UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No.1)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
[ ] 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: 001-35902
BLUE LINE PROTECTION GROUP, INC.
------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 20-5543728
---------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5765 Logan St.
Denver, CO 80216
---------------------------------- ---------------------------------
(Address of principal executive (Zip Code)
offices)
(800) 844-5576
----------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
---------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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. Yes ? No ?
Indicate by a checkmark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Date File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss. 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). Yes ? No ?
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer", "smaller
reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange
Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X] Smaller reporting company [X]
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ? No ?
As of November 19, 2018, the registrant had 334,191,700 outstanding shares of
common stock.
EXLANATORY NOTE
The purpose of this amendment is to include the XBRL exhibits which were omitted
from the 10-Q report filed on November 13, 2018.
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 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.
2
BLUE LINE PROTECTION GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2018 2017
------------ ------------
Assets
Current assets:
Cash and equivalents $ - $ 37,771
Accounts receivable, net 159,044 196,030
Accrued receivables 56,922 10,378
Prepaid expenses and deposits 77,496 24,628
---------- ----------
Total current assets 293,462 268,807
---------- ----------
Fixed assets:
Machinery and equipment, net 275,818 114,677
Security Deposit 38,958 32,850
Fixed assets of discontinued operations 2,782 2,782
---------- ----------
Total fixed assets 317,558 150,309
========== ==========
Total assets 611,020 419,116
========== ==========
Liabilities and Stockholders' Deficit
Current liabilities:
Cash overdraft $ 50,479 $ -
Accounts payable and accrued liabilities 699,325 642,059
Notes payable 85,000 110,225
Notes payable - related parties 412,846 419,846
Convertible notes payable, net of unamortized
discount 1,436,915 359,953
Convertible notes payable - related parties,
net of unamortized discount 327,583 1,057,726
Current portion of long-term debt 4,310 2,121
Current liabilities of discontinued operations - 1,335
Derivative liabilities 577,680 1,879,930
---------- ----------
Total current liabilities 3,594,138 4,473,195
---------- ----------
Long-term liabilities:
Long-term debt 2,564 6,518
---------- ----------
Total current liabilities 2,564 6,518
---------- ----------
Total liabilities 3,596,702 4,479,713
---------- ----------
Stockholders' deficit:
Preferred Stock, $0.001 par value,
100,000,000 shares authorized,
20,000,000 shares issued and
outstanding as of September 30, 2018
and December 31, 2017, respectively 20,000 20,000
Common Stock, $0.001 par value, 1,400,000,000
shares authorized, 202,040,148 and
128,348,026 issued and outstanding as of
September 30, 2018 and December 31, 2017,
respectively 202,041 128,348
Common Stock, owed but not issued, 12,923
shares and 12,923 shares as of September 30,
2018 and December 31, 2017, respectively 13 13
Additional paid-in capital 6,837,620 5,417,266
Accumulated deficit (10,045,356) (9,626,224)
---------- ----------
Total stockholders' deficit (2,985,682) (4,060,597)
---------- ----------
Total liabilities and stockholders' deficit $ 611,020 $ 419,116
=========== ==========
The accompanying notes are an integral part of
these unaudited consolidated financial statements.
3
BLUE LINE PROTECTION GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended For the Nine Months Ended
September 30, September 30,
----------------------------------- ----------------------------------
2018 2017 2018 2017
----------------- ---------------- ------------------- -------------
Revenue $ 955,142 $ 1,007,687 $ 3,152,157 $ 2,830,789
Cost of revenue (750,525) (763,117) (2,175,410) (2,165,374)
-------------- ------------- ------------- ------------
Gross profit 204,617 244,570 976,747 665,415
Operating expenses:
Advertising 3,011 2,663 7,598 7,209
Depreciation 17,433 11,801 44,793 35,779
General and administrative expenses 593,877 511,206 1,578,945 1,442,065
Loss of disposal of assets - -
-------------- ------------- ------------- ------------
Total expenses 614,321 525,670 1,631,336 1,485,053
-------------- ------------- ------------- ------------
Operating loss (409,704) (281,100) (654,589) (819,638)
Other income (expenses):
Other income - - 72,890
Disposition of Fixed Assets (3,420) - (3,420) -
Interest expense (347,640) (135,533) (1,023,839) (236,059)
Interest income - 195 - -
Gain/(loss) on fair value of derivative
securities 174,398 - 1,262,716 -
-------------- ------------- ------------- ------------
Total other income (expenses) (176,662) (135,533) 235,457 (163,169)
-------------- ------------- ------------- ------------
Net loss $ (586,366) $ (416,633) $ (419,132) $ (982,807)
============== ============= ============= ============
Net loss per common share:
Basic and Diluted $ (0.00) $ (0.00) $ (0.00) $ (0.01)
============== ============= ============= ============
Weighted average number of
common shares outstanding- Basic
and Diluted 146,343,516 128,011,069 164,684,835 127,571,469
============== ============= ============= ============
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
4
BLUE LINE PROTECTION GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
September 30,
-----------------------------
2018 2017
----------- ---------
Operating activities
Net loss $(419,132) $ (982,807)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 44,793 35,779
Amortization of stock options 52,437 77,025
Amortization of discounts on notes payable 809,309 68,358
Common stock issued for services 31,917
Penalty interest - 38,750
Convertible note for expenses paid on behalf
of company 30,217 -
Gain on change in fair value of derivative
liabilities (1,262,716) -
Changes in operating assets and liabilities:
Increase in accounts receivable (9,558) (70,993)
(Increase) / decrease in deposits and prepaid
expenses (58,976) 24,717
Increase in accounts payable and accrued
liabilities 79,274 127,428
Discontinued operations accounts payable and
accrued liabilities (1,335) (1,335)
---------- ---------
Net cash used in operating activities (703,770) (683,078)
---------- ---------
Cash flows from investing activities
Purchase of fixed assets (205,934) (1,590)
---------- ---------
Net cash used in investing activities (205,934) (1,590)
---------- ---------
Financing activities
Cash overdraft 50,479 76,678
Proceeds from notes payable - related party 127,000 332,764
Repayments from notes payable - related party (134,000) (332,764)
Proceeds from notes payable - 113,700
Proceeds from convertible note - related party,
net of original issue discount 430,000 460,000
Repayment of notes payable (35,782) (164,278)
Repayment of convertible note - (125,000)
Penalty payment - (38,750)
Payments on auto loan (1,764) (3,182)
Proceeds from convertible notes payable, net of
original discount costs 436,000 365,500
---------- ---------
Net cash provided by financing activities 871,933 684,668
---------- ---------
Net decrease in cash (37,771) -
Cash - beginning 37,771 -
---------- ---------
Cash - ending $ - $ -
========== =========
Supplemental disclosures of cash flow information:
Interest paid $ 3,432 $ 54,477
========== =========
Income taxes paid $ - $ -
========== =========
Debt discount due to derivative liability $ - $ -
========== =========
Non-cash investing and financing activities:
Debt discount due to derivative liability $ 777,149 $ -
Debt discount due to beneficial conversion
feature $ - $ 71,400
Common stock issued for conversion of debt and
interest $ 593,010 $ -
Derivative resolution $ 816,683 $ -
The accompanying notes are an integral part of
these unaudited consolidated financial statements.
5
Blue Line Protection Group, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - History and organization of the company
The Company was originally organized on September 11, 2006 (Date of Inception)
under the laws of the State of Nevada, as The Engraving Masters, Inc. The
Company was authorized to issue up to 100,000,000 shares of its common stock and
100,000,000 shares of preferred stock, each with a par value of $0.001 per
share.
On March 14, 2014, the Company acquired Blue Line Protection Group, Inc., a
Colorado corporation formed in February 2014 ("Blue Line Colorado"), 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 Engraving Masters, Inc. to
Blue Line Protection Group, Inc. ("BLPG")
On May 6, 2014, the Company effected a forward stock split and a pro-rata
increase in its authorized common stock on a basis of 14-to-1, whereby each
shareholder received 14 newly issued shares of common stock for each 1 share
held. Additionally, the authorized capital of the Company concurrently increased
to 1,400,000,000 shares of common stock. All references to share and per share
amounts in the consolidated financial statements and accompanying notes thereto
have been retroactively restated to reflect the forward stock split.
The Company provides armed protection, 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, financial services, such as handling
transportation and storage of currency; training; and compliance services.
Note 2 - Accounting policies and procedures
Interim financial statements
The unaudited interim consolidated 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.
In the opinion of management, 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, 2017 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.
Principles of consolidation
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."
6
Basis of presentation
The financial statements present the balance sheets, statements of operations,
stockholder's equity (deficit) and cash flows of the Company. The financial
statements of the Company have been prepared in accordance with generally
accepted accounting principles in the United States of America.
The Company has adopted December 31 as its fiscal year end.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and cash equivalents
The Company maintains a cash balance in a non-interest-bearing account that
currently does not exceed federally insured limits. For the purpose of the
statements of cash flows, all highly liquid investments with an original
maturity of three months or less are considered to be cash equivalents. There
were no cash equivalents as of September 30, 2018.
