Form
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2015
☐March 31, 2016 TRANSITION REPORT PURSUANT TO SECTION 13
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
number: 001-35902
Nevada | 20-5543728 | ||
(State or other jurisdiction of | incorporation or organization) | ( | |
Identification No.) | |||
1350 Independence St. Lakewood, CO | 80215 | ||
(Address of principal executive offices) | (Zip Code) | ||
( | |||
N/A | |||
(Former name, former address and former fiscal year, if changed since last report) |
Large accelerated filer | Accelerated filer | ||||
Non-accelerated filer | ¨ | Smaller reporting company | þ | ||
(Do not check if a smaller reporting company) | | |
Indicate
PART I | |||||
4 | |||||
4 | |||||
5 | |||||
6 | |||||
7-13 | |||||
17 | |||||
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting
BLUE LINE PROTECTION GROUP, INC. | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
(UNAUDITED) | ||||||||
March 31, | December 31, | |||||||
2016 | 2015 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and equivalents | $ | 27,447 | $ | 16,211 | ||||
Accounts receivable, net | 150,176 | 51,251 | ||||||
Accrued receivables | 33,521 | 73,995 | ||||||
Prepaid expenses and deposits | 12,882 | 20,669 | ||||||
Total current assets | 224,026 | 162,126 | ||||||
Fixed assets: | ||||||||
Machinery and equipment, net | 140,351 | 150,910 | ||||||
Construction in progress | 1,209,173 | 1,147,139 | ||||||
Net assets from discontinued operations | 2,782 | 2,782 | ||||||
Total fixed assets | 1,352,306 | 1,300,831 | ||||||
Total assets | $ | 1,576,332 | $ | 1,462,957 | ||||
Liabilities and Stockholders' Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 423,193 | $ | 332,169 | ||||
Notes payable | 251,881 | 75,000 | ||||||
Convertible notes payable, net of unamortized discounts | 159,726 | - | ||||||
Notes payable - related parties | 213,347 | 213,347 | ||||||
Convertible notes payable - related parties, net of unamortized discounts | 346,085 | 283,385 | ||||||
Current portion of long-term debt | 679,062 | 679,062 | ||||||
Net liabilities from discontinued operations | 1,335 | 1,335 | ||||||
Total current liabilities | 2,074,629 | 1,584,298 | ||||||
Long-term liabilities: | ||||||||
Long-term debt | 11,795 | 12,836 | ||||||
Total Long-term liabilities | 11,795 | 12,836 | ||||||
Total liabilities | 2,086,424 | 1,597,134 | ||||||
Stockholders' deficit: | ||||||||
Preferred Stock, $0.001 par value, 100,000,000 shares authorized, | ||||||||
no shares issued and outstanding as of March 31, 2016 and | ||||||||
December 31, 2015, respectively | - | - | ||||||
Common Stock, $0.001 par value, 1,400,000,000 shares authorized, | ||||||||
125,348,026 and 125,348,026 shares issued and outstanding as of | ||||||||
March 31, 2016 and December 31, 2015, respectively | 125,348 | 125,348 | ||||||
Common Stock, owed but not issued, 12,923 and 12,923 shares | ||||||||
as of March 31, 2016 and December 31, 2015, respectively | 13 | 13 | ||||||
Additional paid-in capital | 4,300,757 | 4,276,291 | ||||||
Accumulated (deficit) | (4,936,210 | ) | (4,535,829 | ) | ||||
Total stockholders' deficit | (510,092 | ) | (134,177 | ) | ||||
Total liabilities and stockholders' deficit | $ | 1,576,332 | $ | 1,462,957 |
BLUE LINE PROTECTION GROUP, INC. | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
(UNAUDITED) | ||||||||
For the three months ended | ||||||||
March 31, | ||||||||
2016 | 2015 | |||||||
Revenue | $ | 651,831 | $ | 520,231 | ||||
Cost of revenue | (555,255 | ) | (449,521 | ) | ||||
Gross profit | 96,576 | 70,710 | ||||||
Expenses: | ||||||||
Advertising | 6,764 | 273 | ||||||
Depreciation | 10,559 | 10,277 | ||||||
General and administrative expenses | 410,865 | 409,141 | ||||||
Total expenses | 428,188 | 419,691 | ||||||
Operating loss | (331,612 | ) | (348,981 | ) | ||||
Other expenses: | ||||||||
Interest expense | (68,769 | ) | (24,535 | ) | ||||
Interest income | - | 2,056 | ||||||
Total other expenses | (68,769 | ) | (22,479 | ) | ||||
Net loss | $ | (400,381 | ) | $ | (371,460 | ) | ||
Net loss per share - basic | $ | (0.00 | ) | $ | (0.00 | ) | ||
Net loss per share - fully diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||
Weighted average number of | ||||||||
common shares outstanding - basic | 125,348,026 | 123,134,171 | ||||||
Weighted average number of | ||||||||
common shares outstanding - fully diluted | 125,348,026 | 123,134,171 |
BLUE LINE PROTECTION GROUP, INC. | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(UNAUDITED) | ||||||||
For the three months ended | ||||||||
March 31, | ||||||||
2016 | 2015 | |||||||
