Unassociated Document

BONDS.COM GROUP, INC.

FINANCIAL STATEMENTS

December 31, 2007 and 2006

October 18, 2005 (Inception) to December 31, 2007

TABLE OF CONTENTS

Report of Independent Registered Public Accounting Firm			F-1

Consolidated Balance Sheets as of December 31, 2007 and 2006			F-2

Consolidated Statements of Operations for the period from October 18, 2005 (Inception) to December 31, 2007 and for the years ended December 31, 2007 and 2006			F-3

Consolidated Statements of Changes in Stockholders’ Equity for the period from October 18, 2005 (Inception) to December 31, 2007			F-4

Consolidated Statements of Cash Flows for the period from October 18, 2005 (Inception) to December 31, 2007 and for the years ended December 31, 2007 and 2006			F-5

Notes to Consolidated Financial Statements			F-6 - F-23

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. (a Development Stage Company) as of December 31, 2007 and 2006, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended and for the period from October 18, 2005 (inception) through December 31, 2007. 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.

The December 31, 2006 financial statements were previously issued and reported on, by us, on November 30, 2007. On December 21, 2007, the Company completed its merger with IPO Russia, a public shell company. For accounting purposes, the merger has been accounted for as a reverse acquisition tantamount to an equity recapitalization. As more fully described in Note 1, the Company has restated its common stock share amounts for all periods to reflect the recapitalization.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bonds.com Group, Inc. and subsidiaries at December 31, 2007 and 2006, and the results of its operations and its cash flows for the years then ended and for the period from October 18, 2005 (inception) through December 31, 2007, 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. As discussed in Note 2 to the financial statements, the Company has incurred losses from development stage activities 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

March 28, 2008

F-1

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2007AND 2006

	2007			2006
ASSETS
Current assets:
Cash and cash equivalents	$	1,046,150		$	37,893
Investment in certificate of deposit		119,570			45,000
Accrued interest receivable		2,950			983
Prepaid expenses		84,260			10,000
Total current assets		1,252,930			93,876

Property and equipment, net		450,238			168,467
Intangible assets, net		1,292,315			147,573
Other assets		201,106			6,484
Restricted cash		72,000			-
Total assets	$	3,268,589		$	416,400

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	459,939		$	84,052
Obligations under capital leases, current portion		107,912			49,313
Advances payable, related parties		-			65,284
Notes payable, related parties		-			76,984
Notes payable-other		272,343			-
Total current liabilities		840,194			275,633
Long-term liabilities:
Obligations under capital leases, net of current portion		28,612			55,566
Deferred rent		16,277			-
Notes payable-other, net of current portion		50,010			-

Total liabilities		935,093			331,199

Commitments and contingencies

Stockholders' equity
Preferred stock $.0001 par value; 1,000,000 authorized; none issued
no shares issued and outstanding		-			-
Common stock $0.001 par value; 150,000,000 authorized; 60,932,551
and 39,523,116 issued and outstanding, respectively		6,093			3,952
Additional paid in capital		8,727,522			2,122,574
Subscription receivable		-			(400,000	)
Deferred compensation		(466,428	)		-
Deficit accumulated during the development stage		(5,933,691	)		(1,641,325	)
Total stockholders' equity		2,333,496			85,201
Total liabilities and stockholders' equity	$	3,268,589		$	416,400

See the accompanying notes to the consolidated financial statements.

F-2

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE PERIOD FROM OCTOBER 18, 2005 (INCEPTION) TO DECEMBER 31, 2007

AND FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

	For the Period From
	October 18, 2005			For the			For the
	(Inception) to			Year Ended			Year Ended
	December, 31 2007			December, 31 2007			December 31, 2006

Revenues:	$	37,684		$	37,684		$	-

Cost of sales		6,496			6,496			-

Gross profit		31,188			31,188			-

Operating expenses:
Payroll and related costs		1,356,487			1,027,404			329,083
Software		729,834			108,230			621,604
Legal fees		827,409			663,420			143,307
Royalties		200,000			120,000			80,000
Dues and subscriptions		260,286			233,950			21,236
Rent		259,443			195,820			53,925
Computer connection		257,391			256,332			1,059
Licenses and permits		247,243			217,693			29,550
Consulting		183,050			94,205			54,845
Investment banking advisory fees		500,000			500,000			-
Advertising		94,270			94,270			-
Travel		118,515			94,375			22,958
Website development costs		74,770			23,015			16,755
Depreciation		106,497			93,478			12,445
Amortization		105,085			99,885			5,200
Other		579,448			436,372			113,494
Total operating expenses		5,899,728			4,258,449			1,505,461

Loss from operations		(5,868,540	)		(4,227,261	)		(1,505,461	)

Other income (expense):
Interest income		6,496			5,250			1,023
Interest expense		(71,647	)		(70,355	)		(1,292	)
Total other income (expense)		(65,151	)		(65,105	)		(269	)

Net loss before taxes	$	(5,933,691	)	$	(4,292,366	)	$	(1,505,730	)

Income taxes	$	-		$	-		$	-

Net loss applicable to common stockholders	$	(5,933,691	)	$	(4,292,366	)	$	(1,505,730	)

Loss per share - basic and diluted				$	(0.10	)	$	(0.04	)

Weighted average shares outstanding
Basic and diluted					44,287,242			37,578,701

See the accompanying notes to the consolidated financial statements.

F-3

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE PERIOD FROM OCTOBER 18, 2005 (INCEPTION) TO DECEMBER 31, 2007

													Deficit
													Accumulated
					Additional								During The
	Common Stock				Paid-In		Subscription			Deferred			Development
	Shares		Amount		Capital		Receivable			Compensation			Stage			Total

Balance, October 18, 2005 (Inception)		-	$	-	$	-	$	-		$	-		$	-		$	-

Stock issued for cash		34,472,097		3,447		496,553		(350,000	)		-			-			150,000
Net loss		-		-		-		-			-			(135,595	)		(135,595	)
Balance, December 31, 2005		34,472,097		3,447		496,553		(350,000	)		-			(135,595	)		14,405
Proceeds from subscription receivable		-		-		-		350,000			-			-			350,000
Stock issued for services		1,662,544		166		26,360		-			-			-			26,526
Stock issued for cash		3,388,475		339		1,599,661		(400,000	)		-			-			1,200,000
Net loss		-		-		-		-			-			(1,505,730	)		(1,505,730	)