Accounts receivable
Accounts receivable are stated at the amount the Company expects to collect from
outstanding balances and do not bear interest. The Company provides for probable
uncollectible amounts through an allowance for doubtful accounts, if an
allowance is deemed necessary. The allowance for doubtful accounts is the
Company's best estimate of the amount of probable credit losses in the Company's
existing accounts receivable; however, changes in circumstances relating to
accounts receivable may result in a requirement for additional allowances in the
future. On a periodic basis, management evaluates its accounts receivable and
determines the requirement for an allowance for doubtful accounts based on its
assessment of the current and collectible status of individual accounts with
past due balances over 90 days. Account balances are charged against the
allowance after all collection efforts have been exhausted and the potential for
recovery is considered remote.
Allowance for uncollectible accounts
The Company estimates losses on receivables based on known troubled accounts, if
any, and historical experience of losses incurred. There was no allowance for
doubtful customer receivables at September 30, 2018 and December 31, 2017.
Property and equipment
Property and equipment is recorded at cost and capitalized from the initial date
of service. Expenditures for major additions and improvements are capitalized
and minor replacements, maintenance, and repairs are charged to expense as
incurred. When property and equipment is retired or otherwise disposed of, the
cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in the results of operations for the
respective period. Depreciation is provided over the estimated useful lives of
the related assets using the straight-line method for financial statement
purposes. The Company uses other depreciation methods (generally accelerated)
for tax purposes where appropriate. The estimated useful lives for significant
property and equipment categories are as follows:
Automotive Vehicles 5 years
Furniture and Equipment 7 years
Buildings and improvements 15 years
The Company reviews the carrying value of property and equipment for impairment
whenever events and circumstances indicate that the carrying value of an asset
may not be recoverable from the estimated future cash flows expected to result
from its use and eventual disposition. In cases where undiscounted expected
future cash flows are less than the carrying value, an impairment loss is
recognized equal to an amount by which the carrying value exceeds the fair value
7
of assets. The factors considered by management in performing this assessment
include current operating results, trends and prospects, the manner in which the
property is used, and the effects of obsolescence, demand, competition and other
economic factors. Based on this assessment there was no impairment as of
September 30, 2018 and December 31, 2017. Depreciation expense for the three and
nine months ended September 30, 2018 and 2017 totaled $17,433, $44,793, and
$11,801 and $35,779, respectively.
Impairment of long-lived assets
The Company accounts for its long-lived assets in accordance with ASC Topic
360-10-05, "Accounting for the Impairment or Disposal of Long-Lived Assets." ASC
Topic 360-10-05 requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the historical cost or
carrying value of an asset may no longer be appropriate. The Company assesses
recoverability of the carrying value of an asset by estimating the future net
cash flows expected to result from the asset, including eventual disposition. If
the future net cash flows are less than the carrying value of the asset, an
impairment loss is recorded equal to the difference between the asset's carrying
value and its fair value or disposable value. As of September 30, 2018 and
December 31, 2017, the Company determined that none of its long-term assets were
impaired.
Concentration of business and credit risk
The Company has no significant off-balance sheet risk such as foreign exchange
contracts, option contracts or other foreign hedging arrangements. The Company's
financial instruments that are exposed to concentration of credit risks consist
primarily of cash. The Company maintains its cash in bank accounts, which may at
times, exceed federally insured limits.
The Company had three major customers which generated approximately 50% (22%,
17% and 11%) of total revenue in the nine months ended September 30, 2018
The Company had 5 major customers which generated approximately 64% (25%, 14%,
9%, 8% and 8%) of total revenue in the nine months ended September 30, 2017.
Related party transactions
FASB ASC 850, "Related Party Disclosures" requires companies to include in their
financial statements disclosures of material related party transactions. The
Company discloses all material related party transactions. Related parties are
defined to include any principal owner, director or executive officer of the
Company and any immediate family members of a principal owner, director or
executive officer.
Fair value of financial instruments
The carrying amounts reflected in the balance sheets for cash, accounts payable
and related party payables approximate the respective fair values due to the
short maturities of these items. The Company does not hold any investments that
are available-for-sale.
As required by the Fair Value Measurements and Disclosures Topic of the FASB
ASC, fair value is measured based on a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value as follows: (Level 1)
observable inputs such as quoted prices in active markets; (Level 2) inputs,
other than the quoted prices in active markets, that are observable either
directly or indirectly; and (Level 3) unobservable inputs in which there is
little or no market data, which require the reporting entity to develop its own
assumptions.
The three levels of the fair value hierarchy are described below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs that are
observable, either directly or indirectly, for substantially the full
term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both
significant to the fair value measurement and unobservable (supported
by little or no market activity).
8
The following table presents the derivative financial instruments, the Company's
only financial liabilities measured and recorded at fair value on the Company's
consolidated balance sheet on a recurring basis, and their level within the fair
value hierarchy as of September 30, 2018 and December 31, 2017:
September 30, 2018
Amount Level 1 Level 2 Level 3
-----------------------------------------
Embedded conversion
derivative liability $ 543,763 $ $ - $ 543,763
Warrant derivative
liabilities $ 33,917 $ $ - $ 33,917
--------- --------- --------- ---------
Total $ 577,680 $ - $ - $ 577,680
========= ========= ========= =========
December 31, 2017
Amount Level 1 Level 2 Level 3
-----------------------------------------
Embedded conversion
derivative liability $1,580,51 $ $ - $1,580,51
Warrant derivative
liabilities $ 299,413 $ $ - $ 299,413
--------- --------- --------- ---------
Total $1,879,93 $ - $ - $1,879,93
========= ========= ========= =========
The embedded conversion feature in the convertible debt instruments that the
Company issued, that became convertible during the period September 30, 2018 and
the year ended December 31, 2017, qualified them as derivative instruments since
the number of shares issuable under the notes are indeterminate based on
guidance in FASB ASC 815, Derivatives and Hedging. These convertible notes
tainted all other equity linked instruments including outstanding warrants and
fixed rate convertible debt on the date that the instrument became convertible.
The valuation of the derivative liability of the warrants was determined through
the use of Black Scholes option-pricing model (See Note 8).
Revenue recognition
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with
Customers (Topic 606)," which supersedes the revenue recognition requirements in
Accounting Standards Codification 605, "Revenue Recognition." This ASU is based
on the principle that revenue is recognized to depict the transfer of goods or
services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. The ASU
also requires additional disclosure about the nature, amount, timing and
uncertainty of revenue and cash flows arising from customer contracts, including
significant judgments and changes in judgments and assets recognized from costs
incurred to obtain or fulfill a contract. ASC 606-10-50-5 requires that entities
disclose disaggregated revenue information in categories (such as type of good
or service, geography, market, type of contract, etc.) that depict how the
nature, amount, timing, and uncertainty of revenue and cash flow are affected by
economic factors. ASC 606-10-55-89 explains that the extent to which an entity's
revenue is disaggregated depends on the facts and circumstances that pertain to
the entity's contracts with customers and that some entities may need to use
more than one type of category to meet the objective for disaggregating revenue.
In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective
date of the new revenue standard by one year, and allowed entities the option to
early adopt the new revenue standard as of the original effective date. There
have been multiple standards updates amending this guidance or providing
corrections or improvements on issues in the guidance. The requirements for
these standards relating to Topic 606 are effective for interim and annual
periods beginning after December 15, 2017. This standard permitted adoption
using one of two transition methods, either the retrospective or modified
retrospective transition method.
The Company adopted these standards at the beginning of the first quarter of
fiscal 2018 using the modified retrospective method. The adoption of these
standards did not have an impact on the Company's Condensed Statements of
Operations in for the nine months ended September 30, 2018.
ASC 606-10-50-5 requires that entities disclose disaggregated revenue
information in categories (such as type of good or service, geography, market,
type of contract, etc.) that depict how the nature, amount, timing, and
uncertainty of revenue and cash flow are affected by economic factors. ASC
606-10-55-89 explains that the extent to which an entity's revenue is
disaggregated depends on the facts and circumstances that pertain to the
entity's contracts with customers and that some entities may need to use more
than one type of category to meet the objective for disaggregating revenue.
9
In general, the Company's business segmentation is aligned according to the
nature and economic characteristics. Revenue is characterized by several lines
of services and typically the pricing is fixed.
Three months ended Nine months ended
September 30, September, 30
------------------- --------------------
Revenue Breakdown By Streams 2018 2017 2018 2017
---- ---- ---- ----
Services - Guards $457,115 $700,258 $1,805,223 $2,125,396
Services: Currency Processing 246,806 128,410 653,926 226,384
Services: Transport 229,251 168,928 614,047 350,400
Services: Compliance 21,180 7,745 74,568 34,707
Services: Consulting -- -- -- 76,531
Other 790 2,346 4,393 7,371
-------- -------- ---------- ----------
Total $955,124 $1,007,687 $3,152,157 $2,830,789
======== ========== ========== ==========
Advertising costs
The Company expenses all costs of advertising as incurred. There were $3,011,
$7,598 and $2,663, and $7,209 in advertising costs for the three and nine months
ended September 30, 2018 and 2017, respectively.
