Competition
We believe the primary factors in attracting and retaining customers are expertise, service quality, and price. Our competitive advantages include:
· | ● | Brand name recognition; |
· | ● | Expertise in regulatory and banking compliance; |
· | ● | Operational excellence; |
· | ● | Cash processing, transportation and storage capabilities; |
· | ● | Security and logistics infrastructure; |
· | ● | Services beyond guards and transportation, where we become intimate to the businesses continuance and success through mandatory standards of compliance; and |
· | ● | Economies of scale as we increase the amount and number of items we securely transport. |
Our cost structure is generally competitive, although certain competitors may have lower costs due to a variety of factors, including lower wages, lower initial and ongoing training requirements, less costly employee benefits, or less stringent security and service standards. We anticipate facing competitive pricing pressure in many markets; however, we plan to resist competing on price alone. We believe our high levels of service and security, as well as value-added solutions, differentiates us from competitors.
We compete with companies of all sizes in a variety of geographies that offer solutions that compete with single elements of our platform, such as regulatory compliance, armed security, armored transportation services and money processing. The security services industry is a large and competitive market. More specifically, however, the market for security and storage solutions as it pertains to medical marijuana companies is a nascent market, resulting in a highly fragmented and fractured marketplace. Some of the companies we compete with are much larger than us, and such companies have significantly greater resources than us. None of the large security companies, such as Brinks, Argyle, Tyco or Torment, are currently competing in this market segment, although there can be no guarantee this trend will continue.
Significantly all of our current and potential traditional competitors have longer operating histories, larger customer or user bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. Our competitors may be able to secure experienced employees, accommodate customers more efficiently and adopt more aggressive pricing policies than we can. Many of these current and potential competitors can devote substantially more resources to advertising, marketing and attracting experienced talent than we can. In addition, larger, more well-established and financed entities may acquire, invest in or form joint ventures with our competitors.
Need for Government Approval of Principal ProductsRegulation
In most jurisdictions we are required to obtain governmentalgovernment approval in connection with the ability to provide security and/or investigative services. We expect to make every effort to comply with all existing and pending regulatory conditions and licensing requirements in each state we currently or potentially operate in.
Continued development of the marijuana industry is dependent upon continued legislative authorization of marijuana at the state level. Any number of factors could slow or halt progress in this area. Further, progress, while encouraging, is not assured. While there may be ample public support for legislative action, numerous factors impact the legislative process. Any one of these factors could slow or halt use of marijuana, which would negatively impact our proposed business.
Marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal laws. There are currently 2329 states and the District of Columbia allowing its citizens to use Medical Marijuana. Additionally, Alaska, Colorado, Oregon,8 states and Washington State, as well as Washington D.C., have voted to legalizelegalized cannabis for adult recreational use. The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The former Obama administration has effectively stated that it is not an efficient use of resources to direct law federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana. However, there is no guarantee that the administration will not change its stated policy regarding the low-priority enforcement of federal laws. Additionally, any new Trump administration that follows could change this policy and decide to enforce the federal laws strongly. Active enforcement of the current federal regulatory position on cannabis may thus indirectly and adversely affect our revenues and profits. Any such change in the federal government’sgovernment's enforcement of current federal laws could cause significant financial damage to us. While we do not intend to harvest, distribute or sell cannabis, we may be irreparably harmed by a change in enforcement by the Federal or state governments.
Intellectual Property
We are developing a proprietary streamlined government-certified software capable of tracking all movements of cannabis products through to cash to taxes paid to deposits with the Federal Reserve Bank. The technology behind our software is being engineered and developed by subcontractors, and we consider it proprietary and confidential, and protected under trade secret laws. We have not sought to patent our aspect of this technology; however, we have not yet determined if we will seek to patent any aspect of the software in the future.
We plan to protect our proprietary and confidential information through a series of non-compete and non-disclosure contracts with our employees, contractors and other interested parties. The law of protection of confidential information effectively allows a perpetual monopoly in secret information, and it does not expire as would a patent. The lack of formal protection, however, means that a third party is not prevented from independently duplicating and using the secret information once it is discovered.
Number of total employees and number of full time employees
As of March 30, 2018, we have approximately 85 full and part-time employees, 90% of whom are former military or law enforcement professionals.
Properties
On July 15, 2014, the Company purchased a commercial building in Denver, Colorado for a total purchase price of $750,000, for which the Company paid a down payment of $75,000 and financed the remaining $675,000 in the form of a promissory note. The note bears interest at a rate of 5% per annum on the unpaid principal balance and is due on July 31, 2016. Interest is paid monthly, in arrears, in the amount of $2,813 beginning August 31, 2014. Through December 31, 2015, approximately $363,377 in capital improvements and $33,762 of capitalized expenses have been made to the property. As of September 30, 2016, the Company has completed the construction on the property and it was available and ready for use, accordingly. As of December 31, 2016 and 2015, the balance of construction in progress was $1,147,139 and $0, respectively. During the years ended December 31, 2016 and 2015, $14,078 and $33,762 of interest expense was capitalized as construction in progress.
On October 27, 2016 the Company sold its building in Denver, Colorado to an unrelated third party for $1,313,961 net of closing cost of $86,039. Until the date of this Annual Report, we have about 87 full-sale, the Company had recorded depreciation expense on the building of $20,868. The Company repaid the mortgage on the building in the amount of $677,681 and part-time employees, 95%recognized a loss on the sale of whom are ex-military or ex-police.the building of $312,053. The Company received net cash proceeds of $722,319. After the sale, the Company leased the building from the purchaser of the property. The lease is for an initial term of ten years, with the Company having the option to extend the term of the lease for two additional five year periods. The lease requires rental payments of $10,000 per month and will increase 2% annually. The Company paid a $30,000 deposit at the inception of the lease.
Reports to Security Holders
1. | We will furnish shareholders with annual financial reports certified by our independent registered public accountants. |
2. | We are a reporting issuer with the Securities and Exchange Commission. We file periodic reports, which are required in accordance with Section 15(d) of the Securities Act of 1933, with the Securities and Exchange Commission to maintain the fully reporting status. |
3. | The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20002. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our SEC filings will be available on the SEC Internet site, located at http://www.sec.gov. |
Federal regulation and enforcement may adversely affect the implementation of medical marijuana laws and regulations may negatively impact our revenues and profits.
As of the date of this Annual Report, 23 states and the District of Columbia allow its citizens to use medical marijuana. Additionally, voters in Alaska, Colorado, Oregon, Washington D.C. and Washington State have approved ballot measures to legalize cannabis for adult recreational use. The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The Obama administration has effectively stated that it is not an efficient use of resources to direct law federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana. However, there is no guarantee that the administration will not change its stated policy regarding the low-priority enforcement of federal laws. Additionally, any new administration that follows could change this policy and decide to enforce the federal laws strongly. Any such change in the federal government’s enforcement of current federal laws could cause significant financial damage to us and its shareholders. While we do not intend to harvest, distribute or sell cannabis, we may be irreparably harmed by a change in enforcement by the Federal or state governments.
Marijuana remains illegal under federal law and we may be considered an accessory to the sale and distribution of it.
Marijuana remains illegal under federal law. It is a schedule-I controlled substance. Even in those jurisdictions in which the use of medical marijuana has been legalized at the state level, its prescription is a violation of federal law. The United States Supreme Court has ruled in United States v. Oakland Cannabis Buyers’ Coop. and Gonzales v. Raich that it is the federal government that has the right to regulate and criminalize cannabis, even for medical purposes. Therefore, federal law criminalizing the use of marijuana trumps state laws that legalize its use for medicinal purposes. At present, the states are standing tall against the federal government, maintaining existing laws and passing new ones in this area. This may be because the Obama administration has made a policy decision to allow states to implement these laws and not prosecute anyone operating in accordance with applicable state law. However, we face another presidential election cycle in 2016, and a new administration could introduce a less favorable policy. A change in the federal attitude towards enforcement could cripple the industry. While we are not insulated from economic risk if such a change were to occur, we believe that by virtue of the fact that we do not market, sell, or produce marijuana or marijuana related products, we and our investors should be insulated from federal prosecution or harassment. However, the growers and sellers of medical marijuana are our primary customers, and if this industry were unable to operate, we would lose substantially all of our potential clients, which would have a negative impact on our business, operations and financial condition.
Laws and regulations affecting the medical marijuana industry are constantly changing, which could detrimentally affect our proposed operations.
Local, state and federal medical marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations. In addition, it is possible that regulations may be enacted in the future that will be directly applicable to our proposed business. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.
Any change in the unwillingness of FDIC-insured banks to accept deposits from customers could harm our proposed operations.
As discussed above, the sale and use of marijuana is illegal under federal law. There is a compelling argument that banks cannot accept for deposit funds from the drug trade and therefore cannot do business with our clients that traffic in marijuana, and clinic operators often have trouble finding a bank willing to accept their business. The inability of potential clients in our target market to open accounts and otherwise use the service of banks provides the distinct opportunity for our services to exist. However, U.S. Rep. Jared Polis (D-CO) has stated he will seek an amendment to banking regulations and laws in order to allow banks to transact business with state-authorized medical marijuana businesses. In the event his legislation is successful, that banks decide to do business with medical marijuana retailers, or that state and federal banking regulators remove current prohibitions on banks handling funds generated from an activity that is illegal under federal law, our operations could be adversely affected.
We have a limited operating history and may not succeed.
We have a limited operating history and may not succeed. We are subject to all risks inherent in a developing business enterprise. Our likelihood of continued success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with manufacturing specialty products and the competitive and regulatory environment in which we operate. You should consider, among other factors, our prospects for success in light of the risks and uncertainties encountered by companies that, like us, are in their early stages. For example, unanticipated expenses, problems, and technical difficulties may occur and they may result in material delays in the operation of our business, in particular with respect to our new products. We may not successfully address these risks and uncertainties or successfully implement our operating strategies. If we fail to do so, it could materially harm our business to the point of having to cease operations and could impair the value of our common stock to the point investors may lose their entire investment.
The success of our new and existing services is uncertain and may not be adopted by the medical marijuana industry.
We expect to commit significant resources and capital to develop and market a relatively new service in the nascent and developing medical marijuana industry. These services are untested, and we cannot assure you that we will achieve market acceptance for these services, or other new services that we may offer in the future. Moreover, these and other new services may be subject to significant competition with offerings by new and existing competitors. In addition, new services and enhancements may pose a variety of technical challenges and require us to attract additional qualified employees. The failure to successfully develop and market these new services or enhancements could seriously harm our business, financial condition and results of operations.
Pressures from competitors with more resources may limit our market share, profitability, and growth.
We face aggressive competition from numerous and varied competitors in all of our markets, making it difficult to maintain market share, remain profitable, and grow. Even if we are able to maintain or increase our market share for a particular service, revenue or profitability could decline due to pricing pressures or increased competition.
Our competitors may be able to more quickly develop or adapt to new or emerging technologies, better respond to changes in customer requirements or preferences, or devote greater resources to the development, promotion, and sale of their services. In addition, we may face competition from solutions developed internally by our customers. To the extent we cannot compete effectively, our market share and, therefore, results of operations, could be materially adversely affected.
Because price and related terms are key considerations for many of our customers, we may have to accept less-favorable payment terms, lower the prices of our products and services, and/or reduce our cost structure in order to remain competitive. Certain of our competitors have become increasingly aggressive in their pricing strategy, particularly in markets where they are trying to establish a foothold. If we are forced to take these kinds of actions to maintain market share, our revenue and profitability may suffer or we may adversely impact our longer-term ability to execute or compete.
We may be subject to litigation in the ordinary course of business.
From time to time, we may be subject to various legal proceedings and claims, either asserted or unasserted. Any such claims, whether with or without merit, could be time-consuming and expensive to defend and could divert management’s attention and resources. While management believes we will have adequate insurance coverage and will accrue loss contingencies for all known matters that are probable and can be reasonably estimated, we cannot assure you that the outcome of future litigation, if any, will not have a material adverse effect our results of operations.
Investors may lose their entire investment if we fail to implement our business plan.
We only recently began operating as a medical marijuana security and storage company and have no demonstrable operations record on which you can evaluate our business and prospects. Our prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development. These risks include, without limitation, competition, the absence of ongoing revenue streams, inexperienced management and lack of brand recognition. We cannot guarantee that we will be successful in executing our business. If we fail to implement and create a base of operations for our proposed business, we may be forced to cease operations, in which case investors may lose their entire investment.
We may not be able to attain profitability without additional funding, which may be unavailable.
We have limited capital resources. To date, we have not earned a profit or generated cash from our operations. Unless we begin to generate sufficient revenues from our proposed business to finance operations as a going concern, we may experience liquidity and solvency problems. Such liquidity and solvency problems may force us to go out of business if additional financing is not available. We have no intention of liquidating. In the event our cash resources are insufficient to continue operations, we intend to raise additional capital through offerings and sales of equity or debt securities. In the event we are unable to raise sufficient funds, we will be forced to go out of business and will be forced to liquidate. A possibility of such outcome presents a risk of complete loss of investment in our common stock.
Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Our internal controls may be inadequate or ineffective, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.
We are subject to federal legislation to protect investors against corporate fraud.
Federal legislation, such as the Sarbanes-Oxley Act of 2002 and the Dodd- Frank Act, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE, or the Nasdaq Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges and NASDAQ are those that address board of directors’ independence, audit committee oversight, and the adoption of a code of ethics.
We have not yet adopted any of these corporate governance measures such as an audit or other independent committees of our board of directors as we presently have one director. Additionally, since our securities are not yet listed on a national securities exchange or NASDAQ, we are not required to do so. If we expand our board membership in future periods to include independent directors, we may seek to establish an audit and other committees of our board of directors. It is possible that if we were to adopt some or all of these corporate governance measures, stockholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees are made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should consider our current lack of corporate governance measures in making their investment decisions, in addition to the fact that we currently have only one director.
We are an “emerging growth company” under the JOBS Act of 2012, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.
We will remain an “emerging growth company” for up to five years, although we will lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our common stock that is held by non-affiliates exceeds $700 million.”
Even if we no longer qualify as an “emerging growth company”, we may still be subject to reduced reporting requirements so long as we are considered a “Smaller Reporting Company.”
Many of the exemptions available for emerging growth companies are also available to smaller reporting companies like us that have less than $75 million of worldwide common equity held by non-affiliates. So, although we may no longer qualify as an emerging growth company, we may still be subject to reduced reporting requirements.
Our auditors have substantial doubt about our ability to continue as a going concern.
Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our auditor’s report reflects that our ability to continue as a going concern is dependent upon our ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues. If we are unable to continue as a going concern, our stockholders will lose their investment. We will be required to seek additional capital to fund future growth and expansion. No assurance can be given that such financing will be available or, if available, that it will be on commercially favorable terms. Moreover, favorable financing may be dilutive to our stockholders.
The price of our Common Stock may be volatile, which may lead to losses by investors.
The price of our Common Stock may fluctuate significantly in response to a number of factors, including:
· | Our quarterly operating results, |
· | Changes in earnings estimates by analysts and whether our earnings meet or exceed such estimate, |
· | Announcements of technological innovations by us or our competitors, |
· | Additions or departures of key personnel, and |
· | Other events or factors that may be beyond our control. |
Volatility in the market price of our securities could lead to claims against us. Defending these claims could result in significant litigation costs and a diversion of our management’s attention and resources.
Our operating results may fluctuate significantly, and these fluctuations may cause our Common Stock price to fall.
Our quarterly operating results may fluctuate significantly in the future due to a variety of factors that could affect our revenues or our expenses in any particular quarter. You should not rely on quarter-to-quarter comparisons of our results of operations as an indication of future performance.
Because our common stock is deemed a low-priced “Penny” stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.
Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act, it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. Until the trading price of the common stock rises above $5.00 per share, if ever, trading in the common stock is subject to the penny stock rules of the Securities Exchange Act specified in rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:
1. | Deliver to the customer, and obtain a written receipt for, a disclosure document; |
2. | Disclose certain price information about the stock; |
3. | Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer; |
4. | Send monthly statements to customers with market and price information about the penny stock; and |
5. | In some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules. |
Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.
FINRA sales practice requirements may also limit a stockholder's ability to buy and sell our stock.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (FINRA) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
We lease office space at 1350 Independence St., Lakewood, CO 80215 at a rate of $1,442 per month. There are currently no proposed programs for the renovation, improvement or development of the facilities we use.
On July 15, 2014, we purchased a commercial building for a total purchase price of $750,000, for which we paid a down payment of $75,000 and financed the remaining $675,000 in the form of a promissory note. The note bears interest at a rate of 5% per annum on the unpaid principal balance and is due in full on July 31, 2016. Interest is paid monthly, in arrears, in the amount of $2,813 beginning August 31, 2014. As of December 31, 2014, we have not yet placed the property into service.See Item 1. Business.
Our management does not currently have policies regarding the acquisition or sale of real estate assets primarily for possible capital gain or primarily for income. We do not presently hold any investments or interests in real estate, investments in real estate mortgages or securities of or interests in persons primarily engaged in real estate activities.
ITEM 3. LEGAL PROCEEDINGS
No Director, officer, significant employee, or consultant has been convictedOn March 2, 2018, Steve Neumeyer filed a complaint against the Company in a criminal proceeding, exclusivethe Eighth Judicial District Court, Clark County, Nevada, alleging, among other matters, breach of traffic violations.contract, and seeking damages of an unspecified amount for allegedly providing services to the Company. The Company believes Mr. Neumeyer's complaint is without merit.
No Director, officer, significant employee, or consultant has been permanently or temporarily enjoined, barred, suspended, or otherwise limited from involvement in any type of business, securities or banking activities.
No Director, officer, significant employee, or consultant has been convicted of violating a federal or state securities or commodities law.
We are not a party to any pending legal proceedings.
No director, officer, significant employee or consultant has had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.
ITEM 4. MINE SAFETY DISCLOSURES
None.
PART II
ITEM 5. MARKET FOR REGISTRANT’SREGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND MARKET INFORMATION FOR COMMON STOCK
Market information
We have been approved for listing on the OTCBB under the symbol "BLPG."
Price Range of Common Stock
On May 6, 2014, we effected a forward stock split and a pro-rata increase in its authorized common stock on a basis of 14-to-1, whereby each shareholder received 14 newly issued shares of common stock for each 1 share held. Additionally, the number of authorized shares increased to 1,400,000,000 shares of $0.001 par value common stock. All share and per share information has been retroactively adjusted to reflect the stock split.
The high and low closing prices of our common stock for the periods indicated are set forth below. These closing prices do not reflect retail mark-up, markdown or commissions.
| Year ended December 31, 2014 | High | | Low |
| | | | |
| First Quarter | N/A | | N/A |
| Second Quarter | $ 0.80 | | $ 0.70 |
| Third Quarter | $ 0.81 | | $ 0.31 |
| Fourth Quarter | $ 0.50 | | $ 0.19 |
| | | | |
The shares quoted are subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the Exchange Act”), commonly referred to as the “penny stock” rule. Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is considered to be a penny stock unless that security is: registered and traded on a national securities exchange meeting specified criteria set by the Commission; authorized for quotation on The NASDAQ Stock Market; issued by a registered investment company; excluded from the definition on the basis of price (at least $5.00 per share) or the registrant’s net tangible assets; or exempted from the definition by the Commission. Trading in the shares is subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors, generally persons with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse.
For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such securities and must have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities. Finally, the monthly statements must be sent disclosing recent price information for the penny stocks held in the account and information on the limited market in penny stocks. Consequently, these rules may restrict the ability of broker dealers to trade and/or maintain a market in the company’s common stock and may affect the ability of shareholders to sell their shares.
Holders| Year ended December 31, 2016 | | High | | | Low | |
| | | | | | | |
| First Quarter | | $ | 0.04 | | | $ | 0.02 | |
| Second Quarter | | $ | 0.06 | | | $ | 0.02 | |
| Third Quarter | | $ | 0.06 | | | $ | 0.02 | |
| Fourth Quarter | | $ | 0.08 | | | $ | 0.02 | |
| | | | | | | | | |
| Year ended December 31, 2017 | | High | | | Low | |
| | | | | | | | | |
| First Quarter | | $ | 0.47 | | | $ | 0.26 | |
| Second Quarter | | $ | 0.38 | | | $ | 0.15 | |
| Third Quarter | | $ | 0.19 | | | $ | 0.15 | |
| Fourth Quarter | | $ | 0.37 | | | $ | 0.12 | |
As of the date of this filing,March 30, 2018, we had 123,994,016137,149,286 outstanding shares of $0.001 par value common stock issued and outstanding held by approximately 236225 shareholders of record. Our transfer agent is: Pacific Stock Transfer Company, 4045 South Spencer Street, Suite 403, Las Vegas, NV 89119, phone (702) 361-3033.
Dividends
The payment of dividends is subject to the discretion of the Company’s Board of Directors and will depend, among other things, upon our earnings, our capital requirements, our financial condition, and other relevant factors. We have not paid nor declared any dividends on our common stock since our inception and, by reason of our present financial status and our contemplated financial requirements, do not anticipate paying any dividends in the foreseeable future.
We intend to reinvest any earnings in the development and expansion of our business. Any cash dividends in the future to common stockholders will be payable when, as and if declared by our Board of Directors, based upon the Board’s assessment of:
· | Our financial condition; |
· | Prior claims of preferred stock to the extent issued and outstanding; and |
· | Other factors, including any applicable laws. |
Therefore, there can be no assurance that any dividends on the common stock will ever be paid.
Securities Authorized for Issuance under Equity Compensation Plans
We have reserved for issuance an aggregate of 15,000,000 shares of common stock under our 2014-2015 Stock Incentive Plan (“the Plan”) that was adopted in November 12, 2014. The following table provides the following information as of December 31, 2014, for equity compensation plans previously approved by security holders, as well as those not previously approved by security holders:
1. | The number of securities to be issued upon the exercise of outstanding options, warrants and rights; |
2. | The weighted-average exercise price of the outstanding options, warrants and rights; and |
3. | Other than securities to be issued upon the exercise of the outstanding options, warrants and rights, the number of securities remaining available for future issuance under the plan. |
| 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 |
| | (a) | (b) | (c) |
| Equity compensation plans approved by security holders | - | - | - |
| | | | |
| Equity compensation plans not approved by security holders | 900,000 | $0.25 | 14,100,000 |
| | | | |
| Total | 900,000 | $0.25 | 14,100,000 |
Purposes of the Plan
The purposes of the Plan are (a) to enhance our ability to attract and retain the services of qualified employees, officers and directors, contractors and other service providers upon whose judgment, initiative and efforts the successful conduct and development of our business largely depends, and (b) to provide additional incentives to such persons or entities to devote their utmost effort and skill to the advancement and betterment of the Company by providing them an opportunity to participate in the ownership of the Company and thereby have an interest in the success and increased value of the Company.