Balance, December 31, 2006		39,523,116		3,952		2,122,574		(400,000	)		-			(1,641,325	)		85,201

Proceeds from subscription receivable		-		-		-		400,000			-			-			400,000
Stock issued for cash		146,380		15		99,985		-			-			-			100,000
Stock issued for domain name		7,584,672		758		849,242		-			-			-			850,000
Grant of stock options for deferred compensation		-		-		599,073		-			(599,073	)		-			-
Compensation related to deferred compensation		-		-		-		-			132,645			-			132,645
Stock issued to settle notes, loans payable
and accrued interest		2,051,985		205		1,081,967		-			-			-			1,082,172
Stock and warrants issued for cash		7,919,671		792		3,374,312		-			-			-			3,375,104
Stock and warrants issued for cash and settlement of notes payable		316,880		32		599,968		-			-			-			600,000
Stock issued in connection with net assets of IPORussia		3,389,847		339		401		-			-			-			740
Net loss		-		-		-		-			-			(4,292,366	)		(4,292,366	)

Balance, December 31, 2007		60,932,551	$	6,093	$	8,727,522	$	-		$	(466,428	)	$	(5,933,691	)	$	2,333,496

See the accompanying notes to the consolidated financial statements.

F-4

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIOD FROM OCTOBER 18, 2005 (INCEPTION) TO DECEMBER 31, 2007

AND FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

	For the Period From
	October 18, 2005			For the			For the
	(Inception) to			Year Ended			Year Ended
	December 31, 2007			December 31, 2007			December 31, 2006
Cash flows from operating activities:
Net loss	$	(5,933,691	)	$	(4,292,366	)	$	(1,505,730	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation		106,497			93,478			12,445
Amortization		105,085			99,885			5,200
Impairment of property and equipment		33,240			33,240			-
Share-based compensation		159,171			132,645			26,526
Changes in operating assets and liabilities:
Prepaid expenses		(84,260	)		(74,260	)		(10,000	)
Other assets		(63,203	)		(56,719	)		(3,809	)
Net interest receivable/payable		(2,950	)		(1,967	)		(983	)
Accounts receivable, net		(28,692	)		(28,692	)		-
Deposits		(100,181	)		(100,181	)		-
Accounts payable and accrued expenses		394,074			394,074			-
Advances payable-related parties		(65,284	)		(65,284	)		-
Notes payalble		334,052			250,000			81,377
Deferred rent		16,277			16,277			-
Net cash used in operating activities		(5,129,865	)		(3,599,870	)		(1,394,974	)

Cash flows from investing activities:
Purchases of property and equipment		(380,217	)		(303,610	)		(54,122	)
Purchases of intangible assets		(497,400	)		(344,627	)		(150,353	)
Proceeds invested in broker-dealer		(50,000	)		(50,000	)		-
Proceeds invested in certificate of deposit		(119,570	)		(74,570	)		(45,000	)
Net cash used in investing activities		(1,047,187	)		(772,807	)		(249,475	)

Cash flows from financing activities:
Advances received from related parties		65,284			-			6,165
Proceeds received from notes payable, related parties		2,066,984			1,990,000			76,984
Repayments of notes payable, related parties		(412,029	)		(412,029	)		-
Proceeds from notes payable		72,353			72,353			-
Proceeds from stock issued for cash		4,825,104			3,475,104			1,200,000
Collections from stock subscriptions receivable		750,000			400,000			350,000
Principal payments on obligations under capital leases		(73,234	)		(73,234	)		-
Restricted cash		(72,000	)		(72,000	)
Reverse merger acquisition		740			740			-
Net cash provided by financing activities		7,223,202			5,380,934			1,633,149

Net increase (decrease) in cash and cash equivalents		1,046,150			1,008,257			(11,300	)

Cash and cash equivalents - beginning of period		-			37,893			49,193

Cash and cash equivalents - end of period	$	1,046,150		$	1,046,150		$	37,893

Supplemental disclosure of cash activities:
Interest paid	$	70,355		$	70,355		$	-

Supplemental disclosure of non-cash investing and financing activities:
Stock issued for stock subscription receivable	$	750,000		$	-		$	400,000
Acquisition of leased property under capital leases	$	209,758		$	104,879		$	104,879
Issuance of stock to acquire domain name	$	850,000		$	850,000		$	-
Issuance of stock to settle related party notes payable and interest	$	1,082,172		$	1,082,172		$	-

See the accompanying notes to the consolidated financial statements.

F-5

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Bonds.com Holdings, Inc. was incorporated in the State of Delaware on October 18, 2005 under the name Bonds Financial, Inc. On June 14, 2007, an amendment was filed thereby changing the name from Bonds Financial, Inc. to Bonds.com Holdings, Inc. Bonds.com Holdings, Inc. is a development stage company since it has generated no significant revenues to date and devotes most of its activities toward raising capital and implementing its business plan. On October 4, 2007, Bonds.com Holdings, Inc. acquired Pedestal Capital Markets, Inc. (“Pedestal”), an existing FINRA registered broker dealer entity and was subsequently renamed Bonds.com, Inc. Bonds.com, Inc., offers corporate bonds, municipal bonds, agency bonds, certificates of deposit, and U.S. Treasuries to potential customers via Bonds.com Holdings, Inc.’s software and website, www.bondstation.com. After final testing of its software and fully staffing its back office operations, Bonds.com Holdings, Inc. commenced initial operations during December, 2007.

Bonds.com, LLC was formed in the State of Delaware on June 5, 2007 to facilitate an acquisition that was not finalized. Bonds.com, LLC remains a wholly owned subsidiary of Bonds.com Holdings, Inc. but currently is inactive.

Bonds.com Wealth Management, LLC was formed in the State of Delaware on July 24, 2007. This wholly-owned subsidiary is intended to manage assets for high net worth individuals and is in the application process with the Securities and Exchange Commission to operate as a Registered Investment Advisor firm.

On December 21, 2007, the Bonds.com Holdings, Inc. consummated a merger with IPORussia (a public “shell”). As a result of the merger, IPORussia changed its name to Bonds.com Group, Inc. and became the parent company of Bonds.com Holdings, Inc. and its subsidiaries. In connection with the merger, IPORussia acquired all the outstanding shares and options of Bonds.com Holdings, Inc.’s common stock in exchange for its common stock and options. The acquisition was accounted for as a reverse merger with Bonds.com Holdings, Inc. as the accounting acquirer.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Bonds.com Group, Inc., Bonds.com Holdings, Inc., Bonds.com, Inc., Bonds.com, LLC and Bonds.com Wealth Management, LLC and is collectively referred to as the “Company”.

