UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form

FORM 10-Q


x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
☒ 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

OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission file number 000-52942

number: 001-35902

BLUE LINE PROTECTION GROUP, INC.

(Exact name of registrant as specified in its charter)

(Exact name of registrant as specified in its charter)
Nevada20-5543728
(State or other jurisdiction of
 incorporation or
organization)
(I.R.S.IRS Employer
incorporation or organization)Identification No.)
  
1350 Independence St.,
Lakewood, CO
80215
(Address of principal executive offices)(Zip Code)
 
(800) 844-5576(303) 862-9000
(Registrant'sRegistrant’s telephone number, including areacode)area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the issuerregistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ No ☒¨    No☐


Indicate by check marka checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive DataDate File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesþ No ☒¨   No☐


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


Large accelerated filer☐¨Accelerated filer☐¨

Non-accelerated filer

¨Smaller reporting companyþ
(Do not check if a smaller reporting company)

 ☐Smaller reporting company ☒

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

Indicate


As of April 30, 2016, the number ofregistrant had 125,348,026 shares outstanding of each of the issuer's classes of common stock outstanding.
1
FORWARD-LOOKING STATEMENTS
The information in this report contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (“the Exchange Act”), which are subject to the “safe harbor” created by those sections. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “should,” “could,” “predicts,” “potential,” “continue,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. The forward-looking statements are applicable only as of the latest practicable date:

Common Stock, $0.001 par value126,575,282 shares
(Class)(Outstanding as at November 16, 2015)

date on which they are made, and we do not assume any obligation to update any forward-looking statements. All forward-looking statements in this Form 10-Q are made based on our current expectations, forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. In evaluating these statements, you should specifically consider various factors, uncertainties and risks that could affect our future results or operations. These factors, uncertainties and risks may cause our actual results to differ materially from any forward-looking statement set forth in this Form 10-Q. You should carefully consider these risk and uncertainties described and other information contained in the reports we file with or furnish to the SEC before making any investment decision with respect to our securities. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

BLUE LINE PROTECTION GROUP,GROUP, INC.

Form

FORM 10-Q

Table of Contents

TABLE OF CONTENTS
Page
PART I -
FINANCIAL INFORMATION
3
Item 1.Financial Statements43
    
 
Item 1.
Unaudited Financial Statements:
4
Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015
4
4
Condensed Statements of Operations for the three months ended March 31, 2016 and 2015
5
Condensed Statements of Cash Flows for the three months ended March 31, 2016 and 2015
6
Notes to Unaudited Condensed Financial Statements
7-13
    
 
Item 2.
Condensed Consolidated StatementsManagement’s Discussion and Analysis of Financial Condition and Results of Operations
514
    
 
Item 4.
Controls and Procedures
Condensed Consolidated Statements of Cash Flows17
6
PART II
OTHER INFORMATION
17
    
 
Item 6.
Exhibits
Notes to Condensed Consolidated Financial Statements177
    
Item 2.
SIGNATURES
Management's Discussion and Analysis of Financial Condition and Results of Operations1812
Item 3.Quantitative and Qualitative Disclosures About Market Risk19
Item 4.Controls and Procedures19
PART II - OTHER INFORMATION20
Item 1.Legal Proceedings20
Item1A.Risk Factors20
Item 2.Unregistered Sales of Equity Securities20
Item 3.Defaults Upon Senior Securities20
Item 4.Mine Safety Disclosures20
Item 5.Other Information20
Item 6.Exhibits20
SIGNATURES21

(table of contents)

PART I – FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTSSTATEMENTS

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 
Blue Line Protection Group, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – History and pursuant to the rules and regulationsorganization of the Securities and Exchange Commission ("Commission").  While these statements reflect all normal recurring adjustments which are, incompany

The Company was originally organized on September 11, 2006 (Date of Inception) under the opinion of management, necessary for fair presentationlaws of the resultsState 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 interim period, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto, which are included in the Company's December 31, 2014, Annual Report on Form 10-K previously filed with the Commission on April 15, 2015.

-2- 

(table of contents)


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.


On May 2, 2014, the Company changed its name from The accompanying notes are an integral part of these unaudited consolidated financial statements.

-3- 

(table of contents)

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- 

(“BLPG”)

(table of contents)

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- 


(table of contents)

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.