Stock Subject to the 2014-2015 Stock Incentive Plan
Shares that are eligible for grant under the Plan to participants include Incentive Stock Options, Non-Qualified Stock Options and Restricted Stock. “Incentive Options” are any options designated and qualified as an “incentive stock option” as defined in Section 422 of the Internal Revenue Code. “Non-Qualified Options” are any options that are not an Incentive Option. To the extent that any option designated as an Incentive Option fails in whole or in part to qualify as an Incentive Option, including, without limitation, for failure to meet the limitations applicable to a ten percent stockholder or because it exceeds the annual limit, it shall to that extent constitute a Non-Qualified Option. “Restricted Stock” are shares of common stock issued pursuant to any restrictions and conditions as established in the Plan.
Eligibility
Incentive Options. Only employees of the Company or of an affiliated company (including officers of the Company and members of the Board of Directors if they are employees of the Company or of an affiliated company) are eligible to receive Incentive Options under the Plan.
Non-Qualified Options and Restricted Stock. Employees of the Company or of an affiliated company, officers of the Company and members of the Board of Directors (whether or not employed by the Company or an affiliated company), and service providers are eligible to receive Non-Qualified Options or acquire Restricted Stock under the Plan.
Equity Compensation Plan Information
We maintain the Plan to allow the Company to compensate employees, directors, consultants and certain other individuals providing bona fide services to the Company or to compensate officers, directors and employees for accrual of salary through the award of common stock.
The Plan is intended to encourage directors, officers, employees and consultants to acquire ownership of common stock. The opportunity so provided is intended to foster in participants a strong incentive to put forth maximum effort for its continued success and growth, to aid in retaining individuals who put forth such effort, and to assist in attracting the best available individuals to the Company in the future.
Recent Sales of Unregistered Securities
As of December 31, 2013, we had 106,820,000 shares of common stock issued and outstanding.
On March 1, 2014, in connection with the employment of an officer and director, we issued options to purchase 4,806,900 shares of our common stock at an exercise price of $0.14 per share. The options vest in three annual installments, with the first portion immediately vested. The options carry a life of three years. This transaction involved no general solicitation and was a private transaction between an issuer and an executive officer. Thus, we believe that the issuance of the stock options is exempt from registration under Section 4(2) of the Securities Act of 1933, as amended.
Through March 27, 2014, we sold an aggregate of 13,068,034 shares of its common stock for gross cash proceeds of $1,213,462. These sales of stock did not involve any public offering, general advertising or solicitation. At the time of the issuance, the purchasers had fair access to and was in possession of all available material information about our company. Additionally, the purchasers represented their intent to acquire securities for their own account and not with a view to further distribute the shares. The shares bear a restrictive transfer legend. On the basis of these facts, we claim that these issuances of stock qualifies for the exemption from registration contained in Rule 506, promulgated under Regulation D of the Securities Act of 1933, for sales of securities by an issuer to accredited investors, not involving a public offering.
On March 27, 2014, we purchased a vehicle from a non-affiliated entity with 323,078 shares of common stock in lieu of cash. The value of this transaction was $30,000. This sale of stock did not involve any public offering, general advertising or solicitation. At the time of the issuance, the purchaser had fair access to and was in possession of all available material information about our company. Additionally, the purchaser represented their intent to acquire securities for its own account and not with a view to further distribute the shares. The shares bear a restrictive transfer legend. On the basis of these facts, we claim that this issuance of stock qualifies for the exemption from registration contained in Rule 506, promulgated under Regulation D of the Securities Act of 1933, for sales of securities by an issuer to an accredited investor, not involving a public offering.
On April 8, 2014, we issued 1,076,923 shares of common stock for the conversion of a promissory note in the total amount of $100,000.
Also on April 8, 2014, we issued 269,231 shares of common stock for the conversion of a promissory note in the total amount of $25,000.
On June 11, 2014, we were obligated to issue 1,400,000 shares of our common stock to a non-affiliated entity pursuant to an investment banking agreement, with a fair market value of $938,000 on the date of the agreement. Certificates representing the shares were never issued and were considered owed as a common stock payable. On December 11, 2014, we cancelled our investment banking agreement and issued 280,000 shares of our common stock as a settlement amount and thereby rescinded $749,280 of the common stock payable and associated expenditure for the services.
On September 15, 2014, the Company sold 1,562,500 shares of its common stock for $500,000. The Company received a total of $150,000 in payment of the shares and recorded subscriptions receivable for the remaining balance of $350,000. As of October 17, 2014, the purchaser rescinded the remaining portion of the subscription payable and a total of 468,750 shares were issued to the subscriber.
On October 22, 2014, we issued 1,250,000 shares of our common stock to a non-affiliated entity pursuant to an investment banking agreement, with a fair market value of $475,000 as of the date of the agreement.
On December 24, 2014, we issued 38,000 shares of our common stock to 68 employees, paid as part of our Employee Stock Incentive Program.
Issuer Purchases of Equity Securities
The Company did not repurchase any of its equity securities during the year ended December 31, 2014.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7.
MANAGEMENT’SMANAGEMENT'S DISCUSSION AND
PLANANALYSIS OF
OPERATIONSFINANCIAL CONDITION AND RESULTS OF OPERATIONCertain statements set forth below under this caption constitute forward-looking statements. See "Forward-Looking Statements" preceding Item 1 of this Annual Report on Form 10-K for additional factors relating to such statements.
Forward-Looking Statements
The statements containedYou should read the following discussion and analysis of financial condition and results of operations in all parts of this document that are not historical facts are, or may be deemed to be, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, those relating to the following: the Company's ability to secure necessary financing; expected growth; future operating expenses; future margins; fluctuations in interest rates; ability to continue to grow and implement growth, and regarding future growth, cash needs, operations, business plans and financial results and any other statements that are not historical facts.
When used in this document, the words "anticipate," "estimate," "expect," "may," "plans," "project," and similar expressions are intended to be among the statements that identify forward-looking statements. Our results may differ significantly from the results discussed in the forward-looking statements. Such statements involve risks and uncertainties, including, but not limited to, those relating to costs, delays and difficulties related to the Company’s dependence on its ability to attract and retain skilled managers and other personnel; intense competition; the uncertainty of the Company's ability to manage and continue its growth and implement its business strategy; its vulnerability to general economic conditions; accuracy of accounting and other estimates; the Company's future financial and operating results, cash needs and demand for services; and the Company's ability to maintain and comply with permits and licenses; as well as other risk factors described in this Annual Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those projected.
Background and Recent Developments
We were originally incorporated in Nevada on September 11, 2006, under the name The Engraving Masters, Inc. On March 14, 2014, we acquired Blue Line Protection Group, Inc., a Colorado corporation formed in February 2014conjunction with the sole purpose to be a wholly-owned subsidiary of the Company.
On May 2, 2014 our directors, pursuant to Nevada revised Statute 92A.280, amended our Articles of Incorporation to change our name from The Engraving Masters, Inc. to Blue Line Protection Group, Inc. The amendment was filed with the Nevada Secretary of State on May 2, 2014.
On May 6, 2014 our directors approved 14-for-1 forward stock split of our issued and outstanding common stock. Additionally, the authorized number capital of the Company concurrently increased to 1,400,000,000 shares of $0.001 par value common stock. All references to share and per share amounts in the condensed consolidated financial statements and accompanyingrelated notes thereto have been retroactively restated to reflect the forward stock split.appearing elsewhere in this Report.
Management’s Discussion and Analysis
Due to the recent additionResults of new business operations and service lines, comparisons of operating results between the comparable periods ended December 31, 2014 and 2013 may not be materially reflective of our continuing and future operations. Prior to March 14, 2014, the date we acquired Blue Line Colorado, our results of operations were immaterial. As such, no comparison data will be presented in this management’s discussion regarding the year ended December 31, 2013.Operations
Revenue and costs of revenue
We only recently began to generate sales from our wholly-owned Colorado subsidiary, Blue Line Colorado, a provider of protection, compliance and financial services to the lawful cannabis industry. We do not grow, test or dispense cannabis products. We provide banking compliance, asset logistics, armed and armored escorts, security training and license compliance verification. In general, we primarily target businesses involved in the growing and dispensing of cannabis for both medical and recreational uses, in jurisdictions were such is legal.
In the normal course of our business, the bulk of our sales are paid and rendered either immediately or on a bi-weekly basis. These sales are recognized as revenue at the time an invoice in generated and delivered to the client. During the year ended December 31, 2014, we generated net revenue of $1,032,168 from our operations, all of which was attributable to our Blue Line Colorado subsidiary. Revenue increased steadily quarter-over-quarter, which management attributes to exceptional customer service from our security and transport teams, word-of-mouth and increased brand awareness.
During the period, costs of sales totaled $778,777. Costs of sales consist primarily of labor and fuel costs directly attributable to the provision of our services to clients. As we continue to grow our core business, we expect labor and fuel costs to increase, at a minimum, proportionate to any increase we experience in revenues. Over our relatively short history, cost of labor has fluctuated primarily due to turnover, levels of overtime and our ability to retain sufficient staffing levels to meet client demand. Our ability to service current clients, as well as grow our core business, is dependent upon our ability to manage labor levels and costs, of which there can be no guarantee.
After accounting for costs of sales, we realized a gross profit of $253,391, during the year ended December 31, 2014. Our profit margins have fluctuated significantly from quarter-to-quarter, and it is difficult for management to forecast with any certainty.
We are actively engaged in expanding our presence into new jurisdictions and growing our service portfolio. Our financial compliance packages are structured to take advantage of our core competencies, while vertically integrating higher gross margin service lines. Management expects realize increased revenues in fiscal year 2015 to due to the following factors:
1. | Expansion into new geographic regions; |
2. | The addition of our new accounting and bookkeeping division - Blue Line Advisory Services; and |
3. | Our cooperation and cross-promotion agreement with DigiPath, Inc. |
However, there can be no assurance that we will continue to experience similar, if any, revenue growth in future periods, sustain current revenue levels or that we any of our growth and expansion efforts will come to fruition.
Costs and Operating Expenses
For the year ended December 31, 2014, the primary components of our operating expenses were, as follows:
Advertising. During the year ended December 31, 2014, we recognized $189,536 in advertising expense, respectively, related primarily to public- and media-relations efforts. Of the $189,536 we spent on advertising expense in the year ended December 31, 2014, $120,000 was paid with shares of our common stock in lieu of cash. We are a small company and expect to continue to invest in advertising and marketing to increase brand awareness.
Depreciation. Depreciation expense related to our furniture, equipment and armored vehicles were $27,172 during the year ended December 31, 2014. Depreciation is directly correlated to capital expenditures. As we seek to expand our geographic reach and service portfolio, we expect capital expenditures to increase, and, accordingly, expect depreciation expense to increase.
Executive Compensation. Executive compensation paid to our corporate officers and directors was $104,892 during the year ended December 31, 2014.
General and Administrative. In the course of our operations, we incur general and administrative expenses, which are essentially the cost of doing business, and encompass, without limitation, the following: business and operating licenses; taxes; general office expenses and supplies, such as postage, supplies and printing; repairs and maintenance; bank charges; occupancy costs; and other miscellaneous expenditures not otherwise classified. During the year ended December 31, 2014, general and administrative expenses were $657,633. We expect general and administrative expenses to increaseMaterial changes in line with growthitems in our operations.
Professional Fees. During the year ended December 31, 2014, we incurred $916,766 in professional fees. Approximately $662,600Statement of professional fees recognized is attributable to two investment banking agreements we entered into, for which the investment banks required us to issue them an aggregate of 1,530,000 shares of our common stock. We also expect amounts paid for legal representation and consulting expenses to increase substantially as we expand our operations into additional jurisdictions.
Salaries and Wages. The bulk of our salaries and wages expense is attributable to administrative, management and other salaried personnel not directly involved in the servicing of our clientele. Salaries and wages paid during the year ended December 31, 2014 was $502,032. Our ability to grow is tied directly to our ability to attract, hire and retain quality employees. We expect our staffing levels to fluctuate substantially from month-to-month; therefore, it is difficult to forecast changes in salaries and wages from period to period.
Stock-based Compensation. During the year ended December 31, 2014, we issued incentive stock-based compensation to employees and contractors in the form of stock options. Total stock-based compensation was $480,675, related solely to the expensing of stock options granted to executives and key employees during the year.
Other Income and Expenses
During the year ended December 31, 2014, we originated short-term, fully-collateralized loans to existing, recurring clients. We realized interest income of $10,683 during the year ended December 31, 2014, attributable to our lending activities. As of December 31, 2014, the remaining aggregate principal balance of notes receivable was $46,451.
In December 2014, our wholly-owned subsidiary, Blue Line Capital, sold a portion of securities held to maturity, in the amount of $200,000. As a result of this sale, we recognized a $199,999 gain on the sale of securities. We do not expect to sell additional securities held to maturity.
Net Loss
Our net loss for year ended December 31, 2014 was $2,425,941. We expect to continue to incur net losses for the foreseeable future and cannot assure you when we will be able to mitigate our losses or begin to achieve profitability. Our management believes that expansion of our operations are likely to continue to adversely affect our operating results and will lead to net losses for at least the next 12 months of operations.
Liquidity and Capital Resources
The following table provides summary financial information as of andOperations for the year ended December 31, 2014:2017 as compared to the same period last year, are discussed below:
| | Increase (I) or | | |
| Item | | Decrease (D) | | Reason |
| | | | |
| Revenue | | I | | More security for special events, private parties and transport of cash |
| Gross profit, as a percent of revenue | | I | | More diversified revenue streams |
| Loss on disposal of assets | | D | | The Company sold its building in 2016 and recognized a loss |
Capital Resources and Liquidity
| | | December 31, 2014 | |
| Cash and equivalents | | $ | 211,922 | |
| Accounts and accrued receivables, net | | | 116,891 | |
| Notes receivable | | | 46,451 | |
| Prepaid assets | | | 2,500 | |
| Fixed assets, net | | | 1,287,991 | |
| | | | | |
| Total assets | | $ | 1,665,755 | |
| | | | | |
| Accounts payable and accrued liabilities | | | 295,863 | |
| Notes payable, aggregate | | | 290,271 | |
| Long-term debt, including current portion | | | 695,515 | |
| | | | | |
| Total liabilities | | $ | 1,281,649 | |
| | | Year ended | |
| | | December 31, 2014 | |
| Net cash used by operations | | $ | (443,425 | ) |
| Net cash used by investing activities | | | (1,131,614 | ) |
| Net cash provided by financing activities | | | 1,784,117 | |
| | | | | |
| Net increase in cash | | | 209,078 | |
| Cash at the beginning of the period | | | 2,844 | |
| Cash as the end of the period | | $ | 211,922 | |
Operating Activities. NetOur material sources and <uses> of cash used in operating activities was $443,425 forduring the yearyears ended December 31, 2014, the bulk of which was primarily attributable to expenditures related to our entry into the market for protection, compliance2017 and financial services catering to the lawful cannabis industry. Our management expects to continue to experience net cash outflows related to operating activities for at least the next fiscal quarter, related primarily to continuing operations, the introduction of new service offerings and expansion into new geographic markets.2016 were:
| | | 2017 | | | 2016 | |
| | | | | | | |
| Cash (used by) operations | | $ | (723,015 | ) | | $ | (1,469,877 | ) |
| Loan payments | | | (842,661 | ) | | | (918,686 | ) |
| Loan proceeds | | | 1,731,693 | | | | 1,192,610 | |
| Sale of building | | | -- | | | | 722,319 | |
| Construction of building improvements | | | -- | | | | (485,665 | ) |
| Purchase of property, plant and equipment | | | 32,122 | | | | (28,202 | ) |
| Sale of preferred stock | | | -- | | | | 945,000 | |
| Other | | | (96,124 | ) | | | 30,462 | |
General
Investing Activities. DuringOur material capital commitments over the year ended December 31, 2014, cash used in investing activities was $1,131,614. We purchased $186,610 of furniture, equipment and armored vehiclesnext five years are as follows:
On October 27, 2016 the Company sold its building located at 5765 Logan Street, Denver, Colorado to an unrelated third party for use in our operations. We also provided an aggregate of $155,000 in short-term secured notes receivable, upon which we received $108,549 in repayments.$1,400,000. The sale of membership units held for investment purposes and not earmarked for resale generated cashCompany repaid the mortgage on the building in the amount of $200,000. Additionally, during$677,681. After the year ended December 31, 2014 we purchased a commercialsale, the Company leased the building for a total purchase pricefrom the purchaser of $750,000, for which we paid a down payment of $75,000 and financed the remaining $675,000 in the form of a promissory note. Through December 31, 2014, approximately $348,553 in capital improvements were made to the property. The expansion intolease is for an initial term of ten years, with the Company having the option to extend the term of the lease for two additional geographic territories is expectedfive year periods. The lease requires rental payments of $10,000 per month and will increase 2% annually. The Company paid a $30,000 deposit at the inception of the lease.
Future minimum lease payments:
| Future minimum lease payments: | | | |
| 2018 | | $ | 122,604 | |
| 2019 | | | 125,056 | |
| 2020 | | | 127,557 | |
| 2021 | | | 130,108 | |
| 2022 | | | 268,075 | |
| 2023 and thereafter | | | 386,464 | |
| Total minimum lease payments | | $ | 1,159,864 | |
See Notes 6 and 7 to require additional investment in equipment and vehicles, although the costfinancial statements included as part of such will vary materially and cannot be readily estimated by management.this report for information concerning our notes payable.
Financing Activities. To date,Other than as disclosed above, we have financed our operations through the issuance of stock and debt securities. Net cash provided by financing activities for the year ended December 31, 2014 was $1,784,117. We obtained financing in the form of loans totaling $166,008, of which $41,008 was repaid in cash and $125,000 was repaid using shares of our common stock in lieu of cash, leaving a balance due as of December 31, 2014 of $0. Related parties provided $394,596 of financing, of which $106,325 was repaid during the period. In addition to issuing debt securities, we received total cash proceeds of $1,362,992 for sales of our common stock. We expect to use our cash to invest in our core businesses.
Changes in Cash. During the year ended December 31, 2013, we experienced a net increase in cash on hand of $209,078. As of December 31, 2014, we had $211,922 of cash on hand.
Factors Affecting Future Growth
We are a small company with very little historical data upon which to evaluate our future prospects. However, we are actively engaged in the expansion of our current revenue streams, as well as exploring entry into new and developing markets. We are experiencing significant changes to our corporate and operational structures and have been expanding our base of employees. We continue to expect the number of full- and part-time employees to fluctuate substantially, though we are unable to predict the amount of such fluctuations.
Since 2014, we have worked with banks and financial industry professionals to develop a proprietary means for the banking industry to validate compliance with Federal Mandate. Our management believes that only a security company with the relationships and experience like Blue Line is able to ensure that clients we validate will remain fully compliant with all of the various Cole Memo, FinCEN, banking, Patriot Act and BSA guidelines. We are able to vertically integrate the source of funds through the Federally required 12 steps, summarised as from grow, to sale, (to those of approved age or license), to purchaser, to funds received, to where the funds were held, to vault, to third party validation, to tax, to profits, to access to the banking system etc.
Beginning in 2015, we started to provide on-site compliance services to ensure that legal marijuana businesses are operating according to local, state and federal guidelines. Blue Line investigative personnel, using our proprietary systems, produce compliance assessment reports to banks, based on on-site audits and investigations of the businesses, their operation procedures, and customer and product sales tracking methods. Our management expects these compliance services will provide us with a new revenue stream and, in combination with our traditional security and transport services, offer significant value to our clients and partners.
In March 2015, we formed Blue Line Advisory Services, a wholly-owned subsidiary, with the goal of providing accounting and bookkeeping services to the legal marijuana industry via our network of employees and independent professionals. During the second quarter of 2015, we plan to establish BLAS offices in Colorado and Nevada. Our goal is for BLAS to be accretive during the year ended December 31, 2015, although there can be no guarantee of such.
There can be no assurance that our continuing efforts will lead to profitability.
We expect to require significant capital to continue to expand our operations and to complete the improvements to our office building, which will be a training and high-security vault facility, and the purchase of capital equipment. Without sufficient cash flow from operations we will require additional cash resources, including the sale of equity or debt securities, to meet our planned capital expenditures and workingdo not anticipate any material capital requirements for the next 12 months. The sale of additional equity securities will result in dilution to our stockholders. The incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business operations and could harm our overall business prospects.twelve months ending December 31, 2018.
There are no knownOther than as disclosed in this Item 7, we do not know of any trends, demands, commitments, events or uncertainties that have hadwill result in, or that are reasonably expectedreasonable likely to have aresult in, our liquidity increasing or decreasing in any material impact on our revenues from continuing operations. However, we may not adequately encapsulate unforeseen economic or industry specific factors that may be beyond our control. These external forces may restrict growth and advertising spending by our clients, which could, in turn, adversely affect our operations.way.
We currently rent an approximately 2,000 square foot office at a rate of approximately $1,400 per month. This lease is currently on a month-to-month basis and is cancellable at any time with prior written notice by either party.
We currentlyOther than as disclosed in this Item 7, we do not ownknow of any significant plant or equipment that we would seek to sellchanges in the near future.our expected sources and uses of cash.
We do not have any firm commitments or arrangements from any person to provide us with any equity capital.