General and administrative expenses
The significant components of general and administrative expenses consist mainly
of legal and professional fees and compensation.
Stock-based compensation
The Company records stock-based compensation in accordance with FASB ASC Topic
718, "Compensation - Stock Compensation." FASB ASC Topic 718 requires companies
to measure compensation cost for stock-based employee compensation at fair value
at the grant date and recognize the expense over the employee's requisite
service period. The Company recognizes in the statement of operations the
grant-date fair value of stock options and other equity-based compensation
issued to employees and non-employees. The Company accounts for equity
instruments issued to non-employees in accordance with the provisions of ASC
505-50, "Equity-Based Payments to Non-Employees", which requires that such
equity instruments are recorded at their fair value on the measurement date,
with the measurement of such compensation being subject to periodic adjustment
as the underlying equity instruments vest.
Cost of Revenue
The Company's cost of revenue primarily consists of labor, fuel costs and items
purchased by the Company specifically purposed for the benefit of the Company's
client.
Basic and Diluted Earnings per share
Net loss per share is provided in accordance with FASB ASC 260-10, "Earnings per
Share". Basic loss per share is computed by dividing losses available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted income (loss) per share gives effect to all dilutive
potential common shares outstanding during the period. Dilutive loss per share
excludes all potential common shares if their effect is anti-dilutive. During
the three and nine months ended September 30, 2018 all common stock equivalents
were excluded from the calculation of diluted loss per share as their effect
would be anti-dilutive.
Dividends
The Company has not yet adopted any policy regarding payment of dividends. No
dividends have been paid or declared since inception.
10
Income Taxes
The Company follows FASB Codification Topic 740-10-25 (ASC 740-10-25) for
recording the provision for income taxes. Deferred tax assets and liabilities
are computed based upon the difference between the financial statement and
income tax basis of assets and liabilities using the enacted marginal tax rate
applicable when the related asset or liability is expected to be realized or
settled. Deferred income tax expenses or benefits are based on the changes in
the asset or liability each period. If available evidence suggests that it is
more likely than not that some portion or all of the deferred tax assets will
not be realized, a valuation allowance is required to reduce the deferred tax
assets to the amount that is more likely than not to be realized. Future changes
in such valuation allowance are included in the provision for deferred income
taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income
and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which they relate.
Deferred taxes arising from temporary differences that are not related to an
asset or liability are classified as current or non-current depending on the
periods in which the temporary differences are expected to reverse.
Recent Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases, which will amend current
lease accounting to require lessees to recognize (i) a lease liability, which is
a lessee's obligation to make lease payments arising from a lease, measured on a
discounted basis, and (ii) a right-of-use asset, which is an asset that
represents the lessee's right to use, or control the use of, a specified asset
for the lease term. ASU 2016-02 does not significantly change lease accounting
requirements applicable to lessors; however, certain changes were made to align,
where necessary, lessor accounting with the lessee accounting model. This
standard will be effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. The Company is currently
reviewing the provisions of this ASU to determine if there will be any impact on
our results of operations, cash flows or financial condition.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation:
Improvements to Employee Share-Based Payment Accounting, which relates to the
accounting for employee share-based payments. This standard addresses several
aspects of the accounting for share-based payment award transactions, including:
(a) income tax consequences; (b) classification of awards as either equity or
liabilities; and (c) classification on the statement of cash flows. This
standard is effective for fiscal years beginning after December 15, 2016,
including interim periods within those fiscal years. The Company adopted this
standard as of December 31, 2016. The adoption of this standard had no effect on
our results of operation, cash flows, other than presentation, or financial
condition.
In April 2016, the FASB issued ASU 2016-10 Revenue from Contracts with Customers
(Topic 606): Identifying Performance Obligations and Licensing. The amendments
in this Update do not change the core principle of the guidance in Topic 606.
Rather, the amendments in this Update clarify the following two aspects of Topic
606: identifying performance obligations and the licensing implementation
guidance, while retaining the related principles for those areas. Topic 606
includes implementation guidance on (a) contracts with customers to transfer
goods and services in exchange for consideration and (b) determining whether an
entity's promise to grant a license provides a customer with either a right to
use the entity's intellectual property (which is satisfied at a point in time)
or a right to access the entity's intellectual property (which is satisfied over
time). The amendments in this Update are intended render more detailed
implementation guidance with the expectation to reduce the degree of judgement
necessary to comply with Topic 606. The Company adopted these standards at the
beginning of the first quarter of fiscal 2018 using the modified retrospective
method. The adoption of these standards did not have an impact on the Company's
Condensed Statements of Operations in for the three and nine months ended
September 30, 2018.
In April 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Cash
Receipts and Cash Payments" ASU 2016 - provides guidance regarding the
classification of certain items within the statement of cash flows. ASU 2016-15
is effective for annual periods beginning after December 15, 2017, with early
adoption permitted. The Company does not believe this ASU will have an impact on
our results of operation, cash flows, other than presentation, or financial
condition.
On November 17, 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows
(Topic 230): Restricted Cash", a consensus of the FASB's Emerging Issues Task
Force (the "Task Force"). The new standard requires that the statement of cash
flows explain the change during the period in the total of cash, cash
11
equivalents, and amounts generally described as restricted cash or restricted
cash equivalents. Entities will also be required to reconcile such total to
amounts on the balance sheet and disclose the nature of the restrictions. ASU
No. 2016-18 is effective for public business entities for fiscal years beginning
after December 15, 2017. The Company does not believe this ASU will have an
impact on our results of operation, cash flows, other than presentation, or
financial condition. The Company evaluated all recent accounting pronouncements
issued and determined that the adoption of these pronouncements would not have a
material effect on the financial position, results of operations or cash flows
of the Company.
Note 3 - Going concern
The accompanying unaudited consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As shown in the
accompanying financial statements, the Company has an accumulated deficit and
had a working capital deficit as of September 30, 2018. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
In order to continue as a going concern, the Company will need, among other
things, additional capital resources. The Company is significantly dependent
upon its ability, and will continue to attempt, to secure additional equity
and/or debt financing. 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 - Commitments and Contingencies
Contingencies
On December 28, 2015 Patrick Deparini, the Company's former CFO resigned. Mr.
Deparini purports his resignation was made pursuant to a termination clause for
other than cause if he is required to undertake other responsibilities other
then set forth in his employment agreement. Mr., Deparini claims through the
date of his resignation he is owed a total of $154,000 in unreimbursed
compensation, $575 in accrued authorized expenses and the remaining balance of
his base salary as defined in the employment agreement in the amount of
$179,000. As of December 31, 2017 and 2016 the Company has accrued a total of
$125,575 contingent liabilities On February 6, 2017, The Company received a
Notification of Wage Claim from the State of Nevada Department of Business &
Industry Office of the Labor Commissioner stating that Patrick Deparini had
filed a claim for unpaid wages with the Office of the Labor Commissioner (the
"Commissioner"). The notification states that Mr. Deparini maintains he was not
paid for all hours worked between February 3, 3015 and December 28, 2015 for a
total amount owed of $99,000. The Company disputed Mr. Deparini's claim with the
Commissioner and responded by explaining to the Commissioner that Mr. Deparini
improperly categorized his dispute with the Company as a wage claim, which it is
not. If litigation is commenced the Company will attempt a reasonable
out-of-court settlement and if such efforts are not successful, will defend the
litigation. The Labor Commission informed the Company on August 24, 2017 that
the claim was closed.
On November 6, 2015 Daniel Sullivan sent a wage claim demand. Mr. Sullivan
purports to have had an Independent Contractor Agreement with the Company which
provides he is entitled to certain compensation and to be reimbursed for Company
expenses. The demand claims unpaid compensation in the amount of $8,055 and
unreimbursed expenses in the amount of $154,409. The Company denies the
agreement was ever signed. As of September 30, 2018 and December 31, 2017, the
Company accrued a total of $88,968 contingent liabilities. If litigation is
commenced the Company will attempt a reasonable out-of-court settlement and if
such efforts are not successful, will defend the litigation.
Mile High Real Estate Group, an entity owned by Mr. Sullivan, sent
correspondence stating the Mr. Sullivan and/or Mile High Real Estate loaned the
Company either directly or directly to contractors, material suppliers or
utilities for operating and building remodeling in the amount of $98,150.
Counsel for Mr. Sullivan stated that he was still compiling information. The
Company is investigating whether Mr. Sullivan and/or Mile High Real Estate Group
ever made the alleged loans. If the alleged loan was actually made, the Company
will seek an out-of-court settlement. As of September 30, 2018 and December 31,
2017 the Company accrued a total of $98,150.
