UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Fiscal Year Ended December 31, 2022
☐ | ||
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period from __________ to _______
Commission File Number: 000-52942
BLUE LINE PROTECTION GROUP, INC.
(Name of small business issuer in its charter)
Nevada | 20-5543728 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification number) | ||
5765 Logan Street Denver, CO | 80216 | ||
(Address of principal executive offices) | (Zip code) |
Registrant’s telephone number: (800)844-5576
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | |||
None | |||||
None | |||||
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] ☐ No [X]
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 [X] ☒ No [ ]
Indicated by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files) Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer | Smaller reporting company☒ |
Emerging growth company ☐ |
If an emerging growth company, indicate by checkmark 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of June 30, 2014, the last business day of the registrant’s most recently completed second fiscal quarter,2022 was approximately $58,718,685. Solely for purposes$1,018,000.
As of this disclosure,March 31, 2023 the registrant had outstanding shares of common stock held by executive officers and directors of the registrant as of such date have been excluded because such persons may be deemed to be affiliates. This determination of executive officers and directors as affiliates is not necessarily a conclusive determination for any other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
None.
BLUE LINE PROTECTION GROUP, INC.
FORM 10-K
For the year ended December 31, 2014
TABLE OF CONTENTS
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FORWARD LOOKING STATEMENTS
This Annual Report contains forward-looking statements about our business, financial condition and prospects that reflect our management’s assumptions and beliefs based on information currently available. We can give no assurance that the expectations indicated by such forward-looking statements will be realized. If any of our assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, our actual results may differ materially from those indicated by the forward-looking statements.
The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, acceptance of our services, our ability to expand our customer base, managements’ ability to raise capital in the future, the retention of key employees and changes in the regulation of our industry.
There may be other risks and circumstances that management may be unable to predict. When used in this report, words such as, "“believes," "expects," "intends," "plans," "anticipates," "estimates" ” “expects,” “intends,” “plans,” “anticipates,” “estimates” and similar expressions are intended to identify and qualify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions.
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PART I
ITEM 1. | DESCRIPTION OF BUSINESS |
We were originally incorporated in Nevada on September 11, 2006, under the name The Engraving Masters, Inc. (the “Company”). On March 14, 2014, the Company acquired Blue Line Protection Group, Inc., a Colorado corporation (“Blue Line Colorado”) formed in February 2014. From February to March 2014, Blue Line Colorado had minimal operations and assets.
On May 2, 2014, the Companywe changed itsour name to Blue Line Protection Group, Inc.
On May 6, 2014, the Company effectedFebruary 8, 2021, our directors approved a forward100-for-1 reverse split of our common stock. The reverse stock split and a pro-rata increase in its authorized common stock on a basis of 14-to-1, whereby each shareholder received 14 newly issued shares of common stock for each 1 share held. Additionally, the authorized number capital of the Company concurrently increased to 1,400,000,000 shares of $0.001 par value common stock due to the forward split. All references to share and per share amountsbecame effective in the condensed consolidated financial statements and accompanying notes thereto have been retroactively restated to reflect the forward stock split.
We provide armed protection financial solutions, logistics and transportation, banking, compliance and training services for businesses engaged in the legal cannabis industry. During the year ended December 31, 2022 approximately 51% of our revenue was derived from transportation services. The Company offers asset logisticremaining 49% of our revenue was derived from currency processing services such as armored transportation service; security services, including shipment protection, money escorts, security monitoring, asset vaulting, VIP and dignitary protection, and others; financial services, such as handling transportation and storage of currency; training;(47%) and compliance services.
Our base of operations isare in the Denver, Colorado and Phoenix, Arizona metropolitan area.areas. Our corporate headquarters isare located at 1350 Independence St., Lakewood, CO 80215. We also own a building at 5765 Logan St.,Street, Denver, Colorado.
Principal Services
Cultivation facilities are the producers of legal cannabis that eventually make its way to provide our suiteconsumers. 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 protection, transportation and compliance services within the State of Nevada.
We do not grow, test or dispense cannabis products. We provide asset logistics, armed and armored escorts, security training and compliance verification. In general, we primarily target businesses involved in the growing and dispensing of cannabis for both medical and recreational uses, in jurisdictions were such is legal.
Our services cover the following categories:following:
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 that time, 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.