During the next 12 months, we anticipate that we will incur approximately $775,000 of general and administrative expenses in order to execute our current business plan. We also plan to incur significant sales, marketing, research and development expenses during the next 12 months. We must obtain additional capital.financing to continue our operations. We may not be able to obtain additional funding on terms that are favorable to us or at all. We may not be able to obtain sufficient funding to continue our operations, or if we do receive funding, to generate adequate revenues in the future or to operate profitably in the future. These conditions raise substantial doubt about our ability to continue as a going concern.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and related notes. Our significant accounting policies are described in Note 2 to our consolidated financial statements included in our Annual Report on Form 10- K for the year ended December 31, 2014. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.
Management considers the following policies critical because they are both important to the portrayal of our financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters.
Principles of consolidation. For the years ended December 31, 2014 and 2013, the consolidated financial statements include the accounts of Blue Line Protection Group, Inc. (formerly The Engraving Masters, Inc.), Blue Line Advisory Services, Inc. (a Nevada corporation; “BLAS”), Blue Line Capital, Inc. (a Colorado corporation; “Blue Line Capital”), Blue Line Protection Group (California), Inc. (a California corporation; “Blue Line California”), Blue Line Colorado, Blue Line Protection Group Illinois, Inc. (an Illinois corporation; “Blue Line Illinois”), BLPG, Inc. (a Nevada corporation; “Blue Line Nevada”), Blue Line Protection Group (Washington), Inc. (a Washington corporation; “Blue Line Washington”). All significant intercompany balances and transactions have been eliminated. BLPG and its subsidiaries are collectively referred herein to as the “Company.”
Accounts receivable. Accounts receivable are stated at the amount we expect to collect from outstanding balances and do not bear interest. We provide for probable uncollectible amounts through an allowance for doubtful accounts, if an allowance is deemed necessary. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future. On a periodic basis, management evaluates its accounts receivable and determines the requirement for an allowance for doubtful accounts based on its assessment of the current and collectible status of individual accounts with past due balances over 90 days. Account balances are charged against the allowance after all collection efforts have been exhausted and the potential for recovery is considered remote.
Notes receivable. Revenue recognitionNotes receivable are measured at historical cost and reported at their outstanding principal balances net. As all of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans. Interest income on notes receivableour Revenue is recognized usinggenerated from services offerings, Revenue recognition is the interest method. Interest income on impaired loans is recognized as cash is collected or on a cost-recovery basis.
Property and equipment. Property and equipment is recorded at cost and capitalized from the initial datesame for each of service. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. We use other depreciation methods (generally accelerated) for tax purposes where appropriate. The estimated useful lives for significant property and equipment categories are as follows:
Automotive Vehicles | 5 years |
Furniture and Equipment | 7 years |
Buildings and Improvements | 15 years |
The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment there was no impairment as December 31, 2014 and 2013. Depreciation expense for the years ended December 31, 2014 and 2013 totaled $27,172 and $0, respectively.
Revenue recognition. our revenue streams. We recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of its fees is probable.
Sales related to long-term contracts for services (such as programming, website development and maintenance) extending over several years are accounted for under the percentage-of-completion method of accounting. Sales and earnings under these contracts are recorded based on the ratio of actual costs incurred to total estimated costs expected to be incurred related to the contract under the cost-to-cost method based budgeted milestones or tasks as designated per each contract. Anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable.
For all other sales of product or services we recognize revenues based on the terms of the customer agreement. The customer agreement takes the form of either a contract or a customer purchase order and each provides information with respect to the product or service being sold and the sales price. If the customer agreement does not have specific delivery or customer acceptance terms, revenue is recognized on the date of the customer agreement, invoice or purchase order.reasonably assured.
Allowance for uncollectible accounts.Stock-based compensation. The Company estimates losses on receivables based on known troubled accounts, if any, and historical experience of losses incurred. The allowance for doubtful customer and vendor receivables was $18,864 and $0 at December 31, 2014 and 2013, respectively.
Stock-based compensation. We recordrecords stock based compensation in accordance with the guidance in ASC Topic 505 and 718, which requires usthe Company to recognize expenses related to the fair value of our employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. We recognize the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
We accountThe Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached by the FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable.measureable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.
Contingencies. The CompanySignificant Accounting Policies
See Note 2 to the financial statements included as part of this report for a description of our significant accounting policies.
Recent Accounting Pronouncements
From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not currentlyexpected to have a party to any pending or threatened legal proceedings. The company has one potential contingent liability. A shareholder and employee asserts he has loaned the Company cash and paid for various expensesmaterial impact on behalf of the Company in the aggregate amount of $447,896. The Company is disputing its need to pay this claim on the grounds that a number of items in the claim were unauthorized and minimal, if any, supporting documentation was provided to substantiate the validity of the claim. While the Company can reasonably estimate the liability, it is improbable that the Company will pay, due the Claimant’s (a) failure mutually agreeour consolidated financial statements upon the alleged amounts owed and (b) failure to validate the claims.
Off-Balance Sheet Arrangementsadoption.
We do not have any off-balance sheet arrangements.To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included in Item 8 of this Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements attached to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the Commission's rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. We evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. As a result of this evaluation, management concluded that our disclosure controls and procedures were not effective as of December 31, 2017 for the same reasons that our internal control over financial reporting was not effective:
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company's principal executive and principal financial officers and effected by the company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
| 1. | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; |
| 2. | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
| 3. | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of December 31, 2017, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013) and SEC guidance on conducting such assessments. Based on that evaluation, management concluded that, during the period covered by this report, such internal controls and procedures were not effective due to the following material weakness identified:
| ● | Lack of appropriate segregation of duties, |
| ● | Lack of control procedures that include multiple levels of supervision and review, and |
| ● | There is an overreliance upon independent financial reporting consultants for review of critical accounting areas and disclosures and material, nonstandard transactions. |
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only the management's report in this annual report.
Implemented or Planned Remedial Actions in response to the Material Weaknesses
We will continue to strive to correct the above noted weakness in internal control once we have adequate funds to do so. We believe appointing a director who qualifies as a financial expert will improve the overall performance of our control over our financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2017 that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting.
The Company's management, including the chief executive officer and principal financial officer, do not expect that its disclosure controls or internal controls will prevent all errors or all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.
ITEM 9B. OTHER INFORMATION
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our directors are elected by the stockholders to a term of one year and serve until their successors are elected and qualified. The officers are appointed by our Board of Directors to a term of one year and serve until his/her successor is duly elected and qualified, or until he/she is removed from office.
The names and ages of our directors and executive officers and their positions are as follows:
| Name | | Age | | Position |
| | | | |
| Daniel Allen | | 65 | | Chief Executive, Financial and Accounting Officer and a Director |
| | | | |
| Ricky G. Bennett | | 59 | | Vice President of Operations and Compliance |
| | | | |
| Michael Jerome | | 46 | | Vice President of Media and Public Relations |
| | | | |
| Doyle Knudson | | 65 | | Director |
Daniel Allen was elected an officer and director July 28, 2015. Mr. Allen has been President, CEO and a Director of Sibannac, Inc. since August 25, 2014. Mr. Allen provided us with a consultanting services in the areas of banking and financing for four months in 2014. Between April 2013 and March 2014 Mr. Allen served as the Regional Vice President of Sunflower Bank in Longmont, Colorado. Between June 2001 and April 2013, Mr. Allen was the Chairman and Chief Executive Officer of Mile High Banks in Longmont, Colorado. Mr. Allen holds a Bachelor of Science in Management and Finance from the University of Utah.
Ricky G. Bennett was appointed an officer on March 24, 2014. Mr. Bennett was, between October 2013 and March 2014, an independent consultant to Convercent, Inc., a Denver, Colorado-based corporation which develops and markets computer software which firms use to comply with human resource regulations and conduct employee training. Between 2011 and October 2013 Mr. Bennett was Vice President of Professional Services and Director of Training for Convercent. Between 2008 and 2010 Mr. Bennett was an Interstate Compact and Youth Offender Officer for the Colorado Department of Corrections. In this position, Mr. Bennett used a variety of strategies and services to instill pro-social behaviors in offenders transitioning into the community. Mr. Bennett joined the Aurora, Colorado Police Department in 1980, served as the Aurora Chief of Police between 2002 and 2005, and retired as a commander in 2007.
Michael Jerome has been our Vice President of Media and Public Relations since February 2015. Between May 2014 and February 2015 Mr. Jerome served as our Director of Media and Public Relations. Between January 2002 and May 2014 Mr. Jerome was a Deputy Sheriff in Jefferson County Colorado. Between October 2005 and December 2006 Mr. Jerome was the Public Relations and Communications Manager for the Mizel Museum in Denver, Colorado. (He held this job when he was also a sheriff?) Between December 1997 and May 2001 Mr. Jerome was a Senior Producer for KHQ-TV in Spokane, Washington. Mr. Jerome graduated from the University of Colorado and holds a degree in Journalism and Mass Communication.
Doyle Knudson was elected as one of our directors on July 28, 2015. Between 1975 and 2002 Mr. Knudson held various positions with C.H. Robinson Company, a large multimodal transportation service provider. In 1975 he started in the corporate marketing center responsible for information services for carrier capacity, carrier insurance verification and research at the ICC in Washington, DC for common carrier authority. In 1976 Mr. Knudson was transferred to Ross Truck, a division of C.H. Robinson – customer support for publication logistics for Target stores and RR Donnelly. In 1978 Mr. Knudson was transferred to Lake Wales, FL as a Transportation Salesman responsible for customer development with agri business customers. In 1982 Mr. Knudson was promoted and transferred as Transportation Manager when he opened a new branch office in Houston, TX. In 1987 Mr. Knudson was promoted to General Manager at a new branch office in El Paso, TX, developing and providing logistics services for Coca Cola; Phelps Dodge, Dell Computers and Phillips Electronics.
Audit Committee, Independent Directors and Financial Expert
We do not have an Audit Committee; our board of directors currently acts as our Audit Committee. Doyle Knudson is an independent director, as that term is defined in the rules of the NYSE American. None of our directors is considered a "Financial Expert".
Code of Ethics
We have not adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions since one person, Dan Allen, serves in all the above capacities.
ITEM 11. EXECUTIVE COMPENSATION
Overview of Compensation Program
Our Board of Directors acts as our Compensation Committee and has responsibility for establishing, implementing and continually monitoring adherence to our compensation philosophy. The Board of Directors ensures that the total compensation paid to our executives is fair, reasonable and competitive.
Compensation Philosophy and Objectives
The Board of Directors believes that the most effective executive compensation program is one that is designed to reward the achievement of specific annual, long-term and strategic goals by the Company and that aligns executives' interests with those of the stockholders by rewarding performance above established goals, with the ultimate objective of improving stockholder value. As a result of the size of the Company and only having two executive officers, the Board evaluates both performance and compensation on an informal basis. Upon hiring additional executives, the Board intends to evaluate the necessity of establishing a Compensation Committee to evaluate both performance and compensation to ensure that the Company maintains its ability to attract and retain superior employees in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly-situated executives of peer companies. To that end, the Board believes executive compensation packages provided by the Company to its executives, including the named executive officers, should include both cash and stock-based compensation that reward performance as measured against established goals.
Role of Executive Officers in Compensation Decisions
Our Directors make all compensation decisions for, and approves recommendations regarding equity awards to, the our Directors and employees.
Summary Compensation Table
The following documents (pages F-1table sets forth, for the fiscal years ended December 31, 2017 and 2016 the cash compensation paid by the Company, as well as certain other compensation paid with respect to F-12) form partthose years to our officers:
| Summary Compensation Table (in $) | |
Name and Principal Position | | Year | | Salary (1) | | Stock Awards (2) | | Option Awards (3) | | | All Other Compensation (4) | | | Total | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Daniel Allen, CEO | | 2017 | | $ | 140,923 | | | | $ | -- | | | | -- | | | $ | 140,923 | |
| 2016 | | $ | 140,923 | | | | $ | 77,472 | | | | -- | | | $ | 218,395 | |
| | | | | | | | | | | | | | | | | | | | |
| Ricky G. Bennett | | 2017 | | $ | 95,000 | | | | | -- | | | | -- | | | $ | 95,000 | |
| VP of Operations | | | | | | | | | | | | | | | | | | | |
| and Compliance | | 2016 | | $ | 87,166 | | | | $ | 64,560 | | | | -- | | | $ | 151,726 | |
| | | | | | | | | | | | | | | | | | | | |
| Michael Jerome | | 2017 | | $ | 81,538 | | | | | -- | | | | -- | | | $ | 81,853 | |
| VP of Media and | | 2016 | | $ | 81,538 | | | | $ | 10,760 | | | | -- | | | $ | 92,298 | |
| Public Relations | | | | | | | | | | | | | | | | | | | |
(1) | The dollar value of base salary (cash and non-cash) earned during the year. |
(2) | The fair value of the shares of common stock issued during the periods covered by the table calculated on the grant date in accordance with ASC 718-10-30-3. |
(3) | The fair value of all stock options granted during the periods covered by the table calculated on the grant date in accordance with ACS 718-10-30-3. |
(4) | All other compensation received that we could not properly report in any other column of the table including the dollar value of any insurance premiums we paid for life insurance for the benefit of the named executive officer. |
Equity Compensation Plan
Up to 15,000,000 shares of common stock are reserved for issuance under our 2014-2015 Stock Incentive Plan ("the Plan") that was adopted on November 12, 2014.
The purposes of the report onPlan are to enhance our ability to attract and retain the Financial Statementsservices of qualified employees, officers and directors, contractors and other service providers upon whose judgment, initiative and efforts the successful conduct and development of our business largely depends, and to provide additional incentives to such persons or entities to devote their utmost effort and skill to our advancement and betterment by providing them an opportunity to participate in the ownership of our common stock and thereby have an interest in our success.
Shares that are eligible for grant under the Plan include Incentive Stock Options, Non-Qualified Stock Options and Restricted Stock. "Incentive Options" are any options designated and qualified as an "incentive stock option" as defined in Section 422 of the Internal Revenue Code. "Non-Qualified Options" are any options that are not an Incentive Option. To the extent that any option designated as an Incentive Option fails in whole or in part to qualify as an Incentive Option, it will constitute a Non-Qualified Option. "Restricted Stock" are shares of common stock issued pursuant to any restrictions and conditions as established by the Plan.
Only our employees (including our officers and Directors if they are employees) are eligible to receive Incentive Options under the Plan.
Our employees, officers and Directors (whether or not employed by us), and service providers are eligible to receive Non-Qualified Options or acquire Restricted Stock under the Plan.
The following tables list the options granted, cancelled and exercised during the fiscal years ended December 31, 2017 and 2016 to our officers and directors pursuant to the Plan:
Options Granted | | | | | | | | | |
| | | | | Options | | | Exercise | | Expiration |
| Name | | Grant Date | | Granted | | | Price | | Date |
| | | | | | | | | | |
| Dan Allen | | 12/28/2016 | | | 3,600,000 | | | $ | 0.05 | | 12/28/2019 |
| Ricky Bennett | | 12/28/2016 | | | 3,000,000 | | | $ | 0.05 | | 12/28/2019 |
| Michael Jerome | | 12/28/2016 | | | 500,000 | | | $ | 0.05 | | 12/28/2016 |
Options Cancelled | | PAGE | | | | |
| | |
Report of Independent Registered Public Accounting Firm Seale and Beers, CPAs | F-1 | Weighted | | Weighted Average |
Balance Sheets | F-2 | | | Average | | Remaining Contractual |
Statements of OperationsEmployee | F-3 | Total Options | | Exercise Price | | Term (Years) |
Statement of Stockholders’ (Deficit) | F-4 | | | | | |
Statements of Cash Flows | F-5 |
Notes to Financial Statements | F-6None |
| Options Exercised | | | | | | |
| Name | | Date of Exercise | | Shares Acquired On Exercise | | Value Realized |
| | | | | | |
| None |
SEALEThe following shows certain information as of December 31, 2017 concerning the stock options and stock bonuses granted pursuant to the Plan. Each option represents the right to purchase one share of common stock.
| Name of Plan | | Total Shares Reserved Under Plan | | | Shares Reserved for Outstanding Options | | | Shares Issued | | | Remaining Options/Shares Under Plan | |
| | | | | | | | | | | | | |
| 2014-2015 Stock Incentive Plan | | | 15,000,000 | | | | 7,700,000 | | | | -- | | | | 7,300,000 | |
The following table shows the weighted average exercise price of the outstanding options granted pursuant to the Plan as of December 31, 2017. The Plan has not been approved by our shareholders.
| Plan Name | | Number of Securities to be Issued Upon Exercise of Outstanding Options (a) | | | Weighted-Average Exercise Price of Outstanding Options | | | Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans, Excluding Securities Reflected in Column (a) | |
| | | | | | | | | | |
| 2014-2015 Stock Incentive Plan | | | 7,700,000 | | | $ | 0.05 | | | | 7,300,000 | |
Directors' Compensation
Our directors are not entitled to receive compensation for services rendered to us, or for each meeting attended except for reimbursement of out-of-pocket expenses. We have no formal or informal arrangements or agreements to compensate our director for services she provides as a director of our company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
BEERS, CPAsMANAGEMENT PCAOB Registered Auditors – www.sealebeers.com
The following table shows the beneficial ownership of the Company's common stock as of March 30, 2018 by (i) each person whom the Company knows beneficially owns more than 5% of the outstanding shares of the Company's common stock; (ii) each of the Company's officers and directors; and (iii) all the officers and directors as a group. Unless otherwise indicated, each owner has sole voting and investment powers over his shares of common stock.
| Name and Address of Owner | | Shares Owned | | | Percent of Class | |
| | | | | | | |
| Daniel Allen, Chief Executive Officer | | | 668,000 | | | | 0.5 | % |
| Ricky G. Bennett, VP of Operations and Compliance | | | 42,000 | | | | 0.0 | % |
| Name and Address of Owner | | Shares Owned | | | Percent of Class | |
| | | | | | | |
| Michael Jerome, VP of Media and Public Relations | | | 334,333 | | | | 0.1 | % |
| Doyle Knudson | | | -- | | | | -- | |
| All Directors and Officers as a group (4 persons) | | | 1,044,333 | | | | 0.6 | % |
| | | | | | | | | |
| Daniel Sullivan | | | 26,754,755 (1) | | | | 18.97 | % |
Note: As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or share investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of a security).
(1) Includes 4,000,000 shares of the Company's common stock held by Arapahoe Foundation, 10,904,455 shares held by Emerald Enterprises and 11,850,300 shares held in the name of Daniel Sullivan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE In July 2015, the Company entered into a loan agreement with a related party, whereby the Company could borrow up to $500,000. The loan is evidenced by a note which bears interest at 5% per year, payable quarterly in arrears, matures twelve months from the date of issuance, and is convertible into shares of the Company's common stock at a per share conversion price equal to $0.025. Upon the occurrence and during the continuation of an event of default, the holder may require the Company to redeem all or any portion of this Note in cash at a price equal to 150% of the principal amount. Through December 31, 2015, the Company borrowed a total of $415,000. During year ended December 31, 2016, we borrowed an additional $20,000 from related party convertible notes. As of December 31, 2016, $415,000 of the notes are past due. Since the debt holder has not elect the right to require the Company to redeem the note at a price equal to 150% of the principal amount, the terms stated prior to maturity are still in effect. As of December 31, 2017, the principal balance owed on this Convertible Note was $390,000. Since the debt holder has not elect the right to require the Company to redeem the note at a price equal to 150% of the principal amount, the terms stated prior to maturity are still in effect. The holder has waived the default term and the note is not considered to be in default as of December 31, 2017.
During October 2015, the Company borrowed $30,000 from an entity controlled by an officer of the Company. The loan is due and payable on demand and is non-interest bearing. During the year ended December 31, 2016, the Company repaid $135,000 and borrowed an additional $135,000 from the same related party. As of December 31, 2017, the principal balance owed on this loan was $44,000.
On July 7, 2016, the Company borrowed $73,000 from a related party. The loan was due and payable on July 7, 2017 and bore interest at 5% per annum. The principal balance owed on this loan at December 31, 2017 was $73,000.
On August 8, 2016, the Company entered into, a promissory note with Hypur Inc., a Nevada Corporation which is a related party, pursuant to which the Company borrowed $52,000. The loan was due and payable on August 10, 2017 and bore interest at 18% per annum. The principal balance owed on this loan at December 31, 2017 was $52,000.
On September 1, 2016, the Company entered into, a convertible promissory note with Hypur Ventures, L.P., a Delaware limited partnership (the "Hypur Ventures") a related party, pursuant to which the Company borrowed $75,000. The loan was due 180 days from the date of issuance and bears interest at 10% per annum. The note is convertible into common stock at a price of $.05 per share. The note is mandatory redeemable into common stock if the price per share is over $.50 per share during a 10 day period. The principal balance owed on this loan at December 31, 2017 was $75,000.
On September 20, 2016, the Company borrowed $47,500 from Hypur Inc. The loan is due and payable on December 20, 2016 and bears interest at 18% per annum. The principal balance owed on this loan at December 31, 2017 was $47,500.
On October 14, 2016, the Company entered into, an convertible promissory note with Hypur Ventures, pursuant to which the Company borrowed $100,000. The loan was due 180 days from the date of issuance and bears interest at 10% per annum. The note is convertible into common stock at a price of $.05 per share. The note is mandatory redeemable into common stock if the price per share is over $.50 per share during a 10 day period. The principal balance owed on this loan at December 31, 2017 was $100,000.
On March 7, 2017, the Company borrowed $100,000 from Hypur Ventures, L.P., a related party. The loan is due 180 days from March 7, 2017 and bears interest at 10% per annum. The loan is convertible into shares of the Company's common stock at a price of $.05 per share. The loan will automatically convert into shares of the Company's common stock if the price of the Company's common stock is over $.50 per share during any ten-day period. The principal balance owed on this loan at December 31, 2017 was $100,000. Upon default, the note bears a default rate of interest of 15% per annum, and if the default has not been remedied within 30 days, the redemption price would be 150% of the principal amount. The holder has waived the default term and agreed to extend the default date to March 31, 2018.
On May 26, 2017, the Company borrowed $100,000 from CGDK, a related party. The loan is due 360 days from May 26, 2017 and bears interest at 5% per annum. The loan is convertible into shares of the Company's common stock at a price of $.025 per share. The loan will automatically convert into shares of the Company's common stock if the price of the Company's common stock is over $.25 per share during any ten-day period. The principal balance owed on this loan at December 31, 2017 was $100,000.