Operating activities | ||||||||
Net loss | $ | (400,381 | ) | $ | (371,460 | ) | ||
Adjustments to reconcile net loss to | ||||||||
net cash used in operating activities: | ||||||||
Depreciation | 10,559 | 10,277 | ||||||
Stock-based compensation expense | 20,466 | 108,561 | ||||||
Amortization of discounts on notes payable | 56,756 | 12,655 | ||||||
Changes in operating assets and liabilities: | ||||||||
Decrease (Increase) in accounts receivable | (58,451 | ) | (1,584 | ) | ||||
Decrease (Increase) in deposits and prepaid expenses | 7,787 | - | ||||||
(Decrease) Increase in accounts payable and accrued liabilities | 82,703 | 139,640 | ||||||
(Decrease) Increase in long-term liabilities | - | (987 | ) | |||||
Net cash used in operating activities | (280,561 | ) | (102,898 | ) | ||||
Cash flows from investing activities | ||||||||
Receipt of payments from notes receivable | - | 7,981 | ||||||
Purchase of property, plant and equipments | (53,713 | ) | - | |||||
Net cash (used in) provided by investing activities | (53,713 | ) | 7,981 | |||||
Financing activities | ||||||||
Repayment of notes payable | (32,240 | ) | - | |||||
Proceeds from notes payable, net of original issue discounts | 200,000 | 50,000 | ||||||
Proceeds from convertible notes payable, net of original issue discounts | 157,750 | - | ||||||
Repayment of notes payable - related party | (20,000 | ) | (172,000 | ) | ||||
Proceeds from notes payable - related party | 20,000 | 67,000 | ||||||
Proceeds from convertible notes payable - related party | 20,000 | - | ||||||
Common stock payable | - | 100 | ||||||
Issuances of common stock | - | 50,000 | ||||||
Net cash provided by (used in) financing activities | 345,510 | (4,900 | ) | |||||
Net increase (decrease) in cash | 11,236 | (99,817 | ) | |||||
Cash - beginning | 16,211 | 211,922 | ||||||
Cash - ending | $ | 27,447 | $ | 112,105 | ||||
Supplemental disclosures: | ||||||||
Interest paid | $ | - | $ | - | ||||
Income taxes paid | - | - | ||||||
Non-cash investing and financing activities: | ||||||||
Debt discount due to common stock issued with note | $ | - | $ | 14,386 | ||||
Debt discount due to beneficial conversion feature | 4,000 | - | ||||||
Interest capitalized as construction in progress | 8,321 | 22,326 |
-2-
Company acquired Blue Line Protection Group, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, | December 31, | |||||||
2015 | 2014 | |||||||
Assets | (Unaudited) | (Audited) | ||||||
Current assets: | ||||||||
Cash and equivalents | $ | 68,636 | $ | 211,922 | ||||
Accounts and other receivables | 201,135 | 116,891 | ||||||
Notes receivable | — | 46,451 | ||||||
Prepaid expenses and deposits | 2,500 | 2,500 | ||||||
Total current assets | 272,271 | 377,764 | ||||||
Fixed assets: | ||||||||
Machinery and equipment, net | 164,251 | 189,438 | ||||||
Property, plant and equipment | 750,000 | 750,000 | ||||||
Building improvements | 373,868 | 348,553 | ||||||
Total fixed assets | 1,288,119 | 1,287,991 | ||||||
Total assets | $ | 1,560,390 | $ | 1,665,755 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 414,530 | $ | 295,863 | ||||
Notes payable | 75,000 | 2,000 | ||||||
Notes payable - related parties, net of discount | 183,347 | 288,271 | ||||||
Convertible notes payable - related parties, net of discount | 149,449 | — | ||||||
Current portion of long-term debt | 678,735 | 3,735 | ||||||
Total current liabilities | 1,501,061 | 589,869 | ||||||
Long-term liabilities: | ||||||||
Long-term debt | 14,166 | 691,780 | ||||||
Total current liabilities | 14,166 | 691,780 | ||||||
Total liabilities | 1,515,227 | 1,281,649 | ||||||
Stockholders' equity: | ||||||||
Preferred Stock, $0.001 par value, 100,000,000 shares authorized, no shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively | — | — | ||||||
Common Stock, $0.001 par value, 1,400,000,000 shares authorized, 124,291,958 and 122,845,282 issued and outstanding as of September 30, 2015 and December 31, 2014, respectively | 124,291 | 122,845 | ||||||
Common Stock, owed but not issued, 2,568,750 shares and 748,750 shares as of September 30, 2015 and December 31, 2014, respectively | 2,569 | 749 | ||||||
Additional paid-in capital | 3,719,554 | 2,788,934 | ||||||
Accumulated (deficit) | (3,801,251 | ) | (2,528,422 | ) | ||||
Total stockholders' equity | 45,163 | 384,106 | ||||||
Total liabilities and stockholders' equity | $ | 1,560,390 | $ | 1,665,755 |
, a Colorado corporation formed in February 2014 (“Blue Line Colorado”), as a wholly-owned subsidiary of the Company. Blue Line Colorado provides protection, compliance and financial services to the lawful cannabis industry.
