (“Board”); provided, however, the Company may deviate from such proposed uses with the approval of the Board, including the consent of at least one director designated to the Board by Oak, GFI or DBIC; and

●	From December 5, 2011 until December 31, 2012, the Company may not appoint a Chief Executive Officer unless such appointment is approved by a majority of the Board including at least any one of the directors designated to the Board by DBIC.

The purchase and sale of the Units under the Unit Purchase Agreement gives rise to preemptive rights held by certain holders of the Company’s common stock under the terms of the Series D Stockholders’ Agreement dated as of February 2, 2011, by and among the Company and the other parties thereto. The Company anticipates selling additional Units pursuant to the Unit Purchase Agreement to the extent such rights are exercised by such holders.

Common Stock Issuance

On June 4, 2009, the Company entered into an agreement with a consultant to provide certain consulting services to the Company. As part of the agreement, 75,667 shares of common stock were issued to the consultant during the fourth quarter of 2009, along with 25,667 shares of common stock during the first quarter of 2010. The fair value of the services rendered in 2009 and 2010 is $28,375 and $9,625, respectively.

On August 28, 2009, the Company entered into a Unit Purchase Agreement with Fund Holdings, LLC (“Fund Holdings”). This Unit Purchase Agreement (the “Fund Holdings UPA”) provided for a financing of up to $5,000,000 through the sale of up to 5,000 Units. Each Unit consisted of: (a) 2,667 shares of the Company’s common stock; and (b) the right, within three years of the applicable closing date upon which such Unit is purchased, to purchase an additional 9,597 (as equitably adjusted for stock splits, combinations and the like) shares of common stock at $0.375 per share (the “Ordinary Purchase Rights”). Additionally, in connection with this transaction, the Company issued Fund Holdings the unvested right to purchase up to 26,893,580 (as equitably adjusted for stock splits, combinations and the like) shares of common stock at $0.375 per share (the “Additional Purchase Rights”). The Additional Purchase Rights will vest in the future only to the extent and in such amount as is equal to the number of shares of common stock, up to 26,893,580, that the Company actually issues in the future on account of convertible notes, warrants and options in existence as of the initial closing of this transaction. The Ordinary Purchase Rights are exercisable by the purchaser generally at any time within three years of the date of the closing in which the applicable Unit was purchased. The Additional Purchase Rights are exercisable by the purchaser at any time within three years of the date that the applicable Additional Purchase Rights vest. In addition, pursuant to the Fund Holdings UPA, the Company issued Fund Holdings an additional right (the “Special Purchase Rights”) to purchase 1,000,000 (as equitably adjusted for stock splits, combinations and the like) shares of common stock at $0.375 per share. Fund Holdings has the right to exercise the Special Purchase Rights at any time during the three year period following the initial closing under the Unit Purchase Agreement.

F-29

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with the final closing under the Fund Holdings UPA, on January 13, 2010, the Company sold 690 Units to Laidlaw Venture Partners III, LLC (“Laidlaw Venture Partners III”), with each Unit consisting of 2,667 shares of the Company's common stock and warrants to purchase 7,200 additional shares of the Company's common stock, with an exercise price of $0.375 per share and expiring in three years from the date of issuance. Laidlaw Venture Partners III paid an aggregate purchase price of $690,000 for such Units, before the deduction of transaction fees and expenses which amounted to $34,500. These warrants were cancelled as a result of the exchange offer on October 7, 2010.

On October 7, 2010, the Company issued approximately 27,000,000 shares of its common stock in exchange for approximately 95,800,000 warrants, which represented approximately 85.64% of the shares issuable upon the exercise of all warrants. In connection with this exchange offer, the Company recorded a charge of approximately $1,900,000 to finance expense. In addition, the Company issued the remaining balance of 660,051 shares of common stock in January 2011.

Common Stock Purchase Warrants

Warrant activity for the years ending December 31, 2011 and 2010 are as follows:

	Numbers of Warrants			Weighted-Average Exercise Price
Outstanding at December 31, 2009		77,226,087		$	0.56
Issued		53,968,580			0.33
Cancelled or expired		(95,816,002	)		0.52
Exercised		-
Outstanding at December 31, 2010		35,378,665		$	0.32
Issued		332,999,993			0.06
Cancelled or expired		(9,941,681	)		0.25
Exercised		-			-
Outstanding at December 31, 2011		358,436,977		$	0.08

Weighted average grant date fair value of warrants granted during the year ended December 31, 2011				$	0.02

Warrants issued to Non-Employees

On February 2, 2011, the Company issued an aggregate of 13,000,000 and 15,000,000 warrants to purchase its common stock to related parties in exchange for consulting services. The warrants had an exercise price of $0.07 and $0.10 and contain a provision allowing for cashless exercise. The fair value of the warrants issued, amounting to $72,800 and $63,000, was determined using the Black-Scholes option pricing model ranging from $0.0042 to $0.0056 for both warrants utilizing the following assumptions: expected volatility of 66.00%, risk free interest rate of 2.10%, contractual term of five years and a market price of $0.02. These warrants were fully vested and as such the fair value of the warrants was charged to operations during the year ended December 31, 2011.