12
On April 14, 2016, the Company entered into an agreement with an unrelated third
party to provide the Company with investor relations services. Upon signing the
agreement, the Company paid the investor relations consultant $75,000 and agreed
to issue the consultant 1,500,000 shares of its restricted common stock. The
agreement requires the Company to pay the consultant an additional $75,000 prior
to June 14, 2016. The Company cancelled the agreement and is of the opinion that
the shares are not owed to the consultant. As of September 30, 2018 and December
31, 2017 there was no payable recorded.
Leases
On April 25, 2018, the Company leased a vehicle for $39,595. The Company made a
down payment of $7,500 and agreed to make 36 monthly payment of $1,015.78
including sales tax. As of September 30, 2018 the Company has not taken position
of the vehicle and the early termination fee is nominal.
On August 16, 2018, the Company leased a vehicle. The Company made a down
payment of $30,000 and agreed to make 36 monthly payments of $1,265.30,
including sales tax.
On August 16, 2018, the Company leased a vehicle. The Company made a down
payment of $30,000 and agreed to make 36 monthly payments of $1,265.30,
including sales tax.
On October 27, 2016 the Company sold its building located at 5765 Logan Street,
Denver, Colorado to an unrelated third party for $1,400,000. The Company repaid
the mortgage on the building in the amount of $677,681. After the sale, the
Company leased the building from the purchaser of the property. The lease is for
an initial term of ten years, with the Company having the option to extend the
term of the lease for two additional five year periods. The lease requires
rental payments of $10,000 per month and will increase 2% annually. The Company
paid a $30,000 deposit at the inception of the lease.
Future minimum lease payments:
2018 $68,293
2019 453,018
2020 155,519
2021 151,080
2022 268,075
2023 and thereafter 386,454
----------
Total minimum lease payments $1,482,439
==========
Note 5 - Fixed assets
Machinery and equipment consisted of the following at:
September 30, December 31,
2018 2017
------------ -----------
Automotive vehicles $ 162,149 $ 194,882
Furniture and equipment 200,769 85,437
Leasehold improvements 69,485
Fixed assets, total 432,403 280,319
Total : accumulated depreciation (156,585) (165,642)
--------- ---------
Fixed assets, net $ 275,818 $ 114,677
========= =========
Total depreciation expenses for the three and six month ended June 30, 2018 and
2017 were $17,433, $44,793 $11,801 and $35,779 respectively.
Note 6 - Notes payable
Notes payable to non-related parties
During February 2015, the Company borrowed $50,000 from a non-affiliated person.
The loan is due and payable on demand with interest at 10% per annum. As of
September 30, 2018 and December 31, 2017, the principal balance owed on this
loan was $50,000 and $50,000, respectively.
13
During April 2015, the Company borrowed $25,000 from a non-affiliated person.
The loan is due and payable May 1, 2015 with interest at 6% per year and has a
5% per month penalty upon default. As of September 30, 2018 and December 31,
2017, the principal balance owed on this loan was $25,000 and $25,000,
respectively. The note is currently past due.
On January 5, 2016, the Company borrowed $10,000 from a non-affiliated person.
The loan was due and payable on January 5, 2017 and bore interest at 5% per
annum. The principal balance owed on this loan at September 30, 2018 and
December 31, 2017 was $10,000 and $10,000, respectively. The note is currently
past due.
On August 24, 2017 the Company signed a Merchant Agreement with a lender. Under
the agreement the Company received $50,000 in exchange for rights to all
customer receipts until the lender is paid $69,000 which is collected at the
rate of $410.71 per day with 15% interest per year. The Company recorded a debt
discount of $19,000 and recorded $8,444 amortization expense for the year ended
December 31, 2017 and $10,556 for the nine months ended September 30, 2018. As
of September 30, 2018 the unamortized discount was $0 and outstanding loan
amount was $0. As of December 31, 2017 the unamortized discount was $10,556 and
outstanding loan amount was $35,782. The Company repaid a total of $35,782
during the nine months ended September 30, 2018. The payments were secured by
second position rights to all customer receipts until the loan has been paid in
full.
Convertible notes payable to non-related party
On July 18, 2017 the Company borrowed $125,000 from an unrelated third party.
The loan has a maturity date of April 30, 2018 and bears interest at the rate of
8% per year. The Company paid $3,000 of fees associated with the loan, during
the year ended December 31, 2017. The Company had amortized $1,741 of the
discount and the remaining discount of $1,259 was amortized during the six
months ended June 30, 2018. If the loan is not paid when due, any unpaid amount
will bear interest at 22% per year. The Lender is entitled, at its option, at
any time after January 14, 2018, (180 days from date of the note) to convert all
or any part of the outstanding and unpaid principal and accrued interest into
shares of the Company's common stock at a price per share equal to 58% of the
average of the three lowest trading prices for the 10 trading days immediately
preceding the conversion date. The note was not convertible as of December 31,
2017, therefore no derivatives were recorded. On January 14, 2018 the note
became convertible note was discounted for a derivative (see note 8 for details)
and the discount of $122,000 was being amortized over the life of the note using
the effective interest method resulting in 128,000 of interest expense for the
nine months ended September 30, 2018. The balance outstanding on the note at
December 31, 2017 was $125,000. During the nine months ended September 30, 2018,
the principal of $125,000 and accrued interest of $5,000 were converted into a
total of 4,558,402 shares of common stock.
On August 24, 2017 the Company borrowed $58,500 from an unrelated third party.
The Company paid $3,500 of fees associated with the loan, which was recorded as
discount and to be amortized over the term of the debt the Company amortized
$1,618 as of December 31, 2017. During the nine months ended September 30, 2018
the remaining discount of $1,822 was fully amortized. The loan has a maturity
date of May 30, 2018 and bears interest at the rate of 8% per year. If the loan
is not paid when due, any unpaid amount will bear interest at 22% per year. The
Lender is entitled, at its option, at any time after February 20, 2018 to
convert all or any part of the outstanding and unpaid principal and accrued
interest into shares of the Company's common stock at a price per share equal to
58% of the average of the three lowest trading prices for the 25 trading days
immediately preceding the conversion date. The note was not convertible as of
December 31, 2017, therefore no derivatives were recorded. On February 20, 2018
the note became convertible note was discounted for a derivative (see note 8 for
details) and the discount of $55,000 was being amortized over the life of the
note using the effective interest method resulting in 55,000 of interest expense
for the nine months ended September 30, 2018. The balance outstanding on the
note at December 31, 2017 was $58,500. As during the nine months ended September
30, 2018 the principal of $58,500 and accrued interest of $2,340 were converted
into a total of 3,342,857 shares of common stock.
On October 18, 2017, the Company borrowed $150,000 from an unrelated third
party. The Company paid $15,250 of fees associated with the loan, which was
recorded as discount and to be amortized over the term of the debt and had
amortized $4,164 of the costs as of December 31, 2017. The loan bears interest
at a rate of 10% (default interest 24%) and has a maturity date of July 16,
2018, the loan is not in default as a result of extended the conversion date to
October 11, 2018. The Holder has the option to convert the outstanding principal
and accrued interest into common stock of the Company. The conversion price is
the lesser of (1) lowest trading price during the previous 25 days prior to the
note agreement or (2) 50% lowest trading price during the 25 days prior to
conversion. Covenants: The Borrower shall not, without the Holder's consent,
sell, lease or dispose of any significant portion of its assets outside the
14
ordinary course of business. The note was discounted for a derivative (see note
8 for details) and the discount of $134,750 is being amortized over the life of
the note using the effective interest method resulting in $36,795 of interest
expense for the year ended December 31, 2017. During the nine months ended
September 30, 2018 the Company recorded an additional interest expense of
$109,041. On April 11, 2018 the Company paid the holder $75,000 in additional
interest to forgo converting the note till October 11, 2018, the fee paid is
accounted for as interest expense. As of December 31, 2017 the unamortized
discount amounted to $11,086. During the nine months ended September 30, 2018
the Company amortized the remaining $11,086 of the discount.
On October 19, 2017 the Company borrowed $73,000 from an unrelated third party.
The Company paid $3,000 of fees associated with the loan, which was recorded as
discount and to be amortized over the term of the debt the Company amortized
$771 as of December 31, 2017, during the nine months ended September 30, 2018
the Company amortized all remaining discount on the note. The loan has a
maturity date of July 30, 2018 and bears interest at the rate of 8% per year. If
the loan is not paid when due, any unpaid amount will bear interest at 22% per
year. The Lender is entitled, at its option, at any time after April 17, 2018 to
convert all or any part of the outstanding and unpaid principal and accrued
interest into shares of the Company's common stock at a price per share equal to
58% of the average of the three lowest trading prices for the 10 trading days
immediately preceding the conversion date. during the nine months ended
September 30, 2018 the principal of $73,000 and accrued interest of $2,920
converted into a total of 3,836,781 shares of common stock.