-3-
Engraving Masters, Inc. to Blue Line Protection Group, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
For the three months ended | For the nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Revenue, net | $ | 773,484 | $ | 268,763 | $ | 2,073,865 | $ | 556,756 | ||||||||
Cost of revenue | (564,440 | ) | (261,713 | ) | (1,352,296 | ) | (488,113 | ) | ||||||||
Gross profit | 209,044 | 7,050 | 721,569 | 68,643 | ||||||||||||
Expenses: | ||||||||||||||||
Advertising | 3,000 | 57,073 | 3,314 | 179,885 | ||||||||||||
Depreciation | 10,558 | 9,145 | 31,353 | 17,485 | ||||||||||||
General and administrative expenses | 451,152 | 695,230 | 1,923,400 | 2,307,819 | ||||||||||||
Total expenses | 464,710 | 761,448 | 1,958,067 | 2,505,189 | ||||||||||||
Operating loss | (255,666 | ) | (754,398 | ) | (1,236,498 | ) | (2,436,546 | ) | ||||||||
Other expenses: | ||||||||||||||||
Interest expense | (1,467 | ) | — | (21,761 | ) | — | ||||||||||
Interest expense - related party | (13,057 | ) | — | (18,258 | ) | — | ||||||||||
Interest income | 195 | 2,382 | 3,106 | 3,620 | ||||||||||||
Forgiveness of debt expense | 5,539 | — | 582 | — | ||||||||||||
Total other expenses | (8,790 | ) | 2,382 | (36,331 | ) | 3,620 | ||||||||||
Net loss | $ | (264,456 | ) | $ | (752,016 | ) | $ | (1,272,829 | ) | $ | (2,432,926 | ) | ||||
Net loss per share – basic | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | ||||
Net loss per share - fully-diluted | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | ||||
Weighted average number of | ||||||||||||||||
common shares outstanding - basic | 126,575,282 | 122,029,005 | 125,204,110 | 116,942,037 | ||||||||||||
Weighted average number of | ||||||||||||||||
common shares outstanding - fully diluted | 131,299,521 | 130,915,253 | 131,833,740 | 122,184,808 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
-4-
Blue Line Protection Group, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the nine months ended | ||||||||
September 30, | ||||||||
2015 | 2014 | |||||||
Operating activities | ||||||||
Net loss | $ | (1,272,829 | ) | $ | (2,432,926 | ) | ||
Adjustments to reconcile net loss to | ||||||||
net cash used by operating activities: | ||||||||
Depreciation | 29,833 | 17,485 | ||||||
Stock-based compensation expense | 750,802 | 239,379 | ||||||
Shares issued for services | — | 938,000 | ||||||
Shares issued for prepaid expenses | — | 120,000 | ||||||
Amortization of discount on note payable | 32,535 | — | ||||||
Forgiveness of notes payable | (2,000 | ) | — | |||||
Changes in operating assets and liabilities: | ||||||||
Decrease (Increase) in accounts receivable | (84,244 | ) | (24,771 | ) | ||||
Decrease (Increase) in deposits and prepaid expenses | — | (2,500 | ) | |||||
(Decrease) Increase in accounts payable and accrued liabilities | 118,668 | 156,500 | ||||||
(Decrease) Increase in long-term liabilities | (2,614 | ) | 675,000 | |||||
Net cash (used) by operating activities | (429,849 | ) | (313,833 | ) | ||||
Cash flows from investing activities | ||||||||
Issuance of notes receivable | — | (50,000 | ) | |||||
Receipt of payments from notes receivable | 46,451 | — | ||||||
Purchase of fixed assets | (29,963 | ) | (1,292,497 | ) | ||||
Net cash provided by investing activities | 16,488 | (1,342,497 | ) | |||||
Financing activities | ||||||||
Donated capital | — | 7,106 | ||||||
Repayment of notes payable | — | (25,000 | ) | |||||
Proceeds from notes payable | 75,075 | 166,008 | ||||||
Repayment of notes payable - related party | (192,425 | ) | (25,000 | ) | ||||
Proceeds from notes payable - related party | 587,425 | 293,138 | ||||||
Proceeds from convertible notes payable - related party | 250,000 | — | ||||||
Issuances of common stock for cash | 50,000 | 1,313,462 | ||||||
Net cash provided by financing activities | 270,075 | 1,729,714 | ||||||
Net increase (decrease) in cash | (143,286 | ) | 73,384 | |||||
Cash - beginning | 211,922 | 2,844 | ||||||
Cash - ending | $ | 68,636 | $ | 76,228 | ||||
Non-cash transactions: | ||||||||
Shares issued for fixed assets | $ | — | $ | 30,000 | ||||
Discount attributed to beneficial conversion feature, net | $ | 100,551 | $ | — | ||||
Forgiveness of accrued salary based on settlement | $ | 123,994 | $ | — |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
-5-
Blue Line Protection Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Basis of presentation for the period
The interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared byOn May 6, 2014, the Company pursuant toeffected 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 rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the financial statementsauthorized number capital of the Company forconcurrently increased to 1,400,000,000 shares of $0.001 par value common stock. All references to share and per share amounts in the year ended December 31, 2014condensed consolidated financial statements and accompanying notes thereto included inhave been retroactively restated to reflect the Company's annual report on Form 10-K. The Company follows the same accounting policies in the preparation of interim reports.