On August 11, 2011, the Company issued 2,857,143 warrants in exchange for marketing services to be rendered over a three year period. The warrants had an exercise price of $0.07 and contain a provision allowing for cashless exercise. The fair value of the warrants issued, amounting to $85,714, was determined using the Black-Scholes option-pricing model of $0.03 per warrant utilizing the following assumptions, expected volatility of 166.11% , risk-free interest rate of 1.02%, contractual term of five years and a market price of $0.03. The fair value of the warrants were amortized over the three year service period and charged to operations during the year ended December 31, 2011.

F-30

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company recorded $147,705 and $0 of consulting expense during the years ended December 31, 2011 and 2010, respectively, relating to warrants awarded.

Warrants issued in connection with Preferred Stock Series D & E issuances

On February 2, 2011, the Company issued warrants pursuant to the Preferred Stock Series D Unit Purchase Agreements which included provisions containing a cashless net exercise election and providing that, for a period of 18 months following the date of the Unit Purchase Agreement, if the Company issues shares of Common Stock (or is deemed to issue shares of Common Stock) for a price per share less than $0.07, then the exercise price of the Common Stock Warrants will be reduced by a “weighted-average” anti-dilution formula (subject to certain exempted issuances).

Due to the down-round provision, all warrants issued are recognized as derivative liabilities at their respective fair values on each reporting date. The fair values of these warrants were estimated using a Binomial Lattice valuation model, which is being marked-to-market each reporting period with corresponding changes in the fair value being recorded as unrealized gains or losses on derivative financial instruments in the consolidated statement of operations.

The Company issued 92,857,143 warrants in connection with the Unit Purchase Agreements. The warrants had an initial exercise price of $0.07 and a term of five years. The fair value the warrants issued at grant date, which amounted to $455,000, was determined using the a Binomial Lattice valuation model at $0.0049 per warrant utilizing the following assumptions, expected volatility of 66.00%, risk-free interest rate of 2.10%, expected term of 5 years, weighted average probability strike price of $0.0610 and a market price of $0.02.

On March 7, and June 23, 2011 the Company issued 5,714,286 and 28,571,429 warrants respectively in connection with the Unit Purchase Agreements . The fair value of the warrants issued at grant date, which amounted to $28,000 and $134,286, was determined using a Binomial Lattice valuation model ranging from $0.0047 to $0.0049 per warrants utilizing the following assumptions, expected volatility of 66.00%, risk-free interest rate ranging from 1.49% to 2.19% ,expected term of 1.5 years, weighted average probability strike price of $0.0610 and a market price of $0.02.

On December 5, 2011, the Company issued 142,857,144 warrants in connection with the Preferred Stock Series E-2 Unit Purchase Agreements. The warrants had the same terms as the Preferred Stock Series D Unit Purchase Agreements. The fair value of the warrants issued at grant date, which amounted to $3,485,715, was determined using a Binomial Lattice valuation model at $0.0244 per warrant utilizing the following assumptions, expected volatility of 166,93%, risk-free interest rate of 0.93%, expected term of 5 years, weighted average probability strike price of $0.0635 and a market price of $0.03.

Warrants issued in connection with exchange agreements

On February 2, 2011, the Company issued warrants pursuant to the Exchange Agreement which included provisions containing a cashless net exercise election and providing that, for a period of 18 months following the date of the Unit Purchase Agreement, if the Company issues shares of Common Stock (or is deemed to issue shares of Common Stock) for a price per share less than $0.07, then the exercise price of the Common Stock Warrants will be reduced by a “weighted-average” antidilution formula (subject to certain exempted issuances).

Related to the exchange of the 22.5 Series B Preferred for Series D Preferred Units, the Company issued 32,142,848 warrants with a fair value at grant date, amounting to $157,500.

In connection with the Exchange Agreement, the Company cancelled 9,375,008 warrants originally issued in connection with the Series B Preferred Unit sale. In connection with this exchange offer, the Company recorded a charge of $142,499 to preferred dividend expense.

Cancellation of warrants

On December 28, 2011, the Company entered into and consummated a Repayment and Termination Agreement, pursuant to the agreement, 566,673 shares of warrants were cancelled (see note 9).

F-31

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Preferred Series A Purchase Warrants

Series A warrant activity for the years ending December 31, 2011 and 2010 are as follows:

	Numbers of Series A Warrants			Weighted-Average Exercise Price
Outstanding at December 31, 2009		-		$	-
Issued		189,364			33.79
Cancelled or expired		(137,280	)		37.50
Exercised		-			-
Outstanding at December 31, 2010		52,084		$	24.00
Issued		178,575			6.10
Cancelled or expired		(52,084	)		24.00
Exercised		-			-
Outstanding at December 31, 2011		178,575		$	6.10

Weighted average fair value granted during the year ended December 31, 2011				$	0.49

Preferred Series A warrants issued in connection with exchange agreement

On February 2, 2011, the Company issued Preferred Series A warrants pursuant to the Exchange Agreement which included provisions containing a cashless net exercise election and providing that, for a period of 18 months following the date of the Exchange Agreement, if the Company issues shares of Common Stock (or is deemed to issue shares of Common Stock) for a price per share less than $0.07, then the exercise of the Series A Warrant will be reduced by a customary “weighted-average” anitdilution formula (subject to certain exempted issuances).