All material inter-company transactions have been eliminated in consolidation.

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 to be cash equivalents.

F-6

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

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

Intangible Assets

Intangible assets are initially recorded at cost, which is considered to be fair value at the time of purchase. Amortization is provided for on a straight-line basis over the estimated useful lives of the assets per the following table. The Company’s domain name (www.bonds.com) and its broker dealer license is presumed to have an indeterminate 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. No impairments of intangible assets have been identified during any of the periods presented.

Category	Lives		Method
Software		3 years
Capitalized website development costs		3 years
Organizational costs		5 years

Impairment of Long-Lived Assets

The Company reviews its long-lived 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. During 2007, leasehold improvements to the Company’s Boca Raton, Florida office space were impaired when it was determined that the tenant sub-lessor from which the Company was subleasing failed to make the required monthly payments to the primary lessor. During October 2007, the Company negotiated and entered into a new lease with the lessor for different office space within the same office building. The landlord allowed the Company to continue to occupy the old office space while improvements were made to the new office space. Accordingly, an impairment loss of $21,365 was recognized in other operating expenses with respect to leasehold improvements to the subleased property in the accompanying statement of operations for the year ended December 31, 2007. No other impairment losses were recorded during the periods presented.

Advertising Costs

Advertising and sales promotion costs are expensed as incurred. Advertising expense for the years ended December 31, 2007 and 2006 was $94,270 and $700, respectively.

F-7

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

Operating Leases

The Company leases office space under operating lease agreements with original lease periods up to 18 months. Certain of the lease agreements contain rent holidays and rent escalation provisions. Rent holidays and rent escalation provisions are considered in determining straight-line rent expense to be recorded over the lease term. The lease term begins on the date of initial possession of the lease property for purposes of recognizing lease expense on a straight-line basis over the term of the lease. Lease renewal periods are considered on a lease-by-lease basis and are generally not included in the initial lease term.

Share-Based Compensation

The Company accounts for its share-based awards in accordance with SFAS 123 (revised 2004), “Share-Based Payment”, or SFAS 123R, and its related implementation guidance as promulgated by both the Financial Accounting Standards Board (the “FASB”), and the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 107, or SAB 107, associated with the accounting for share-based compensation arrangements with employees and directors. These pronouncements require that equity-based compensation cost be measured at the grant date (based upon an estimate of the fair value of the compensation granted) and recorded to expense over the requisite service period, which generally is the vesting period. The Company adopted SFAS 123R using the prospective method on February 1, 2007, the date the initial option was granted. Under this method, share-based compensation is recognized for all new share-based awards and to awards modified, repurchased, or cancelled on or after January 1, 2006, the effective date, in accordance with the original provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) based on the grant date, fair value is estimated using the Black-Scholes option pricing model.

Recent Accounting Pronouncements

In June 2006, the FASB ratified the consensus on Emerging Issues Task Force (EITF) Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement” (“EITF 06-3”). The scope of EITF 06-3 includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added, and certain excise taxes. EITF 06-3 states that presentation of taxes within the scope of this EITF on either a gross basis or a net basis is an accounting policy decision which should be disclosed pursuant to APB No. 22, “Disclosure of Accounting Policies”. If such taxes are significant, and are presented on a gross basis, the amounts of those taxes should be disclosed. The consensus on EITF 06-3 was effective for interim and annual reporting periods beginning after December 15, 2006. Adoption of EITF 06-3 did not have a material impact on the Company’s results of operations, financial position or cash flows.

F-8

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

Recent Accounting Pronouncements, continued

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement 109,” (FIN 48), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return, including issues relating to financial statement recognition and measurement. FIN 48 provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is “more-likely-than-not” of being sustained if the position were to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the “more-likely-than-not” threshold, the largest amount of tax benefit that is greater than 50% likely of being recognized upon ultimate settlement with the taxing authority, is recorded. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 did not have a material impact on the Company’s results of operations, financial position or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS NO. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 does not impose fair value measurements on items not already accounted for at fair value; rather it applies, with certain exceptions, to other accounting pronouncements that either require or permit fair value measurements. On February 12, 2008, the FASB issued FASB Staff Position No. 157-2 which delayed the effective date to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting SFAS No. 157 on its financial position and results of operations.

In September 2006, the SEC issued SAB 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”. SAB 108 requires analysis of misstatements using both an income statement (rollover approach) and a balance sheet (iron curtain) approach in assessing materiality and provides for a one-time cumulative effect transition adjustment. SAB 108 is effective for the Company’s fiscal year 2007 annual financial statements. The adoption of SAB 108 did not impact the Company’s results of operations, financial position or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose, at specified election dates, to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 is effective for financial statements issued for an entity’s first fiscal year beginning after November 15, 2007. Adoption of SFAS No. 159 is not expected to have a material effect on the Company’s consolidated statements of financial condition, income or cash flows.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” and SFAS No. 160, “Non-controlling Interest in Consolidated Financial Statements.” These Statements replace FASB Statement No. 141, “Business Combinations,” and requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date. SFAS No. 141(R) also makes significant amendments to other Statements and other authoritative guidance. The Statements are effective for years beginning on or after December 15, 2008. The Company is evaluating if the adoption of these new standards would have a material effect on its consolidated financial position or operating results.

F-9

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - GOING CONCERN

The Company has incurred losses since inception, that result in an accumulated deficit of $5,933,691 at December 31, 2007, and further losses are anticipated in the development of its business. The Company is in the development stage and has experienced minimal operating revenue. Without additional capital from outside investors, or further financing, the Company’s ability to continue with development stage activities and to implement its business plan is limited. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management plans to continue implementing their business plan. The Company is actively seeking additional financing (see Note 17). The financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash and cash equivalents, accounts payable and accrued expenses, and other current liabilities are recorded in the financial statements at cost, which approximates fair market value because of the short-term maturity of those instruments. Based on the market interest rates currently available to the Company for investments with similar terms and maturities, the fair value of its certificates of deposit at December 31, 2007 and 2006 was $119,570 and $45,000, respectively. The carrying amount of the Company's obligations under capital leases approximates quoted market prices or current rates offered to the Company for debt of the same remaining maturities.