On July 13, 2017, the Company borrowed $150,000 from CGDK, a related party. The loan is due 360 days from July 13, 2017 and bears interest at 5% per annum. The loan is convertible into shares of the Company's common stock at a price of $.05 per share. The loan will automatically convert into shares of the Company's common stock if the price of the Company's common stock is over $.25 per share during any ten-day period. The principal balance owed on this loan at December 31, 2017 was $150,000.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth fees billed to us by our independent auditors for the years ended 2017 and 2016 for (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of our financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.
| SERVICES | | 2017 | | | 2016 | |
| | | | | | | |
| Audit fees | | $ | 44,000 | | | $ | 40,500 | |
| Audit-related fees | | | -- | | | | -- | |
| Tax fees | | | -- | | | | -- | |
| All other fees | | | -- | | | | -- | |
| Total fee | | $ | 44,000 | | | $ | 40,500 | |
Audit fees and audit related fees represent amounts billed for professional services rendered for the audit of our annual financial statements and the review of our interim financial statements. Before our independent accountants were engaged by to render these services, their engagement was approved by our Directors.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| Exhibit Number | | Name and/or Identification of Exhibit | |
| | | |
| 3 | | Articles of Incorporation & By-Laws | |
| | | |
| | (a) Articles of Incorporation (1) | |
| | | |
| | (b) By-Laws (1) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 101 | | Interactive Data Files (2) | |
| | | |
| | (INS) XBRL Instance Document | |
| | (SCH) XBRL Taxonomy Extension Schema Document | |
| | (CAL) XBRL Taxonomy Extension Calculation Linkbase Document | |
| | (DEF) XBRL Taxonomy Extension Definition Linkbase Document | |
| | (LAB) XBRL Taxonomy Extension Label Linkbase Document | |
| | (PRE) XBRL Taxonomy Extension Presentation Linkbase Document | |
(1) | Incorporated by reference to the Registration Statement on Form 10-SB, previously filed with the SEC on November 28, 2007. | | |
(2) | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors and Stockholders of
Blue Line ProductionProtection Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Blue Line ProductionProtection Group, Inc.asInc. and its subsidiaries (collectively, the "Company") as of December 31, 2014,2017 and 2013,2016, and the related consolidated statements of income, stockholders’ equity (deficit),operations, changes in stockholders' deficit, and cash flows for each of the years inthen ended, and the two-year period ended December 31, 2014. Blue Line Production Group, Inc.’s management is responsible for these financial statements. Our responsibility isrelated notes (collectively referred to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance withas the standards of the Public Company Accounting Oversight Board (United States)"financial statements"). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Blue Line Production Group, Inc.the Company as of December 31, 2014,2017 and 2013,2016, and the related statementsresults of income, stockholders’ equity (deficit),their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the two-year period ended December 31, 2014.United States of America.
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has incurredsuffered recurring losses and recurring negative cash flow from operating activities,operations and has an accumulated deficit whicha net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management’sManagement's plans concerningin regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Seale and Beers, CPAsMaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor since 2015.
Seale and Beers, CPAs
Las Vegas, NevadaHouston, Texas
April 10, 20152, 2018
Blue Line Protection Group, Inc.
Consolidated Balance Sheets
| BLUE LINE PROTECTION GROUP, INC. | |
| CONSOLIDATED BALANCE SHEETS | |
| | | | | | | |
| | | | | | | |
| | | December 31, | | | December 31, | |
| | | 2017 | | | 2016 | |
| | | | | | | |
| Assets | | | | | | |
| Current assets: | | | | | | |
| Cash and equivalents | | $ | 37,771 | | | $ | - | |
| Accounts receivable, net | | | 196,030 | | | | 117,683 | |
| Accrued receivables | | | 10,378 | | | | 16,015 | |
| Prepaid expenses and deposits | | | 24,628 | | | | 53,038 | |
| Total current assets | | | 268,807 | | | | 219,586 | |
| | | | | | | | | |
| Fixed assets: | | | | | | | | |
| Machinery and equipment, net | | | 114,677 | | | | 132,887 | |
| Security deposit | | | 32,850 | | | | 32,850 | |
| Fixed assets of discontinued operations | | | 2,782 | | | | 2,782 | |
| Total fixed assets | | | 150,309 | | | | 135,669 | |
| | | | | | | | | |
| Total assets | | | 419,116 | | | $ | 355,255 | |
| | | | | | | | | |
| Liabilities and Stockholders' Deficit | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Cash overdraft | | $ | - | | | $ | 30,462 | |
| Accounts payable and accrued liabilities | | | 642,059 | | | | 416,573 | |
| Notes payable | | | 110,225 | | | | 185,000 | |
| Notes payable - related parties | | | 419,846 | | | | 385,846 | |
| Convertible notes payable, net of unamortized discount | | | 359,953 | | | | - | |
| Convertible notes payable - related parties, net of unamortized discount | | | 1,057,726 | | | | 610,000 | |
| Current portion of long-term debt | | | 2,121 | | | | 4,137 | |
| Current liabilities of discontinued operations | | | 1,335 | | | | 1,335 | |
| Derivative liabilities | | | 1,879,930 | | | | - | |
| Total current liabilities | | | 4,473,195 | | | | 1,633,353 | |
| | | | | | | | | |
| Long-term liabilities: | | | | | | | | |
| Long-term debt | | | 6,518 | | | | 8,664 | |
| Total current liabilities | | | 6,518 | | | | 8,664 | |
| | | | | | | | | |
| Total liabilities | | | 4,479,713 | | | | 1,642,017 | |
| | | | | | | | | |
| Stockholders' deficit: | | | | | | | | |
| Preferred Stock, $0.001 par value, 100,000,000 shares authorized, | | | | | |
| 20,000,000 shares issued and outstanding as of December 30, 2017 and | | | | | |
| December 31, 2016, respectively | | | 20,000 | | | | 20,000 | |
| Common Stock, $0.001 par value, 1,400,000,000 shares authorized, | | | | | |
| 128,348,026 and 127,348,026 issued and outstanding as of | | | | | | | | |
| December 31, 2017 and December 31, 2016, respectively | | | 128,348 | | | | 127,348 | |
| Common Stock, owed but not issued, 12,923 shares and 12,923 shares | | | | | |
| as of December 31, 2017 and December 31, 2016, respectively | | | 13 | | | | 13 | |
| Additional paid-in capital | | | 5,417,266 | | | | 5,537,667 | |
| Accumulated deficit | | | (9,626,224 | ) | | | (6,971,790 | ) |
| Total stockholders' deficit | | | (4,060,597 | ) | | | (1,286,762 | ) |
| | | | | | | | | |
| Total liabilities and stockholders' deficit | | $ | 419,116 | | | $ | 355,255 | |
| | December 31, | |
| | 2014 | | 2013 | |
| Assets | | | | | |
| | | | | | |
| Current assets: | | | | | |
| Cash and equivalents | $ | 211,922 | | $ | 2,844 |
| Accounts receivable, net | | 62,101 | | | - |
| Accrued receivables | | 54,790 | | | - |
| Notes receivable | | 46,451 | | | - |
| Prepaid expenses and deposits | | 2,500 | | | - |
| Total current assets | | 377,764 | | | 2,844 |
| | | | | | |
| Fixed assets | | | | | |
| Total fixed assets, net | | 189,438 | | | - |
| Property, plant and equipment | | 750,000 | | | - |
| Building improvements | | 348,553 | | | - |
| Total fixed assets | | 1,287,991 | | | - |
| | | | | | |
| Total assets | $ | 1,665,755 | | $ | 2,844 |
| | | | | | |
| Liabilities and Stockholders’ (Deficit) | | | | | |
| | | | | | |
| Current liabilities: | | | | | |
| Accounts payable | $ | 143,019 | | $ | 2,300 |
| Accrued liabilities | | 152,844 | | | - |
| Notes payable | | 2,000 | | | 2,000 |
| Note payable – related parties | | 288,271 | | | - |
| Current portion of long-term debt | | 3,735 | | | - |
| Total current liabilities | | 589,869 | | | 4,300 |
| | | | | | |
| Long-term liabilities | | | | | |
| Long-term debt | | 691,780 | | | - |
| Total long-term liabilities | | 691,780 | | | - |
| | | | | | |
| Total liabilities | | 1,281,649 | | | - |
| | | | | | |
| Stockholders’ (deficit) | | | | | |
| Preferred stock, $0.001 par value, 100,000,000 shares | | | | | |
| authorized, no shares issued and outstanding | | - | | | - |
| Common stock, $0.001 par value, 1,400,000,000 shares | | | | | |
| authorized, 122,845,282 and 106,820,000 shares | | | | | |
| issued and outstanding as of 12/31/14 and 12/31/13 | | 122,845 | | | 106,820 |
| Common stock, owed but not issued, 748,750 shares and | | | | | |
| 0 shares as of 12/31/14 and 12/31/13 | | 749 | | | - |
| Additional paid-in capital | | 2,788,934 | | | (5,795) |
| Accumulated deficit | | (2,528,422) | | | (102,481) |
| Total stockholders’ (deficit) | | 384,106 | | | (1,456) |
| | | | | | |
| Total liabilities and stockholders’ (deficit) | $ | 1,665,755 | | $ | 2,844 |
The accompanying notes are an integral part of these consolidated financial statements.
| BLUE LINE PROTECTION GROUP, INC. | |
| CONSOLIDATED STATEMENTS OF OPERATIONS | |
| | | | | | | |
| | | | | | | |
| | | For the year ended | |
| | | December 31, | |
| | | 2017 | | | 2016 | |
| | | | | | | |
| Revenue | | $ | 3,865,807 | | | $ | 2,821,187 | |
| Cost of revenue | | | (2,908,297 | ) | | | (2,420,634 | ) |
| Gross profit | | | 957,510 | | | | 400,553 | |
| | | | | | | | | |
| Operating expenses: | | | | | | | | |
| Advertising | | | 8,119 | | | | 12,480 | |
| Depreciation | | | 50,332 | | | | 67,094 | |
| General and administrative expenses | | | 1,929,174 | | | | 2,011,628 | |
| Loss of disposal of assets | | | - | | | | 312,053 | |
| Total expenses | | | 1,987,625 | | | | 2,403,255 | |
| | | | | | | | | |
| Operating loss | | | (1,030,115 | ) | | | (2,002,702 | ) |
| | | | | | | | | |
| Other income (expenses): | | | | | | | | |
| Interest expense | | | (387,621 | ) | | | (433,259 | ) |
| Other income | | | 72,890 | | | | - | |
| Loss on derivative | | | (1,309,588 | ) | | | - | |
| Total other expenses | | | (1,624,319 | ) | | | (433,259 | ) |
| | | | | | | | | |
| Net loss | | | (2,654,434 | ) | | | (2,435,961 | ) |
| Deemed dividend on Series A convertible preferred stock | | | - | | | | (114,229 | ) |
| | | | | | | | | |
| Net loss attributable to common stockholders | | $ | (2,654,434 | ) | | $ | (2,550,190 | ) |
| | | | | | | | | |
| Net loss per common share: Basic and Diluted | | | (0.02 | ) | | | (0.02 | ) |
| | | | | | | | | |
| Weighted average number of | | | | | | | | |
| common shares outstanding- Basic and Diluted | | | 128,260,355 | | | | 126,231,238 | |
Blue Line Protection Group, Inc.
Consolidated Statements of Operations
| | | For the years ended | |
| | | December 31, | |
| | | 2014 | | | 2013 | |
| | | | | | | |
| Revenue, net | | $ | 1,032,168 | | | $ | - | |
| Cost of revenue | | | (778,777 | ) | | | - | |
| | | | | | | | | |
| Gross profit | | | 253,391 | | | | - | |
| | | | | | | | | |
| Expenses: | | | | | | | | |
| Advertising | | | 189,536 | | | | - | |
| Depreciation | | | 27,172 | | | | - | |
| Executive compensation | | | 104,892 | | | | - | |
| General and administrative expenses | | | 657,633 | | | | 15,288 | |
| Professional fees | | | 916,766 | | | | - | |
| Salaries and wages | | | 502,032 | | | | - | |
| Stock-based compensation | | | 480,675 | | | | - | |
| Total expenses | | | 2,878,706 | | | | 15,288 | |
| | | | | | | | | |
| Operating loss | | | (2,625,315 | ) | | | (15,288 | ) |
| | | | | | | | | |
| Other income: | | | | | | | | |
| Interest expense | | | (11,308 | ) | | | - | |
| Interest income | | | 10,683 | | | | - | |
| Gain on sale of securities | | | 199,999 | | | | - | |
| Total other income | | | 199,374 | | | | - | |
| | | | | | | | | |
| Loss before provision for income taxes | | | (2,425,941 | ) | | | (15,288 | ) |
| | | | | | | | | |
| Provision for income taxes | | | - | | | | - | |
| | | | | | | | | |
| Net loss | | $ | (2,425,941 | ) | | $ | (15,288 | ) |
| | | | | | | | | |
| Weighted average number of | | | | | | | | |
| common shares outstanding - basic | | | 116,942,037 | | | | 106,820,000 | |
Weighted average number of common shares outstanding – fully diluted | | | 122,184,808 | | | | 106,820,000 | |
| | | | | | | | | |
| Net loss per share - basic | | $ | (0.02 | ) | | $ | (0.00 | ) |
| Net loss per share – fully diluted | | $ | (0.02 | ) | | $ | (0.00 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
Blue Line Protection Group, Inc.| BLUE LINE PROTECTION GROUP, INC. | |
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT | |
| FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Additional | | | | | | | | | Stockholders' | |
| | | Preferred Stock | | | Common Stock | | | Paid-in | | | Stock | | | Accumulated | | | Equity | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Payable | | | Deficit | | | (Deficit) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2015 | | | - | | | $ | - | | | | 125,348,026 | | | $ | 125,348 | | | $ | 4,276,291 | | | | 13 | | | | (4,535,829 | ) | | | (134,177 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock issued for services | | | - | | | | - | | | | 2,000,000 | | | | 2,000 | | | | 86,000 | | | | - | | | | - | | | | 88,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred stock issued for cash | | | 20,000,000 | | | $ | 20,000 | | | | - | | | | - | | | | 925,000 | | | | - | | | | - | | | | 945,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Beneficial conversion feature on convertible note | | | - | | | | - | | | | - | | | | - | | | | 2,240 | | | | - | | | | - | | | | 2,240 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortization of employee stock options | | | - | | | | - | | | | - | | | | - | | | | 248,136 | | | | - | | | | - | | | | 248,136 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Beneficial conversion feature on convertible preferred stock | | | - | | | | - | | | | - | | | | - | | | | 114,229 | | | | - | | | | - | | | | 114,229 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deemed dividend on convertible preferred stock | | | - | | | | - | | | | - | | | | - | | | | (114,229 | ) | | | - | | | | | | | | (114,229 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2016 | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | | (2,435,961 | ) | | | (2,435,961 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2016 | | | 20,000,000 | | | $ | 20,000 | | | | 127,348,026 | | | $ | 127,348 | | | | 5,537,667 | | | | 13 | | | | (6,971,790 | ) | | | (1,286,762 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | - | |
| Common stock issued for services | | | - | | | | - | | | | 1,000,000 | | | | 1,000 | | | | 45,583 | | | | - | | | | - | | | | 46,583 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Beneficial conversion feature on convertible note | | | - | | | | - | | | | - | | | | - | | | | 71,400 | | | | - | | | | - | | | | 71,400 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortization of employee stock options | | | - | | | | - | | | | - | | | | - | | | | 79,840 | | | | - | | | | - | | | | 79,840 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Reclassification of derivative liabilities | | | - | | | | - | | | | - | | | | - | | | | (317,224 | ) | | | - | | | | - | | | | (317,224 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2017 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,654,434 | ) | | | (2,654,434 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2017 | | | 20,000,000 | | | | 20,000 | | | | 128,348,026 | | | | 128,348 | | | $ | 5,417,266 | | | | 13 | | | $ | (9,626,224 | ) | | $ | (4,060,597 | ) |
Consolidated Statements of Stockholders’ (Deficit)
| | | | | | | | | | | | | | | Additional | | | Subscriptions | | | | | | Total | |
| | | Preferred Stock | | | Common Stock | | | Paid-in | | | Payable/ | | | Accumulated | | | Stockholders’ | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | (Receivable) | | | (Deficit) | | | Equity | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Beginning Balance | | | | | | | | | | | | | | | | | | | | | | | | |
| January 1, 2013 | | | - | | | $ | - | | | | 106,820,000 | | | $ | 106,820 | | | $ | (21,045 | ) | | $ | - | | | $ | (87,193 | ) | | $ | (1,418 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Donated capital | | | - | | | | - | | | | - | | | | - | | | | 15,250 | | | | - | | | | - | | | | 15,250 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2013 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (15,288 | ) | | | (15,288 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2013 | | | - | | | | - | | | | 106,820,000 | | | | 106,820 | | | | (5,795 | ) | | | - | | | | (102,481 | ) | | | 7,106 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Donated capital | | | - | | | | - | | | | - | | | | - | | | | 127,106 | | | | - | | | | - | | | | 127,106 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 27, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issued for cash | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $0.09 per share | | | - | | | | - | | | | 13,068,050 | | | | 13,068 | | | | 1,200,393 | | | | - | | | | - | | | | 1,213,461 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 27, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issued for fixed asset | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $0.09 per share | | | - | | | | - | | | | 323,078 | | | | 323 | | | | 29,677 | | | | - | | | | - | | | | 30,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| April 8, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issued to retire notes payable | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $0.09 per share | | | - | | | | - | | | | 1,346,154 | | | | 1,346 | | | | 123,654 | | | | - | | | | - | | | | 125,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 11, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock owed by not issued for services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $0.67 per share | | | - | | | | - | | | | - | | | | - | | | | 187,320 | | | | 280 | | | | - | | | | 187,600 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 15, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issued for cash | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $0.32 per share | | | - | | | | - | | | | - | | | | - | | | | 149,531 | | | | 469 | | | | - | | | | 150,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| October 1, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of nonqualified stock options | | | - | | | | - | | | | - | | | | - | | | | 13,160 | | | | - | | | | - | | | | 13,160 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| October 22, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issued for services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $0.38 per share | | | - | | | | - | | | | 1,250,000 | | | | 1,250 | | | | 473,750 | | | | - | | | | - | | | | 475,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 24, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issued to employees for services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $0.25 per share | | | - | | | | - | | | | 38,000 | | | | 38 | | | | 9,462 | | | | - | | | | - | | | | 9,500 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortization of | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| employee stock options | | | - | | | | - | | | | - | | | | - | | | | 480,676 | | | | - | | | | - | | | | 480,676 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2014 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,425,941 | ) | | | (2,425,941 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2014 | | | - | | | $ | - | | | | 122,845,282 | | | $ | 122,845 | | | $ | 2,788,934 | | | $ | 749 | | | $ | (2,528,422 | ) | | $ | 384,106 | |
The accompanying notes are an integral part of these consolidated financial statements.
| BLUE LINE PROTECTION GROUP, INC. | |
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |
| | | | | | | |
| | | | | | | |
| | | For the year ended | |
| | | December 31, | |
| | | 2017 | | | 2016 | |
| Operating activities | | | | | | |
| Net loss | | $ | (2,654,434 | ) | | $ | (2,435,961 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
| Depreciation | | | 50,332 | | | | 67,094 | |
| Loss on sale of building | | | - | | | | 312,053 | |
| Stock-based compensation expense | | | - | | | | 248,136 | |
| Amortization of Options | | | 79,840 | | | | - | |
| Common stock issued for services | | | 46,583 | | | | 88,000 | |
| Amortization of discount on note payable | | | 202,390 | | | | 265,745 | |
| Penalty interest | | | 61,500 | | | | 71,684 | |
| Change in fair value of derivative liabilities | | | 1,309,588 | | | | - | |
| Changes in operating assets and liabilities: | | | | | | | | |
| (Increase) in accounts receivable | | | (72,710 | ) | | | (8,452 | ) |
| (Increase) / decrease in deposits and prepaid expenses | | | 109,469 | | | | (98,069 | ) |
| Increase in accounts payable and accrued liabilities | | | 144,427 | | | | 19,893 | |
| Net cash used in operating activities | | | (723,015 | ) | | | (1,469,877 | ) |
| | | | | | | | | |
| Cash flows from investing activities | | | | | | | | |
| Receipt of payments from notes receivable | | | - | | | | (28,202 | ) |
| Purchase of fixed assets | | | (32,122 | ) | | | - | |
| Cash proceeds from sale of building | | | - | | | | 722,319 | |
| Construction of building | | | - | | | | (485,665 | ) |
| Net cash provided by/(used in) investing activities | | | (32,122 | ) | | | 208,452 | |
| | | | | | | | | |
| Financing activities | | | | | | | | |
| Cash overdraft | | | (30,462 | ) | | | 30,462 | |
| Proceeds from notes payable - related party | | | 463,243 | | | | 307,500 | |
| Repayments from notes payable - related party | | | (429,243 | ) | | | (135,002 | ) |
| Proceeds from notes payable | | | 113,700 | | | | 532,360 | |
| Repayment of notes payable | | | (222,918 | ) | | | (544,000 | ) |
| Proceeds from convertible notes payable - related party | | | 460,000 | | | | 195,000 | |
| Proceeds from convertible notes payable | | | 694,750 | | | | 157,750 | |
| Repayments of convertible notes payable | | | (190,500 | ) | | | (168,000 | ) |
| Penalty payments | | | (61,500 | ) | | | (71,684 | ) |
| Principal payments on auto debt | | | (4,162 | ) | | | (4,172 | ) |
| Issuances of preferred stock | | | - | | | | 945,000 | |
| Issuances of common stock | | | - | | | | - | |
| Net cash provided by financing activities | | | 792,908 | | | | 1,245,214 | |
| | | | | | | | | |
| Net decrease in cash | | | 37,771 | | | | (16,211 | ) |
| Cash - beginning | | | - | | | | 16,211 | |
| Cash - ending | | $ | 37,771 | | | $ | - | |
| | | | | | | | | |
| Supplemental disclosures of cash flow information: | | | | | | | | |
| Interest paid | | $ | 77,906 | | | $ | 53,436 | |
| Income taxes paid | | $ | - | | | $ | - | |
| | | | | | | | | |
| Non-cash investing and financing activities: | | | | | | | | |
| Debt discount due to derivative liability | | $ | 253,118 | | | $ | - | |
| Debt discount due to beneficial conversion feature | | $ | 71,400 | | | $ | 2,240 | |
| Interest capitalized as construction in progress | | $ | - | | | $ | 14,078 | |
| Beneficial conversion feature reclassified to liabilities | | $ | 317,224 | | | $ | - | |
| Building mortgage paid through proceeds form sale of building | | $ | - | | | $ | 677,681 | |
| Deemed dividend on preferred stock | | $ | - | | | $ | 114,229 | |
Blue Line Protection Group, Inc.