Related to the exchange of the 12.5 Series B-1 Preferred for Series D-1 Preferred Units, the Company issued 178,575 Series A Warrants. These warrants convert to 17,857,500 of common stock equivalents. The fair value these warrants at grant date, which amounted to $87,500.

In connection to the exchange, the Company cancelled 52,084 Series A Warrants originally issued in connection with the Series B-1 Preferred Unit sale. In connection with this exchange offer, the Company recorded a charge of $79,166 to preferred dividend expense.

Note 14 - Earnings (Loss) Per Share

Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted loss per share considers the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings of the entity. No diluted loss per share has computed since the effect of any potentially dilutive securities would be antidilutive. Potentially dilutive securities excluded from the calculation of weighted average common shares outstanding for 2011 include 376,294,477 both, common stock and preferred series A warrants, 80,475,817 common stock underlying stock options, 40,321,253 shares issuable under convertible notes payable and 363,485,104 shares issuable under preferred stock all which have the ability to be converted to common stock.

F-32

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 - Net Capital and Reserve Requirements

Bonds.com Inc., is subject to SEC Uniform Net Capital Rule 15c3-1. Bonds.com computes its net capital under the basic method permitted by the rule, which requires that the minimum net capital be equal to the greater of $100,000 or 6-2/3% of aggregate indebtedness.

The Company is exempt from the SEC Rule 15c3-3 pursuant to the exemption provision under subparagraph (k)(2)(ii) and, therefore, is not required to maintain a "Special Reserve Bank Account for Exclusive Benefit of Customers".

Net capital positions of Bonds.com were as follows at December 31, 2011 and 2010:

	2011		2010
Ratio of aggregate indebtedness to net capital	0.42 to 1		0.029 to 1
Net capital	$	4,151,046	$	883,116
Required net capital	$	117,029	$	100,000

Bonds.com was examined by FINRA for the period September 2008 through June 2010. In June 2011, FINRA issued its Examination Report that identified some exceptions. Two of these exceptions were referred to FINRA Enforcement for further review. They are: i) violations emanating from the expense-sharing agreement that the Company has with Bonds.com, and related net capital issues; and, ii) objections to a revenue-sharing agreement with another broker-dealer that raises mark-up issues. As of the date of this report, Bonds.com is continuing to respond to requests from FINRA Enforcement. The outcome of this matter is currently unknown and, therefore, there has been no accrual for any related liability pertaining to this matter at December 31, 2011.

Bonds.com is currently undergoing an examination by FINRA for 2011 which, as of the date of this report, is ongoing.

Note 16 - Share-Based Compensation

The Company has two equity-based compensation plans which have not been approved by stockholders, the 2006 Equity Plan (the “2006 Plan”) and 2011 Equity Plan (the “2011 Equity Plan’), which are effective for 10 years. The 2006 Plan and 2011 Plan provides for a total of 13,133,825 and 72,850,000 shares, respectively, shares to be allocated and reserved for the purposes of offering non-statutory stock options to employees and consultants and incentive stock options to employees. If any option expires, terminates or is terminated or canceled for any reason prior to exercise in full, the shares subject to the unexercised portion shall be available for future options granted under the Plan. Options become exercisable over various vesting periods depending on the nature of the grant. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the Plans). Collectively, the 2006 Plan and the 2011 Plan are referred to as the “Plans”.

The exercise price of both incentive and non-statutory options may not be less than 100% of the fair market value of the common stock on date of grant; provided, however, that the exercise price of an incentive stock option granted to a 10% Shareholder shall not be less than 110% of the fair market value of the Company's common stock. As of December 31, 2011, the Company had 26,215,160 options available to grant under the 2011 Plan and 2,245,287 options available to grant under the 2006 Plan.

F-33

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock option activity related to options granted to employees under the Plans and related information for the years ended December 31, 2011 and 2010 is provided below:

	Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2009		11,295,732		$	0.35
Granted during 2010		2,000,000			0.36
Forfeited or expired during 2010		(2,337,194	)
Exercised during 2010		-			-
Outstanding at December 31, 2010		10,958,538		$	0.36		-		-
Granted during 2011		71,953,560			0.07
Forfeited or expired during 2011		(25,388,720	)		0.08
Exercised during 2011		-			-
Outstanding at December 31, 2011		57,523,378		$	0.12		7.62		-
Vested or expected to vest		57,523,378		$	0.12		7.62		-
Options exercisable, December 31, 2011		33,893,616		$	0.17		6.81		-

Stock option activity related to options granted outside the Plans to both employees and non-employees and related information for the years ended December 31, 2011 and 2010 is provided below:

	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2009		750,000	$	0.38
Granted during 2010		8,750,000		0.38
Forfeited or expired during 2010		-
Exercised during 2010		-		-
Outstanding at December 31, 2010		9,500,000	$	0.38		-		-
Granted during 2011		49,465,534		0.08
Forfeited or expired during 2011		-		-
Exercised during 2011		-		-
Outstanding at December 31, 2011		58,965,534	$	0.11		6.40		-
Vested or expected to vest		58,965,534	$	0.11		6.40		-
Options exercisable, December 31, 2011		46,582,201	$	0.14		6.42		-

The Company granted an aggregate of 58,965,534 options outside the Plans, of which 9,500,000 was granted to non-employees.