NOTE 4 - CREDIT RISK

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and investment in certificates of deposit. Management believes the financial risks associated with these financial instruments are 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. As of December 31, 2007, the amount that exceeded the federally insured limits was $1,064,036.

NOTE 5 - INVESTMENT IN CERTIFICATE OF DEPOSIT

The Company currently has invested in a separate certificate of deposit with a financial institution. On July 25, 2006, the Company invested $45,000 in a 13-month certificate of deposit (“CD”), bearing 5.12% interest, that matured August 25, 2007. On August 25, 2007, the principal amount along with earned interest of $2,570 was rolled into a new 13-month CD in the amount of $47,570, bearing 3.44% interest, maturing September 25, 2008. As of December 31, 2007 and 2006, $2,777 and $983 of interest receivable has been accrued on the CD, respectively.

F-10

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31, 2007 and 2006:

	2007			2006
Leased property under capital leases	$	209,758		$	104,879
Computer equipment		173,437			43,461
Furniture and fixtures		40,329			16,316
Office equipment		122,227			16,830
Leasehold improvements		10,372			-
Total property and equipment		556,123			181,486
Less: accumulated depreciation and amortization		(105,885	)		(13,019	)
Property and equipment, net	$	450,238		$	168,467

Depreciation expense for the years ended December 31, 2007 and 2006 was $93,478 and $12,445, respectively.

Outstanding capital lease obligations were $136,524 and $104,879 at December 31, 2007 and 2006, respectively.

NOTE 7 - INTANGIBLE ASSETS

Intangible assets consisted of the following at December 31, 2007 and 2006:

	2007			2006
Non-amortizing intangible assets
Domain name (www.bonds.com)	$	850,000		$	-
Broker dealer license		50,000			-
		900,000			-
Amortizing intangible assets
Software		340,356			85,753
Capitalized website development costs		150,515			67,020
Other		6,529			-
		1,397,400			152,773
Less: accumulated amortization		(105,085	)		(5,200	)
Intangible assets, net	$	1,292,315		$	147,573

Amortization expense for the years ended December 31, 2007 and 2006 was $99,885 and $5,200, respectively.

F-11

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - INTANGIBLE ASSETS, CONTINUED

The following is a schedule of estimated future amortization expense of intangible assets as of December 31, 2007:

Year Ending December 31,
2008	$	164,930
2009		159,730
2010		65,281
2011		1,306
2012		1,068
	$	392,315

NOTE 8 - INVESTMENT IN BROKER-DEALER

On October 4, 2007, the Company acquired all of the outstanding shares of Pedestal Capital Markets, Inc. (“Pedestal”) in exchange for a cash purchase price of $50,000 plus the existing regulatory capital at the closing date ($61,599). Pedestal is a Delaware entity and a licensed broker dealer. The Company has changed the name to Bonds.com, Inc. During the fourth quarter of 2007, the Company invested $1,626,609 as paid in capital in the broker dealer but only reflects $50,000 on its December 31, 2007 financial statements due to elimination of all inter-company transactions (see Note 16).

The following is a summary of the estimated fair values of the assets acquired and liabilities assumed as of the date of the acquisition:

Assets acquired
Cash	$	61,119
Other current assets		2,504
Identified intangible assets		50,000
Total assets acquired		113,623

Liabilities assumed
Other current liabilities	$	2,024
Total liabilities assumed		2,024

Net investment	$	111,599

Had the Company acquired Pedestal at January 1, 2007, the Company would have recognized an additional $35,000 in revenues and a $15,641 decrease in net loss.

F-12

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - RESTRICTED CASH

A certificate of deposit (“CD”) was purchased on December 4, 2007 in the amount of $72,000. The CD is a 36-month instrument that earns 3.26% interest per year, is collateral for a $72,353 loan from the same financial institution and is restricted. As of December 31, 2007, $173 of interest receivable has been accrued on the CD.

Restricted cash consists primarily of a certificate deposit which is collateral for a loan.

NOTE 10 - ADVANCES PAYABLE, RELATED PARTIES

Advances payable consisted of the following at December 31, 2007 and 2006:

	2007		2006
Advances due to an individual that is a co-founder, significant stockholder, and current Chairman of the Board of the Company; non-interest bearing, due on demand, unsecured.	$	-	$	19,416

Advances due to an individual that is a co-founder, significant stockholder, and current CEO and President of the Company; non-interest bearing, due on demand, unsecured.		-		45,868

Total	$	-	$	65,284

F-13

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - NOTES PAYABLE, RELATED PARTIES

The following is a summary of outstanding principal due on related party notes payable at December 31, 2007 and 2006:

	2007		2006
$363,000 of notes payable to the Company's Chairman of the Board, originating from cash received at various dates for working capital purposes, no monthly payments required, bearing interest at 10.0%, repaid November 30, 2007.	$	-	$	23,000

$53,984 of notes payable to the Company's CEO and President, originating from cash received at various dates for working capital purposes, no monthly payments required, bearing interest at 10.0%, repaid November 30, 2007.		-		53,984
Total		-		76,984
Less: current portion		-		76,984
Long-term portion	$	-	$	-

During the year ended December 31, 2006, the Company received an aggregate of $76,984 of proceeds from related parties in exchange for notes payable bearing interest of 10%. Interest expense recognized on notes payable, related parties for the year ended December 31, 2006, was $1,292.

During the year ended December 31, 2007, the Company received an aggregate of $1,990,000 of proceeds from related parties in exchange for notes payable bearing interest from 3.6% to 12.0%. Interest expense recognized on notes payable, related parties for the year ended December 31, 2007, was $53,334. During 2007, the note was repaid via payment in cash and issuance of common stock (see Note19).

F-14

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - NOTES PAYABLE - OTHER

The following is a summary of outstanding principal due on unrelated third party notes payable at December 31, 2007 and 2006:

	2007		2006

$72,353 note payable to a financial institution, monthly principal and interest payments of $2,251, bearing interest at 7.5%, maturing December 4, 2010, secured by a certificate of deposit	$	72,353	$	-

$250,000 note payable to an investment advisory firm for advisory fees in association with the Company's reverse merger tranaction, no monthly payments are required, bearing interest at 10.0%, principal and interest due June 21, 2008		250,000		-

Total		322,353		-
Less: current portion		272,343		-
Long-term portion	$	50,010	$	-

NOTE 13 - 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. The following is a schedule of future minimum rental payments required under operating leases as of December 31, 2007:

Year Ending December 31,
2008		431,870
2009		309,294
2010		206,818
2011		200,714
2012		211,007
Total minimum payments required	$	1,359,703

Rent expense for all operating leases for the years ended December 31, 2007 and 2006 was $195,820 and $53,925, respectively.