Consolidated Statements of Cash Flows
| | | For the years ended | |
| | | December 31, | |
| | | 2014 | | | 2013 | |
| | | | | | | |
| Operating activities | | | | | | |
| Net loss | | $ | (2,425,941 | ) | | $ | (15,288 | ) |
| Adjustments to reconcile net loss to | | | | | | | | |
| net cash used by operating activities: | | | | | | | | |
| Depreciation | | | 27,172 | | | | - | |
| Gain on sale of investments | | | (200,000 | ) | | | - | |
| Stock-based compensation expense | | | 490,176 | | | | - | |
| Shares issued for services | | | 662,600 | | | | - | |
| Shares issued for prepaid expenses | | | 133,161 | | | | - | |
| Changes in operating assets and liabilities: | | | | | | | | |
| (Increase) in accounts receivable | | | (116,892 | ) | | | - | |
| (Increase) in deposits and prepaid expenses | | | (2,500 | ) | | | - | |
| Increase in accounts payable | | | 297,298 | | | | 2,300 | |
| Increase in long-term liabilities | | | 691,781 | | | | - | |
| Net cash used by operating activities | | | (443,145 | ) | | | (12,988 | ) |
| | | | | | | | | |
| Investing activities | | | | | | | | |
| Issuance of notes receivable | | | (155,000 | ) | | | - | |
| Receipt of payments from notes receivable | | | 108,549 | | | | - | |
| Sale of investments held to maturity | | | 200,000 | | | | | |
| Purchase of fixed assets | | | (186,610 | ) | | | - | |
| Purchase of plant, property and equipment | | | (1,098,553 | ) | | | - | |
| Net cash used by investing activities | | | (1,131,614 | ) | | | - | |
| | | | | | | | | |
| Financing activities | | | | | | | | |
| Donated capital | | | 7,106 | | | | 15,250 | |
| Repayment of notes payable | | | (41,008 | ) | | | - | |
| Proceeds from notes payable | | | 166,008 | | | | - | |
| Repayment of notes payable – related party | | | (106,325 | ) | | | - | |
| Proceeds from notes payable – related party | | | 394,596 | | | | - | |
| Common stock payable | | | 748 | | | | - | |
| Issuances of common stock | | | 1,362,992 | | | | - | |
| Net cash provided by financing activities | | | 1,784,117 | | | | 15,250 | |
| | | | | | | | | |
| Net increase (decrease) in cash | | | 209,078 | | | | 2,262 | |
| Cash – beginning of the year | | | 2,844 | | | | 582 | |
| Cash – end of the year | | $ | 211,922 | | | $ | 2,844 | |
| | | | | | | | | |
| Supplemental disclosures: | | | | | | | | |
| Interest paid | | | - | | | | - | |
| Income taxes paid | | | - | | | | - | |
| | | | | | | | | |
| Non-cash transactions: | | | | | | | | |
| Shares issued for fixed assets | | $ | 30,000 | | | $ | - | |
| Number of shares issued for fixed assets | | | 323,078 | | | | - | |
| Stock-based compensation | | $ | 3,067,525 | | | $ | - | |
| Number of stock options issued for stock-based compensation | | | 11,736,900 | | | | - | |
| Shares issued for prepaid services | | $ | 120,000 | | | $ | - | |
| Number of shares issued for prepaid services | | | 200,000 | | | | - | |
| Shares issued for services | | $ | 662,600 | | | $ | - | |
| Number of shares issued for services | | | 1,330,000 | | | | - | |
The accompanying notes are an integral part of these consolidated financial statements.
Blue Line Protection Group, Inc.
Notes to Consolidated Financial Statements
(Audited)
Note 1 – History and organization of the company
The Company was originally organized on September 11, 2006 (Date of Inception) under the laws of the State of Nevada, as The Engraving Masters, Inc. The Company was authorized to issue up to 100,000,000 shares of its common stock and 100,000,000 shares of preferred stock, each with a par value of $0.001 per share.
On March 14, 2014, the Company acquired Blue Line Protection Group, Inc., a Colorado corporation formed in February 2014 (“("Blue Line Colorado”Colorado"), as a wholly-owned subsidiary of the Company. Blue Line Colorado provides protection, compliance and financial services to the lawful cannabis industry.
On March 15, 2014, the Company agreed to acquire all of the issued and outstanding membership interests in Blue Line Protection Group, LLC, a Colorado limited liability company (“Blue Line LLC”). The closing of the acquisition is to take place once the Company is provided with financial statements, audited as necessary and in proper form, which would be satisfactory for filing in an 8-K report with the Securities and Exchange Commission. If the acquisition of Blue Line LLC does not occur by July 31, 2014, the agreement pertaining to the acquisition of Blue Line LLC will terminate. As of July 31, 2014, the terms and conditions of the agreement were not satisfied and was resultantly been terminated.
On May 2, 2014, the Company changed its name from The Engraving Masters, Inc. to Blue Line Protection Group, Inc. (“BLPG”("BLPG")
On May 6, 2014, the Company effected a forward stock split and a pro-rata increase in its authorized common stock on a basis of 14-to-1, whereby each shareholder received 14 newly issued shares of common stock for each 1 share held. Additionally, the authorized number capital of the Company concurrently increased to 1,400,000,000 shares of $0.001 par value common stock. All references to share and per share amounts in the condensed consolidated financial statements and accompanying notes thereto have been retroactively restated to reflect the forward stock split.
Blue Line Protection Group, Inc.The Company provides armed protection, financial solutions, logistics, and compliance services for businesses engaged in the legal cannabis industry. The Company offers asset logistic services, such as armored transportation service; security services, including shipment protection, money escorts, security monitoring, asset vaulting, VIP and dignitary protection, and others; financial services, such as handling transportation and storage of currency; training; and compliance services.
Note 2 – Accounting policies and procedures
Principles of consolidation
For the years ended December 31, 20142017 and 2013, the2016, The consolidated financial statements include the accounts of Blue Line Protection Group, Inc. (formerly The Engraving Masters, Inc.), Blue Line Advisory Services, Inc. (a Nevada corporation; “BLAS”"BLAS"), Blue Line Capital, Inc. (a Colorado corporation; “Blue"Blue Line Capital”Capital"), Blue Line Protection Group (California), Inc. (a California corporation; “Blue"Blue Line California”California"), Blue Line Colorado, Blue Line Protection Group Illinois, Inc. (an Illinois corporation; “Blue"Blue Line Illinois”Illinois"), BLPG, Inc. (a Nevada corporation; “Blue"Blue Line Nevada”Nevada"), Blue Line Protection Group (Washington), Inc. (a Washington corporation; “Blue"Blue Line Washington”Washington"). All significant intercompany balances and transactions have been eliminated. BLPG and its subsidiaries are collectively referred herein to as the “Company.”"Company."
Basis of Presentationpresentation
The financial statements present the balance sheets, statements of operations, stockholder’sstockholder's equity (deficit) and cash flows of the Company. The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America.
Year end
The Company has adopted December 31 as its fiscal year end.
Blue Line Protection Group, Inc.
Notes to Consolidated Financial Statements
(Audited)
Note 2 – Accounting policies and procedures (continued)
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
| Cash and cash equivalents |
Cash and cash equivalents
The Company maintains a cash balance in a non-interest-bearing account that currently does not exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of December 31, 20142017 and 2013.2016. As of December 31, 2016 the Company had a cash overdraft of $30,462.
Accounts receivable
Accounts receivable are stated at the amount the Company expects to collect from outstanding balances and do not bear interest. The Company provides for probable uncollectible amounts through an allowance for doubtful accounts, if an allowance is deemed necessary. The allowance for doubtful accounts is the Company’sCompany's best estimate of the amount of probable credit losses in the Company’sCompany's existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future. On a periodic basis, management evaluates its accounts receivable and determines the requirement for an allowance for doubtful accounts based on its assessment of the current and collectible status of individual accounts with past due balances over 90 days. Account balances are charged against the allowance after all collection efforts have been exhausted and the potential for recovery is considered remote.
Notes receivableAllowance for uncollectible accounts
Notes receivable are measured
The Company estimates losses on receivables based on known troubled accounts, if any, and historical experience of losses incurred. There was no allowance for doubtful customer receivables at historical costDecember 31, 2017 and reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans. Interest income on notes receivable is recognized using the interest method. Interest income on impaired loans is recognized as cash is collected or on a cost-recovery basis.2016.
Property and equipment
Property and equipment is recorded at cost and capitalized from the initial date of service. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. The estimated useful lives for significant property and equipment categories are as follows:
| Automotive Vehicles | 5 years |
| Furniture and Equipment | 7 years |
| Buildings and Improvements | 15 years |
The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment there was no impairment as December 31, 20142017 and 2013.2016. Depreciation expense for the years ended December 31, 20142017 and 20132016 totaled $27,172$50,332 and $0,$67,094, respectively.
Blue Line Protection Group, Inc.
Notes to Consolidated Financial Statements
(Audited)Impairment of long-lived assets
Note 2 – Accounting policies and procedures (continued)
Long-lived assets
The Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, “Accounting"Accounting for the Impairment or Disposal of Long-Lived Assets.”" ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost or carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’sasset's carrying value and its fair value or disposable value. As of December 31, 20142017 and 2013,2016, the Company determined that none of its long-term assets were impaired.
Concentration of business and credit risk
The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. The Company’sCompany's financial instruments that are exposed to concentration of credit risks consist primarily of cash. The Company maintains its cash in bank accounts, which may at times, exceed federally insured limits.
The Company had two major customers which generated approximately 40% (26%, and 14%) of total revenue in the year ended December 31, 2017.
The Company had two major customers which generated approximately 40% (25% and 15%) of total revenue in the year ended December 31, 2016.
Related party transactions
FASB ASC 850, "Related Party Disclosures" requires companies to include in their financial statements disclosures of material related party transactions. The Company discloses all material related party transactions. Related parties are defined to include any principal owner, director or executive officer of the Company and any immediate family members of a principal owner, director or executive officer.
Fair value of financial instruments
The carrying amounts reflected in the balance sheets for cash, accounts payable and related party payables approximate the respective fair values due to the short maturities of these items. The Company does not hold any investments that are available-for-sale.
As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The three levels of the fair value hierarchy are described below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
Blue Line Protection Group, Inc.
Notes to Consolidated Financial Statements
(Audited)The following table presents the derivative financial instruments, the Company's only financial liabilities measured and recorded at fair value on the Company's consolidated balance sheet on a recurring basis, and their level within the fair value hierarchy as of December 31, 2017 and 2016:
Note 2 – Accounting policies and procedures (continued)December 31, 2017
| | | Amount | | | Level 1 | | | Level 2 | | | Level 3 | |
| Embedded conversion derivative liability | | $ | 1,580,517, | | | $ | - | | | $ | - | | | $ | 1,580,517 | |
| Warrant derivative liabilities | | $ | 299,413 | | | $ | - | | | $ | - | | | $ | 299,413 | |
| Total | | $ | 1,879,930 | | | $ | - | | | $ | - | | | $ | 1,879,930 | |
December 31, 2016
| | Amount | | | Level 1 | | | Level 2 | | | Level 3 | |
| Embedded conversion derivative liability | | $ | -, | | | $ | - | | | $ | - | | | $ | - | |
| Warrant derivative liabilities | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| Total | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
The embedded conversion feature in the convertible debt instruments that the Company issued, that became convertible during the year ended December 31, 2017, qualified them as derivative instruments since the number of shares issuable under the notes are indeterminate based on guidance in FASB ASC 815, Derivatives and Hedging. These convertible notes tainted all other equity linked instruments including outstanding warrants and fixed rate convertible debt on the date that the instrument became convertible. The valuation of the derivative liability of the warrants was determined through the use of Black Scholes option-pricing model (See Note 8).
Revenue recognition
The Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of its fees is probable.reasonably assured.
Other Income
Sales related to long-term contracts for services (such as programming, website development and maintenance) extending over several years are accounted for under the percentage-of-completion method of accounting. Sales and earnings under these contracts are recorded based on the ratio of actual costs incurred to total estimated costs expected to be incurred related to the contract under the cost-to-cost method based budgeted milestones or tasks as designated per each contract. Anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable.
For all other sales of product or services the Company recognizes revenues based on the terms of the customer agreement. The customer agreement takes the form of either a contract or a customer purchase order and each provides information with respect to the product or service being sold and the sales price. If the customer agreement does not have specific delivery or customer acceptance terms, revenue is recognized on the date of the customer agreement, invoice or purchase order.
Allowance for uncollectible accounts
The Company estimates losses on receivables based on known troubled accounts, if any, and historical experiencereceived a reimbursement of losses incurred. The allowance$72,890 from its insurance company for doubtful customer and vendor receivables was $18,864 and $0 atdamages caused by a hail storm during the year ended December 31, 2014 and 2013, respectively.2017.
Cost of Sales
The Company’s cost of revenue primarily consists of items purchased by the Company specifically purposed for the benefit of the Company’s client.
Advertising costs
The Company expenses all costs of advertising as incurred. There were $189,536$8,119 and $0$12,480 in advertising costs for the years ended December 31, 20142017 and 2013,2016, respectively.
General and administrative expenses
The significant components of general and administrative expenses consist solelymainly of legal and professional fees.fees and compensation.
Stock-based compensation
The Company records stock-based compensation in accordance with FASB ASC Topic 718, "Compensation – Stock Compensation." FASB ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the employee's requisite service period. The Company recognizes revenue when allin the statement of operations the following conditions are satisfied: (1) there is persuasive evidencegrant-date fair value of an arrangement; (2)stock options and other equity-based compensation issued to employees and non-employees. The Company accounts for equity instruments issued to non-employees in accordance with the service has been providedprovisions of ASC 505-50, "Equity-Based Payments to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of its fees is probable.
Sales related to long-term contracts for services (such as programming, website development and maintenance) extending over several years are accounted for under the percentage-of-completion method of accounting. Sales and earnings under these contractsNon-Employees", which requires that such equity instruments are recorded basedat their fair value on the ratiomeasurement date, with the measurement of actual costs incurredsuch compensation being subject to total estimated costs expected to be incurred related toperiodic adjustment as the contract under the cost-to-cost method based budgeted milestones or tasks as designated per each contract. Anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable.
For all other sales of product or services the Company recognizes revenues based on the terms of the customer agreement. The customer agreement takes the form of either a contract or a customer purchase order and each provides information with respect to the product or service being sold and the sales price. If the customer agreement does not have specific delivery or customer acceptance terms, revenue is recognized on the date of the customer agreement, invoice or purchase order.
Blue Line Protection Group, Inc.
Notes to Consolidated Financial Statements
(Audited)
Note 2 – Accounting policies and procedures (continued)underlying equity instruments vest.
Cost of Revenue
The Company’sCompany's cost of revenue primarily consists of labor, fuel costs and items purchased by the Company specifically purposed for the benefit of the Company’sCompany's client.
LossBasic and Diluted Earnings per share
Net loss per share is provided in accordance with FASB ASC 260-10, “Earnings"Earnings per Share”Share". Basic loss per share is computed by dividing losses available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive. During 2017 and 2016 all convertible instruments were excluded from the calculation of diluted loss per share.
Dividends
The Company has not yet adopted any policy regarding payment of dividends. No dividends have been paid or declared since inception.
Income Taxes
The Company follows FASB Codification Topic 740-10-25 (ASC 740-10-25) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
Recent Pronouncements
Contingencies
In February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is not currently a partyreviewing the provisions of this ASU to determine if there will be any pendingimpact on our results of operations, cash flows or threatened legal proceedings. The company has one potential contingent liability. A shareholder andfinancial condition.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which relates to the accounting for employee asserts he has loaned the Company cash and paid for various expenses on behalfshare-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. This standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this standard as of December 31, 2016. The adoption of this standard had no effect on our results of operation, cash flows, other than presentation, or financial condition.
In April 2016, the FASB issued ASU 2016–10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments in this Update do not change the aggregate amountcore principle of $447,896.the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity's promise to grant a license provides a customer with either a right to use the entity's intellectual property (which is satisfied at a point in time) or a right to access the entity's intellectual property (which is satisfied over time). The amendments in this Update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. The Company is disputing its needhas reviewed the provisions of this ASU to payand determined there will be no material impact on our results of operations, cash flows or financial condition.
In April 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments" ASU 2016 - provides guidance regarding the classification of certain items within the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, with early adoption permitted. The Company does not believe this claimASU will have an impact on our results of operation, cash flows, other than presentation, or financial condition.
On November 17, 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash", a consensus of the FASB's Emerging Issues Task Force (the "Task Force"). The new standard requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Entities will also be required to reconcile such total to amounts on the grounds that a number of items inbalance sheet and disclose the claim were unauthorized and minimal, if any, supporting documentation was provided to substantiate the validitynature of the claim. While therestrictions. ASU No. 2016-18 is effective for public business entities for fiscal years beginning after December 15, 2017. The Company can reasonably estimate the liability, it is improbable that the Companydoes not believe this ASU will pay, due the Claimant’s (a) failure mutually agree upon the alleged amounts owed and (b) failure to validate the claims.
Recent pronouncementshave an impact on our results of operation, cash flows, other than presentation, or financial condition
The Company evaluated all recent accounting pronouncements issued and determined that the adoption of these pronouncements would not have a material effect on the financial position, results of operations or cash flows of the Company.
Blue Line Protection Group, Inc.
Notes to Consolidated Financial Statements
(Audited)
Note 3 -– Going concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has a net loss of ($2,425,941) as of December 31, 2014, and had net sales of $1,032,168 duringfor the year ended December 31, 2014.2017, accumulated deficit and had a working capital deficit as of December 31, 2017. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. The Company is significantly dependent upon its ability, and will continue to attempt, to secure additional equity and/or debt financing. The Company is currently conducting a private placement of its common stock to raise proceeds to finance its plan of operation. There are no assurances that the Company will be successful and without sufficient financing it would be unlikely for the Company to continue as a going concern.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. These conditions raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments that might arise from this uncertainty.
Note 4 – DepositsCommitments and contingencies
Contingencies
On May 20,December 28, 2015 Patrick Deparini, the Company's former CFO resigned. Mr. Deparini purports his resignation was made pursuant to a termination clause for other than cause if he is required to undertake other responsibilities other then set forth in his employment agreement. Mr., Deparini claims through the date of his resignation he is owed a total of $154,000 in unreimbursed compensation, $575 in accrued authorized expenses and the remaining balance of his base salary as defined in the employment agreement in the amount of $179,000. As of December 31, 2017 and 2016 the Company has accrued a total of $125,575 contingent liabilities On February 6, 2017, The Company received a Notification of Wage Claim from the State of Nevada Department of Business & Industry Office of the Labor Commissioner stating that Patrick Deparini had filed a claim for unpaid wages with the Office of the Labor Commissioner (the "Commissioner"). The notification states that Mr. Deparini maintains he was not paid for all hours worked between February 3, 3015 and December 28, 2015 for a total amount owed of $99,000. The Company disputed Mr. Deparini's claim with the Commissioner and responded by explaining to the Commissioner that Mr. Deparini improperly categorized his dispute with the Company as a wage claim, which it is not. If litigation is commenced the Company will attempt a reasonable out-of-court settlement and if such efforts are not successful, will defend the litigation. The Labor Commission informed the Company on August 24, 2017 that the claim was closed.
On November 6, 2015 Daniel Sullivan sent a wage claim demand. Mr. Sullivan purports to have had an Independent Contractor Agreement with the Company which provides he is entitled to certain compensation and to be reimbursed for Company expenses. The demand claims unpaid compensation in the amount of $8,055 and unreimbursed expenses in the amount of $154,409. The Company denies the agreement was ever signed. As of December 31, 2017 and December 31, 2016 the Company accrued a total of $88,968 contingent liabilities. If litigation is commenced the Company will attempt a reasonable out-of-court settlement and if such efforts are not successful, will defend the litigation.
Mile High Real Estate Group, an entity owned by Mr. Sullivan, sent correspondence stating the Mr. Sullivan and/or Mile High Real Estate loaned the Company either directly or directly to contractors, material suppliers or utilities for operating and building remodeling in the amount of $98,150. Counsel for Mr. Sullivan stated that he was still compiling information. The Company is investigating whether Mr. Sullivan and/or Mile High Real Estate Group ever made the alleged loans. If the alleged loan was actually made, the Company will seek an out-of-court settlement. As of December 31, 2017 and December 31, 2016 the Company accrued a total of $98,150.
On April 14, 2016, the Company entered into an agreement with an unrelated third party to provide the Company with investor relations services. Upon signing the agreement, the Company paid the investor relations consultant $75,000 and agreed to issue the consultant 1,500,000 shares of its restricted common stock. The agreement requires the Company to pay the consultant an additional $75,000 prior to June 14, 2016. The Company cancelled the agreement and is of the opinion that the shares are not owed to the consultant. As of December 31, 2017 and December 31, 2016 there was no payable recorded.
Leases
On February 15, 2014 the Company entered into a Security Deposit Agreement withsublease agreement for approximately 2,000 square feet of office space on a third-party fuel credit provider, wherebymonth to month basis contingent on the lessor's master lease for the premises. The lease amount adjusts yearly and the current lease is $1,614 per month.