Blue Line Protection Group, Inc. 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 – Basis of presentation

Interim financial statements

The unaudited interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to 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 statements of the Company for the year ended December 31, 2015 and notes thereto included in 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.
Reclassification
Certain amounts from prior periods have been reclassified to conform to the current period presentation

Concentrations

The Company had five major customers which generated approximately 66% (23%, 16%, 10%, 9% and 8%) of total revenue in the three months ended March 31, 2016.

The Company had five major customers which generated approximately 67% (16%, 15%, 13%, 13% and 10% ) of total revenue in the three months ended March 31, 2015.
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 incurredhas a net loss of $1,272,829 during$400,381 for the ninethree months ended September 30, 2015,March 31, 2016 and had negativea working capital at September 30, 2015.deficit of $1,850,603 as of March 31, 2016. These conditions raise substantial doubt about the Company’sCompany'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.    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 financial statements do not include any adjustments that might arise from this uncertainty.

Note 4 – Notes receivable

Contingencies

Contingencies

On May 15, 2014,December 28, 2015 Patrick Deparini, the Company loaned $50,000Company’s former CFO resigned. Mr. Deparini purports his resignation was made pursuant to a non-affiliated entity on a revolving basis at a rate of 18% per annum and due within one year fromtermination 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 issuance. Duringhis resignation he is owed a total of $154,000 in unreimbursed compensation, $575 in accrued authorized expenses and the nine months ended September 30, 2015 and 2014, interest income earned was $3,106 and $3,620, respectively.remaining balance of his base salary as defined in the employment agreement in the amount of $179,000. As of September 30,December 31, 2015 the Company has accrued a total of $125,575. 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.

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, 2015 the Company accrued a total of $88,968. 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 and interestwas actually made, the Company will seek an out-of-court settlement. As of December 31, 2015 the Company accrued thereupon was repaid in full and the principal balancea total of the loan is $0.

-6- 

$98,150.

8

Blue Line Protection Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 5 – Fixed assets

and construction in progress


Fixed assets consisted of the following at:

  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 
Depreciation expenses for the ninethree months ended September 30,March 31, 2016 and 2015 were $10,559 and 2014 were $31,353 and $17,485,$10,277, 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 September 30, 2015, the Company has capitalized interest related to the note in the amount of $25,316. Through September 30,December 31, 2015, approximately $373,868$363,377 in capital improvements and $33,762 of capitalized interestexpenses have been recorded in relationmade to the property.  As of September 30, 2015,March 31, 2016, the Company has not yet placedcompleted the construction on the property into service and it was not available and ready for use, accordingly, no depreciation expense has been recorded.

As of March 31, 2016 and December 31, 2015, the balance of construction in progress was $1,209,173 and $1,147,139, respectively.


Note 6 – Debt and interest expense

Notes Payable – Non-Related Parties

Through September 30,payable


During February 2015, the Company borrowed $50,000 from a non-affiliated third-party loaned the Company an aggregate of $2,000 in cash.person.  The note bears no interest andloan is due upon demand. During the quarter ended September 30, 2015, the lender forgave the note and no longer expects to be repaid.payable on demand with interest at 10% per annum. As of September 30,March 31, 2016 and December 31, 2015, the principal balance owed on this loan is $0.

On February 6,was $50,000 and $50,000, respectively.


During April 2015, the Company borrowed $50,000$25,000 from a non-affiliated person.  The loan is due and payable on demand with interest at 6% per year and has a 5% per month penalty upon default. As of March 31, 2016 and December 31, 2015, the principal balance owed on this loan was $25,000 and $25,000, respectively.

On February 23, 2016 the Company signed a Merchant Agreement with a lender. Under the agreement we received $193,550 in cashexchange for rights to all customer receipts until the lender is paid $264,000, which is collected at the rate of $1,397 per business day. The payments were secured by second position rights to all customer receipts until the loan has been paid in full. The Company paid $6,450 in fees in connection with this loan. The note was still outstanding as of March 31, 2016 with a balance of $228,801. The Company is amortizing the debt discount of $70,000 over the term of the loan. As of March 31, 2016 the unamortized discount was $59,944.

On January 5, 2016, the Company borrowed $10,000 from onea non-affiliated person.  The loan was due and payable on April 6, 2015January 5, 2017 and bearsbore interest at a rate of 10%5% per annum. As of September 30, 2015 and 2014, accrued interest payable was $3,233 and $0, respectively. During the three-month periods ended September 30, 2015 and 2014, interest expense was $1,260 and $0, respectively. As of September 30, 2015, theThe principal balance owed on this loan is $50,000. at March 31, 2016 was $10,000.