The weighted-average grant date fair value of options granted to employees during the years ended December 31, 2011 and 2010 was $0.03 and $0.20, respectively. The fair value of each option award was estimated on the date of grant using the Black-Scholes option pricing model using the following weighted-average assumptions:

	2011	2010
Dividend yield	-	-
Expected volatility	66.00% - 168.16%	66.00%
Risk-free interest rate	1.04% - 2.10%	2.86% - 3.61%
Expected life (in years)	4 - 5	7 - 10

The weighted-average expected life for the options granted in 2011 of 4.85 years reflects the alternative simplified method permitted by authoritative guidance, which defines the expected life as the average of the contractual term of the options and the weighted-average vesting period for all option tranches. Expected volatility for the 2011 option grants prior to July 1, 2011 is based on historical volatility over the same number of years as the expected life, prior to the option grant date. Beginning July 1, 2011, expected volatility is based on an average of the Company’s volatility plus comparable companies over the same number of years as the expected life.

F-34

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2011, there was approximately $1,200,000 of unrecognized compensation cost related to options issued of which approximately $457,000 shall be allocated to Bonds.com, Inc. This amount is expected to be recognized over the remaining estimated life of the options, which on a weighted-average basis is approximately 3.12 years.

There were no options exercised during the years ended December 31, 2011 and 2010. Tax benefits related to option exercises were not deemed to be realized as net operating loss carryforwards are available to offset taxable income computed without giving effect to the deductions related to option exercises.

Non-cash compensation expense relating to stock options was calculated by using the Black-Scholes option pricing model, amortizing the value calculated over the vesting period and applying a zero forfeiture percentage as estimated by the Company's management, using historical information. The Company has elected to recognize compensation cost for option awards that have graded vesting schedules on a straight-line basis over the requisite service period for the entire award. For the years ended December 31, 2011 and 2010, the non-cash compensation expense relating to option grants amounted to $1,396,751 and $2,947,708, respectively, of which $408,459 and $700,081, respectively, were allocated to Bonds.com, Inc. The compensation expenses is included in payroll and related costs in the consolidated statements of operations.

Note 17 - Income Taxes

The components of the provision for income taxes from continuing operations are as follows for the years ended December 31, 2011 and 2010:

	2011		2010
Current benefit (provision): federal	$	-	$	-
Current benefit (provision): state		-		-
Total current provision		-		-

Deferred provision: federal		151,916		1,707,882
Deferred provision: state		23,004		182,341
Total deferred provision		174,920		1,890,223

Total provision for income taxes from continuing operations	$	174,920	$	1,890,223

F-35

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Significant items comprising the deferred tax assets and deferred tax liabilities are as follows at December 31, 2011 and 2010:

	2011			2010
Current deferred tax assets
Accrued expenses	$	130,000		$	77,286
Accrued litigation expense		59,000			100,813
Accrued technology expense		44,000			103,385
Accrued severance expense		527,000			390,317
		760,000			671,801

Non-current deferred tax assets (liabilities)
Equity bond compensation		2,363,000			1,006,463
Fixed assets		-			13,379
Impairment of intangible asset		390,000			-
Charitable contributions carry forward		1,000			1,375
Net operating loss carry forward		12,833,000			9,932,202
Derivative liability		-			174,921
Fixed assets		(162,000	)		-
Intangible assets		(11,000	)		(10,641	)
Debt discount related to beneficial conversion feature		-			(8,757	)
		15,414,000			11,108,942

Deferred tax assets, net		16,174,000			11,780,743
Less: valuation allowance		(16,174,000	)		(11,605,823	)
Net deferred tax assets	$	-		$	174,920

These amounts have been presented in the Company’s financial statements as follows:

	2011		2010
Current Deferred Tax Assets (Liability)	$	-	$	2,306
Non Current Deferred Tax Asset		-		172,614

Net Deferred Tax Asset	$	-	$	174,920

A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. In 2010, the Company did not record a valuation allowance for the deferred tax assets relating to the derivative liability, which is expected to be realized upon exercise or expiration of the derivative instrument.

F-36

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amounts and corresponding expiration dates of the Company's federal unused net operating loss carry forwards as shown in the following table at December 31, 2011:

Year	Federal and State
2026	$	1,507,223
2027		4,163,262
2028		4,693,317
2029		3,909,920
2030		9,665,380
2031		7,906,091
	$	31,845,193

The Company’s effective income tax (benefit) rate for continuing operations differs from the statutory federal income tax benefit rate as follows:

	December 31,
	2011			2010
Federal tax benefit (provision) rate		35.00	%		34.00	%
State tax benefit (provision) rate		5.30	%		3.60	%

Other reconciling differences		(7.02	%)		(0.20	%)
Permanent difference and others		-			3.70	%

Change in valuation allowance		(32.06	%)		(51.50	%)

Tax Benefit (Provision)		(1.22	%)		(17.80	% )

In accordance with certain provisions of the Tax Reform Act of 1986 a change in ownership of greater than fifty percent (50%) of a corporation within a three (3) year period will place an annual limitation on the corporation’s ability to utilize its existing tax carryforward losses. The Company’s management has not performed this analysis, but based on the various issuances of equity during the last two fiscal years, the Company believes that the utilization of its net operating loss carryforwards will be limited under Section 382 of the Internal Revenue Code.