Results of operations for the interim periods are not indicative of annual results.
Note 2 – History and business of the company
forward stock split.
Contingencies
-6-
Blue Line Protection Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
and construction in progress
September 30, 2015 | December 31, 2014 | |||||||
Automotive vehicles | $ | 173,926 | $ | 173,926 | ||||
Furniture and equipment | 48,850 | 44,204 | ||||||
Fixed assets, total | 222,776 | 218,130 | ||||||
Less: accumulated depreciation | (58,525 | ) | (28,692 | ) | ||||
Fixed assets, net | $ | 164,251 | $ | 189,438 |
March 31, 2016 | December 31, 2015 | |||||||
Automotive vehicles | $ | 173,926 | $ | 173,926 | ||||
F Furniture and equipment | 46,068 | 46,068 | ||||||
F Fixed assets, total | 219,994 | 219,994 | ||||||
Less Total : accumulated depreciation | (79,643 | ) | (69,084 | ) | ||||
Fixed assets, net | $ | 140,351 | $ | 150,910 |
As of March 31, 2016 and December 31, 2015, the balance of construction in progress was $1,209,173 and $1,147,139, respectively.
Notes Payable – Non-Related Parties
Through September 30,payable
On February 6,was $50,000 and $50,000, respectively.
On April 17, 2015,January 2016 the Company borrowed $25,000 in cash$58,000 from one non-affiliated person. an unrelated third party. The Company paid fees of $3,000 associated with this note which were recognized as a discount to the note.
Blue Line Protection Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6 – Debt and interest expense (continued)
Long Term Notes Payable
On
Payment date | ||||
on or before | Payment Amount | |||
May 27, 2016 | $ | 69,600 | ||
June 26, 2016 | $ | 75,400 | ||
July 26, 2016 | $ | 78,300 |
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. AsNovember 11, 2016 and bears interest at the rate of September 30, 2015,10% per year. If the total principal balanceloan 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 July 26, 2016 to convert all or any part of the noteoutstanding 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. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased to 35% instead of 50% while the “Chill” is $17,902,in effect. In no event shall the Lender be allowed to effect a conversion if such con-version, along with all other shares of which $14,166Company Common Stock beneficially owned by the Lender and its affiliates would exceed 9.9% of the outstanding shares of the Common Stock of the Company. In the event the Company is considered a long-term liabilitynot fully current in its filings with the Securities and Exchange Commission within 90 days from the current portiondate of $3,735 is considered a current liability.
the Note, the conversion discount shall be 35% instead of 50%.
Related Party Notes Payable
related party
On March 5, 2015,$98,150 and $98,150, respectively.
Through Marchwas $30,000 and $30,000, respectively.
On June 25,was $54,622 and $54,622, respectively.
Through September 30, 2015, the Company borrowed $44,000 from an officerwas $30,000 and shareholder of the Company. The loan is due and payable on demand and bears no interest. The Company has repaid $43,425 and as of September 30, 2015, the principal balance owed on this loan is $575.
$30,000, respectively.
related party
Blue Line Protection Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7 – Notes payable – Related Party (continued)
On March 16, 2015, the Company sold 400,000 shares of its common stock for gross cash proceeds of $50,000stock. All references to a non-related entity.
Restricted Stock Units
The Company measures all employee share-based payment awards using a fair-value method. The Company has a policy of issuing new shares to satisfy stock option exercisesshare and issuance of stock awards. A summary of the Company’s Restricted Stock Unit (RSU) activity and related information for 2015 and 2014, is as follows:
Number Of RSUs | Weighted-Average Grant Date Fair Value Per Share | ||
Balance at December 31, 2014 | 0 | $ 0.00 | |
Granted | 5,050,000 | $ 0.16 | |
Vested | 2,000,000 | $ 0.16 | |
Cancelled | (3,050,000) | $ 0.00 | |
Balance at September 30, 2015 | 2,000,000 | $ 0.16 |
On April 24, 2015, the Company issued 1,000,000 shares of its common stock as Restricted Stock Units to a director of a subsidiary company as compensation. On September 30, 2015, the Company entered into a Settlement Agreement with this subsidiary director, whereby, subject to the terms and conditions of the settlement, the parties mutually rescinded all prior existing agreements between them, as well as all compensatory arrangements set forth therein and the director returned 750,000 shares to the Company for cancellation. During the nine months ended September 30, 2015, the Company recorded $42,500 of share-based compensation expense related to the shares vested under the original director agreement.