F-15

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - COMMITMENTS AND CONTINGENCIES, CONTINUED

Capital Leases

The Company leases internet servers under long-term lease agreements that are classified as capital leases. Amortization expense for capital leases is included in depreciation expense (see Note 4). Interest expense under capital leases for the year ended December 31, 2007 and 2006 was $15,634 and $0, respectively. The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of December 31, 2007:

Year Ending December 31,
2008		118,488
2009		29,622
Net minimum lease payments		148,110
Less: Amount representing interest		(11,586	)
Present value of net minimum lease payments	$	136,524

Royalties

On May 5, 2006, the Company entered into a Trademark and Domain Name License agreement with an entity co-owned by the Company’s Chairman and its CEO and President whereby the Company was licensed to use the domain name www.bonds.com and the associated trademark Bonds.com in exchange for license fees as follows: $10,000 per month during year one; $20,000 per month during year two; $30,000 per month thereafter. On September 6, 2007, the Company issued 7,584,672 shares in order to acquire the domain name and associated trademark rights (see Note 14), thus terminating its commitment to make future royalty payments. Royalty expense recognized for the years ended December 31, 2007 and 2006 was $120,000 and $80,000, respectively.

Litigation with Kestrel Technologies, LLC (“Kestrel”)

During 2006, the Company paid Kestrel approximately $600,000 to develop proprietary software on its behalf and this amount has been expensed to software expenses in the accompanying consolidated statements of operations. Also during 2006, the Company’s Chairman advanced $250,000 to Kestrel on behalf of the Company. The Company guaranteed Kestrel’s repayment of the advance to the Company’s Chairman. During August 2006, the Company commenced an action against Kestrel, alleging certain defaults by Kestrel related to the development of software. Kestrel countersued the Company. The Company is unable to reasonably quantify the amounts, if any, to be recovered with regards to these actions. As a result, no gain or loss accrual has been recognized.

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 an errors and omissions insurance policy to cover such incidences. The policy terms require that the Company pay a deductible of $50,000 per incident. In the opinion of management, the outcome of any pending matters will not have a material adverse effect on the financial position or results of operations of the Company or its subsidiaries.

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.

F-16

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - COMMITMENTS AND CONTINGENCIES, CONTINUED

Consulting Agreement

On December 21, 2007, the Company entered into a consulting agreement with a third party that is engaged in the business of providing investor relations services to small cap public companies. The one year agreement provides that the Company will pay a consulting fee in the amount of $10,000 per month and is cancellable with 30 days notice after six months from the date of execution. The Company also pays the same third party $2,000 per month for web based lead generation and usage of inter-marketing platform.

NOTE 14 - STOCKHOLDERS’ EQUITY

Capital Structure

The Company’s Articles of Incorporation originally authorized the issuance of 150,000,000 shares of common stock, $0.0001 par value and 1,000,000 shares of preferred stock, $0.0001 par value.

On December 21, 2007, the Company facilitated a stock split in connection with the consummation of a reverse merger into a public shell company. As a result, the share capital has been restated for all periods based on a conversion of 1 to 6.2676504 shares.

Equity Transactions

On October 18, 2005, the Company issued to its two founders 17,236,048 shares each (an aggregate of 34,472,097 shares) in exchange for subscriptions receivable aggregating $500,000, of which $150,000 was received as of December 31, 2005 and the remaining $350,000 was received during 2006.

On January 5, 2006, the Company issued to various consultants an aggregate of 1,662,544 shares in exchange for services rendered having an estimated fair market value of $26,526.

On May 18, 2006, the Company issued 2,195,671 shares in exchange for subscriptions receivable aggregating $1,000,000, all of which was received during 2006.

On November 30, 2006, the Company issued 1,192,815 shares in exchange for subscriptions receivable aggregating $600,000, of which $200,000 was received during 2006 and the remaining $400,000 was received during the period ended September 30, 2007.

On May 5, 2007, the Company issued 146,380 shares in exchange for a subscription receivable of $100,000, all of which was received during the period ended September 30, 2007.

On September 6, 2007, the Company issued 7,584,672 shares in exchange for the rights to the domain name www.bonds.com (and all associated trademark rights) valued at $4,000,000. The Company acquired the domain name from the Company’s co-founders, who received the rights via distribution by an entity controlled by them. Thus, while $4,000,000 of securities was issued for the domain name, pursuant to Staff Accounting Bulletin Topic 5:G, the transaction has been recorded at the co-founders’ carryover basis of $850,000.

On September 30, 2007, the Company issued 2,051,985 shares to settle $1,054,955 of notes payable and $27,217 of related accrued interest.

F-17

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - STOCKHOLDERS’ EQUITY, CONTINUED

Equity Transactions, continued

From October 19, 2007 to November 2, 2007, the Company sold an aggregate of 8,236,551 shares of common stock and warrants to purchase up to an aggregate of 4,118,569 shares of common stock to 49 accredited investors for cash of $4,350,000 (less $374,896 in offering costs paid to the placement agent) and satisfaction of $600,000 in outstanding indebtedness. The Company also issued warrants to purchase an aggregate of up to 823,695 shares of common stock to designees of the placement agent. All warrants are exercisable at $.66 for a period of five years with the exception of warrants granted to two persons in the shell company, prior to the reverse merger, exercisable for an aggregate of up to 2,406 shares of common stock at an exercise price of $38.40 per share. These warrants expire on December 14, 2009.

As a result of the reverse merger, the previous shareholders of the shell company were issued 3,389,847 shares of common stock that resulted in an increase to stockholders equity of $740.

The placement agent warrants were ascribed an aggregate value of approximately $175,000 using a Black-Scholes pricing model with expected volatility of 45%, expected dividends of 0%, expected term of five years and risk-free rate of 3.67%.

During the year ended December 31, 2007, the Company issued options to acquire 1,890,406 shares. The value of the granted options was $599,073, of which $132,645 has been recognized as expense and $466,428 as deferred compensation at December 31, 2007.

NOTE 15 - EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share are computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings (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.

The calculation of diluted earnings (loss) per share for the year ended December 31, 2007 does not include options to acquire 1,890,406 shares or warrants to acquire 4,944,670 shares of common stock, as their inclusion would have been anti-dilutive.