Note 18 - Related Parties Transactions

Termination of Revenue Sharing Arrangement; Additional Agreements

On October 19, 2010, the Company and Radnor Research and Trading Company, LLC, in which an officer of the Company had an affiliation with, terminated the Restated Revenue Sharing Agreement dated November 13, 2009 (the “Revenue Sharing Agreement”). Prior to its termination, the Revenue Sharing Agreement required the Company to pay Radnor Research and Trading Company, LLC an amount equal to between 14% and 35% of all revenue (net of clearing costs and other allocated costs) generated by transactions on the Bonds.com platform by persons or entities referred to the Company by Radnor Research and Trading Company, LLC. UBS Securities and other potentially large users of the Bonds.com platform were referred to the Company by Radnor Research and Trading Company, LLC.

In order to terminate the Revenue Sharing Agreement on October 19, 2010, the Company entered into a Termination and Release Agreement with Mark G. Hollo, The Fund LLC and Black-II Trust (the “Termination and Release Agreement”). Pursuant to the Termination and Release Agreement, the Company (a) issued to Black-II Trust a warrant to purchase 10,000,000 shares of Common Stock at a purchase price of $0.24 per share, and (b) agreed to pay Black-II Trust an aggregate of $250,000 in four equal installments at such time, if ever, as the gross proceeds from the Offering (including the conversion of indebtedness) exceeds $5,000,000.

F-37

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On February 2, 2011, the Company issued three warrants to related parties as follows: (a) a warrant to purchase 6,500,000 shares of the Company’s Common Stock at a purchase price of $0.07 per share for a period of 5 years, which was issued to Edwin L. Knetzger, III for prior services rendered (in addition to his services as a director of the Company), (b) a warrant to purchase 6,500,000 shares of the Company’s Common Stock at a purchase price of $0.07 per share for a period of 5 years, which was issued to Tully Capital Partners, LLC, a member of Bonds MX, LLC, for prior services rendered, and (c) a warrant to purchase 15,000,000 shares of the Company’s Common Stock at a purchase price of $0.10 per share for a period of 5 years, which was issued to Laidlaw & Co (UK), Inc., a related party of Laidlaw Venture Partners III, LLC.

The Company is renting office space in San Francisco from an institution that is affiliated with our co-chairman, Edwin L. Knetzger, III.

In 2011, one customer, who is also an investor in the Company, represented approximately 13% of total revenue. The loss of that client could have a material adverse effect on our business.

Note 19 – Restated Quarterly Financial Data (Unaudited):

The following tables contain restated quarterly financial data for three months ended March 31, 2011, June 30, 2011 and September 30, 2011. The Company believes that the following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future periods.

The restated net loss, net loss attributable to common stockholders and loss per share - basic and diluted, for theses quarters have been restated to correct for the sale or exchange of Preferred Stock with warrants due to improper allocations between the warrants and the Preferred Stock and use of a methodology that was not acceptable for determining the value of the underlying common stock, to correct recording of stock-based compensation due to the use of a methodology that was not acceptable for determining the value of the underlying common stock, for adjustments to the fair value of warrants issued to consultants and for the timing and recognition of certain other compensation and consulting expenses.

	For the three months ended
	March 31, 2011			June 30, 2011			September 30, 2011
Net loss, as previously reported	$	(5,816,891	)	$	(272,099	)	$	(6,179,898	)

Sale or exchange of preferred stock with warrants		314,787			(1,776,265	)		406,315
Stock based compensation		1,847,974			(78,634	)		(98,709	)
Compensation and consulting expenses		527,441			(67,750	)		(67,750	)

Net loss, as restated	$	(3,126,689	)	$	(2,194,748	)	$	(5,940,042	)

As a result of the above detailed adjustments, preferred stock dividends decreased approximately $(6.1) million and $(3.8) million from the amounts previously reported during for the three months ended March 31, 2011 and June 30, 2011, respectively. The amount reported for the three months ended September 30, 2011 was unchanged.

F-38

BONDS.COM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	For the three months ended
	March 31			June 30			September 30
Net loss applicable to common stockholders, as previously reported	$	(12,951,561	)	$	(4,262,238	)	$	(6,446,595	)

Sale or exchange of preferred stock with warrants		314,787			(1,776,265	)		406,315
Stock based compensation		1,847,974			(78,634	)		(98,709	)
Compensation and consulting expenses		527,441			(67,750	)		(67,750	)
Preferred stock dividend		6,076,606			3,782,710			-

Net loss applicable to common stockholders, as restated	$	(4,184,753	)	$	(2,402,177	)	$	(6,206,739	)
Loss per common share as previously reported	$	(0.12	)	$	(0.04	)	$	(0.06	)
Loss per common share as restated	$	(0.04	)	$	(0.02	)	$	(0.06	)

	Year Ended December 31, 2011
	1st Quarter			2nd Quarter			3rd Quarter
	Restated			Restated			Restated			4th Quarter			Full Year
Revenue	$	820,746		$	931,675		$	1,091,041		$	1,479,313		$	4,322,775
Net Loss		(3,126,689	)		(2,194,748	)		(5,940,042	)		(3,196,079	)		(14,457,558	)
Net Loss applicable to common stockholders		(4,184,753	)		(2,402,177	)		(6,206,739	)		(3,485,328	)		(16,278,997	)
Loss per share - basic and diluted	$	(0.04	)	$	(0.02	)	$	(0.06	)	$	(0.03	)	$	(0.16	)

Note 20 - Subsequent Events

On May 10, 2012, the Company amended the number of shares of Common Stock available for issuance under 2011 Equity Plan from 72,850,000 to 125,000,000.