On May 1, 2015, the Company issued an aggregate of 2,050,000 shares of its common stock as Restricted Stock Units to employees as incentive compensation. On September 30, 2015, the Company entered into Settlement Agreements with certain of these employees, whereby, subject to the terms and conditions of the settlements, the parties mutually rescinded all prior existing agreements between them, as well as all compensatory arrangements set forth therein and returned 1,533,324 shares to the Company for cancellation. During the nine months ended September 30, 2015, the Company recorded $13,778 of share-based compensation expense related to the shares vested under the original employment agreements.
-9-
Blue Line Protection Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8 - Stockholders’ equity and share-based compensation (continued)
On May 1, 2015, the Company issued Restricted Stock Units to an employee pursuant to the satisfaction of performance conditions of his employment agreement. The employee is eligible to earn up to an aggregate of 6,000,000 restricted stock units in accordance with the following schedule: (a) 2,000,000 shares upon the Company realizing consolidated revenue of $1,000,000 and (b) an additional 2,000,000 shares for each additional $1,000,000 of consolidated revenue up to a maximum of an additional 4,000,000 shares. As of May 1, 2015, the Company issued 2,000,000 shares of its common stock to this employee. The fair market value of the common stock on the date of issuance was $0.16 per share. As of September 30, 2015, the shares were not issued and are considered to be a common stock payable in the amount of $2,000. The Company recognized compensation expense in the amount of $320,000 during the nine-month period ended September 30, 2015.
Total stock-based compensation expense in connection with restricted stock units granted to employees recognizedshare amounts in the consolidated statement of operations forfinancial statements and these notes thereto have been retroactively restated to reflect the nine-month periods ended September 30, 2015 and 2014 was $320,000 and $0, respectively.
forward stock split.
options
The underlying assumptions used in our Black-Scholes pricing model for these options include:
As of December 31, 2013, there were no warrants or options outstanding to acquire any additional shares of common stock.
Number Of Shares | Weighted-Average Exercise Price | ||
Outstanding at December 31, 2014 | 11,736,900 | $ 0.29 | |
Granted | 1,230,000 | $ 0.19 | |
Exercised | 0 | $ 0.00 | |
Vested | 1,409,602 | $ 0.41 | |
Cancelled/Forfeited | (10,246,900) | $ 0.26 | |
Outstanding at September 30, 2015 | 2,720,000 | $ 0.34 | |
Options exercisable at September 30, 2015 | 1,409,602 | $ 0.41 |
-10-
Blue Line Protection Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8 - Stockholders’ equity and share-based compensation (continued)
Number Of Shares | Weighted-Average Exercise Price | |||||||
Outstanding at December 31, 2015 | 17,256,738 | $ | 0.14 | |||||
Exercised | - | $ | 0.00 | |||||
Cancelled | (246,667 | ) | $ | 0.21 | ||||
Outstanding at March 31, 2016 | 17,010,071 | $ | 0.14 | |||||
Options exercisable at December 31, 2015 | 8,150,896 | $ | 0.19 | |||||
Options exercisable at March 31, 2016 | 8,150,896 | $ | 0.19 |
OPTIONS OUTSTANDING AND EXERCISABLE | ||||||||||
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 | |||||
$ 0.05 - 0.71 | 2,720,000 | 2.06 | $ 0.34 | 1,409,602 | $ 0.41 | |||||
2,720,000 | 2.06 | $ 0.34 | 1,409,602 | $ 0.41 |
OPTIONS OUTSTANDING AND EXERCISABLE AT MARCH 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 | |||||||||||||||||
$ | 0.035 – 1.00 | 17,010,071 | 4.28 | $ | 0.14 | 8,150,896 | $ | 0.19 | ||||||||||||||
17,010,071 | 4.28 | $ | 0.14 | 8,150,896 | $ | 0.19 |
OPTIONS OUTSTANDING AND EXERCISABLE AT DECEMBER 31, 2015 | ||||||||||||||||||||||
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 | 17,256,738 | 4.47 | $ | 0.14 | 8,150,896 | $ | 0.19 | ||||||||||||||
17,256,738 | 4.47 | $ | 0.14 | 8,150,896 | $ | 0.19 |
Note 9 – Agreements
is due and payable on April 1, 2017.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report contains forward-looking statements about
The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, acceptance of our services, our ability to expand our customer base, managements’ ability to raise capitalper share amounts in the future,consolidated financial statements and accompanying notes have been retroactively restated to reflect the retention of key employees and changes in the regulation of our industry.
There may be other risks and circumstances that management may be unable to predict. When used in this Quarterly Report, words such as, "believes,""expects," "intends,""plans,""anticipates,""estimates"and similar expressions are intended to identify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions.
Overview of Operations
Blue Line Protection Group, Inc. providesforward stock split.