On October 27, 2016 the Company was obligatedsold its building located at 5765 Logan Street, Denver, Colorado to pay an initial security depositunrelated third party for $1,400,000. The Company repaid the mortgage on the building in the amount of $2,500. The balance$677,681. After the sale, the Company leased the building from the purchaser of the Deposit, asproperty. The lease is for an initial term of December 31, 2014, was $2,500.ten years, with the Company having the option to extend the term of the lease for two additional five year periods. The lease requires rental payments of $10,000 per month and will increase 2% annually. The Company paid a $30,000 deposit at the inception of the lease.
Future minimum lease payments: | | | |
| 2018 | | $ | 122,604 | |
| 2019 | | | 125,056 | |
| 2020 | | | 127,557 | |
| 2021 | | | 130,108 | |
| 2022 | | | 268,075 | |
| 2023 and thereafter | | | 386,454 | |
| Total minimum lease payments | | $ | 1,159,864 | |
Note 5 – Notes receivableFixed assets and construction in progress
The Company provides short-term, secured financing to clients, represented as notes receivable. During the year ended December 31, 2014, the Company loaned a total of $105,000 to a non-affiliated entity on a revolving basis at a rate of 18% per annumMachinery and due within one year from the date of issuance. The borrower repaid the entire $105,000 balance and interest accrued thereupon during the year ended December 31, 2014. As of December 31, 2014 the principal balance of the loan is $0 and interest income recognized was $121.
On May 15, 2014, the Company loaned $50,000 to a non-affiliated entity on a revolving basis at a rate of 18% per annum and due within one year from the date of issuance. As of December 31, 2014, the principal balance of the loan is $46,451 and accrued interest thereupon was $834.
Note 6 – Fixed assets
Fixed assetsequipment consisted of the following at:
| | | December 31, | | December 31, | |
| | | December 31, 2014 | | | December 31, 2013 | 2017 | | 2016 | |
| | | | | | | | | | |
| Automotive vehicles | $ | 173,926 | | $ | - | | $ | 194,882 | | $ | 194,882 | |
| Furniture and equipment | | 44,204 | | | - | | | 85,437 | | | 53,314 | |
| | | | | | | |
| Fixed assets, total | | 218,130 | | | - | | 280,319 | | 248,196 | |
| Less: accumulated depreciation | | (28,692) | | | - | |
| Total : accumulated depreciation | | | | (165,642 | ) | | | (115,309 | ) |
| Fixed assets, net | $ | 189,438 | | $ | - | | $ | 114,677 | | $ | 132,887 | |
DepreciationTotal depreciation expenses for the years ended December 31, 20142017 and 20132016 were $27,127$50,332 and $0,$67,094, respectively.
On July 15, 2014, the Company purchased a commercial building for a total purchase price of $750,000, for which the Company paid a down payment of $75,000 and financed the remaining $675,000 in the form of a promissory note. The note bears interest at a rate of 5% per annum on the unpaid principal balance and is due in full on July 31, 2016. Interest is paid monthly, in arrears, in the amount of $2,813 beginning August 31, 2014. Through December 31, 2014,2015, approximately $348,553$363,377 in capital improvements and $33,762 of capitalized expenses have been made to the property. Prior to December 31,, 2016, the Company has completed the construction on the property and it was available and ready for use, accordingly. As of December 31, 2014,2016, the balance of construction in progress was $0. During the year ended December 31, 2016, $14,078 of interest expense was capitalized as construction in progress.
On October 27, 2016 the Company has not yet placedsold its building located at 5765 Logan Street, Denver, Colorado to an unrelated third party for $1,313,961 net of closing cost of $86,039.Up till the date of sale the Company had recorded depreciation expense on the building of $20,868. The Company repaid the mortgage on the building in the amount of $677,681 and recognized a loss on the sale of the building of $312,053. The Company received net cash proceeds of $722,319. After the sale, the Company leased the building from the purchaser of the property into service and, accordingly, no depreciation expense has been recorded.(see Note 4).
Blue Line Protection Group, Inc.
Notes to Consolidated Financial Statements
(Audited)
Note 76 – Notes payable
Through December 31,Notes payable to non-related parties
On July 15, 2014, a non-affiliated third-party loaned the Company an aggregatepurchased a commercial building for $750,000, for which the Company made a down payment of $2,000 in cash.$75,000 and financed the remaining $675,000 with a promissory note. The note bears no interest at a rate of 5% per annum on the unpaid principal balance and is originally due upon demand.
in full on July 31, 2016. On February 21, 2014,June 30, 2016, the Company issued a Promissory Noteextended the maturity date to one non-affiliated personOctober 31, 2016. Interest is paid monthly, in arrears, in the amount of $100,000.$2,813 beginning August 31, 2014. On October 27, 2016 the Company sold its building located at 5765 Logan Street, Denver, Colorado to an unrelated third party for $1,400,000. The Company repaid the mortgage on the building in the amount of $677,681 and interest of $2,866.
During February 2015, the Company borrowed $50,000 from a non-affiliated person. The loan wasis due and payable on demand and bore no interest. In April 2014, the lender agreed to convert the entire principal balance of $100,000, into 1,076,923 shares of common stock.with interest at 10% per annum. As of December 31, 2014, the principal balance owed on this loan is $0. See Note 10 – Stockholders’ Equity for additional information.
On February 21, 2014, the Company issued a Promissory Note to one non-affiliated entity in the amount of $25,000. The loan was due2017 and payable on demand and bore no interest. In April 2014, the lender agreed to convert the entire principal balance of $25,000, into 269,231 shares of common stock. As of December 31, 2014, the principal balance owed on this loan is $0. See Note 10 – Stockholders’ Equity for additional information.
On March 26, 2014, the Company issued a Promissory Note to one non-affiliated person in the amount of $25,000 for cash paid to purchase a vehicle on behalf of the Company. The loan was due and payable on demand and bore no interest. The loan was repaid in full. As of December 31, 2014,2016, the principal balance owed on this loan was $0.$50,000 and $50,000, respectively.
During April 2014,2015, the Company borrowed $16,008$25,000 from a non-affiliated person. The loan is due and payable May 1, 2015 with interest at 6% per year and has a 5% per month penalty upon default. As of December 31, 2017 and December 31, 2016, the principal balance owed on this loan was $25,000 and $25,000, respectively. The note is currently past due.
On January 5, 2016, the Company borrowed $10,000 from a non-affiliated person. The loan was due and payable on demandJanuary 5, 2017 and bore no interest.interest at 5% per annum. The principal balance owed on this loan at December 31, 2017 and December 31, 2016 was $10,000 and $10,000, respectively. The note is currently past due.
On September 21, 2016, the Company borrowed $100,000 from a non-affiliated person. The loan was due and payable on December 21, 2016 and bore interest at 60% per year. The lender extended the loan and waived the default fee of 120%. The loan was repaid on February 15, 2017. The Company paid $5,000 in full.fees in connection with this loan in 2016. As of December 31, 2014,2017 and December 31, 2016, the principal balance owed on this loan was $0 and $100,000, respectively.
On April 13, 2017 the Company signed a Merchant Agreement with a lender. Under the agreement the Company received $63,700 in exchange for rights to all customer receipts until the lender is paid $89,700, which is collected at the rate of $11,213 per month with 15% interest per year. The Company recorded a debt discount of $26,000 and recorded $26,000 amortization expense for the year ended December 31, 2017. As of December 31, 2017 the unamortized discount was $0 and outstanding loan amount was $0. The Company repaid a total of $89,700 during the year ended December 31, 2017.
On August 24, 2017 the Company signed a Merchant Agreement with a lender. Under the agreement the Company received $50,000 in exchange for rights to all customer receipts until the lender is paid $69,000 which is collected at the rate of $410.71 per day with 15% interest per year. The Company recorded a debt discount of $19,000 and recorded $8,444 amortization expense for the year ended December 31, 2017. As of December 31, 2017 the unamortized discount was $10,556 and outstanding loan amount was $35,782. The Company repaid a total of $33,218 during the year ended December 31, 2017. The payments were secured by second position rights to all customer receipts until the loan has been paid in full.
Amortization of debt discount on the non-related party notes payable for the year ended December 31, 2017 amounted to $34,444.
Convertible notes payable to non-related party
In January 2016 the Company borrowed $58,000 from an unrelated third party. The Company paid fees of $3,000 associated with this note which were recognized as a discount to the note. The Company is amortizing the debt discount of $3,000 over the term of the loan. For the year ended December 31, 2016, the Company recorded amortization expenses of $3,000. The loan has a maturity date of November 1, 2016 and bears interest at the rate of 8% per year. If the loan is not paid when due, any unpaid loan amount will bear interest at 22% per year. The Lender is entitled, at its option, at any time after July 26, 2016 to convert all or any part of the outstanding and unpaid principal and accrued interest into shares of the Company's common stock at a price per share equal to 58% of the average of the three lowest trading prices for the 10 trading days immediately preceding the conversion date. The Company was funded on February 3, 2016, and the note is not convertible till 180 days after the issuance date, which is August 1, 2016. The Company repaid the loan in full on July 27, 2016 with the premium of $20,300 and there was no outstanding balance as of December 31, 2016.
In February 2016 the Company borrowed $110,000 from an unrelated third party. The Company paid fees of $7,250 associated with this note which were recognized as a discount to the note. The Company paid $7,250 in fees in connection with this loan. The Company is amortizing the debt discount of $7,250 over the term of the loan. For the year ended December 31, 2016, the Company recorded amortization expenses of $7,250. The loan has a maturity date of November 11, 2016 and bears interest at the rate of 10% per year. If the loan is not paid when due, any unpaid amount will bear interest at 24% per year. The Lender is entitled, at its option, at any time after August 9, 2016 to convert all or any part of the outstanding and unpaid principal and accrued interest into shares of the Company's common stock at a price per share equal to 50% of the average of the five lowest trading prices for the 25 trading days immediately preceding the conversion date. The Company paid premium of $51,384 to postpone the lender's conversion right to August 25, 2016. The Company repaid the loan in full on August 23, 2016 and there was no outstanding balance as of December 31, 2016.
On January 4, 2017 the Company borrowed $125,000 from an unrelated third party. The loan has a maturity date of October 28, 2017 and bears interest at the rate of 8% per year. The Company paid $2,000 of fees associated with the loan, which was fully amortized during the year ended December 31, 2017. If the loan is not paid when due, any unpaid amount will bear interest at 22% per year. The Lender is entitled, at its option, at any time after July 3, 2017, (180 days from date of the note) to convert all or any part of the outstanding and unpaid principal and accrued interest into shares of the Company's common stock at a price per share equal to 58% of the average of the three lowest trading prices for the 10 trading days immediately preceding the conversion date. On July 13, 2017, the Company paid total $173,901 including prepayment penalty and interest expense. The Note was in default for 10 days prior to its repayment. The Company did not record a derivative as it would have been immaterial to the financial statements.
On April 13, 2017 the Company borrowed $65,500 from an unrelated third party. The loan has a maturity date of January 25, 2018 and bears interest at the rate of 8% per year. The Company paid $3,500 of fees associate with the loan, which was fully amortized during the year ended December 31, 2017. If the loan is not paid when due, any unpaid amount will bear interest at 22% per year. The Lender is entitled, at its option, at any time after October 10, 2017 to convert all or any part of the outstanding and unpaid principal and accrued interest into shares of the Company's common stock at a price per share equal to 58% of the average of the three lowest trading prices for the 10 trading days immediately preceding the conversion date. The loan was repaid during the year ended December 31, 2017. The note was discounted for a derivative (see note 8 for details) and the discount of $50,368 is being amortized over the life of the note using the effective interest method resulting in $50,368 of interest expense for the year ended December 31, 2017.
On July 18, 2017 the Company borrowed $125,000 from an unrelated third party. The loan has a maturity date of April 30, 2018 and bears interest at the rate of 8% per year. The Company paid $3,000 of fees associated with the loan, during the year ended December 31, 2017 the Company had amortized $1,741of the discount If the loan is not paid when due, any unpaid amount will bear interest at 22% per year. The Lender is entitled, at its option, at any time after January 14, 2018, (180 days from date of the note) to convert all or any part of the outstanding and unpaid principal and accrued interest into shares of the Company's common stock at a price per share equal to 58% of the average of the three lowest trading prices for the 10 trading days immediately preceding the conversion date. The note is not convertible as of December 31, 2017, therefore no derivatives were recorded. The balance outstanding on the note at December 31, 2017 is $125,000.
On August 24, 2017 the Company borrowed $58,500 from an unrelated third party. The Company paid $3,500 of fees associated with the loan, which was recorded as discount and to be amortized over the term of the debt the Company amortized $1,618 as of December 31, 2017. The loan has a maturity date of May 30, 2018 and bears interest at the rate of 8% per year. If the loan is not paid when due, any unpaid amount will bear interest at 22% per year. The Lender is entitled, at its option, at any time after February 20, 2018 to convert all or any part of the outstanding and unpaid principal and accrued interest into shares of the Company's common stock at a price per share equal to 58% of the average of the three lowest trading prices for the 25 trading days immediately preceding the conversion date. The note is not convertible as of December 31, 2017, therefore no derivatives were recorded. The balance outstanding on the note at December 31 2017 is $58,500. As of December 31, 2017 the unamortized discount amounted to $1,882.
On October 18, 2017 The Company the Company borrowed $150,000 from an unrelated third party. The Company paid $15,250 of fees associated with the loan, which was recorded as discount and to be amortized over the term of the debt and had amortized $4,164 of the costs as of December 31, 2017. The loan bears Interest at a rate: 10% (default interest 24%) and has a maturity date of July 16, 2018. The Holder has the option to convert the outstanding principal and accrued interest into common stock of the Company. The conversion price is the lesser of (1) lowest trading price during the previous 25 days prior to the note agreement or (2) 50% lowest trading price during the 25 days prior to conversion. Covenants: The Borrower shall not, without the Holder's consent, sell, lease or dispose of any significant portion of its assets outside the ordinary course of business. The note was discounted for a derivative (see note 8 for details) and the discount of $134,750 is being amortized over the life of the note using the effective interest method resulting in $36,795 of interest expense for the year ended December 31, 2017. As of December 31, 2017 the unamortized discount amounted to $11,086.
On October 19, 2017 the Company borrowed $73,000 from an unrelated third party. The Company paid $3,000 of fees associated with the loan, which was recorded as discount and to be amortized over the term of the debt the Company amortized $771 as of December 31, 2017. The loan has a maturity date of July 30, 2018 and bears interest at the rate of 8% per year. If the loan is not paid when due, any unpaid amount will bear interest at 22% per year. The Lender is entitled, at its option, at any time after April 17, 2018 to convert all or any part of the outstanding and unpaid principal and accrued interest into shares of the Company's common stock at a price per share equal to 58% of the average of the three lowest trading prices for the 10 trading days immediately preceding the conversion date. The note is not convertible as of December 31, 2017, therefore no derivatives were recorded. The balance outstanding on the note at December 31 2017 is $73,000.
On November 24, 2017, the Company borrowed $75,000 from an unrelated third party. The Company paid $7,000 of fees associated with the loan, and had amortized $717 of the costs as of December 31, 2017. The note bears an interest rate: 12% (default interest lesser of 15% or maximum permitted by law) and matures on November 20, 2018. The conversion Feature Convertible immediately after the issuance, the Holder has the option to convert the outstanding principal and accrued interest into common stock of the Company. The Conversion price is 55% of the lowest trading price during the 25 Trading Day periods prior to the Conversion. Covenants: The Borrower shall not, without the Holder's consent, sell, lease or dispose of any significant portion of its assets outside the ordinary course of business. The note was discounted for a derivative (see note 8 for details) and the discount of $68,000 is being amortized over the life of the note using the effective interest method resulting in $6,970 of interest expense for the year ended December 31, 2017.
On December 15, 2017 the Company borrowed $63,000 from an unrelated third party. The Company paid $3,000 of fees associated with the loan, the Company amortized $771 as of December 31, 2017. The loan has a maturity date of September 15, 2018 and bears interest at the rate of 8% per year. If the loan is not paid when due, any unpaid amount will bear interest at 22% per year. The Lender is entitled, at its option, at any time after June 13, 2018 to convert all or any part of the outstanding and unpaid principal and accrued interest into shares of the Company's common stock at a price per share equal to 58% of the average of the lowest 3 trading prices during the 10 days prior to conversion date. The note is not convertible as of December 31, 2017, therefore no derivatives were recorded. The balance outstanding on the note at December 31 2017 is $63,000.
During the year ended December 31, 2017, the Company recognized amortization expense of $14,687 from deferred financing cost and amortization expense of $94,133 of discount from derivative liabilities.
Note 7 – Notes payable – Related Partyrelated parties
On July 31, 2014, the Company borrowed $98,150 from an entity materially controlled by an officer and shareholder of the Company. The loan is due and payable on demand and bears no interest. As of December 31, 2014,2017 and December 31, 2016, the principal balance owed on this loan is $98,150.$98,150 and $98,150, respectively.
ThroughAs of December 31, 2014, an officer and shareholdera related party loaned the Company $10,000, in the form of cash and expenses paid on behalf of the Company. The loan is due and payable on demand and bears no interest. During the year ended December 31, 2015 the Company borrowed an aggregateadditional $20,000. As of $286,446,December 31, 2017 and December 31, 2016, the principal balance owed on this loan was $30,000 and $30,000, respectively.
As of December 31, 2014, a related party loaned the Company $180,121, in the form of cash and expenses paid on behalf of the Company. The loan is due and payable on demand and bears no interest. The Company has repaid $106,325$125,500 towards this note during 2015 and as of December 31, 2014,2017 and December 31, 2016; the principal balance owed on this loan is $180,121.was $54,621 and $54,621, respectively.
On November 25, 2014,During 2015, the Company borrowed $10,000$43,575 from its former CFO and repaid $43,000 of the loan. The note is non-interest bearing, and due on demand. As of December 31, 2017 and December 31, 2016 the principal amount owed on this loan was $575.
During October 2015, the Company borrowed $30,000 from an entity materially controlled by a shareholderan officer of the Company. The loan is due and payable on demand and bears no interest.is non-interest bearing. During the year ended December 31, 2016, the Company repaid $135,000 and borrowed an additional $135,000 from the same related party. During the year ended December 31, 2017, the Company repaid $251,363 and borrowed an additional $265,363 from the same related party. As of December 31, 2014,2017 and December 31, 2016, the principal balance owed on this loan was $44,000 and $30,000, respectively.
On July 7, 2016, the Company borrowed $73,000 from a related party. The loan was due and payable on July 7, 2017 and bore interest at 5% per annum. The principal balance owed on this loan at December 31, 2017 and December 31, 2016 was $73,000 and $73,000, respectively. The holder of the note has agreed to extend the default date of the note to March 30, 2018.
On August 8, 2016, the Company entered into, an promissory note with Hypur Inc., a Nevada Corporation which is $10,000.a related party pursuant to which the Company to borrow $52,000. If an Event of Default remains uncured after 30 days Holder has the option to convert the outstanding principal balance and any accrued but unpaid interest, into unrestricted $0.001 par value common stock of the Borrower The loan was due and payable on August 10, 2017 and bore interest at 18% per annum. The principal balance owed on this loan at December 31, 2017 and December 31, 2016 was $52,000 and $52,000, respectively. The Note is currently in default at bears a default rate of interest of 24% per annum as part of the default terms of this note. The lender waived the conversion option through October 1, 2017. On October 1, 2017 it was determined this note had derivative.
On September 20, 2016, the Company borrowed $47,500 from Hypur Inc., which is a related party. The loan is due and payable on December 20, 2016 and bears interest at 18% per annum. If an Event of Default remains uncured after 30 days Holder has the option to convert the outstanding principal balance and any accrued but unpaid interest, into unrestricted $0.001 par value common stock of the Borrower. The principal balance owed on this loan at December 31, 2017 and December 31, 2016 was $47,500 and $47,500, respectively. The loan is currently past due and in default. The Note 9 – Long Term Notes Payableis currently in default at bears a default rate of interest of 24% per annum as part of the default terms of this note. The lender waived the conversion option through October 1, 2017.. On October 1, 2017 it was determined this note had derivative. l.
On July 15, 2014,13, 2017, the Company purchasedborrowed $150,000 from Hypur Inc., which is a commercial building for a total purchase price of $750,000, for whichrelated party. The loan is due and payable on July 17, 2017 and bears interest at 18% per annum. The Company repaid the loan prior to December 31, 2017.
During 2017, the Company paidborrowed $47,880 from its Vice President of Operations and repaid $27,880 of the loan. The note is non-interest bearing, and due on demand. As of December 31, 2017 the principal amount owed on this loan was $20,000.
Convertible notes payable to related party
In November 2015, the Company entered into an arrangement with a down payment of $75,000 and financedrelated party, whereby the remaining $675,000Company borrowed $25,000 in the form of a promissory note.Convertible Notes. The noteConvertible Note bears interest at a rate of 5% per annum onand payable quarterly in arrears and matures twelve months from the unpaid principal balancedate of issuance, and is convertible into shares of the Company's common stock at a per share conversion price equal to $0.025 the note was due in full on July 31,November 4, 2016. InterestIn December 2015 the lender loaned the Company an additional $20,000 with same terms except that it is paid monthly, in arrears, in the amount of $2,813 beginning August 31, 2014.payable upon demand. As of December 31, 2014,2017 and December 31, 2016, the principal balance is $675,000 andCompany owed a total of $11,250$45,000 and $45,000, respectively. The holder of the note has agreed to extend the default date of the note to March 30, 2018
In July 2015, the Company entered into an arrangement with a related party, whereby the Company could borrow up to $500,000 in Convertible Notes. The Convertible Note bears interest payments haveat a rate of 5% per annum and payable quarterly in arrears and matures twelve months from the date of issuance, and is convertible into shares of the Company's common stock at a per share conversion price equal to $0.025. Upon the occurrence and during the continuation of an event of default, the holder may require the Company to redeem all or any portion of this Note in cash at a price equal to 150% of the principal amount. During the year ended December 31, 2017, the Company borrowed an additional $110,000. As of December 31, 2017 and December 31, 2016, the Company owed a total of $500,000 and $390,000, respectively. As of December 31, 2017 and December 31, 2016 there is a total of $390,000 and $390,000 of the notes are past due, respectively. Since the debt holder has not elect the right to require the Company to redeem the note at a price equal to 150% of the principal amount, the terms stated prior to maturity are still in effect. The holder has waived the default term and the note is not considered to be in default as of December 31, 2017.