In addition, on May 10, 2012, in connection with an employment agreement, the Company granted a new employee an option to purchase 78,000,000 shares of the Common Stock at an exercise price of $0.09 per share, for a period of 7 years. These options were issued under the 2011 Equity Plan. The options vest one-quarter on June 1, 2012, and the balance over a period of three years, beginning June 1, 2012. The agreement is for an indefinite period, and provides for initial base salary of $300,000 per annum, subject to increase (but not decrease) by the Company’s Board of Directors, and an annual bonus up to 100% of the base salary, at the discretion of the Board of Directors. The agreement also contains a bonus payment of $750,000 to be paid to the employee upon a Change of Control (as defined in the agreement).

On January 24, 2012 the Company consummated a sale of $300,000 of Units of Series E Preferred Stock and common stock warrants to existing stockholders under their pre-emptive rights following the December 5, 2011 capital raise.

F-39

Delaware		38-3649127
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

529 Fifth Avenue – 8th Floor

New York, New York		10017
(Address of principal executive offices)		(Zip Code)

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

	Municipal	Treasury1	Mortgage Related2	Corporate Debt	Federal Agency Securities3	Money Markets4	Asset-Backed5	Total

2010
Q1	3,729.00	7,745.12	8,627.71	7,215.20	2,705.40	2,968.80	2,254.50	35,245.73
Q2	3,729.00	8,092.17	8,523.82	7,234.90	2,716.67	2,827.30	2,165.00	35,288.86
Q3	3,732.70	8,488.09	8,509.48	7,423.50	2,582.50	2,887.50	2,095.80	35,719.56
Q4	3,794.50	8,853.02	8,513.20	7,511.90	2,538.78	2,866.50	2,034.50	36,112.41

2011
Q1	3,778.60	9,122.50	8,481.93	7,606.50	2,489.99	2,943.00	1,975.90	36,398.42
Q2	3,730.50	9,326.21	8,538.19	7,677.30	2,380.59	2,897.00	1,916.50	36,466.29
Q3	3,739.50	9,616.10	8,523.41	7,751.50	2,359.40	2,662.70	1,857.90	36,510.51
Q4	3,743.30	9,928.44	8,423.52	7,790.70	2,326.88	2,572.00	1,815.40	36,600.24

	Municipal	Treasury1	Agency MBS2	Non Agency MBS3*	ABS4*	Corporate Debt5,6	Federal Agency Securities1	Total7
2011
Jan.	12.0	538.6	313.7	-	-	19.4	64.1	947.9
Feb	12.2	650.6	286.6	-	-	19.2	70.2	1,038.8
Mar	10.7	617.0	254.1	-	-	17.5	67.8	967.1
Apr	12.0	514.0	236.8	-	-	15.7	55.7	834.2
May	10.7	563.9	301.0	6.5	2.1	15.5	57.7	957.3
Jun	11.3	612.7	284.2	9.6	2.1	16.2	59.7	995.8
Jul	11.4	557.5	299.2	3.4	1.3	14.5	47.9	935.3
Aug	12.0	672.7	340.5	3.5	1.6	15.7	53.1	1,099.0
Sep	11.5	557.5	343.2	3.5	1.8	14.4	47.1	979.0
Oct	10.6	542.2	383.2	3.2	1.2	15.6	37.1	993.3
Nov	11.0	550.1	331.2	3.5	1.2	12.5	37.3	946.7
Dec	9.8	436.9	248.7	3.1	0.8	11.1	38.4	748.8

AVE. '11	12.1	594.6	300.1	-	-	19.3	67.1	993.4
AVE. '12 YTD	11.2	537.1	335.7	6.4	1.3	19.2	43.9	954.9

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a),
	(a)		(b)		(c)
Equity Compensation plans approved by stockholders		-		-		-

Equity Compensation plans not approved by stockholders		57,523,378	$	0.134		28,460,447

	BONDS.COM GROUP, INC.
(Exact name of Registrant as Specified in its Charter)

	(212) 946-3998
(Registrant’s Telephone Number, Including Area Code)

Item Number in Form 10-K		Page

	PART I
1	Business	4
1A.	Risk Factors	13
1B.	Unresolved Staff Comments	29
2.	Properties	29
3.	Legal Proceedings	30

	PART II
5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30
6.	Selected Financial Data	36
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
7A.	Quantitative and Qualitative Disclosure About Market Risk	41
8.	Financial Statements and Supplementary Data	42
9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	42
9A.	Controls and Procedures	42
9B.	Other Information	44

	PART III
10.	Directors, Executive Officers and Corporate Governance	44
11.	Executive Compensation	49
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	54
13.	Certain Relationships and Related Transactions, and Director Independence	57
14.	Principal Accounting Fees and Services	65

	PART IV
15.	Exhibits, Financial Statement Schedules	65

●	There has been over the past several years and continues to be consolidation of three types of services that traditionally were offered separately: online trading services, real-time market data services, and trading analysis software products and services. Our electronic trading platforms embrace this consolidation by offering all three of these services in a fully-integrated, seamless manner.