On November 24, 2017, the Company borrowed $75,000 from an unrelated third
party. The Company paid $7,000 of fees associated with the loan, and had
amortized $717 of the costs as of December 31, 2017. The note bears an interest
rate: 12% (default interest lesser of 15% or maximum permitted by law) and
matures on November 20, 2018. The conversion Feature Convertible immediately
after the issuance, the Holder has the option to convert the outstanding
principal and accrued interest into common stock of the Company. The Conversion
price is 55% of the lowest trading price during the 25 Trading Day periods prior
to the Conversion. In addition there is an additional 10% discount for the DWAC
unavailability: In the event that shares of the Borrower's Common Stock are not
deliverable via DWAC following the conversion of any amount hereunder, an
additional ten percent (10%) discount shall be factored into the Variable
Conversion Price until this Note is no longer outstanding (resulting in a
discount rate of 55% assuming no other adjustments are triggered
hereunder).There is also an additional 15% discount that can be triggered as
well: (a) DTC; Market Loss. If the Borrower fails to maintain its status as "DTC
Eligible" for any reason, or, if at any time while this Note is outstanding the
Conversion Price is equal to or lower than $0.01, then an additional fifteen
percent (15%) discount shall be factored into the Variable Conversion Price
until this Note is no longer outstanding (resulting in a discount rate of 60%,
assuming no other adjustments are triggered hereunder).
Covenants: The Borrower shall not, without the Holder's consent, sell, lease or
dispose of any significant portion of its assets outside the ordinary course of
business. The note was discounted for a derivative (see note 8 for details) and
the discount of $68,000 is being amortized over the life of the note using the
effective interest method resulting in $6,970 of interest expense for the year
ended December 31, 2017. For the nine months ended September 30, 2018, the
Company recorded an additional interest expense $56,174 including $51,423 on
debt discount from derivative and $4,751 for original issue discount for the
nine months ended September 30, 2018. As during the nine months ended September
30, 2018 principal of $73,600 and fees of $4,000 were converted into a total of
16,100,000 shares of common stock. The Conversion price is 55% of the lowest
trading price during the 25 Trading Day periods prior to the Conversion. In
addition there is an additional 10% discount for the DWAC unavailability: In the
event that shares of the Borrower's Common Stock are not deliverable via DWAC
following the conversion of any amount hereunder, an additional ten percent
(10%) discount shall be factored into the Variable Conversion Price until this
Note is no longer outstanding (resulting in a discount rate of 55% assuming no
other adjustments are triggered hereunder).There is also an additional 15%
discount that can be triggered as well: (a) DTC; Market Loss. If the Borrower
fails to maintain its status as "DTC Eligible" for any reason, or, if at any
time while this Note is outstanding the Conversion Price is equal to or lower
than $0.01, then an additional fifteen percent (15%) discount shall be factored
into the Variable Conversion Price until this Note is no longer outstanding
(resulting in a discount rate of 60%, assuming no other adjustments are
triggered hereunder).
On December 15, 2017 the Company borrowed $63,000 from an unrelated third party.
The Company paid $3,000 of fees associated with the loan, the Company amortized
$771 as of December 31, 2017, during the nine months ended September 30 2018 the
Company amortized an additional $2,825. The loan has a maturity date of
September 15, 2018 and bears interest at the rate of 8% per year. If the loan is
not paid when due, any unpaid amount will bear interest at 22% per year. The
Lender is entitled, at its option, at any time after June 13, 2018 to convert
all or any part of the outstanding and unpaid principal and accrued interest
15
into shares of the Company's common stock at a price per share equal to 58% of
the average of the lowest 3 trading prices during the 10 days prior to
conversion date. On June 13, 2018, the Company recorded a discount of $60,000
and recorded day one loss due to derivative of $9,528, during the nine months
ended September 30, 2018 the discount was fully amortized. As during the nine
months ended September 30, 2018 the principal of $63,000 and accrued interest of
$2,520 converted into a total of 4,682,540 shares of common stock.
On January 2, 2018 the Company borrowed $30,000 from an unrelated third party.
The Company paid $2,000 of fees associated with the loan and the Company
amortized $1,485 as of September 30, 2018. The loan has a maturity date of
January 2, 2019 and bears interest at the rate of 12% (default interest lesser
of 15% or maximum permitted by law). The conversion Feature Convertible
immediately after the issuance, the Holder has the option to convert the
outstanding principal and accrued interest into common stock of the Company. The
Conversion price is 55% of the lowest trading price during the 25 Trading Day
periods prior to the Conversion. Covenants: The Borrower shall not, without the
Holder's consent, sell, lease or dispose of any significant portion of its
assets outside the ordinary course of business. The note was discounted for a
derivative (see note 8 for details) and the discount of $28,000 is being
amortized over the life of the note using the effective interest method
resulting in $20,942 of interest expense for the nine months ended September 30,
2018.
On January 25, 2018 the Company borrowed $150,000 from an unrelated third party.
The Company paid $7,500 of fees associated with the loan, which was recorded as
discount and to be amortized over the term of the debt the Company amortized
$5,096 as of September 30, 2018. The loan has a maturity date of January 28,
2019 and bears interest at the rate of 12% per year. If the loan is not paid
when due, any unpaid amount will bear interest at 18% per year. The Lender is
entitled, at its option, at any time after July 24, 2018 to convert all or any
part of the outstanding and unpaid principal and accrued interest into shares of
the Company's common stock at a price per share equal to 55% of the average of
the lowest trading price for the 20 trading days immediately preceding the
conversion date. On July 24, 2018, the Company recorded a discount of $142,500
and recorded day one loss due to derivative of $74,900 As during the nine months
ended September 30, 2018 the principal of $50,000 converted into a total of
10,938,314 shares of common stock. The Company also recorded amortization of
debt discount (from derivative) of $96,822 during nine months ended September
30, 2018.
On February 13, 2018 the Company borrowed $128,000 from an unrelated third
party. The Company paid $3,000 of fees associated with the loan, which was
recorded as discount and to be amortized over the term of the debt the Company
amortized $3,000 as of September 30, 2018. The loan has a maturity date of
November 30, 2018 and bears interest at the rate of 8% per year. If the loan is
not paid when due, any unpaid amount will bear interest at 22% per year. The
Lender is entitled, at its option, at any time after August 12, 2018 to convert
all or any part of the outstanding and unpaid principal and accrued interest
into shares of the Company's common stock at a price per share equal to 58% of
the average of the three lowest trading prices for the 10 trading days
immediately preceding the conversion date. On August 12, 2018, the Company
recorded a day one loss due to derivative of $107,711, during the nine months
ended September 30, 2018 the discount of $107,711 was fully amortized. During
the nine months ended September 30, 2018 the principal of $128,000 and accrued
interest of $5,150 converted into a total of 26,673,229 shares of common stock.
On March 21, 2018, the Company borrowed $45,000 from an unrelated third party.
The Company paid $4,500 of fees associated with the loan, and had amortized
$3,341of the costs as of September 30 2018. The note bears an interest rate: 12%
(default interest lesser of 15% or maximum permitted by law) and matures on
March 21, 2019. The conversion Feature Convertible immediately after the
issuance, the Holder has the option to convert the outstanding principal and
accrued interest into common stock of the Company. The Conversion price is 55%
of the lowest trading price during the 25 Trading Day periods prior to the
Conversion. Covenants: The Borrower shall not, without the Holder's consent,
sell, lease or dispose of any significant portion of its assets outside the
ordinary course of business. The note was discounted for a derivative (see note
8 for details) and the discount of $40,500 is being amortized over the life of
the note using the effective interest method resulting in $30,292 of interest
expense for the nine months ended September 30, 2018.
On April 11, 2018 the Company borrowed $103,000 from an unrelated third party.
The Company paid $3,000 of fees associated with the loan, which was recorded as
discount and to be amortized over the term of the debt the Company amortized
$2,531 as of September 30, 2018. The loan has a maturity date of January 30,
2019 and bears interest at the rate of 8% per year. If the loan is not paid when
due, any unpaid amount will bear interest at 22% per year. The Lender is
entitled, at its option, at any time after October 8, 2018 to convert all or any
part of the outstanding and unpaid principal and accrued interest into shares of
the Company's common stock at a price per share equal to 58% of the average of
16
the three lowest trading prices for the 10 trading days immediately preceding
the conversion date. The note is not convertible as of September 30, 2018,
therefore no derivatives were recorded. The balance outstanding on the note at
September 30, 2018 is $103,000.
During the nine months ended September 30, 2018, the Company recognized
amortization expense of $728,343 for the discount from derivative liabilities.
Note 7 - Notes payable - related parties
On July 31, 2014, the Company borrowed $98,150 from an entity 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, 2018 and December 31, 2017, the
principal balance owed on this loan is $98,150 and $98,150, respectively.
As of December 31, 2014, a related party loaned the Company $10,000, in the form
of cash and expenses paid on behalf of the Company. The loan is due and payable
on demand and bears no interest. During the year ended December 31, 2015 the
Company borrowed an additional $20,000. As of September 30, 2018 and December
31, 2017, the principal balance owed on this loan was $30,000 and $30,000,
respectively.