Convertible notes payable to non-related party

In connection with the note, the Company is obligated to issue 100,000 shares of its common stock to the holder, for which a discount of $14,286 is attributed to the note, which was amortized over its life and recorded as interest expense. As of September 30, 2015 and 2014, $14,286 of the discount has been amortized and recorded as interest expense, leaving a balance of $0 in discounts related to this note.

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.

The loan was due and payable on Mayhas a maturity date of November 1, 20152016 and bears interest at athe rate of 6%8% per annum.year.  If the loan is not paid when due, any unpaid loan amount will bear interest at 22% per year.  The noteLender is past dueentitled, at its option, at any time after July 26, 2016 to convert all or any part of the outstanding and is subject to default interest of an additional 5% per month. As of September 30, 2015unpaid principal and 2014, accrued interest payable was $1,203 and $0, respectively. Duringinto shares of the Company’s common stock at a price per share equal to 58% of the average of the three month periods ended September 30, 2015 and 2014, interest expense was $693 and $0, respectively. Aslowest trading prices for the 10 trading days immediately preceding the conversion date.

The Company may prepay this note according to the following schedule:
9

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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 

After July 15, 2014,26, 2016, the Company purchased a commercial building for a total purchase price of $750,000, for whichmay not prepay the note.

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 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 September 30, 2015, the Company has capitalized interest relateddiscount to the note in the amount of $25,316. During the three months ended September 30, 2015 and 2014 and a total of $8,441 and $5,626 in interest payments have been made. As of December 31, 2014, the Company considered the note as a long-term note payable in the amount of $675,000. However, as of September 30, 2015, the entire $675,000 principal balance of the note is due within 12 months andnote.
The loan has therefore been reclassified as a current liability

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%.


Note 7 – Notes payable – Related Party

Related Party Notes Payable

related party


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 September 30,March 31, 2016 and December 31, 2015, the principal balance owed on this loan is $98,150.

On March 5, 2015,$98,150 and $98,150, respectively.


As of December 31, 2014, a related party loaned the Company  borrowed $30,000 from an entity materially controlled by a shareholder$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.  AsDuring the year ended December 31, 2015 the Company borrowed an additional $20,000 and as of September 30,March 31, 2016 and December 31, 2015, the principal balance owed on this loan is $30,000.

Through Marchwas $30,000 and $30,000, respectively.

As of December 31, 2015,2014, a shareholder and former employeerelated party loaned the Company an aggregate of $286,446,$180,122, 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 $231,825$125,500 towards this note during 2015 and through September 30,as of March 31, 2016 and December 31, 2015, the principal balance owed on this loan is $54,621.

On June 25,was $54,622 and $54,622, respectively.


During 2015, the Company borrowed $20,000$43,575 from aits former officer, directorCFO. As of December 31, 2015 $43,000 of the loan had been repaid. The note is non-interest bearing, and shareholderdue on demand. As of March 31, 2016 and December 31, 2015 the principal amount owed on this loan was $575.
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 bears no interest. Theis non-interest bearing. During the first quarter of 2016, the Company has repaid $20,000 toward this loan and asborrowed an additional $20,000 from the related party.  As of September 30,March 31, 2016 and December 31, 2015, the principal balance owed on this loan is $0.

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.


Convertible Notesnotes payable to Related Party

related party

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 at 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. Through September 30,December 31, 2015, the Company borrowed a total of $250,000.$415,000. As of September 30,March 31, 2016 and December 31, 2015, the principal balance owed on this Convertible Note is $250,000. As$435,000 and $415,000, respectively.
10

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Blue Line Protection Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 7 – Notes payable – Related Party (continued)

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 $118,800$190,040 was attributed to the beneficial conversion feature of the note, which amount is being amortized through the maturity date of the note. As of September 30,March 31, 2016 and December 31, 2015, a total of $18,249$46,700 and $56,185, respectively has been amortized and recorded as interest expense, leaving a balance of $100,551$88, 915 and $131,615 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 $149,449$346,085 and $0$283,385 as of September 30,March 31, 2016 and December 31, 2015, respectively.

Aggregate amortization of debt discounts was $56,756 and 2014,$12,655 for the three months ended March 31, 2016 and 2015, respectively.


Note 8 – Long term notes payable

On July 15, 2014, the Company purchased a commercial building for $750,000, for which the Company made a down payment of $75,000 and financed the remaining $675,000 with 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 March 31, 2016 and December 31, 2015, the principal balance was $675,000 and a total of $57,729 and $49,292, respectively, in interest payments have been made.