On September 1, 2016, the Company entered into, an convertible promissory note with Hypur Ventures, L.P., a Delaware limited partnership (the "Hypur Ventures") which is a related party pursuant to which the Company to borrow $75,000. The loan was due 180 days from the date of issuance and bears interest at 10% per annum. The note is convertible into common stock at a price of $.05 per share. The note is mandatory redeemable into common stock if the price per share is over $.50 per share during a 10 day period. The principal balance owed on this loan at December 31, 2017 and December 31, 2016 was $75,000 and $75,000, respectively. Upon default, the note bears a default rate of interest of 15% per annum, and if the default has not been made.remedied within 30 days, the redemption price would be 150% of the principal amount. The holder has waived the default term and agreed to extend the default date to March 31, 2018.
On October 14, 2016, the Company entered into, an convertible promissory note with Hypur Ventures, L.P., a Delaware limited partnership (the "Hypur Ventures") which is a related party pursuant to which the Company to borrow $100,000. The loan was due 180 days from the date of issuance and bears interest at 10% per annum. The note is convertible into common stock at a price of $.05 per share. The note is mandatory redeemable into common stock if the price per share is over $.50 per share during a 10 day period. The principal balance owed on this loan at December 31, 2017 and December 31, 2016 was $100,000 and $100,000, respectively. Upon default, the note bears a default rate of interest of 15% per annum, and if the default has not been remedied within 30 days, the redemption price would be 150% of the principal amount. The holder has waived the default term and agreed to extend the default date to March 31, 2018.
On March 7, 2017, the Company borrowed $100,000 from Hypur Ventures, L.P., a related party. The loan is due 180 days from March 7, 2017 and bears interest at 10% per annum. The loan is convertible into shares of the Company's common stock at a price of $.05 per share. The loan will automatically convert into shares of the Company's common stock if the price of the Company's common stock is over $.50 per share during any ten-day period. The principal balance owed on this loan at December 31, 2017 was $100,000. Upon default, the note bears a default rate of interest of 15% per annum, and if the default has not been remedied within 30 days, the redemption price would be 150% of the principal amount. The holder has waived the default term and agreed to extend the default date to March 31, 2018.
On May 26, 2017, the Company borrowed $100,000 from CGDK, a related party. The loan is due 360 days from May 26, 2017 and bears interest at 5% per annum. The loan is convertible into shares of the Company's common stock at a price of $.025 per share. The loan will automatically convert into shares of the Company's common stock if the price of the Company's common stock is over $.25 per share during any ten-day period. The principal balance owed on this loan at December 31, 2017 was $100,000.
On July 13, 2017, the Company borrowed $150,000 from CGDK, a related party. The loan is due 360 days from July 13, 2017 and bears interest at 5% per annum. The loan is convertible into shares of the Company's common stock at a price of $.05 per share. The loan will automatically convert into shares of the Company's common stock if the price of the Company's common stock is over $.25 per share during any ten-day period. The principal balance owed on this loan at December 31, 2017 was $150,000.
The Company evaluated the convertible note for possible embedded derivatives and concluded that none exist. However, the Company concluded a portion of the note should be allocated to additional paid-in capital as a beneficial conversion feature at the issuance date, since the conversion price on that date was lower than the fair market value of the underlying stock. Resultantly, a discount of $71,400 was attributed to the beneficial conversion feature of the note, which amount is being amortized through the maturity date of the note. As of December 31, 2017 a total of $59,126 has been amortized and recorded as interest expense, leaving a balance of $12,274 in discounts related to the beneficial conversion feature of this note. The carrying amount of the convertible note, net of the unamortized debt discount, was $1,057,726 as of December 31, 2017.
On October 1, 2017 these notes were tainted by the variable conversion price notes and $180,997 was reclassed from additional paid in capital to derivative liabilities. See Note 8.
NOTE 8 – Derivative Liability
The Company analyzed the conversion options for derivative accounting consideration under ASC 815, Derivatives and Hedging, and hedging, and determined that the instrument should be classified as a liability when the conversion option becomes effective.
The derivative liability in connection with the conversion feature of the convertible debt is measured using, level 3 inputs.
The change in the fair value of derivative liabilities is as follows:
| Balance - December 31, 2016 | | $ | - | |
| Addition of new derivative as a debt discount | | | 253,188 | |
| Reclass from additional paid in capital to derivative liabilities due to tainting | | | 317,224 | |
| Loss on change in fair value of the derivative | | | 1,309,588 | |
| Balance - December 31, 2017 | | $ | 1,879,930 | |
The table below shows the Black-Scholes option-pricing model inputs used by the Company to value the derivative liability at each measurement date:
| | Year ended December 31, | | Year ended December 31, | |
| | 2017 | | 2016 | |
| Expected term | 0.02 – 3.65 years | | | | - | |
| Expected average volatility | | | 108.61% -584.87 | % | | | - | |
| Expected dividend yield | | | - | | | | - | |
| Risk-free interest rate | | | 1.53% - 1.98 | % | | | - | |
Note 9 – Long term notes payable
On November 21, 2014, the Company purchased a vehicle for a purchase price of $20,827, net of discounts. The Company financed the entire amount of $20,827 at an interest rate of 2.42% for five years, with a maturity date of December 5, 2019. As of December 31, 2014,2017 and December 31, 2016, the total principal balance of the note is $20,769,$8,639 and $12,801, respectively, of which $17,034$6,518 and $8,664 is considered a long-term liability and the current portion of $3,735$2,121 and $4,137 is considered a current liability.
Blue Line Protection Group, Inc.
Notes to Consolidated Financial Statements
(Audited)liability
Note 10 - Stockholders’– Stockholders' equity
The Company was originally authorized to issue 100,000,000 shares of $0.001 par value common stock and 100,000,000 shares of $0.001 par value preferred stock. On May 6, 2014, the Company effected a forward stock split and a pro-rata increase in its authorized common stock on a basis of 14-to-1, whereby each shareholder received 14 newly issued shares of common stock for each 1 share held. Additionally, the number of authorized shares increased to 1,400,000,000 shares of $0.001 par value common stock. All references to share and per share amounts in the condensed consolidated financial statements and accompanyingthese notes thereto have been retroactively restated to reflect the forward stock split.
On October 5, 2006,Common stock
During the year ended December 31, 2016, the Company issued 84,000,000 shares of its common stock to its founding shareholderentered two consulting agreements for cash inbusiness advisory services. During the amount of $10,000.
On October 10, 2007, the Company issued 22,820,000 shares of its common stock in a private offering for gross net cash proceeds of $32,100, after deducting $500 in offering costs.
From March 24 through March 27, 2014, the Company sold an aggregate of 13,068,050 shares of its common stock for gross cash proceeds of $1,213,501.
On March 27, 2014, the Company purchased a vehicle from a non-affiliated entity with 323,078 shares of its common stock in lieu of cash. The value of this transaction was $30,000.
On April 8, 2014,year ended December 31, 2016 the Company issued a total of 1,076,9232,000,000 shares of common stock to the consultant for business advisory services valued at $88,000. The certificate for these shares was issued subsequent to December 31, 2016.
During the conversion ofyear ended December 31, 2017, the Company entered into a promissory note in the total amount of $100,000.
On April 8, 2014, theconsulting agreement for business advisory services. The Company issued a total of 269,2312,000,000 shares of common stock to the consultant for business advisory services valued at $46,583 the conversionfair value measurement on the common stock, which was at service completion date. The certificate for 1,000,000 of a promissory note in the total amount of $25,000.these shares was issued subsequent to December 31, 2017.
Preferred stock
On June 11, 2014,May 3, 2016, the Company entered into, an investment banking agreement forwith Hypur Ventures, L.P., a Delaware limited partnership (the "Hypur Ventures") which it was obligatedis a related party pursuant to issue 280,000which the Company sold to Hypur Ventures, in a private placement, 10,000,000 shares of itsthe Company's preferred stock and 5,000,000 common stock warrants with a fair market valuefive year term and an exercise price of $187,600.$0.10, at a purchase price of $0.05 per share for gross proceeds of $500,000. The stock was subscribed for; however, the certificates representing the shares were not issued as of December 31, 2014 and, resultantly, are considered owed as a common stock payable of $280.
On September 15, 2014, the Company received a subscription for 468,750 shares of its commonpreferred stock for $150,000. The stock was subscribed for; however, the certificates representing the shares were not issued as of December 31, 2014 and, resultantly, are considered owed as a common stock payable of $469.
On October 22, 2014, the Company enteredconvertible into an investment banking agreement, for which it issued 1,250,000 shares of itsthe Company's common stock. The preferred stock shall have such other rights, preferences and privileges to be set forth in a certificate of designation to be filed with the Secretary of State. The Company evaluated the convertible preferred stock under FASB ASC 470-20-30 and determined it contained a fair market value of $475,000.
On December 24, 2014, the Company issued 38,000 shares of its common stock to various employees under its employee stock incentive program.beneficial conversion feature. The fairintrinsic value of the beneficial conversion feature was determined to be $114,229. The beneficial conversion feature was fully amortized and recorded as a deemed dividend.
Between July and August of 2016 Hypur Ventures purchased an additional 10,000,000 shares onof the dateCompany's preferred stock and 5,000,000 common stock warrants with a five year term and an exercise price of issuance$0.10, at a purchase price of $0.05 per share for net proceeds of $445,000, net of legal fees of $55,000. The shares of preferred stock are convertible into shares of the Company's common stock. The preferred stock shall have such other rights, preferences and privileges to be set forth in a certificate of designation to be filed with the Secretary of State. The Company evaluated the convertible preferred stock under FASB ASC 470-20-30 and determined it does not contain a beneficial conversion feature. The intrinsic value of the beneficial conversion feature was $9,500.determined to be $0.The preferred stock is convertible at any time at the election of Hypur Ventures. The preferred stock shall automatically convert to common stock if the closing price of the Company's common stock equals or exceeds $.50 per share over any consecutive twenty day trading period. The preferred stock terms include a one-time purchase price preference. No preferential dividends apply to the preferred stock. The preferred stock attributes include weighted average anti-dilution protection, rights to appoint one director, pre-emptive rights to purchase future offerings of securities by the Company, demand and piggy-back registration rights.
The preferred stock is convertible at any time at the election of Hypur Ventures. The preferred stock shall automatically convert to common stock if the closing price of the Company's common stock equals or exceeds $.50 per share over any consecutive twenty day trading period. The preferred stock terms include a one-time purchase price preference. No preferential dividends apply to the preferred stock. The preferred stock attributes include weighted average anti-dilution protection, rights to appoint one director, pre-emptive rights to purchase future offerings of securities by the Company, demand and piggy-back registration rights.
As of December 31, 2014, there have been no other issuancesThe Company has reserved thirty million shares of common stock.stock that may be issued upon the conversion and/or exercise of the preferred stock and the warrants. The preferred stock sold to Hypur Ventures will be subject to the terms and conditions of the Certificate of Designation, as well as further documentation to be drafted in accordance with the terms and conditions agreed upon between the Company and Hypur Ventures.
Blue Line Protection Group, Inc.
Notes to Consolidated Financial Statements
(Audited)
Note 11 – WarrantsOptions and optionswarrants
Options
All stock options have an exercise price equal to the fair market value of the common stock on the date of grant. The fair value of each option award is estimated using a Black-ScholesBlack-Scholes-Merton option valuation model. The Company has not paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes-Merton option valuation model. Volatility is an estimate based on the calculated historical volatility of similar entities in industry, in size and in financial leverage, whose share prices are publicly available. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company has no historical experience with which to establish a basis for determining an expected life of these awards. Therefore, the Company only gave consideration to the contractual terms and did not consider the vesting schedules, exercise patterns and pre-vesting and post-vesting forfeitures significant to the expected life of the option award. The Company bases the risk-free interest rate used in the Black-Scholes-Merton option valuation model on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term equal to the expected life of the award.
As of December 31, 2013, there were no warrants or options outstanding to acquire any additional shares of common stock.
On March 1, 2014,December 28, 2016, the Company issued stock options to an officervarious offices and employees of the Company to purchase 4,806,9007,950,000 shares of the Company’sCompany's common stock at an exercise price of $0.14$0.05 per share. The options vest in three annual installments, with the first portion immediately vested.immediately. The options carry a life of three years.
On April 1, 2014, the Company issued stock options to an employee of the Company to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.71 per share. The options vest in three annual installments, with the first portion immediately vested. The options carry a life of three years.
On August 1, 2014, the Company issued stock options to an officer of the Company to purchase 4,500,000 shares of the Company’s common stock at an exercise price of $0.39 per share. The options vest in three annual installments, with the first portion immediately vested. The options carry a life of three years.
On August 1, 2014, the Company issued stock options to an officer of the Company to purchase 1,200,000 shares of the Company’s common stock at an exercise price of $0.39 per share. The options vest in three annual installments, with the first portion immediately vested. The options carry a life of three years.
On October 1, 2014, the Company issued non-employee stock options to a third-party consultant purchase up to 30,000 shares of the Company’s common stock. The options have a fair market value of $13,160, all of which was recognized as professional fees duringDuring the year ended December 31, 2014.
On December 10, 2014, the Company issued2016 a total of 453,333 stock options to itswere forfeited by various employees under an incentive plan. The employees were granted options to purchase up to an aggregate of 900,000 shares of the Company’s commonCompany.
During the year ended December 31, 2017 a total of 40,000 stock at an exercise priceoptions were forfeited by various employees of $0.25 per share and carry a life of three years.the Company.
Blue Line Protection Group, Inc.
Notes to Consolidated Financial Statements
(Audited)
Note 11 – Warrants and options (continued)
The following is a summary of the Company’sCompany's stock option activity:activity for the years ended December 31, 2017 and 2016:
| | | Number Of Shares | | | Weighted-Average Exercise Price | |
| | | | | | | |
| Outstanding at December 31, 2015 | | | 17,256,738 | | | $ | 0.14 | |
| Granted | | | 7,950,000 | | | $ | 0.05 | |
| Exercised | | | - | | | $ | 0.00 | |
| Cancelled | | | (453,333 | ) | | $ | 0.18 | |
| Outstanding at December 31, 2016 | | | 24,753,405 | | | $ | 0.11 | |
| Granted | | | - | | | $ | - | |
| Expired | | | (235,000 | ) | | $ | 0.13 | |
| Cancelled | | | (40,000 | ) | | $ | 0.13 | |
| Outstanding at December 31, 2017 | | | 24,478,405 | | | $ | 0.11 | |
| Options exercisable at December 31, 2016 | | | 20,000,484 | | | $ | 0.11 | |
| Options exercisable at December 31, 2017 | | | 24,471,738 | | | $ | 0.11 | |
| | Number Of Shares | | Weighted-Average Exercise Price |
| Outstanding at December 31, 2012 | 0 | | $ 0.00 |
| Granted | 0 | | $ 0.00 |
| Exercised | 0 | | $ 0.00 |
| Vested | 0 | | $ 0.00 |
| Cancelled | 0 | | $ 0.00 |
| Outstanding at December 31, 2013 | 0 | | $ 0.00 |
| Granted | 10,836,900 | | $ 0.29 |
| Exercised | 0 | | $ 0.00 |
| Vested | 2,204,417 | | $ 0.58 |
| Cancelled | 0 | | $ 0.00 |
| Outstanding at December 31, 2014 | 10,836,900 | | $ 0.29 |
| Options exercisable at December 31, 2013 | 0 | | $ 0.00 |
| Options exercisable at December 31, 2014 | 2,204,417 | | $ 0.58 |
The following tables summarize information about stock options outstanding and exercisable at December 31, 2014:2017 and December 31, 2016:
| OPTIONS OUTSTANDING AND EXERCISABLE AT DECEMBER 31, 2017 | |
Range of Exercise Prices | | | Number of Options Outstanding | | | Weighted-Average Remaining Contractual Life in Years | | | Weighted- Average Exercise Price | | | Number Exercisable | | | Weighted- Average Exercise Price | |
| $ | 0.035 – 1.00 | | | | 24,478,405 | | | | 2.313 | | | $ | 0.11 | | | | 24,471,738 | | | $ | 0.11 | |
| | | OPTIONS OUTSTANDING AND EXERCISABLE | |
| OPTIONS OUTSTANDING AND EXERCISABLE AT DECEMBER 31, 2016 | | OPTIONS OUTSTANDING AND EXERCISABLE AT DECEMBER 31, 2016 | |
Range of Exercise Prices | | Number of Options Outstanding | | Weighted-Average Remaining Contractual Life in Years | | Weighted- Average Exercise Price | | Number Exercisable | | Weighted- Average Exercise Price | Range of Exercise Prices | | Number of Options Outstanding | | | Weighted-Average Remaining Contractual Life in Years | | | Weighted- Average Exercise Price | | Number Exercisable | | Weighted- Average Exercise Price | |
| $ 0.14 - 0.71 | | 10,836,900 | | 2.39 | | $ 0.29 | | 2,204,417 | | $ 0.58 | |
| | | 10,836,900 | | 2.39 | | $ 0.29 | | 2,204,417 | | $ 0.58 | |
| $ | | 0.035 – 1.00 | | | 24,753,405 | | | | 3.313 | | | $ | 0.11 | | | 20,000,484 | | $ | 0.11 | |
Total stock-based compensation expense in connection with options granted to employeesand modified awards recognized in the consolidated statement of operations for years ended December 31, 2017 and 2016 was $79,840 and $248,136, respectively.
Warrants
The following is a summary of the Company's warrant activity for the years ended December 31, 20142017:
| | | Number Of Shares | | | Weighted-Average Exercise Price | |
| Outstanding at December 31, 2015 | | | - | | | $ | - | |
| Granted | | | 10,000,000 | | | $ | 0.10 | |
| Exercised | | | - | | | $ | - | |
| Cancelled | | | - | | | $ | - | |
| | | | | | | | | |
| Outstanding at December 31, 2016 | | | 10,000,000 | | | $ | 0.10 | |
| Granted | | | - | | | $ | - | |
| Exercised | | | - | | | $ | - | |
| Cancelled | | | - | | | $ | - | |
| Outstanding at December 31, 2017 | | | 10,000,000 | | | $ | 0.10 | |
| Warrants exercisable at December 31, 2016 | | | 10,000,000 | | | $ | 0.10 | |
| Warrants exercisable at December 31, 2017 | | | 10,000,000 | | | $ | 0.10 | |
The following tables summarize information about warrants outstanding and 2013 was $480,676exercisable at December 31, 2017 and $0, respectively.December 31, 2016:
| WARRANTS OUTSTANDING AND EXERCISABLE AT DECEMBER 31, 2017 | |
| | | | | | | | | | | | | | | | | |
Range of Exercise Prices | | | Number of Warrants Outstanding | | | Weighted-Average Remaining Contractual Life in Years | | | Weighted- Average Exercise Price | | | Number Exercisable | | | Weighted- Average Exercise Price | |
| $ | 0.10 | | | | 10,000,000 | | | | 3.49 | | | $ | 0.10 | | | | 10,000,000 | | | $ | 0.10 | |
| WARRANTS OUTSTANDING AND EXERCISABLE AT DECEMBER 31, 2016 |
| | | | | | | | | | | | | | | | |
Range of Exercise Prices | | | Number of Warrants Outstanding | | | Weighted-Average Remaining Contractual Life in Years | | | Weighted- Average Exercise Price | | | Number Exercisable | | | Weighted- Average Exercise Price |
| $ | 0.10 | | | | 10,000,000 | | | | 4.49 | | | $ | 0.10 | | | | 10,000,000 | | | $ | 0.10 |
Note 12 – Income taxes
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the "TCJA") that significantly reforms the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). The TCJA, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, effective as of January 1, 2018; limitation of the tax deduction for interest expense; limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely); modifying or repealing many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as "orphan drugs"; and repeal of the federal Alternative Minimum Tax ("AMT").
The staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. In connection with the initial analysis of the impact of the TCJA, the Company remeasured its deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The remeasurement of the Company's deferred tax assets and liabilities was offset by a change in the valuation allowance.
For the years ended December 31, 20142017 and 2013,2016, the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At December 31, 20142017 and 2013,2016, the Company had approximately $2,528,422$5,734,309 and $102,481$4,818,279 of federal and state net operating losses. The net operating loss carry forwards, if not utilized, will begin to expire in 2026.2028. The provision for income taxes consisted of the following components for the years ended December 31:
Components of net deferred tax assets, including a valuation allowance, are as follows at December 31:
| | December 31 | |
| | 2017 | | 2016 | |
| Deferred tax assets: | | | | |
| Net operating loss carry forwards | | $ | 1,204,205 | | | $ | 1,651,398 | |
| Valuation allowance | | | (1,204,205 | ) | | | (1,651,398 | ) |
| Total deferred tax assets | | $ | - | | | $ | - | |
FASB ASC 740, Income Taxes, requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management has determined that a full valuation allowance of $12,547,096 and $16,869,912 against its net deferred taxes is necessary as of December 31, 2017 and December 31, 2016, respectively. The change in valuation allowance for the years ended December 31, 2017 and 2016 is $311,379 and $446,892 respectively.
At December 31, 2017 and December 31, 2016, respectively, the Company had $44,619,294 and $43,669,900, respectively, of U.S. net operating loss carryforwards remaining, which expire beginning in 2017.
As a result of certain ownership changes, the Company may be subject to an annual limitation on the utilization of its U.S. net operating loss carryforwards pursuant to Section 382 of the Internal Revenue Code. A study to determine the effect, if any, of this change, has not been undertaken.
Tax returns for the years ended December 31, 2017, 2016, 2015, 2014, and 2013 are subject to examination by the Internal Revenue Service.
A reconciliation of the Company's income taxes to amounts calculated at the federal statutory rate is as follows for the years ended December 31:
| | | December 31 | |
| | | 2014 | | | 2013 | |
| Deferred tax assets: | | | | | | |
| Net operating loss carry forwards | | $ | 884,948 | | | $ | 35,868 | |
| Valuation allowance | | | (884,948 | ) | | | (35,868 | ) |
| Total deferred tax assets | | $ | - | | | $ | - | |
| | | 2017 | | | 2016 | |
| | | | | | | |
| Federal statutory taxes | | | (35.00 | )% | | | (35.00 | )% |
| Change in tax rate estimate | | | 14.00 | % | | | — | |
| Change in valuation allowance | | | 21.00 | % | | | 35.00 | % |
| | | | — | % | | | — | % |
Blue Line Protection Group, Inc.