As of December 31, 2014, a related party loaned the Company $180,121, in the
form of cash and expenses paid on behalf of the Company. The loan is due and
payable on demand and bears no interest. The Company repaid $125,500 towards
this note during 2015 and as of September 30, 2018 and December 31, 2017; the
principal balance owed on this loan was $54,621 and $54,621, respectively.
During 2015, the Company borrowed $43,575 from its former CFO and repaid $43,000
of the loan. The note is non-interest bearing, and due on demand. As of
September 30, 2018 and December 31, 2017, 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 is
non-interest bearing. During the year ended December 31, 2017, the Company
repaid $251,363 and borrowed an additional $265,363 from the same related party.
During the nine months ended September 30, 2018 the Company repaid $114,000 and
borrowed an additional $127,000 from the same related party. As of September 30,
2018 and December 31, 2017, the principal balance owed on this loan was $57,000
and $44,000, respectively.
On July 7, 2016, the Company borrowed $73,000 from a related party. The loan was
due and payable on July 7, 2017 and bore interest at 5% per annum. The principal
balance owed on this loan at June 30, 2018 and December 31, 2017 was $73,000 and
$73,000, respectively. The holder of the note has agreed to extend the default
date of the note to September 30, 2018.
On August 8, 2016, the Company entered into, an promissory note with Hypur Inc.,
a Nevada Corporation which is a related party pursuant to which the Company to
borrow $52,000. If an Event of Default remains uncured after 30 days Holder has
the option to convert the outstanding principal balance and any accrued but
unpaid interest, into unrestricted $0.001 par value common stock of the Borrower
The loan was due and payable on August 10, 2017 and bore interest at 18% per
annum. The principal balance owed on this loan at September 30, 2018 and
December 31, 2017 was $52,000 and $52,000, respectively. The Note is currently
in default at bears a default rate of interest of 24% per annum as part of the
default terms of this note. The lender waived the conversion option through
October 1, 2017. On October 1, 2017, it was determined this note had derivative.
On September 20, 2016, the Company borrowed $47,500 from Hypur Inc., which is a
related party. The loan is due and payable on December 20, 2016 and bears
interest at 18% per annum. If an Event of Default remains uncured after 30 days
Holder has the option to convert the outstanding principal balance and any
accrued but unpaid interest, into unrestricted $0.001 par value common stock of
the Borrower. The principal balance owed on this loan at September 30, 2018 and
December 31, 2017 was $47,500 and $47,500, respectively. The loan is currently
past due and in default. The Note is currently in default at bears a default
rate of interest of 24% per annum as part of the default terms of this note. The
lender waived the conversion option through October 1, 2017. On October 1, 2017
it was determined this note had derivative.
17
During 2017, the Company borrowed $47,880 from its Vice President of Operations
and repaid $27,880 of the loan. The note is non-interest bearing, and due on
demand. During the six months ended June 30, 2018 the Company repaid the
remaining $20,000. As of September 30, 2018 and December 31, 2017 the principal
amount owed on this loan was $0 and $20,000, respectively.
Convertible notes payable to related party
In November 2015, the Company entered into an arrangement with a related party,
whereby the Company borrowed $25,000 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
the note was due on November 4, 2016. In December 2015 the lender loaned the
Company an additional $20,000 with same terms except that it is payable upon
demand. As of September 30, 2018 and December 31, 2017, the Company owed a total
of $45,000 and $45,000, respectively. The holder of the note has agreed to
extend the default date of the note to September 30, 2018.
In July 2015, the Company entered into an arrangement with a related party,
whereby the Company could borrow up to $500,000 in Convertible Notes. The
Convertible Note bears interest 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. Upon the occurrence and during the continuation of an
event of default, the holder may require the Company to redeem all or any
portion of this Note in cash at a price equal to 150% of the principal amount.
During the year ended December 31, 2017, the Company borrowed an additional
$110,000. As of September 30, 2018 and December 31, 2017, the Company owed a
total of $500,000 and $390,000, respectively. As of September 30, 2018 and
December 31, 2017 there is a total of $500,000 and $390,000 of the notes are
past due, respectively. Since the debt holder has not elect the right to require
the Company to redeem the note at a price equal to 150% of the principal amount,
the terms stated prior to maturity are still in effect. The holder has waived
the default term and the note is not considered to be in default as of September
30, 2018.
On September 1, 2016, the Company entered into, an convertible promissory note
with Hypur Ventures, L.P., a Delaware limited partnership (the "Hypur Ventures")
which is a related party pursuant to which the Company to borrow $75,000. The
loan was due 180 days from the date of issuance and bears interest at 10% per
annum. The note is convertible into common stock at a price of $.05 per share.
The note is mandatory redeemable into common stock if the price per share is
over $.50 per share during a 10 day period. The principal balance owed on this
loan at September 30, 2018 December 31, 2017 was $75,000 and $75,000,
respectively. Upon default, the note bears a default rate of interest of 15% per
annum, and if the default has not been remedied within 30 days, the redemption
price would be 150% of the principal amount. The holder has waived the default
term and agreed to extend the default date to March 31, 2018 and further
extended to September 30, 2018.
On October 14, 2016, the Company entered into, an convertible promissory note
with Hypur Ventures, L.P., a Delaware limited partnership (the "Hypur Ventures")
which is a related party pursuant to which the Company to borrow $100,000. The
loan was due 180 days from the date of issuance and bears interest at 10% per
annum. The note is convertible into common stock at a price of $.05 per share.
The note is mandatory redeemable into common stock if the price per share is
over $.50 per share during a 10 day period. The principal balance owed on this
loan at September 30, 2018 and December 31, 2017 was $100,000 and $100,000,
respectively. Upon default, the note bears a default rate of interest of 15% per
annum, and if the default has not been remedied within 30 days, the redemption
price would be 150% of the principal amount. The holder has waived the default
term and agreed to extend the default date to March 31, 2018 and further
extended to September 30, 2018.
On March 7, 2017, the Company borrowed $100,000 from Hypur Ventures, L.P., a
related party. The loan is due 180 days from March 7, 2017 and bears interest at
10% per annum. The loan is convertible into shares of the Company's common stock
at a price of $.05 per share. The loan will automatically convert into shares of
the Company's common stock if the price of the Company's common stock is over
$.50 per share during any ten-day period. The principal balance owed on this
loan at September 30, 2018 and December 31, 2017 was $100,000 and $100,000
respectively. Upon default, the note bears a default rate of interest of 15% per
annum, and if the default has not been remedied within 30 days, the redemption
price would be 150% of the principal amount. The holder has waived the default
term and agreed to extend the default date to March 31, 2018 and further
extended to September 30, 2018.
18
On May 26, 2017, the Company borrowed $100,000 from CGDK, a related party. The
loan is due 360 days from May 26, 2017 and bears interest at 5% per annum. The
loan is convertible into shares of the Company's common stock at a price of
$.025 per share. The loan will automatically convert into shares of the
Company's common stock if the price of the Company's common stock is over $.25
per share during any ten-day period. The principal balance owed on this loan at
September 30, 2018 and December 31, 2017 was $100,000 and $100,000,
respectively.
On July 13, 2017, the Company borrowed $150,000 from CGDK, a related party. The
loan is due 360 days from July 13, 2017, and bears interest at 5% per annum. The
loan is convertible into shares of the Company's common stock at a price of $.05
per share. The loan will automatically convert into shares of the Company's
common stock if the price of the Company's common stock is over $.25 per share
during any ten-day period. The principal balance owed on this loan at September
30, 2018 and December 31, 2017 was $150,000. The holder has waived the default
term and the note is not considered to be in default as of June 30, 2018.
On April 13, 2018, the Company borrowed $130,000 from CGDK, a related party. The
loan is due 360 days from April 13, 2018, bears interest at 12% per annum. The
loan is convertible into shares of the Company's common stock at a price of $.05
per share. The loan will automatically convert into shares of the Company's
common stock if the price of the Company's common stock is over $.25 per share
during any ten-day period. The Company recorded a discount of $101,272 and
derivative liability, there was no day one loss due to derivative on this note.
The company amortized $47,186 in debt discounts during the nine months ended
September 30, 2018. The principal balance owed on this loan at September 30,
2018 is $130,000.
On June 14, 2018, the Company issued a $30,217 to CGDK, a related party, for
previous expenses paid on behalf of the Company. The loan is due 360 days from
June 18, 2018, bears interest at 12% per annum. The loan is convertible into
shares of the Company's common stock at a price of $.05 per share. The loan will
automatically convert into shares of the Company's common stock if the price of
the Company's common stock is over $.25 per share during any ten-day period. The
Company recorded a debt discount of $10,292, there was no day one loss due to
derivative on this note. During the nine months ended September 30, 2018 the
Company amortized $3,045 of the discount The principal balance owed on this loan
at September 30, 2018 is $30,217.