NOTE 16 - NET CAPITAL AND RESERVE REQUIREMENTS

Bonds.com, Inc., the broker dealer subsidiary of the Company, is subject to the Securities and Exchange Commission Uniform Net Capital Rule 15c3-1 and the requirements of the securities exchanges of which they are members.

Net capital positions of the Company’s broker dealer subsidiary were as follows as December 31, 2007:

Ratio of aggregate indebtedness to net capital		.06 to 1
Net capital	$	1,128,932
Required net capital	$	100,000

F-18

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - SHARE-BASED COMPENSATION

On August 15, 2006, the Company established the 2006 Equity Plan (the “Plan”), which was approved by the Board of Directors on the same date and is effective for 10 years. The Plan provides for a total of 3,133,824 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 Plan). As of December 31, 2007, 1,243,420 shares remained reserved for future issuances under the Plan.

On February 1, 2007, the Company issued a non-statutory stock option to an employee, granting the right to acquire up to 1,652,899 shares of stock at an exercise price of $ 0.5030 per share. The shares subject to the option vest one-eighth on each six-month anniversary from the grant date.

On July 2, 2007, the Company issued a non-statutory stock option to an employee, granting the right to acquire up to 237,507 shares of stock at an exercise price of $0.6831 per share. The shares subject to the option vest one-third on July 2, 2008 and then one-thirty-sixth each month thereafter over the subsequent 24 months.

The Company estimates the fair value of the options granted utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of the Company’s stock price over the expected term, expected risk-free interest rate over the expected option term, expected dividend yield rate over the expected option term, and an estimate of expected forfeiture rates. Expected volatility is based on the average of the expected volatilities from the most recent audited financial statements available for three public companies that are deemed to be similar in nature to the Company. Expected dividend yield is based on historical trends. The expected term represents the period of time that the options granted are expected to be outstanding. 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 grant. The Company believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and consultants which are subject to SFAS 123R requirements. These amounts, which are recognized ratably over the respective vesting periods, are estimates and thus may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants.

The following table summarizes the assumptions the Company utilized to record compensation expense for options awarded during the year ended December 31, 2007:

Assumptions	2007
Expected volatility		45	%
Expected dividends		0	%
Expected term (years)		5 -10
Risk-free rate		4.84% - 4.90	%

F-19

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - SHARE-BASED COMPENSATION, CONTINUED

A summary of option activity under the Plan as of December 31, 2007 and changes during the year then ended is presented below:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
	No. of		Exercise		Contractual		Intrinsic
	Shares		Price		Term		Value
Outstanding at January 1, 2007		-	$	-		-	$	-
Granted		1,890,406		0.53		8.22		-
Exercised		-		-		-		-
Expired		-		-		-		-
Forfeited		-		-		-		-
Outstanding at December 31, 2007		1,890,406	$	0.53		8.22	$	-

Exercisable at December 31, 2007		206,612	$	0.53		8.22	$	-

The weighted-average grant date fair value of options granted during the year ended December 31, 2007, was $0.53. The compensation expense recognized under the Plan for the year ended December 31, 2007 was $132,645. As of December 31, 2007, there was $466,428 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over the vesting period.

NOTE 18 - INCOME TAXES

The components of the benefit (provision) for income taxes from continuing operations are as follows for the years ended December 31, 2007 and 2006:

	2007		2006
Current benefit (provision): federal	$	-	$	-
Current benefit (provision): state		-		-
Total current provision		-		-

Deferred provision: federal		-		-
Deferred provision: state		-		-
Total deferred provision		-		-

Total provision (benefit) for income
taxes from continuing operations	$	-	$	-

F-20

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - INCOME TAXES, CONTINUED

Significant items making up the deferred tax assets and deferred tax liabilities are as follows at December 31, 2007 and 2006:

	2007			2006
Long-term deferred taxes:
Operating loss carryforwards-federal	$	2,017,000		$	558,000
Operating loss carryforwards-state		516,000			143,000
Total deferred tax assets		2,533,000			701,000
Less: valuation allowance		(2,533,000	)		(701,000	)
Net deferred tax assets	$	-		$	-

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. Accordingly, a valuation allowance was established for all periods presented for the full amount of the deferred tax asset due to the uncertainty of realization. Management believes that based upon its projection of future taxable operating income for the foreseeable future, it is more likely than not that the Company will not be able to realize the benefit of the deferred tax asset at December 31, 2007. The net change in the valuation allowance during year ended December 31, 2007, was an increase of $1,832,000.

The amounts and corresponding expiration dates of the Company’s unused net operating loss carry forwards are shown in the following table at December 31, 2007:

Year	Federal		Delaware
2025	$	136,000	$	136,000
2026		1,505,000		1,505,000
2027		4,292,000		4,292,000
	$	5,933,000	$	5,933,000

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

	December 31,
	2007			2006
Federal tax benefit (provision) rate		34.0	%		34.0	%
State tax benefit (provision) rate		8.7	%		8.7	%
Valuation allowance		(42.7	%)		(42.7	%)
Net deferred tax assets		0.0	%		0.0	%

F-21

BONDS.COM GROUP, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - INCOME TAXES, CONTINUED

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 benefit carryforwards. Additionally, the Company’s utilization of its tax benefit carryforwards may be restricted in the event of possible future changes in the ownership of the Company from the exercise of options or other future issuances of common stock.

NOTE 19 - RELATED PARTIES TRANSACTIONS

Royalties

On May 5, 2006, the Company entered into a Trademark and Domain Name License agreement with an entity co-owned by the Company’s Chairman and its CEO and President whereby the Company was licensed to use the domain name www.bonds.com and the associated trademark Bonds.com in exchange for license fees as follows: $10,000 per month during year one; $20,000 per month during year two; $30,000 per month thereafter. On September 6, 2007, the Company issued 7,584,672 shares in order to acquire the domain name and associated trademark rights, thus terminating the commitment to make future royalty payments. Royalty expense recognized for the years ended December 31, 2007 and 2006 was $120,000 and $80,000, respectively.

Advances Payable, Related Parties

During the years ended December 31, 2007 and 2006, the Company received an aggregate of $0 and $65,294, respectively, of non-interest bearing advances from related parties for working capital purposes.