Our services cover the following categories:
Banking Compliance
The banking system in the U.S. is, inthree months ended March 31, 2016, most states, federally mandated. Possession or distribution of marijuana violates federal law, and banks that provide support for those activities face the risk of prosecution and assorted sanctions. Currently, almost all payments for the sales of cannabis are made in cash, due the inability of sellers to obtain merchant processing accounts. As a result, processing money from marijuana sales puts federally insured banks at risk of drug racketeering charges, so they've refused to open accounts for marijuana-related businesses.
Marijuana businesses that can't use banks may have too much cash they can't safely put away, leaving them vulnerable to criminals. Jurisdictions that allow cannabis sales want a channel to receive taxes.
In February 2014, The Obama administration gave banks a road map for conducting transactions with cannabis sellers operating within state regulations, so these companies can stash away savings, make payroll and pay taxes like a traditional place of business. The move was designed to let financial institutions serve such businesses while ensuring that they know their customers' legitimacy and remain obligated to report possible criminal activity. However, there remains nothing expressly protecting banks that work with state-legal, state-licensed marijuana businesses from prosecution. We are unaware of any bank, in any state, allowing bank accounts for cannabis-related businesses for fear of prosecution and losing their FDIC status and insurance.
We have created a means for the banks to validate compliance with the Federal Mandate. Currently only a security company could match the compliance requirements as only we can vertically integrate the source of funds through the Federally required 12 steps, summarized 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. We are uniquely positioned, through a number of partnership and cooperation agreements, to provide banking solutions to our clients.
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Compliance
Laws concerning business procedures and practices are changing across the nation. It’s hard to keep up with all the changes, and business owners have to balance their day-to-day operations with remaining compliant with and responsive to regulatory agencies. Blue Line Protection Group provides daily on-site compliance verification to ensure that local business owners are operating lawful and inspection-ready establishments. Our security experts, trained in crime prevention through environmental design (CPTED) techniques, can provide crucial advice about enhancing the interior and exterior security of your establishment.
Blue Line Protection Group communicates regularly with local and national government representatives to ensure that we remain the top-tier security and protection group in the nation. Retail establishments aren’t the only ones who have to remain compliant with the pertinent laws - we do, as well.
We have agreed a joint venture with one of the largest PEO HR companies in America out of Phoenix Arizona. They will handle all payments to employees of the companies we serve. They will also handle background checks on all employees. BL will receive a percentage of every contract.
With the addition of our compliance module clients can be confident they will not lose their license for some small or large error by their staff that might put their cannabis license in jeopardy. Their license being, in most instances, their most valuable asset. We are relieving them of several burdens they are ill suited to comply with. (Most licensees were formally acting outside the law prior to the recent legislationrevenue was derived from armed protection and have little to no compliance experience).
Protection
transportation services.
Training
Over 90% of our security personnel have established military or police background.
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Management’s Discussion and Analysis
Revenue
Our revenues are derived substantially from our armed and armored security services. In addition, we also provide banking compliance, asset logistics, security training, license compliance verification and accounting and bookkeeping services. In general, we primarily target businesses involved in the growing and dispensing of cannabisOperations for both medical and recreational uses, in jurisdictions where such is legal. We do not grow, test or dispense cannabis products.
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 three months ended September 30, 2015, we generated net revenue of $773,484. In the three month period ended September 30, 2014, we realized net revenue in the amount of $268,763. The approximately $504,721, or 188%, increase in revenues year-over-year is primarily attributable to greater market penetration experienced during the most recent quarter ended September 30, 2015.
In the nine month period ended September 30, 2015, net revenue was $2,073,865, compared to $556,756 of net revenue generated during the nine months ended September 30, 2014.
Revenue has 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. 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.
Levels of competition, changes in the regulatory and banking environment and our ability to generate new sales leads impact our revenues. 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 of Sales and Gross Profit
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,March 31, 2016 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.
Gross margin for the three- and nine-months ended September 30, 2015 and 2014 was as follows:
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Revenue, net | $ | 773,484 | $ | 268,763 | $ | 2,073,865 | $ | 556,756 | ||||||||
Cost of revenue | (564,440 | ) | (261,713 | ) | (1,352,296 | ) | (488,113 | ) | ||||||||
Gross margin | $ | 209,044 | $ | 7,050 | $ | 721,569 | $ | 68,643 | ||||||||
Gross margin as a percentage of net revenue | 27.0 | % | 2.6 | % | 34.8 | % | 12.3 | % |
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The increase in gross margins during the comparable periods is primarily attributable primarily to a greater employee utilization rate. Our profit margins have historically fluctuated significantly from quarter-to-quarter, and it is difficult for management to forecast with any certainty. However, we believe gross margins will trend downward during the third and fourth quarters of 2015 due to a variety of factors, including continued increased competition for clients and qualified employees, as well as potential increases in the cost of fuel.