On November 21, 2014, the Company purchased a vehicle for $20,827, net of discounts.  The Company financed the $20,827 at an interest rate of 2.42% for five years, with a maturity date of December 5, 2019.  As of March 31, 2016 and December 31, 2015, the total principal balance of the note is $15,857 and $16,898, respectively,  of which $11,795 and $12,836 is considered a long-term liability and $4,062 and $4,062 is considered a current liability.

Note 9 - Stockholders’ equity and share-based compensation


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.  As of September 30, 2015,On May 6, 2014, the Company had 124,291,958effected 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 issued and outstanding and nofor each 1 share held.  Additionally, the number of authorized shares increased to 1,400,000,000 shares of preferred stock issued or outstanding.

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, 20140 $ 0.00
Granted5,050,000 $ 0.16
Vested2,000,000 $ 0.16
Cancelled(3,050,000) $ 0.00
Balance at September 30, 20152,000,000 $ 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.

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(table of contents)

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.

Note 10 – Warrants and Options

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, which requires the input of certain highly subjective assumptions including expected term, risk free interest rate, stock price volatility and dividend yield.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. Expected termThe expected life of awards granted represents the estimatedperiod of time fromthat 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 dateCompany 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 grant until the date of exercise and is based on the simplified method provided in the Securities Exchange Commission’s Staff Accounting Bulletin No. 107, which calculates the expected term as the midpoint between the vesting date and the end of the contractual term of the option.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.

The underlying assumptions used in our Black-Scholes pricing model for these options include:

Expected dividend yield0%
Expected volatility range234% - 366%
Expected term (in years)3 years
Risk-free interest rate0.91%

As of December 31, 2013, there were no warrants or options outstanding to acquire any additional shares of common stock.


The following is a summary of the Company’s stock option activity:

 

Number

Of Shares

 

Weighted-Average

Exercise Price

Outstanding at December 31, 201411,736,900 $ 0.29
Granted1,230,000 $ 0.19
Exercised0 $ 0.00
Vested1,409,602 $ 0.41
Cancelled/Forfeited(10,246,900) $ 0.26
Outstanding at September 30, 20152,720,000 $ 0.34
Options exercisable at September 30, 20151,409,602 $ 0.41

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activity for the three months ended March 31, 2016:

11

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 

The following tables summarize information about stock options outstanding and exercisable at September 30,March 31, 2016 and December 31, 2015:

  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 

Total stock-based compensation expense in connection with options granted to employeesand modified awards recognized in the consolidated statement of operations for the nine-month periodsthree months ended September 30,March 31, 2016 and 2015 was $20,466 and 2014 was $250,528$108,561, respectively.
Note 11 – Subsequent Events
On April 1, 2016 the Company borrowed $144,000 from an unrelated third party.  The loan bears interest at a rate of 24.25% per year and $239,379, respectively.

Note 9 – Agreements

is due and payable on April 1, 2017.

On July 7, 2015,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 issued 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.
On April 18, 2016 and May 1, 2016, the Company’s Chief Executive Officer loaned the Company $40,000.  The loan is unsecured, due on demand and does not bear interest.
On May 3, 2016, the Company entered into,  an agreement with Hypur Ventures, L.P., a Separation AgreementDelaware limited partnership (the “Hypur Ventures”) pursuant to which the Company sold to Hypur Ventures, in a private placement, 10,000,000 shares of the Company’s preferred stock,  at a purchase price of $0.05 per share for gross proceeds of $500,000.  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 Releaseprivileges to be set forth in connectiona certificate of designation to be filed with the resignationSecretary of State.
Hypur Ventures has an option to purchase up to an additional 10,000,000 shares of Preferred Stock at a former officer and director. As partprice of $0.05 per share.
For each share of Preferred Stock purchased by Hypur Ventures, the Company will issue a warrant for the purchase of one-half share of the Separation,Company’s Common Stock , at an exercise price of $0.10 per share.
The Preferred Stock is convertible at any time at the former officer releasedelection 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, from all amounts oweddemand and piggy-back registration rights.  
The Company has reserved  thirty million shares of Common Stock that may be issued upon the conversion and/or exercise of the Preferred Stock and the Warrants.  The Preferred Stock to him, including actual or future accrued salaryHypur Ventures will be subject to the terms and expenses. Resultantly,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 recorded additional paid-in capitaland Hypur Ventures. 

ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

You should read the following discussion and analysis of financial condition and results of operations in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Report.

We were originally incorporated in Nevada on September 11, 2006, under the settlement in the amount of $123,994, during the three months ended September 30, 2015.