Notes Payable, Related Parties

During the years ended December 31, 2007 and 2006, the Company received proceeds from related parties in the aggregate of $1,990,000 and $76,984, respectively. These notes carried an interest rate from 3.6% to 12.0%. The Company recognized interest expense on these notes for the years ended December 31, 2007 and 2006 of $53,334 and $1,292, respectively. During the year ended December 31, 2007, an aggregate of $1,990,000 of principal and $53,334 of related accrued interest was satisfied by issuance of the Company’s common stock and payment in cash as follows:

Issuance 2,051,985 shares of common stock to satisfy principal of $1,055,000 and accrued interest of $27,712 for a total of $1,082,172.

Issuance of 316,880 shares of common stock to satisfy principal of $600,000 and by paying the accrued interest of $25,622 in cash.

The remainder of notes payable to related parties of $335,000 and $76,984 for the years ended December 31, 2007 and 2006, respectively, was paid in cash.

The balance of notes payable, related parties at December 31, 2007 and 2006 was $0 and $76,984, respectively.

F-22

NOTE 20 - SUBSEQUENT EVENTS

On January 11, 2008, a director of the Company exercised warrants to purchase 189,359 shares of common stock of the Company at $0.66 per share for cash of $124,977.

On January 14, 2008, two trusts exercised warrants to purchase 94,680 shares of common stock of the Company at

$ 0.66 per share for cash of $62,488.

On January 29, 2008, the Company executed a grid promissory note with two directors of the Company individually to borrow up to $250,000 from each director. The notes bear interest at 10% interest per annum. Principal and all accrued and unpaid interest is due on December 31, 2008. The Company received proceeds of $125,000 in principal on each note on January 29, 2008 and February 26, 2008 for a total of $500,000. No principal or interest has been paid on the notes.

F-23

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

1515 Federal Highway
Suite 212
Boca Raton, Florida		33432
(Address of principal executive offices)		(Zip Code)

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

Item Number in
Form 10-K		Page
	PART I
1	Business	1
1A.	Risk Factors	16
1B.	Unresolved Staff Comments	30
2.	Properties	30
3.	Legal Proceedings	31
4.	Submission of Matters to a Vote of Security Holders	31
	PART II
5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
6.	Selected Financial Data	35
7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35
7A.	Quantitative and Qualitative Disclosure About Market Risk	37
8.	Financial Statements and Supplementary Data	37
9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	37
9A(T).	Controls and Procedures	37
9B.	Other Information	38
	PART III
10.	Directors, Executive Officers and Corporate Governance	38
11.	Executive Compensation	43
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	45
13.	Certain Relationships and Related Transactions, and Director Independence	46
14.	Principal Accounting Fees and Services	48
	PART IV
15.	Exhibits, Financial Statement Schedules	53

	Municipal		Treasury²		Mortgage Related³		Corporate Debt¹		Federal Agency Securities		Money Markets⁴		Asset- Backed¹		Total

2006
Q1		2,254.3		4,321.6		6,102.2		5,048.9		2,641.2		3,585.3		1,965.5		25,919.0
Q2		2,305.8		4,235.1		6,220.1		5,140.6		2722.7		3,729.7		1,985.9		26,339.9
Q3		2,332.7		4,283.9		6,400.6		5,215.4		2668.7		3,920.6		2,016.8		26,838.7
Q4		2,403.2		4,322.9		6,504.3		5,365.0		2660.1		4,008.3		2,130.4		27,394.2

2007
Q1		2,465.4		4,449.4		6,648.7		5,459.7		2,674.7		4,125.9		2,238.2		28,062.0
Q2		2,533.7		4,319.6		6,860.0		5,587.0		2,716.2		4,255.6		2,415.5		28,687.6
Q3		2,570.6		4,428.4		7,053.4		5,702.8		2,853.2		4,141.3		2,477.3		29,227.0
Q4		2,617.4		4,516.8		7,210.3		5,825.4		2,946.3		4,140.2		2,472.4		29,728.8

¹	The Securities Industry and Financial Markets Association estimates.

²	Interest bearing marketable public debt.

³	Includes GNMA, FNMA, and FHLMC mortgage-backed securities and CMOs and private-label MBS/CMOs.

⁴	Includes commercial paper, bankers’ acceptances, and large time deposits. Beginning in 2006, bankers' acceptances are excluded.

	Municipal		Treasury¹		Agency MBS¹		Corporate Debt²		Federal Agency Securities¹		Total³
2007
Jan		25.1		491.8		296.6		16.7		81.8		911.9
Feb		24.4		559.3		293.8		15.4		77.0		969.8
Mar		23.8		600.5		309.7		14.4		75.5		1,023.9
Apr		26.9		465.6		305.0		13.2		71.7		882.3
May		26.5		470.5		313.7		13.8		69.5		894.1
Jun		30.8		649.0		396.9		13.2		73.7		1,163.7
Jul		24.8		564.2		281.3		11.5		78.4		960.5
Aug		27.4		718.7		339.3		11.3		90.1		1,186.8
Sep		23.4		597.4		338.6		12.7		88.4		1,060.5
Oct		21.2		534.1		329.9		11.0		85.3		981.5
Nov		23.8		655.8		338.7		10.6		100.3		1,129.2
Dec		21.6		498.9		298.2		9.8		104.2		932.7

YTD '06		22.5		524.7		254.6		13.6		74.4		889.7
YTD '07		25.0		567.1		320.1		12.8		83.0		1,008.0
% Change		11.2%		8.1%		25.8%		-5.8%		11.6%		13.3%

¹	Primary dealer activity

²	Excludes all issues with maturities of one year or less and convertible securities

³	Totals may not add due to rounding

	Individuals		Mutual Funds¹		Banking Institutions²		Insurance Companies³		Other⁴		Total
2007
Q1		887.9		836.0		248.0		375.5		118.0		2,465.4
Q2		921.5		857.6		257.1		379.1		118.5		2,533.8
Q3		917.7		889.3		251.3		383.0		119.1		2,560.4
Q4		916.0		936.9		256.7		389.8		118.5		2,617.9

¹	Includes mutual funds, money market funds and closed-end funds.

²	Includes commercial banks, savings institutions and brokers and dealers.

³	Includes property-casualty and life insurance companies.

⁴	Includes non-financial corporate business, non-farm non-corporate business, state and local governments and retirement funds and government-sponsored enterprises.