On July 2, 2018, the Company borrowed $150,000 from CGDK, a related party. The
loan is due July 2, 2019 and bears interest at 12% per annum. The loan is
convertible into shares of the Company's common stock at a price of $.05 per
share. The loan will automatically convert into shares of the Company's common
stock if the price of the Company's common stock is over $.10 per share during
any ten-day period or the trading volume of the Company's common stock during
these ten trading days was at least 2,500,000 shares. The Company recorded a
debt discount of $19,779 there was no day one loss due to derivative on this
note. During the nine months ended September 30, 2018 the Company amortized
$4,877 of the discount. The principal balance owed on this loan at September 30,
2018 is $150,000.
On August 6, 2018, the Company borrowed $150,000 from CGDK, a related party. The
loan is due July 2, 2019 and bears interest at 12% per annum. The loan is
convertible into shares of the Company's common stock at a price of $.05 per
share. The loan will automatically convert into shares of the Company's common
stock if the price of the Company's common stock is over $.10 per share during
any ten-day period or the trading volume of the Company's common stock during
these ten trading days was at least 2,500,000 shares. . The Company recorded a
debt discount of $20,095 there was no day one loss due to derivative on this
note. During the nine months ended September 30, 2018 the Company amortized
$3,028 of the discount. The principal balance owed on this loan at September 30,
2018 is $150,000.
The carrying amount of the convertible note, net of the unamortized debt
discount, at September 30, 2018 and December 31, 2017 is $1,436,915 and
$1,057,726, respectively. Total unamortized at September 30, 2018 is $58,135.
On October 1, 2017, these notes were tainted by the variable conversion price
notes and remained tainted as of September 30, 2018. The Company remeasured the
fair value of derivative liabilities on September 30, 2018. See Note 8.
Note 8 - Derivative Liability
The Company analyzed the conversion options for derivative accounting
consideration under ASC 815, Derivatives and Hedging, and hedging, and
determined that the instrument should be classified as a liability when the
conversion option becomes effective.
The derivative liability in connection with the conversion feature of the
convertible debt is measured using, level 3 inputs.
The change in the fair value of derivative liabilities is as follows:
Balance - December 31, 2017 $$1,879,930
Addition of new derivative as derivative loss 448,579
Resolution of derivatives upon conversion (816,683)
Debt discount from derivative liability 777,149
Loss on change in fair value of the derivative (1,711,295)
-----------
Balance - September 30, 2018 $ 557,680
===========
The table below shows the Black-Scholes option-pricing model inputs used by the
Company to value the derivative liability at each measurement date:
For the Nine Months Year ended
Ended September 30, 2018 December 31, 2017
------------------------ -----------------
Expected term 0.14 - 2.94 years 0.02 - 3.65 years
Expected average volatility 57.63% -321.03% 108.61% -584.8%
Expected dividend yield -- --
Risk-free interest rate 2.19% - 2.88% 1.53% - 1.98%
Note 9 - Long term notes payable
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 September 30, 2018
and December 31, 2017 the total principal balance of the note is $6,874 and
$8,639, respectively, of which $2,564 and $6,518 is considered a long-term
liability and $4,310 and $2,121 is considered a current liability.
Note 10 - Stockholders' equity
The Company was originally authorized to issue 100,000,000 shares of common
stock and 100,000,000 shares of preferred stock. On May 6, 2014, the Company
affected a forward stock split and a pro-rata increase in its authorized common
stock on a basis of 14-to-1, whereby each shareholder received 14 newly issued
shares of common stock for each 1 share held. Additionally, the number of
authorized shares increased to 1,400,000,000 shares of common stock. All
references to share and per share amounts in the consolidated financial
statements and these notes thereto have been retroactively restated to reflect
the forward stock split.
Common stock
During the year ended December 31, 2017, the Company entered into a consulting
agreement for business advisory services. The Company issued a total of
2,000,000 shares of common stock to the consultant for business advisory
services valued at $46,583 the fair value measurement on the common stock, which
was at service completion date. The certificate for 1,000,000 of these shares
was issued during the year ended December 31, 2017. During the nine months ended
September 30, 2018 the Company issued the remaining 1,000,000 shares and
remeasured the fair value of those shares on the service completion date and
recorded the remaining expense of $31,917.
During the nine months ended September 30, 2018, the Company issued a total of
72,692,123 shares of common stock for the conversion of $593,010 of convertibles
loans, accrued interest, and fees.
Preferred stock
On May 3, 2016, the Company entered into, an agreement with Hypur Ventures,
L.P., a Delaware limited partnership (the "Hypur Ventures") which is a related
party pursuant to which the Company sold to Hypur Ventures, in a private
placement, 10,000,000 shares of the Company's preferred stock and 5,000,000
common stock warrants with a five year term and an exercise price of $0.10, 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 privileges to be
set forth in a certificate of designation to be filed with the Secretary of
20
State. The Company evaluated the convertible preferred stock under FASB ASC
470-20-30 and determined it contained a beneficial conversion feature. The
intrinsic value of the beneficial conversion feature was determined to be
$114,229. The beneficial conversion feature was fully amortized and recorded as
a deemed dividend.
Between July and August of 2016 Hypur Ventures purchased an additional
10,000,000 shares of the Company's preferred stock and 5,000,000 common stock
warrants with a five year term and an exercise price of $0.10, at a purchase
price of $0.05 per share for net proceeds of $445,000, net of legal fees of
$55,000. The shares of preferred stock are convertible into shares of the
Company's common stock. The preferred stock shall have such other rights,
preferences and privileges to be set forth in a certificate of designation to be
filed with the Secretary of State. The Company evaluated the convertible
preferred stock under FASB ASC 470-20-30 and determined it does not contain a
beneficial conversion feature. The intrinsic value of the beneficial conversion
feature was determined to be $0.The preferred stock is convertible at any time
at the election of Hypur Ventures. The preferred stock shall automatically
convert to common stock if the closing price of the Company's common stock
equals or exceeds $.50 per share over any consecutive twenty day trading period.
The preferred stock terms include a one-time purchase price preference. No
preferential dividends apply to the preferred stock. The preferred stock
attributes include weighted average anti-dilution protection, rights to appoint
one director, pre-emptive rights to purchase future offerings of securities by
the Company, demand and piggy-back registration rights.
The preferred stock is convertible at any time at the election of Hypur
Ventures. The preferred stock shall automatically convert to common stock if the
closing price of the Company's common stock equals or exceeds $.50 per share
over any consecutive twenty day trading period. The preferred stock terms
include a one-time purchase price preference. No preferential dividends apply to
the preferred stock. The preferred stock attributes include weighted average
anti-dilution protection, rights to appoint one director, pre-emptive rights to
purchase future offerings of securities by the Company, demand and piggy-back
registration rights.
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 sold to Hypur Ventures will be subject to the
terms and conditions of the Certificate of Designation, as well as further
documentation to be drafted in accordance with the terms and conditions agreed
upon between the Company and Hypur Ventures.
Note 11 - Options and warrants
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-Scholes-Merton option valuation model. The Company has
not paid any cash dividends on its common stock and does not anticipate paying
any cash dividends in the foreseeable future. Consequently, the Company uses an
expected dividend yield of zero in the Black-Scholes-Merton option valuation
model. Volatility is an estimate based on the calculated historical volatility
of similar entities in industry, in size and in financial leverage, whose share
prices are publicly available. The expected life of awards granted represents
the period of time that they are expected to be outstanding. The Company has no
historical experience with which to establish a basis for determining an
expected life of these awards. Therefore, the Company only gave consideration to
the contractual terms and did not consider the vesting schedules, exercise
patterns and pre-vesting and post-vesting forfeitures significant to the
expected life of the option award. The Company bases the risk-free interest rate
used in the Black-Scholes-Merton option valuation model on the implied yield
currently available on U.S. Treasury issues with an equivalent remaining term
equal to the expected life of the award.
On December 28, 2016, the Company issued stock options to various offices and
employees of the Company to purchase 7,950,000 shares of the Company's common
stock at an exercise price of $0.05 per share. The options vest immediately. The
options carry a life of three years.
21
The following is a summary of the Company's stock option activity for the nine
months ended September 30, 2018:
Number Weighted
of Average
Shares Exercise Price
------- --------------
Outstanding at December 31, 2017 24,478,405 $ 0.11
Granted - $ -
Expired (466,667) $ 0.11
Cancelled - $ -
---------- ------
Outstanding at September 30, 2018 24,011,738 $ 0.11
---------- ------
Options exercisable at December 31, 2017 24,471,738 $ 0.11
Options exercisable at September 30, 2018 24,011,738 $ 0.11
========== ======
The following tables summarize information about stock options outstanding and
exercisable at September 30, 2018:
OPTIONS OUTSTANDING AND EXERCISABLE AT SEPTMBER 30, 2018
-------------------------------------------------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Number of Remaining Average Average
Exercise Options Contractual Exercise Number Exercise
Prices Outstanding Life in Years Price Exercisable Price
-------- ----------- ------------- --------- ----------- ---------
$0.035 - 24,011,738 1.54 $0.11 24,011,738 $0.11
1.00
========= ========= ==== ===== ========= =====
Total stock-based compensation expense in connection with options and modified
awards recognized in the consolidated statement of operations for the nine
months ended September 30, 2018 and September 30, 2017 was $52,437 and $38,069,
respectively.