●	Consolidation is occurring in the four major online execution markets for active traders - equities, equity options, futures and forex - meaning that, contrary to specializing in offering services for only one of those market instruments, more and more firms are offering or plan to offer their customers three or four of those services. By focusing mainly on providing online trading services for fixed income securities, we hope to become the market leader in this underserved, and potentially highly significant category, but there can be no assurance that our competitors will not add fixed income securities to their trading platforms which would directly compete with our business.

●	As a result of price pressure, unused infrastructure capacity at the largest online brokerage firms, and the desire of the larger firms to acquire sophisticated electronic trading technologies, there have been numerous acquisitions in the online financial trading sector, mostly by larger firms that are seeking to increase their ability to compete on both quality and price.


●	traditional regional or primary dealer bond sales services;

●	other multi-dealer trading companies;

●	market data and information vendors;

●	securities and futures exchanges;

●	inter-dealer brokerage firms;

●	electronic communications networks;

●	technology, software, information and media or other companies that have existing commercial relationships with broker-dealers or institutional and individual customers and investors; and

●	other electronic marketplaces that are not currently in the securities business.

●	our ability to retain or attract new broker-dealers, liquidity providers and institutional and individual investor clients and attract new broker-dealers and institutional investor clients;

●	our ability to drive an increase in use of our electronic trading platform by new and existing broker-dealer and institutional investor clients;

●	changes in our pricing policies;

●	the introduction of new features on our electronic trading platform;

●	the effectiveness of our sales force;

●	new product and service introductions by our competitors;

●	fluctuations in overall market trading volume;

●	technical difficulties or interruptions in our service;

●	general economic conditions in our geographic markets;

●	additional investment in our personnel, services or operations; and

●	regulatory compliance costs.

●	enhance our existing products and services;

●	develop and/or license new products and technologies that address the increasingly sophisticated and varied needs of our broker-dealer, liquidity provider and institutional and individual investor clients and prospective clients; and

●	respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.

●	an interruption in service from InterDealer;

●	irregular or heavy use of our electronic trading platform during peak trading times or at times of unusual market volatility;

●	disruptions of data flow to or from our system;

●	power or telecommunications failures, hardware failures or software errors;

●	human error;

●	computer viruses, acts of vandalism or sabotage (and resulting potential lapses in security), both internal and external;

●	natural disasters, fires, floods or other acts of God;

●	acts of war or terrorism or other armed hostility; and

●	loss of support services from third parties, including those to whom we outsource aspects of our computer infrastructure critical to our business.

●	unanticipated disruptions in service to our clients;

●	slower response times or delays in our clients’ trade execution;

●	incomplete or inaccurate accounting, recording or processing of trades;

●	financial losses and liabilities to clients;

●	litigation or other claims against us, including formal complaints to industry regulatory organizations; and

●	regulatory inquiries, proceedings or sanctions.

●	be expensive and time-consuming to defend;

●	prevent us from operating our business, or portions of our business;

●	cause us to cease developing, licensing or using all or any part of our electronic trading platform that incorporates the challenged intellectual property;

●	require us to redesign our products or services, which may not be feasible;

●	result in significant monetary liability;

●	divert management’s attention and resources; and

●	require us to pay royalties or enter into licensing agreements in order to obtain the right to use necessary technologies, which may not be possible on commercially reasonable terms.


●	difficulties in developing and expanding the business of newly-formed joint ventures;

●	exercising influence over the activities of joint ventures in which we do not have a controlling interest; and

●	potential conflicts with or among our joint venture or alliance partners.

●	we may find that the acquired company or assets do not further our business strategy, or that we overpaid for the company or assets, or the economic conditions underlying our acquisition decision may change;

●	we may have difficulty integrating the acquired technologies or products with our existing electronic trading platform, products and services;

●	we may have difficulty integrating the operations and personnel of the acquired business, or retaining the key personnel of the acquired business;

●	there may be client confusion if our services overlap with those of the acquired company;

●	our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically or culturally diverse enterprises;

●	we may have difficulty maintaining uniform standards, controls, procedures and policies across locations;

●	an acquisition may result in litigation from terminated employees or third parties; and

●	we may experience significant problems or liabilities associated with product quality, technology and legal contingencies.

●	the way we deal with our clients;

●	our capital requirements;

●	our financial and regulatory reporting practices;

●	required record-keeping and record retention procedures;

●	the licensing of our employees; and

●	the conduct of our directors, officers, employees and affiliates.