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name The Engraving Masters, Inc. (the “Company”).  

(table of contents)


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

On May 2, 2014, we changed our name to Blue Line Protection Group, Inc.’s business, financial condition

On May 6, 2014, our directors approved a 14-for-1 forward stock split.  In connection with the stock split, our authorized capital increased to 1,400,000,000 shares of common stock.  All references to share and prospects that reflect management’s assumptions and beliefs based on information currently available. We can give no assurance that the expectations indicated by such forward-looking statements will be realized.  If any of our management’s assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, Blue Line Protection Group’s actual results may differ materially from those indicated by the forward-looking statements.

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.


We provide armed protection financial solutions, logistics, and transportation, banking, compliance and training services for businesses engaged in the legal cannabis industry.   Blue Line provides on-site security,During the three months ended March 31, 2016 approximately 84% of our revenue was derived from armed protection and transportation services.  The remaining6% of our revenue was derived from compliance . 

The total market for marijuana, legal or otherwise, is estimated to exceed the economic value of corn and compliance verification serviceswheat combined.  Marijuana is widely considered the largest cash crop in the United States.  Businesses have been positioning themselves for years, each trying to establish a leadership position in the legal marijuana businessesindustry that management expects to ensurebe worth over $50 billion by the year 2020.  Marijuana sales reportedly averaged about $1,000,000 per day in the first five days of legalization in Colorado, and fiscal-year 2014 sales exceeded $700,000,000.  California and Colorado each expect to collect tax revenue of approximately $120,000,000 during their 2016 fiscal years.  

Cultivation facilities are the producers of legal cannabis that theyeventually make its way to consumers.  Growers’ operations typically span a large geographic footprint, making them susceptible to theft, as are operating accordingshipments from the growers to local, statetesting laboratories or to retail dispensaries.  Additionally, due to current federal marijuana legislation and federal regulations.  Blue Line helps keepbanking environment, growers are finding it increasingly difficult to secure their cash, purchase equipment and obtain financing for expansion.

Dispensaries are the retail face of the legal cannabis industry operating lawfullyindustry.  All legal sales of cannabis products are transacted through dispensaries that are state-licensed.  To maintain their licenses, dispensaries must comply with a variety of state-mandated reporting requirements, including reporting every gram of cannabis passing in and transparently by acting as an independent, third-party risk mitigation providerout of the store.  Dispensaries also face financing and banking challenges similar to banking institutions lookingthose that growers encounter.

In March 2015, our wholly-owned Nevada subsidiary, BLPG, Inc., was granted licenses to provide theirour services  to marijuana businesses. in Nevada.

We do not grow, test or dispense cannabis products. In general, we primarily target businesses involved insell marijuana.

Armed Protection and Transportation

During the growing and dispensing of cannabis for both medical and recreational uses, in jurisdictions were such is legal.

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.  

Fundamental to the legal cannabis industry is the protection of product and cash throughout the distribution channel.  Growers ship product from their cultivation facilities to independent laboratories where it is tested for compliance with state-mandated parameters.  From the labs, the product is then delivered to the retail dispensaries, where it is sold to the public.

Due to the current banking and regulatory environments, payments between each step in the distribution network are made in cash: from the customer back to the grower.  Therefore, these businesses are forced into having to transport bags of money between growers and dispensaries and their own vaults or storage facilities.

The risk of theft of cash and product is present at every stage, even when they are not in transit.  Accordingly, all cannabis businesses require security measures to prevent theft, mitigate risk to employees and maintain regulatory compliance.

We began our security and protection operations in the State of Colorado in February 2014.  Since then, we have become the largest legal cannabis protection services company in the state.  We offer a fully integrated approach to managing the movement of cannabis and cash from growers through dispensaries via armed and armored transport, money processing, vaulting and related credit.  Money processing services generally include counting, sorting and wrapping currency.

We currently supply guards, protection and armed and armored transportation to approximately 60% of all the licensees in Colorado. We are focused on encompassing all compliance needs on behalf of our clients, as mandated by the State and Federal authorities for the protection, transport and sale of cannabis.

Training

Over 90% of our security personnel have established military or police background.


We ensure our employees are prepared to offer clients, their staff and customers a safe and secure environment. All members of the Company's armored transportation team and security operators are required to undertake our mandatory, rigorous 40-hour introductory compliance and training curriculum. In addition to internal training, we also offer other businesses, housessecurity monitoring, asset vaulting, and VIP and dignitary protection.