Warrants
The following is a summary of the Company's warrant activity for the nine months
ended September 30, 2018:
Number Weighted
Of Average
Shares Exercise Price
------- --------------
Outstanding at December 31, 2017 10,000,000 $0.10
Granted - $ -
Exercised - $ -
Cancelled - $ -
Outstanding at September 30, 2018 10,000,000 $0.10
Warrants exercisable at September 30, 2018 10,000,000 $0.10
========== =====
The following tables summarize information about warrants outstanding and
exercisable at September 30, 2018:
WARRANTS OUTSTANDING AND EXERCISABLE AT SEPTMBER 30, 2018
-------------------------------------------------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Number of Remaining Average Average
Exercise Warrants Contractual Exercise Number Exercise
Prices Outstanding Life in Years Price Exercisable Price
-------- ----------- ------------- --------- ----------- ---------
$0.10 10,000,000 2.99 $0.10 10,000,000 $0.10
$0.10 10,000,000 4.24 $0.10 10,000,000 $0.10
22
Note 12 -- Subsequent Events
On October 10, 2018, the Company borrowed $100,000 from Hypur Ventures, L.P., a
related party. The loan is due 180 days from January 28, 2019 and bears interest
at 10% per annum. The loan is convertible into shares of the Company's common
stock at a price of $.05 per share. The loan will automatically convert into
shares of the Company's common stock if the price of the Company's common stock
is over $.50 per share during any ten-day period.
Between October 1, 2018 and October 31, 2018 JSM Investments, Inc. converted
notes payable in the amount of $34,118 and fees of $1,000 into 22,797,659 shares
of common stock.
Between October 1, 2018 and November 8, 2018 Power-Up Lending LTD. converted
notes payable in the amount of $103,000 and interest of $4,120 into 79,061,411
shares of common stock.
Between October 1, 2018 and November 12, 2018 Crown Bridge Partners, LLC
converted notes payable in the amount of $5,188, accrued interest of $3,550 and
fees of $1,000 into 25,392,481 shares of common stock.
On October 18, 2018 Actus Fund, LLC. converted notes payable in the amount of
$3,550, and fees of $500 into 5,000,000 shares of common stock.
PART I
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 name
The Engraving Masters, Inc. (the "Company").
On May 2, 2014, we changed our name to Blue Line Protection Group, Inc.
We provide armed protection and transportation, banking, compliance and training
services for businesses engaged in the legal cannabis industry. During the nine
months ended September 30, 2018, a majority of our revenue was derived from
armed protection and transportation services.
It is estimated that the total market for marijuana, legal or otherwise, will
exceed the economic value of corn and wheat 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 industry.
Cultivation facilities are the producers of legal cannabis that eventually make
its way to consumers. Growers' operations typically span a large geographic
footprint, making them susceptible to theft, as are shipments from the growers
to testing laboratories or to retail dispensaries. Additionally, due to current
federal marijuana legislation and banking 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. 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 out of the store. Dispensaries also face financing
and banking challenges similar to those that growers encounter.
In March 2015, our wholly-owned Nevada subsidiary, BLPG, Inc., was granted
licenses to provide our services in Nevada.
We do not grow, test, transport or sell marijuana.
23
Armed Protection and Transportation
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 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 __% 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.
We also offer security monitoring, asset vaulting, and VIP and dignitary
protection.
Results of Operations
Material changes in line items in our Statement of Operations for the three
months ended September 30, 2018 as compared to the same period last year, are
discussed below:
Increase
(I) or
Item Decrease Reason
(D)
----------------------------- --------- ----------------------------------
Revenue D Fewer contracts for our armed guard
services
Gross profit, as a % of D Higher salaries
revenue
General and administrative I Began operations in Arizona
expenses
Interest expense I Increase in interest rates
Gain on change of fair value I Decrease in the price of our
of derivative securities common stock
Material changes in line items in our Statement of Operations for the nine
months ended September 30, 2018 as compared to the same period last year, are
discussed below:
Increase
(I) or
Item Decrease Reason
(D)
----------------------------- --------- ----------------------------------
Revenue I Increase in transaction and currency
currency processing services
Gross profit, as a % of I Higher revenue resulted in better
revenue economies of scale.
General and administrative I Began operations in Arizona
administrative expenses
Interest expense I Increase in interest rates
24
Gain on change of fair value I Decrease in the price of our
of derivative securities common stock.
Capital Resources and Liquidity
Our material sources and (uses) of cash during the nine months ended September
30, 2018 and 2017 were:
2018 2017
---- ----
Cash provided by (used in) operations $ (703,770) $(683,078)
Purchase of fixed assets (205,934) (1,590)
Cash overdraft 50,479 76,678
Loan proceeds 993,000 1,271,964
Loan payments (171,546) (663,974)
As of September 30, 2018 we did not have any material capital commitments other
than loan payments.
Other than as disclosed above, we do not anticipate any material capital
requirements for the twelve months ending June 30, 2019.
Other than as disclosed above, we do not know of any:
o 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
o any significant changes in our expected sources and uses of cash.
We do not have any commitments or arrangements from any person to provide us
with any equity capital.
During the next twelve months, we anticipate that we will incur approximately
$2,400,000 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 able to obtain
additional funding on terms that are favorable to us or at all. We may not be
able to obtain sufficient funding to continue our operations, or if we do
receive funding, to generate adequate revenues in the future or to operate
profitably in the future. These conditions raise substantial doubt about our
ability to continue as a going concern.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
Critical Accounting Policies
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.
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 our 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.
25
Revenue recognition. In May 2014, the FASB issued ASU No. 2014-09, "Revenue
from Contracts with Customers (Topic 606)," which supersedes the revenue
recognition requirements in Accounting Standards Codification 605, "Revenue
Recognition." This ASU is based on the principle that revenue is recognized to
depict the transfer of goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for
those goods or services. The ASU also requires additional disclosure about the
nature, amount, timing and uncertainty of revenue and cash flows arising from
customer contracts, including significant judgments and changes in judgments and
assets recognized from costs incurred to obtain or fulfill a contract. ASC
606-10-50-5 requires that entities disclose disaggregated revenue information in
categories (such as type of good or service, geography, market, type of
contract, etc.) that depict how the nature, amount, timing, and uncertainty of
revenue and cash flow are affected by economic factors. ASC 606-10-55-89
explains that the extent to which an entity's revenue is disaggregated depends
on the facts and circumstances that pertain to the entity's contracts with
customers and that some entities may need to use more than one type of category
to meet the objective for disaggregating revenue. In August 2015, the FASB
issued ASU No. 2015-14, which deferred the effective date of the new revenue
standard by one year, and allowed entities the option to early adopt the new
revenue standard as of the original effective date. There have been multiple
standards updates amending this guidance or providing corrections or
improvements on issues in the guidance. The requirements for these standards
relating to Topic 606 are effective for interim and annual periods beginning
after December 15, 2017. This standard permitted adoption using one of two
transition methods, either the retrospective or modified retrospective
transition method.
We adopted these standards at the beginning of the first quarter of fiscal
2018 using the modified retrospective method. The adoption of these standards
did not have an impact on our Statements of Operations for the nine months ended
September 30, 2018.
Stock-based compensation. We record stock based compensation in accordance
with the guidance in ASC Topic 505 and 718, which requires us to recognize
expenses related to the fair value of our employee stock option awards. This
eliminates accounting for share-based compensation transactions using the
intrinsic value and requires instead that such transactions be accounted for
using a fair-value-based method. We recognize the cost of all share-based awards
on a graded vesting basis over the vesting period of the award.
We account for equity instruments issued in exchange for the receipt of
goods or services from non-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 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.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation
of our management, including our Principal Financial Officer and Principal
Executive Officer, of the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report 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
September 30, 2018 our disclosure controls and procedures were not effective due
to the material weaknesses identified during the audit of our financial
statements for the year ended December 31, 2017.
Change in Internal Control over Financial Reporting
Our internal control 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.
26
There were no changes in our internal control over financial reporting that
occurred during the fiscal quarter covered by this report that materially
affected or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II
ITEM 6. EXHIBITS
Exhibit N . Description of Exhibit
---------- -------------------------------------------------------------------
31.1 Rule 13a-14(a) Certifications 31.2 Rule 13a-14(a) Certifications
32 Section 1350 Certifications
27
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereto duly authorized.
BLUE LINE PROTECTION GROUP, INC.
November 21, 2018 By:/s/ Daniel Allen
---------------------------------
Daniel Allen, Principal
Executive, Financial and
Accounting Officer
28