●	less developed technological infrastructures and generally higher costs, which could result in lower client acceptance of our services or clients having difficulty accessing our trading platform;

●	difficulty in obtaining the necessary regulatory approvals for planned expansion, if at all, and the possibility that any approvals that are obtained may impose restrictions on the operation of our business;

●	the inability to manage and coordinate the various regulatory requirements of multiple jurisdictions that are constantly evolving and subject to unexpected change;

●	difficulties in staffing and managing foreign operations;

●	fluctuations in exchange rates;

●	reduced or no protection for intellectual property rights;

●	seasonal reductions in business activity; and

●	potentially adverse tax consequences.

●	support more rapid growth of our business;

●	develop new or enhanced services and products;

●	respond to competitive pressures;

●	acquire complementary companies or technologies;

●	enter into strategic alliances;

●	increase the regulatory net capital necessary to support our operations;

●	respond to unanticipated capital requirements; and

●	fund ongoing litigation.

●	economic and political conditions in the United States and elsewhere;

●	adverse market conditions, including unforeseen market closures or other disruptions in trading;

●	actual or threatened acts of war or terrorism or other armed hostilities;

●	concerns over inflation and weakening consumer confidence levels;

●	the availability of cash for investment by mutual funds and other wholesale and retail investors;

●	the level and volatility of interest and foreign currency exchange rates; and

●	legislative and regulatory changes.

●	intellectual property disputes;

●	additions or departures of key personnel;

●	sales of our common stock;

●	our ability to execute our business plan;

●	operating results that fall below expectations;

●	loss of any strategic relationship;

●	industry developments;

●	economic and other external factors; and

●	period-to-period fluctuations in our financial results.

Fiscal Quarter End	Low		High
March 31, 2010	$	0.23	$	0.35
June 30, 2010	$	0.15	$	0.28
September 30, 2010	$	0.012	$	0.17
December 31, 2010	$	0.04	$	0.21
March 31, 2011	$	0.11	$	0.20
June 30, 2011	$	0.08	$	0.18
September 30, 2011	$	0.0475	$	0.11
December 31, 2011	$	0.03	$	0.10
March 31, 2012	$	0.05	$	0.10

●	we would not be able to pay our debts as they become due in the usual course of business; or

●	our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution.

·	The Company currently lacks formal written policies and procedures over the financial reporting process. This includes a lack of review procedures performed by management beyond the initial preparer calculations and estimates and also a lack of a formal control design structure for the review of external financial data;
·	We have operated with inadequate and insufficient accounting and finance resources to ensure timely and reliable financial reporting and adequate segregation of duties related to processing transactions impacting financial reporting;
·	We have not designed controls to ensure that stock-based compensation and severance have been calculated and recorded appropriately;
·	We have not designed controls to ensure we are utilizing the proper financial valuation modeling methodology relating to stock-based compensation and accounting for unit sales of stock; and
·	We have not designed controls to ensure we are properly accounting for unit sales of stock.

Name	Age	First Elected	Position(s) Held with the Company
Edwin L. Knetzger, III	60	August 2009	Chairman of the Board of Directors; Chairman of the Corporate Governance and Nominating Committee
Michel Daher	51	December 2011	Director
Henri J. Chaoul, Ph. D.	45	December 2011	Director; Chairman of the Audit Committee and Chair of the Compensation Committee
Michael Gooch	53	December 2011	Director, Member of the Compensation Committee
Patricia Kemp	50	February 2011	Director; Member of the Audit Committee and the Compensation Committee
H. Eugene Lockhart	62	February 2011	Director and a Member of the Corporate Governance and Nominating Committee
Thomas Thees	51	May 2012	Director (Chief Executive Officer effective June 1, 2012)
George O’Krepkie	47	February 2011	Director and President
John M. Ryan	60	February 2011	Chief Financial Officer and Chief Administrative Officer
David J. Weisberger	58	March 2012	Chief Operating Officer

	●	Leadership and operating experience in the fixed income securities industry, including as co−founder, President, Chief Executive Officer and Chairman of Greenwich Capital Markets, Inc.
	●	Outside board of director experience as a director of Morgan’s Hotel Group (NASDAQ: MHGC).
	●	Affiliation with a significant investor in the Company.

	●	Leadership and operating experience in the financial services industry, including as co−founder of a hedge fund as well as current responsibilities as Chief Executive Officer of the largest independent non-bank affiliated dealer-broker in Lebanon.
	●	Outside board of director experience as a director of CreditBank.
	●	Significant investment banking and management consulting experience covering a number of industries and regions in the world.

	●	Leadership and management experience at Cendant corporation.
	●	Extensive experience of investing in the financial services and technology space, and on board of directors of those companies.

	●	Leadership and senior management experience in financial services and technology organizations, including as President and CEO of MasterCard International, President of the Global Retail Bank and Senior Vice Chairman of BankAmerica Corporation, President of Consumer Services at AT&T, and President and Chief Executive Officer of New Power Holdings.
	●	Outside board of director experience, including as a director and audit committee chairman of RadioShack Corporation (NYSE: RSH), a director and audit committee chairman and compensation committee member of Huron Consulting (NASDAQ: HURN) and a director and compensation committee member of Asset Acceptance Capital Corp. (NASDAQ: AACC).

	●	Leadership and senior management experience at a major financial services and brokerage firm as founder, chairman and CEO of the GFI Group, Inc.
	●	Over thirty years experience in the brokerage industry.
	●	Success in founding and building a financial services company into a dominant participant in its part of the market.