Costs and Operating Expenses
For the three- and nine-month periods ended September 30, 2015 and 2014, the primary components of our operating expenses were, as follows (all figures in dollars, except for percentage change):
Three months ended | Nine months ended | |||||||||||||||||||||||
September 30, | Change | September 30, | Change | |||||||||||||||||||||
2015 | 2014 | (%) | 2015 | 2014 | (%) | |||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Advertising | $ | 3,000 | $ | 57,073 | (94.7 | ) | $ | 3,314 | $ | 179,885 | (98.2 | ) | ||||||||||||
Depreciation | 10,558 | 9,145 | 15.5 | 31,353 | 17,485 | 79.3 | ||||||||||||||||||
General and administrative: | ||||||||||||||||||||||||
Executive compensation | 116,490 | 175,374 | (33.6 | ) | 237,345 | 278,782 | (14.9 | ) | ||||||||||||||||
General and administrative | 247,774 | 298,332 | (16.9 | ) | 557,671 | 530,667 | 5.1 | |||||||||||||||||
Professional fees | 52,296 | 109,900 | (52.4 | ) | 101,072 | 1,145,538 | (91.2 | ) | ||||||||||||||||
Salaries and wages | 70,408 | 111,624 | (36.9 | ) | 400,506 | 352,832 | 13.5 | |||||||||||||||||
Stock-based compensation | (35,816 | ) | — | NMF | 626,806 | — | NMF | |||||||||||||||||
Total operating expenses | 464,710 | 761,448 | (59.0 | ) | 1,958,067 | 2,505,189 | (21.8 | ) | ||||||||||||||||
Other expenses: | ||||||||||||||||||||||||
Interest expense | (1,467 | ) | — | NMF | (21,761 | ) | — | NMF | ||||||||||||||||
Interest expense - related party | (13,057 | ) | — | NMF | (18,258 | ) | — | NMF | ||||||||||||||||
Interest income | 195 | 2,382 | (91.8 | ) | 3,106 | 3,620 | (14.2 | ) | ||||||||||||||||
Forgiveness of debt | 5,539 | — | NMF | 582 | — | NMF | ||||||||||||||||||
Total other expenses | $ | (8,790 | ) | $ | 2,382 | (469.0 | ) | $ | (36,331 | ) | $ | 3,620 | (1,103.6 | ) |
Advertising. We significantly reduced our marketing and advertising spend beginning in the third quarter of 2014, and have instead focused primarily on media relationships. Going forward, management believes advertising expenditures may increase through the remainder of fiscal year 2015; however, there are no specific plans so we cannot predict the extent to which advertising expenses could increase.
Depreciation. Depreciation expense is directly correlated to capital expenditures, more specifically to our furniture, equipment and armored vehicles. 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 consists of salaries paid to or accrued on behalf of our corporate officers and directors. The addition of executive management during the third quarter of 2014 contributed to the marked increase in the three- and nine-month periods ended September 30, 2015 from the comparable periods ended September 30, 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. Decreases in the third quarter of 2015 compared to the same period in 2014 were primarily attributable to decreases in officelast year, are discussed below:
Increase (I) or | ||||
Item | Decrease (D) | Reason | ||
Revenue | I | The Company new CEO has been soliciting new customers and raised the hourly rate charged | ||
Gross profit, as a % of revenue | I | The Company has raised the hourly rate it charges for its services | ||
General and Administrative expenses | I | During the three months ended March 31, 2015 there was an increase in travel and general office expense |
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Professional Fees. We incur costs related to maintaining our status as a public reporting company, as well as legal fees paid in relation to researching expansion opportunities and protecting our corporate properties. Declines in professional feescash during the three months ended March 31, 2016 and nine month periods ended September 30, 2015 and 2014were:
2016 | 2015 | |||||||
Cash used by operations | $ | (280,561 | ) | $ | (102,898 | ) | ||
Loan payments | (52,240 | ) | (172,000 | ) | ||||
Loan proceeds | 397,750 | 117,000 | ||||||
Purchase of property, plant and equipment | (53,713 | ) | -- | |||||
Sale of common stock | -- | 50,000 | ||||||
Other | 100 |
Description | 2016 | 2017 | 2018 | 2019 | 2020 | Total | ||||||||||||||||||
Remodel building | ||||||||||||||||||||||||
we purchased in 2014 | $ | 400,000 | -- | -- | -- | -- | $ | 400,000 |
Salaries and Wages. Salaries and wages expense is attributable to administrative, management and other salaried personnel not directly involved in the servicing of our clientele. Our ability to grow is tied directly to our ability to attract, hire and retain quality employees. Historically, our staffing levels tend to fluctuate from month-to-month and are difficult to predict withanticipate any certainty.
Stock-based Compensation. From time to time, we issue incentive stock-based compensation to employees and contractors in the form of stock options and grants. The negative amount of stock-based compensation in the three-month period ended September 30, 2015, is primarily attributable to the forfeiture of stock options related to employees whose option grants were not yet vested as of their termination dates.