Notes to Consolidated Financial Statements
(Audited)
Note 12 – Income taxes (continued)
The valuation allowance for deferred tax assets as of December 31, 20142017 and 20132016 was $884,948$1,204,205 and $35,868,$1,651,398 respectively. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized as of December 31, 20142017 and 20132016 and recorded a full valuation allowance.
Reconciliation between the statutory rate and the effective tax rate is as follows at December 31:
2014 & 2013
Federal statutory tax rate (35.0) %
Permanent difference and other 35.0 %
| | | 2017 | | | 2016 | |
| Federal statutory tax Reconciliation rate | | | (35.0 | )% | | | (35.0 | )% |
| Permanent difference and other | | | 35.0 | % | | | 35.0 | % |
Note 13 – Related party transactionsSubsequent Events
DuringOn January 2, 2018 the years ended December 31, 2014Company drew down an additional $30,000 from Crown Bridge Partners pursuant to a 12% convertible note. The note bears an interest rate: 12% (default interest lesser of 15% or maximum permitted by law) and 2013, officersmatures on November 20, 2018. The conversion Feature Convertible immediately after the issuance, the Holder has the option to convert the outstanding principal and accrued interest into common stock of the Company. The Conversion price is 55% of the lowest trading price during the 25 Trading Day periods prior to the Conversion. Covenants: The Borrower shall not, without the Holder's consent, sell, lease or dispose of any significant portion of its assets outside the ordinary course of business.
On January 25, 2018 the Company donated cashand JSJ Investments, Ins entered into a Securities Purchase Agreement for a convertible note of $150,000. The note bears an Interest rate: 12% (default interest 18%) and matures on January 25, 2019. The conversion Feature: Upon 180 days after the issuance, the Holder has the option to convert the outstanding principal and accrued interest into common stock of the Company. The Conversion price is 55% of the average of the lowest 3 trading prices during the 20 Trading Day period prior to the Conversion. Covenants: The Borrower shall not, without the Holder's consent, sell, lease or dispose of any significant portion of its assets outside the ordinary course of business.
On February 13, 2018 the Company and Power Up Lending, LTD., entered into a Securities Purchase Agreement for a convertible note of $128,000. The note bears an Interest rate: 8% (default interest 22%) and matures on November 30, 2018. The conversion Feature: Upon 180 days after the issuance, the Holder has the option to convert the outstanding principal and accrued interest into common stock of the Company. The Conversion price is 58% of the average of the lowest 3 trading prices during the 10 Trading Day period prior to the Conversion. Covenants: The Borrower shall not, without the Holder's consent, sell, lease or dispose of any significant portion of its assets outside the ordinary course of business.
Between January 25, 2018 and March 5, 2018 Power Up Lending, LTD converted notes payable in the amount of $127,106$183,500 and $15,250, respectively. All donated cash is considered to be additional paid-in capital.accrued interest of $7,340 into 7,901,260 shares of common stock.
On July 31, 2014,March 2, 2018, Steve Neumeyer filed a complaint against the Company borrowed $98,150 fromin the Eighth Judicial District Court, Clark County, Nevada, alleging, among other matters, breach of contract, and seeking damages of an entity materially controlled by an officer and shareholder ofunspecified amount for allegedly providing services to the Company. The loanCompany believes Mr. Neumeyer's complaint is due and payable on demand and bears no interest. As of December 31, 2014, the principal balance owed on this loan is $98,150.without merit.
On October 10, 2014,March 19, 2018 the Company acquired allissued 1,000,000 shares of the outstandingcommon stock of Blue Line Capital, Inc. fromto a shareholder, for $100 in cash. At the time of the purchase, BL Capital had no material assets or liabilities and conducted no operations. BL Capital’s sole asset is 2,000,000 ownership units of Integrated Compliance Solutions, LLC, a Nevada limited liability company formerly known as Blue Line Financial Services, LLC.
Through December 31, 2014, an officer and shareholder loaned the Company an aggregate of $286,446, in the form of cash and expenses paid on behalf of the Company. The loan is due and payable on demand and bears no interest. The Company has repaid $106,325 andconsultant that were owed as of December 31, 2014, the principal balance owed on this loan is $180,121.
On November 25, 2014, the Company borrowed $10,000 from an entity materially controlled by a shareholder of the Company. The loan is due and payable on demand and bears no interest. As of December 31, 2014, the principal balance owed on this loan is $10,000.
Note 14 – Subsequent Events
The Company’s management has reviewed all material events through the date of this report in accordance with ASC 855-10, and believes there are no further material subsequent events to report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 9A(T). CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the Commission’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. We evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. As a result of this evaluation, management concluded that our disclosure controls and procedures were effective for the period ended December 31, 2014, with the exception of the following:
Lack of Functioning Audit Committee: We do not have an Audit Committee; our board of directors currently acts as our Audit Committee. We do not have an independent director and out current director is not considered a “Financial Expert,” within the meaning of Section 407 of the Sarbanes-Oxley Act.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
1. | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; |
2. | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
3. | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of December 31, 2014, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, management concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below:
Lack of Functioning Audit Committee: We do not have an Audit Committee; our board of directors currently acts as our Audit Committee. We do not have an independent director and out current director is not considered a “Financial Expert,” within the meaning of Section 407 of the Sarbanes-Oxley Act.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only the management's report in this annual report.
Implemented or Planned Remedial Actions in response to the Material Weaknesses
Our management believes the lack of a functioning Audit Committee has not had a material effect on our financial results. Our present management will continue to address our need for additional financial personnel and other independent members for our Board of Directors and identify an “expert” for the Audit Committee to advise other members with regard to accounting and reporting procedures.
We will continue to strive to correct the above noted weakness in internal control once we have adequate funds to do so. When funds become are available, we will be able to appoint a qualified independent director. Appointing a financial expert to serve on our Audit Committee will improve the overall performance of Company’s controls over our financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
The following changes in our internal control over financial reporting occurred during the year ended December 31, 2014, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting:
During the year ended December 31, 2014, we added personnel to our administrative and accounting staffs.
The Company’s management, including the chief executive officer and principal financial officer, do not expect that its disclosure controls or internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.2017.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our directors are elected by the stockholders to a term of one year and serve until their successors are elected and qualified. The officers are appointed by our Board of Directors to a term of one year and serve until his/her successor is duly elected and qualified, or until he/she is removed from office.
The names and ages of our directors and executive officers and their positions are as follows:
Name | | Age | | Position |
| | | | |
Sean Campbell | | 49 | | Chief Executive Officer |
| | | | |
Ricky G. Bennett | | 58 | | Vice President of Operations and Compliance |
| | | | |
Patrick Deparini | | 40 | | Chief Financial Officer |
Notes:
All directors hold office until the next annual meeting of the stockholders, which shall be held in September of 2015, and until successors have been elected and qualified. Executive officers are appointed by the Board of Directors and hold office until they resign or are removed from office.
Background of Directors, Executive Officers, Promoters and Control Persons
Sean Campbell has, since 2008, been Co-Portfolio Manager and Managing Director of MKM Capital Advisors LLC where he is responsible for evaluation of companies for potential investment and assisting companies preparing for public listings in assembling their management teams. Mr. Campbell has also been a consultant to numerous development stage companies considering and engaging in public listings.
Ricky G. Bennett was, between October 2013 and March 2014, an independent consultant to Convercent, Inc., a Denver, Colorado-based corporation which develops and markets computer software which firms use to comply with human resource regulations and conduct employee training. Between 2011 and October 2013 Mr. Bennett was Vice President of Professional Services and Director of Training for Convercent. Between 2008 and 2010 Mr. Bennett was an Interstate Compact and Youth Offender Officer for the Colorado Department of Corrections. In this position, Mr. Bennett used a variety of strategies and services to instill pro-social behaviors in offenders transitioning into the community. Mr. Bennett joined the Aurora, Colorado Police Department in 1980, served as the Aurora Chief of Police between 2002 and 2005, and retired as a commander in 2007.
Patrick Deparini received a Bachelor of Science degree in Finance, with an emphasis on Managerial Finance, from the University of Nevada, Las Vegas. In the past 13 years, he has served as officer and/or director of numerous privately- and publicly-held corporations.
Family Relationships
There are no family relationships among any of our officers or directors.
Liability and Indemnification of Officers and Directors
Under our Articles of Incorporation, our directors are not liable for monetary damages for breach of fiduciary duty, except in connection with:
· | A breach of a director’s duty of loyalty to us or our stockholders; |
· | Acts or omissions not in good faith or which involve intentional misconduct, fraud or a knowing violation of law; |
· | A transaction from which a director received an improper benefit; or |
· | An act or omission for which the liability of a director is expressly provided under Nevada law. |
Our Articles of Incorporation and Bylaws require us to indemnify our officers and directors and other persons against expenses, judgments, fines and amounts incurred or paid in settlement in connection with civil or criminal claims, actions, suits or proceedings against such persons by reason of serving or having served as officers, directors, or in other capacities, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to our best interests and, in a criminal action or proceeding, if he had no reasonable cause to believe that his/her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of no contest or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to our best interests or that he or she had reasonable cause to believe his or her conduct was unlawful. Indemnification as provided in our Bylaws will be made only as authorized in a specific case and upon a determination that the person met the applicable standards of conduct. Insofar as the limitation of, or indemnification for, liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, or persons controlling us pursuant to the foregoing, or otherwise, we have been advised that, in the opinion of the SEC, such limitation or indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
Involvement on Certain Material Legal Proceedings During the Last Five Years
No director, officer, significant employee or consultant has been convicted in a criminal proceeding, exclusive of traffic violations.
No bankruptcy petitions have been filed by or against any business or property of any director, officer, significant employee or consultant of the Company nor has any bankruptcy petition been filed against a partnership or business association where these persons were general partners or executive officers.
No director, officer, significant employee or consultant has been permanently or temporarily enjoined, barred, suspended or otherwise limited from involvement in any type of business, securities or banking activities.
No director, officer or significant employee has been convicted of violating a federal or state securities or commodities law.
Audit Committee and Financial Expert
We do not have an Audit Committee. Our directors perform some of the same functions of an Audit Committee, such as: recommending a firm of independent certified public accountants to audit the annual financial statements; reviewing the independent auditors independence, the financial statements and their audit report; and reviewing management's administration of the system of internal accounting controls. The Company does not currently have a written audit committee charter or similar document.
We have no financial expert. We believe the cost related to retaining a financial expert at this time is prohibitive. Further, because of our start-up operations, we believe the services of a financial expert are not warranted.
Code of Ethics
We have not adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions in that our sole officer and director serves in all the above capacities.
Corporate Governance
Nominating Committee
We do not have a Nominating Committee or Nominating Committee Charter. Our directors perform the functions associated with a Nominating Committee. We have elected not to have a Nominating Committee in that we are a development stage company.
Director Nomination Procedures
Nominees for Directors are identified and suggested by the members of the Board or management using their business networks. The Board has not retained any executive search firms or other third parties to identify or evaluate director candidates and does not intend to in the near future. In selecting a nominee for director, the Board or management considers the following criteria:
1. | Whether the nominee has the personal attributes for successful service on the Board, such as demonstrated character and integrity; experience at a strategy/policy setting level; managerial experience dealing with complex problems; an ability to work effectively with others; and sufficient time to devote to our affairs; |
2. | Whether the nominee has been the chief executive officer or senior executive of a public company or a leader of a similar organization, including industry groups, universities or governmental organizations; |
3. | Whether the nominee, by virtue of particular experience, technical expertise or specialized skills or contacts relevant to our current or future business, will add specific value as a Board member; and |
4. | Whether there are any other factors related to the ability and willingness of a new nominee to serve, or an existing Board member to continue his service. |
The Board or management has not established any specific minimum qualifications that a candidate for director must meet in order to be recommended for Board membership. Rather, the Board or management will evaluate the mix of skills and experience that the candidate offers, consider how a given candidate meets the Board’s current expectations with respect to each such criterion and make a determination regarding whether a candidate should be recommended to the stockholders for election as a Director. During 2014, we received no recommendation for Directors from our stockholders.
We will consider for inclusion in our nominations of new Board of Directors nominees proposed by stockholders who have held at least 1% of our outstanding voting securities for at least one year. Board candidates referred by such stockholders will be considered on the same basis as Board candidates referred from other sources. Any stockholder who wishes to recommend for our consideration a prospective nominee to serve on the Board of Directors may do so by giving the candidate’s name and qualifications in writing to our Secretary at the following address: 1350 Independence St., Lakewood, CO 80215.
ITEM 11. EXECUTIVE COMPENSATION
Overview of Compensation Program
We currently have not appointed members to serve on the Compensation Committee of the Board of Directors. Until a formal committee is established, our entire Board of Directors has responsibility for establishing, implementing and continually monitoring adherence with the Company’s compensation philosophy. The Board of Directors ensures that the total compensation paid to the executives is fair, reasonable and competitive.
Compensation Philosophy and Objectives
The Board of Directors believes that the most effective executive compensation program is one that is designed to reward the achievement of specific annual, long-term and strategic goals by the Company and that aligns executives’ interests with those of the stockholders by rewarding performance above established goals, with the ultimate objective of improving stockholder value. As a result of the size of the Company and only having two executive officers, the Board evaluates both performance and compensation on an informal basis. Upon hiring additional executives, the Board intends to evaluate the necessity of establishing a Compensation Committee to evaluate both performance and compensation to ensure that the Company maintains its ability to attract and retain superior employees in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly-situated executives of peer companies. To that end, the Board believes executive compensation packages provided by the Company to its executives, including the named executive officers, should include both cash and stock-based compensation that reward performance as measured against established goals.
Role of Executive Officers in Compensation Decisions
The Board of Directors makes all compensation decisions for, and approves recommendations regarding equity awards to, the executive officers and Directors of the Company. Decisions regarding the non-equity compensation of other employees of the Company are made by management.
Summary Compensation Table
The following table sets forth, for the last completed fiscal years ended December 31, 2014 and 2013 the cash compensation paid by the Company, as well as certain other compensation paid with respect to those years to our officers:
| Summary Compensation Table |
| |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compen-sation ($) | Non-qualified Deferred Compen-sation Earnings ($) | All Other Compen-sation ($) | Total ($) |
| | | | | | | | | | |
| David Uddman (1) | 2014 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Former President | 2013 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| | | | | | | | | | |
| Jolene Uddman (1) | 2014 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Former Treasurer | 2013 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| | | | | | | | | | |
| Sean Campbell (2) | 2014 | 46,154 | 0 | 0 | 423,090 | 0 | 0 | 0 | 469,244 |
| CEO | | | | | | | | | |
| | | | | | | | | | |
| Ricky G. Bennett (3) | 2014 | 59,469 | 0 | 0 | 203,941 | 0 | 0 | 0 | 263,410 |
| VP of Operations | | | | | | | | | |
| | | | | | | | | | |
| Ted Daniels (4) | 2014 | 23,077 | 0 | 0 | 0 | 0 | 0 | 12,520 | 35,597 |
| VP of Sales | | | | | | | | | |
| | | | | | | | | | |
| Dan Sullivan (5) | 2014 | 45,231 | 0 | 0 | 1,749,620 | 0 | 0 | 37,194 | 1,821,485 |
| VP of Marketing | | | | | | | | | |
| | | | | | | | | | |
| Patrick Deparini (6) | 2014 | 0 | 0 | 0 | 466,564 | 0 | 0 | 0 | 466,564 |
| CFO | | | | | | | | | |
(1) | Mr. and Mrs. Uddman resigned as our officers and directors on February 19, 2014. |
(2) | Mr. Campbell was appointed as CEO on March 1, 2014. Mr. Campbell was granted 4,806,900 stock options, vesting over three annual installments and exercisable at $0.14 per share. |
(3) | Mr. Bennett was appointed as an officer on March 24, 2014. Mr. Bennett was granted 300,000 stock options, vesting over three annual installments and exercisable at $0.71 per share. |
(4) | Mr. Daniels was appointed as VP of Sales on March 14, 2014 and was terminated on December 12, 2014. |
(5) | Mr. Sullivan was appointed as VP of Marketing on March 14, 2014 and was terminated in February 2015. Mr. Sullivan was granted 4,500,000 stock options, vesting over three annual installments and exercisable at $0.39 per share. |
(6) | Mr. Deparini was appointed as CFO on August 4, 2014. Mr. Deparini was granted 1,200,000 stock options, vesting over three annual installments and exercisable at $0.39 per share. |
Directors' Compensation
Our directors are not entitled to receive compensation for services rendered to us, or for each meeting attended except for reimbursement of out-of-pocket expenses. We have no formal or informal arrangements or agreements to compensate our director for services she provides as a director of our company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management
The following table shows the beneficial ownership of the Company’s common stock as of December 31, 2014 by (i) each person whom the Company knows beneficially owns more than 5% of the outstanding shares of the Company’s common stock; (ii) each of the Company’s officers and directors; and (iii) all the officers and directors as a group. Unless otherwise indicated, each owner has sole voting and investment powers over his shares of common stock.
| Title Of Class | | Name, Title and Address of Beneficial Owner of Shares | | Amount of Beneficial Ownership | | Percent of Class |
| | | | | | | |
| Common | | Sean Campbell, CEO | | 14,772,688 | | 12.0% |
| Common | | Ricky G. Bennett, VP of Operations and Compliance | | 668,000 | | 0.5% |
| Common | | Patrick Deparini, CFO | | 42,000 | | 0.0% |
| | | | | | | |
| | | All Directors and Officers as a group (3 persons) | | 15,482,688 | | 12.5% |
| | | | | | | |
| Common | | NSG Group, Inc. | | 6,280,390 | | 5.1% |
| Common | | Dan Sullivan, Former VP of Marketing (1) | | 26,754,755 | | 21.7% |
Note: As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or share investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of a security).
(1) Includes 4,000,000 shares of the Company’s common stock held by Arapahoe Foundation, 10,904,455 shares held by Emerald Enterprises and 11,850,300 held in the name of Daniel Sullivan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
On July 31, 2014, we borrowed $98,150 from an entity materially controlled by an officer and shareholder. The loan is due and payable on demand and bears no interest. As of December 31, 2014, the principal balance owed on this loan is $98,150.
On October 10, 2014, we acquired all of the outstanding stock of Blue Line Capital, Inc. from Daniel Sullivan, a shareholder, for $100 in cash. At the time of the purchase, BL Capital had no material assets or liabilities and conducted no operations. BL Capital’s sole asset is 2,000,000 ownership units of Integrated Compliance Solutions, LLC, a Nevada limited liability company formerly known as Blue Line Financial Services, LLC.
Through December 31, 2014, an officer and shareholder loaned us an aggregate of $286,446, in the form of cash and expenses paid on behalf of the Company. The loan is due and payable on demand and bears no interest. We repaid $106,325 and as of December 31, 2014, the principal balance owed on this loan is $180,121.
On November 25, 2014, we borrowed $10,000 from an entity materially controlled by a shareholder. The loan is due and payable on demand and bears no interest. As of December 31, 2014, the principal balance owed on this loan is $10,000.
Director Independence
We currently do not have any independent directors, as the term “independent” is defined in Section 803A of the NYSE Amex LLC Company Guide. Since the Over the Counter Bulletin Board (“OTCBB”) does not have rules regarding director independence, the Board makes its determination as to director independence based on the definition of “independence” as defined under the rules of the New York Stock Exchange (“NYSE”) and American Stock Exchange (“Amex”).
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth fees billed to us by our independent auditors for the years ended 2014 and 2013 for (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of our financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.
| SERVICES | 2014 | | 2013 |
| | | | |
| Audit fees | $ 20,814 | | $ 10,575 |
| Audit-related fees | - | | - |
| Tax fees | - | | - |
| All other fees | - | | - |
| | | | |
| Total fees | $ 20,814 | | $ 10,575 |
Audit fees and audit related fees represent amounts billed for professional services rendered for the audit of our annual financial statements and the review of our interim financial statements. Before our independent accountants were engaged by to render these services, their engagement was approved by our Directors.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibit Number | Name and/or Identification of Exhibit |
| |
3 | Articles of Incorporation & By-Laws |
| |
| (a) Articles of Incorporation (1)
|
| |
| (b) By-Laws (1)
|
| |
31 | Rule 13a-14(a)/15d-14(a) Certifications |
| |
32 | Certification under Section 906 of the Sarbanes-Oxley Act (18 U.S.C. Section 1350) |
| |
101 | Interactive Data Files (2)
|
| |
| (INS) XBRL Instance Document |
| (SCH) XBRL Taxonomy Extension Schema Document |
| (CAL) XBRL Taxonomy Extension Calculation Linkbase Document |
| (DEF) XBRL Taxonomy Extension Definition Linkbase Document |
| (LAB) XBRL Taxonomy Extension Label Linkbase Document |
| (PRE) XBRL Taxonomy Extension Presenation Linkbase Document |
| |
(1) | Incorporated by reference to the Registration Statement on Form 10-SB, previously filed with the SEC on November 28, 2007. |
(2) | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
| BLUE LINE PROTECTION GROUP, INC. |
(Registrant) |
| |
By: /s/ Sean Campbell
| | |
Sean Campbell, Chief | | | |
| April 2, 2018 | By: | /s/ Daniel Allen | |
| | Daniel Allen, Principal Executive Officer | |
In accordance with the requirements of the Securities Act of 1933, this Annual Report was signed by the following persons in the capacities and on the dates stated:
| Signature | | Title | | Date |
| | | |
/s/ Sean Campbell | Chief Executive Officer | April 15, 2015 |
Sean Campbell | | |
| | | | | |
/s/ Patrick DepariniDaniel Allen | Chief | Principal Executive, Financial Officerand | | April 15, 20152, 2018 |
Patrick DepariniDaniel Allen | | Accounting Officer and a Director | | |
| | | | | |
| | | | |
/s/ Patrick DepariniDoyle Knudson | Chief Accounting Officer | Director | | April 15, 20152, 2018 |
Patrick DepariniDoyle Knudson | | | | |