	Bills			Coupons			Total
2007
Jan		223.2			99.3			322.5
Feb		291.7			81.2			372.9
Mar		437.5			8.0			445.5
Apr		275.2			94.4			369.6
May		293.8			82.0			375.8
Jun		271.3			8.0			279.3
Jul		247.7			90.9			338.6
Aug		469.5			72.2			541.7
Sep		272.1			8.0			280.1
Oct		225.1			90.4			315.5
Nov		423.6			67.7			491.3
Dec		311.6			50.2			361.8

2008
Jan		309.0			62.0			371.0

YTD ‘06		223.2			99.3			322.5
YTD ‘07		309.0			62.0			371.0
% Change		38.4	%		-37.6	%		15.0	%

	·		Anti-Money Laundering and Office of Foreign Asset Control checks upon account application;

	·		Credit history checks for retail accounts;

	·		Pre-validation: trade is authorized before execution;

	·		Back-validation: trade is true to original message;

	·		Agreement: confirmed with both counterparties;

	·		Settlement: delivery and payment of security;

	·		Finance: cash management and accounting;

	·		Reporting: regulatory and customer confirmations; and

	·		Messaging: accurate system status controls.

·		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 platform embraces 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. Additionally, we will also offer trading in equity securities and eventually extend our platform to the remaining categories, in order to provide a complete solution for our clients.

·		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.

	·	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.

	·	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.

	·	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.

	·	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.

·		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; or

	·	respond to unanticipated capital requirements.

	·	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.

	·	technological innovations or new products and services by us or our competitors;

	·	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.

	·	elect or defeat the election of our directors;

	·	amend or prevent amendment of our certificate of incorporation or by-laws;

	·	effect or prevent a merger, sale of assets or other corporate transaction; and

	·	control the outcome of any other matter submitted to the stockholders for vote.

Fiscal Quarter End	Low Bid		High Bid
March 31, 2006	$	3.20	$	7.28
June 30, 2006	$	2.91	$	5.82
September 30, 2006	$	2.33	$	4.07
December 31, 2006	$	0.87	$	5.24
March 31, 2007	$	1.16	$	4.07
June 30, 2007	$	2.91	$	4.07
September 30, 2007	$	2.04	$	3.49
December 31, 2007	$	1.01	$	3.78

	·	We were obligated to include these shares of common stock in the registration statement filed December 28, 2007, whose approval is still pending with the SEC.

	·	If we are unable to include all of these shares of common stock in that registration statement, as a result of SEC comments, we are required to file additional registration statements until the shares have been included in a registration statement.

	·	If the registration statement is not filed in a timely manner and/or not declared effective by the required effective date, we are required to pay as partial liquidated damages to the holders of the securities, a sum equal to one percent, per month, of the holders' purchase price for their securities purchased in the October 2007 Offering, but in no event shall the liquidated damages exceed ten percent of the holders' purchase price.

	·	If we fail to maintain the effectiveness of the registration statement at any time required, fail to have a sufficient number of shares of common stock registered or fail to maintain the listing of our shares of common stock, subject to certain exceptions, we are required to pay one-half of one percent, per month, of the purchase price, with respect to shares of common stock not sold by the selling stockholders.

	·	We are required to keep the registration statement effective until the earlier of (i) the date on which all of the applicable shares of common stock can be sold pursuant to Rule 144, without any restrictions or (ii) the date on which all of such shares have been sold by the selling stockholders.

	·	We were obligated to include these shares of common stock in the registration statement filed December 28, 2007, whose approval is still pending with the SEC.

	·	If we are unable to include all of these shares of common stock in that registration statement, as a result of SEC comments, we are required to file additional registration statements until the shares have been included in a registration statement.

	·	If these shares of common stock are included in a registration statement along with any other shares of common stock and the SEC requires that shares be removed from that registration statement, 2,531,501 of the 2,840,707 shares are required to be removed after the shares of the former employees described below, but before the shares of common stock held by investors in the October 2007 Offering. The remaining 309,206 shares of common stock are required to be removed on a pro rata basis with the shares of common stock of the investors in the October 2007 Offering, as necessary.

	·	The holders of these shares of common stock are also entitled to include those shares for registration, subject to certain exceptions, in any other registration statement we file, if they are not covered under an existing registration statement at that time.

	·	We are required to keep the registration statement effective until the earlier of (i) the date on which all of the applicable shares of common stock can be sold pursuant to Rule 144, without any restrictions; (ii) the date on which all of such shares have been sold by the selling stockholders; or (iii) one year after the date of effective date of the registration statement.

	·	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.

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 plan not approved by security holders (1)		237,507	$	0.68		2,896,318

Equity compensation plan not approved by security holders (2)		1,652,899	$	0.50		0

Name	Age	Position(s) and Office(s) Held
John J. Barry IV	35	President, Chief Executive Officer and Chairman
William M. Bass	61	Executive Vice President and Secretary
Christopher Loughlin	34	Chief Operating Officer
Rodger Rees	53	Chief Financial Officer and Director
Leslie-Anne Moore	50	Vice President and Chief Compliance Officer of Holdings and Chief Compliance Officer and Chief Financial Officer of Bonds.com
John Barry III	62	Director
Christopher Moody	34	Director
Kevin R. Keating	66	Director

Name and Principal Position	Year		Salary ($) (1)		Bonus ($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)		Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total Compensation ($)

John J. Barry IV		2007	$	17,054		—		—		—		—		—		—	$	17,054
President, CEO and Chairman (1)		2006		5,000		—		—		—		—		—		—		5,000
William M. Bass		2007		85,542		1,844		—		120,267		—		—		—	$	207,653
Executive Vice President (2)		2006		—		—		—		—		—		—		—		—

(1)	Mr. Barry currently is paid a salary of $2,000 per month and does not receive any additional compensation from the Company.

(2)	Mr. Bass commenced employment with Bonds.com Holdings in February 2007. During 2007, Mr. Bass was paid salary in the aggregate amount of $59,375 and he agreed to defer payment of an additional $26,167 of salary which otherwise would have been payable to him under the provisions of his employment agreement. Mr. Bass agreed to defer his salary so that the Company would have sufficient funds to hire additional personnel. At March 27, 2008, outstanding deferred salary payable to Mr. Bass was $38,667. Mr. Bass was also granted an option in February 2007 to purchase 1,652,899 shares of our common stock at an exercise price of $0.50 per share which had vested with respect to 206,612 shares at December 31, 2007. The total value of such option is $524,801. The remaining $404,534 will be recognized by Mr. Bass as compensation in subsequent years.