Other Income and Expenses
In the quarter ended September 30, 2015, we incurred interest expense related to interest charged on our Denver, Colorado building and vehicle loans, as well as implied interest on notes payable. We anticipate continuing to incur interest expense related to capital equipment financing for the foreseeable future.
Interest income is attributable to our lending short-term, fully-collateralized loans to existing, recurring clients. During the quarter ended September 30, 2015, all notes receivable have been fully-repaid.
Net Loss
For the three- and nine-month periods ended September 30, 2015 and 2014, our net losses were, as follows (all figures in dollars, except for percentage change):
Three months ended | Nine months ended | |||||||||||||||||||||||
September 30, | Change | September 30, | Change | |||||||||||||||||||||
2015 | 2014 | (%) | 2015 | 2014 | (%) | |||||||||||||||||||
Net loss | $ | (264,456 | ) | (752,016 | ) | (64.8 | ) | (1,272,829 | ) | (2,432,926 | ) | (47.7 | ) |
We expect to continue to incur net losses for at least the next two quarters of 2015 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 tables present selected financial information and statistics as of September 30, 2015 and 2014:
Nine months ended September 30, | ||||||||
2015 | 2014 | |||||||
Net cash used by operations | $ | (429,849 | ) | $ | (313,833 | ) | ||
Net cash provided by (used in) investing activities | 16,488 | (1,342,497 | ) | |||||
Net cash provided by financing activities | 270,075 | 1,729,714 | ||||||
Net increase (decrease) in cash | (143,286 | ) | 73,384 | |||||
Cash at the beginning of the period | 211,922 | 2,844 | ||||||
Cash as the end of the period | $ | 68,636 | $ | 76,228 |
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Operating Activities.The increase in net cash used in operating activities during the nine-months ended September 30, 2015 compared to the same period in 2014 was primarily attributable to increases in general and administrative costs, such as insurance and property taxes, as well as continued increases in costs of sales.
Investing Activities.Cash provided by investing activities in the nine-month period ended September 30, 2015 is related primarily to the collection of principal on outstanding notes receivable. In the comparable period ended September 30, 2014, we used cash for capital expenditures, including furniture, equipment and vehicles. The expansion of our Colorado operations, as well as into additional geographic territories, is expected to require additional capital investment, although the cost of such will vary materially and cannot be readily estimated by management.
Financing Activities.To date, we have financed our operations through the issuance of stock and debt securities. The majority of funds was raised in the nine-months ended September 30, 2014. We expect to require, and are in the process of seeking, a capital injection to continue to shore up our balance sheet and pursue our expansion plans. 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 workingmaterial capital requirements for the next 12 months. The saletwelve months ending March 31, 2017.
● | trends, demands, commitments, events or uncertainties that will result in, or that are reasonable likely to result in, our liquidity increasing or decreasing in any material way; or |
● | any significant changes in our expected sources and uses of cash. |
Management’s goal is to be cash flow neutral by
Factors Affecting Future Growth
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.
We began 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, BLPG NV, was granted licenses to provide our suite of protection, transportation and compliance services within the State of Nevada. Our operations and compliance consultants plan to help Nevada marijuana businesses develop transparent relationships with banks, offering the industry-leading independent, third-party compliance solution to financial institutions that need to comply with federal guidelines, including Cole Memo and FinCEN requirements. We are working toward establishing operations in Nevada and are hopeful to establish a presence by the end of 2015. We are unable to predict when, if at all, we will begin to service and realize revenues from security, transport and compliance services in Nevada.
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There are no other known trends, events or uncertainties that have had or that are reasonably expected to have a material impact on our revenues from continuing operations. There can be no assurance that our continuing efforts will lead to profitability. 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.
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.
Principles of consolidation.For the periods ended September 30, 2015 and 2014, 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.”
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.
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Cost of Sales.The Company’s cost of revenue primarily consists of direct labor and other direct contract expenses and other costs attributable to serving the Company’s client base. Direct labor consists of salary and wages. Other direct contract expenses include costs directly attributable to client engagements, such as costs of hardware and supplies and costs of subcontractors.
Stock-based compensation.The Company records
The Company accounts
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 4. Controls and Procedures
Evaluationexpected to have a material impact on our consolidated financial statements upon adoption.
We maintain a set of disclosure controls and procedures designed to ensure that information requiredrecently issued guidance, whether adopted or to be disclosed by usadopted, please review the information provided in Note 2 to the reports filedfinancial statements included as part of this Report.
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.
Changesmaterial weaknesses identified.
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Limitations on Effectiveness
Exhibit Number | Description of Exhibit | |
resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II – OTHER INFORMATION
We are not a party to any material legal proceedings.
We are a smaller reporting company as defined by Rule 12b-2accordance with Section 13 or 15(d) of the Exchange Act and are not required to provide the information required under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
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SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the Registrant has dulyregistrant caused this report to be signed on its behalf by the undersigned, thereuntothereto duly authorized.
BLUE LINE PROTECTION GROUP, INC. | |||
May 23, 2016 | By: | /s/ Daniel Allen | |
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