Results of worship and the general public a wide varietyOperations
Material changes in line items in our Statement of safety, security and personal defense courses and firearms training.

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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
RevenueIThe Company new CEO has been soliciting new customers and raised the hourly rate charged
Gross profit, as a % of revenueIThe Company has raised the hourly rate it charges  for its services
General and Administrative expensesIDuring the three months ended March 31, 2015 there was an increase in travel and general office expense
Capital Resources and travel-related expenditures. GeneralLiquidity

Our material sources and administrative expenses were higher during the nine months ended September 30, 2015 compared to the same period ended September 30, 2014 due mainly to increased insurance premiums and taxes paid offsetting other declines.

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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 
Our material capital commitments over the next five year are primarily attributable to the cessationas follows:
Description 2016  2017  2018  2019  2020  Total 
                   
Remodel building                  
we purchased in 2014 $400,000   --   --   --   --  $400,000 
Other than as we expand our operations into additional jurisdiction,disclosed above, we do not foresee expenditures similar to those incurred in 2014.

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.


Other than as disclosed above, we do not know 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. any:

●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.

We do not have any firm commitments or arrangements from any person to provide us with any additionalequity capital.

Management’s goal is to be cash flow neutral by


During the end of fiscal 2015, of which there can be no guarantee. We have historically been dependent upon our ability, and will continue to attempt, to secure additional equity and/or debt financing. There are no assurancesnext twelve months, we anticipate that we will incur approximately $2,000,000 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 financing to continue our operations. We may not be successful and withoutable to obtain additional funding on terms that are favorable to us or at all. We may not be able to obtain sufficient financing it would be unlikely for usfunding 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.

Factors Affecting Future Growth


Off-Balance Sheet Arrangements
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 entryhave not entered 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.

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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any off-balance sheet arrangements.

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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.

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 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.”

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 itsour 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.

Revenue recognition.recognition. As all of our Revenue is generated from service offerings,services offerings. Revenue recognition is the same for each of 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.

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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 recordsWe record stock based compensation in accordance with the guidance in ASC Topic 505 and 718, which requires the Companyus to recognize expenses related to the fair value of itsour 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.  The Company recognizesWe recognize the cost of all share-based awards on a graded vesting basis over the vesting period of the award. 

The Company accounts

We account for equity instruments issued in exchange for the receipt of goods or services from other than employeesnon-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.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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Table of ContentsItem 3. Quantitative and Qualitative Disclosure About Market Risks

This item


Significant 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 required for smaller reporting companies.

Item 4. Controls and Procedures

Evaluationexpected to have a material impact on our consolidated financial statements upon adoption.


To understand the impact of Disclosure Controls and Procedures

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.


ITEM 4.     CONTROLS AND PROCEDURES

An evaluation was carried out under the Securities Exchange Act, is recorded, processed, summarizedsupervision and reported within the time periods specified by the Commission’s rules and forms.  Disclosure controls are also designed with the objectiveparticipation of ensuring that this information is accumulated and communicated to our management, including our chief executive officerPrincipal Financial Officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.  We evaluatedPrincipal Executive Officer, of 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 resultreport on Form 10-Q. Disclosure controls and procedures are procedures designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Form 10-Q, is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and is communicated to our management, including our Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our management concluded that, as of March 31, 2016, our disclosure controls and procedures were ineffective for the period ended September 30, 2015,not effective due to 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.

Changesmaterial weaknesses identified.


Change in Internal Control over Financial Reporting

Our internal controlscontrol over financial reporting

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.

There were no changes in our internal controlscontrol over financial reporting that occurred during the periodfiscal quarter covered by this report which hasthat materially affected or isare reasonably likely to materially affect, our internal controlscontrol over financial reporting.

Limitations on Effectiveness


PART II

ITEM 6.     EXHIBITS


SIGNATURES

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are

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

Item 1. Legal Proceedings

We are not a party to any material legal proceedings.

Item 1A. Risk Factors

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.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit NumberName and/or Identification of Exhibit
31Rule 13a-14(a)/15d-14(a) Certifications
32Certification under Section 906 of the Sarbanes-Oxley Act (18 U.S.C. Section 1350)
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presenation Linkbase Document

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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.
(Registrant)
SignatureTitleDate
/s/ Daniel AllenChief Executive OfficerNovember 16, 2015
Daniel Allen 
   
May 23, 2016
By:/s/ Daniel Allen
  
/s/ Patrick DepariniChiefDaniel Allen, Principal Executive, Financial and Accounting  OfficerNovember 16, 2015
Patrick Deparini 

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