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We currently supply asset protection via armored transportation to approximately 60% of all the licensees in Colorado. We are focused on encompassing all compliance needs on behalf of our clients, as mandated by the State and Federal authorities for the protection, transport and sale of cannabis.
Banking
The banking system in the U.S. is, in most states, federally mandated.regulated. Possession or distribution of marijuana violates federal law, and banks that provide support for those activities face the risk of prosecution and assorted sanctions. Currently, almost all payments for the sales of cannabis are made in cash, due the inability of sellers to obtain merchant processing accounts. As a result, processing money from marijuana sales puts federally insured banks at risk of drug racketeering charges, so they'vethey’ve refused to open accounts for marijuana-related businesses.
Marijuana businesses that can'tcan’t use banks may have too much cash they can'tcan’t safely put away, leaving them vulnerable to criminals. Jurisdictions that allow cannabis sales want a channel to receive taxes.
In February 2014, Thethe Obama administration gave banks a road map for conducting transactions with cannabis sellers operating within state regulations so these companies can stash away savings,deposit cash, make payroll and pay taxes like a traditional place of business. The move was designed to let financial institutions serve such businesses while ensuring that they know their customers'customers’ legitimacy and remain obligated to report possible criminal activity. However, there remains nothing expressly protecting banks that work with state-legal, state-licensed marijuana businesses from prosecution. We are unaware of any bank, in any state, allowing bank accounts for cannabis-related businesses for fear of prosecution and losing their FDIC status and insurance.
We have created a means for the banks to validate compliance with the Federal Mandate.federal mandate mentioned above. Currently only a security company could match the compliance requirements as only we can vertically integrate the source of funds through the Federally required 12 steps, summarisedsummarized as from grow, to sale, (to those of approved age or license), to purchaser, to funds received, to where the funds were held, to vault, to third party validation, to tax, to profits, to access to the banking system etc. We are uniquely positioned, through a number of partnership and cooperation agreements, to provide banking solutions to our clients.
Compliance
Laws concerning business procedures and practices are changing across the nation. It’s hard to keep up with all the changes, and business owners have to balance their day-to-day operations with remaining compliant with and responsive to regulatory agencies. Blue Line Protection Group provides daily on-site compliance verification to ensure that local business owners are operating lawful and inspection-ready establishments. Our security experts, trained in crime prevention through environmental design (CPTED) techniques, can provide crucial advice about enhancing the interior and exterior security of your establishment.
We communicate regularly with local and national government representatives to ensure that we remain the top-tier security and protection group in the nation. Retail establishments aren’t the only ones who have to remain compliant with the pertinent laws - we do, as well.
With the addition of our compliance module clients can be confident they will not lose their license for some small or large error by their staff that might put their cannabis license in jeopardy. Their license being, in most instances, their most valuable asset. We are relieving them of several burdens they are ill suited to comply with. (Most licensees were formally acting outside the law prior to the recent legislation and have little to no compliance experience).
Training
Many of our security personnel have established military or police background.backgrounds. We ensure our employees are prepared to offer clients, their staff and customers a safe and secure environment. All members of the Company'sour armored transportation team and security operators are required to undertake our mandatory, rigorous 40-hour introductory compliance and training curriculum created and supervised by both:
In addition to internal training, we also offer other businesses, houses of worship and the general public a wide variety of safety, security and personal defense courses and firearms training.
Growth Strategy
Expand into new markets to establish first-mover advantages. |
2. | Market ourselves through strategic alliances and affiliations. |
3. | Acquire or joint venture with guard and alarm businesses throughout the USA if they represent good value and a good fit with our expansion plans. Organic growth will not suffice for the rapid growth of this industry and our ability to provide service immediately requires variations of this strategy. |
4. | Increase our client base to the various labs in state. Offering our superior chain of control compliance and software. |
5. | Develop and offer value-added, complementary or supplementary services. |
The development of the legal markets for cannabis is a function of state legislation. As a result, while specific markets may not be currently available, we actively monitor the progress of legislation and know with some degree of certainty when new geographic markets will be coming on line. This allows us to target our limited sales and marketing resources to those new markets. In this way, we believe the current legislative environment works in our favor - if the whole country were currently a potential market our limited resources would result in an inability to effectively cover all potential market territories. With limited markets open we can better cover those available territories.
Marketing
Virtually all of our sales, to own Cannabis businesses in each respective state. This prevents a public company from rolling up or building out direct growing or selling of the product. It does not prevent a public company from growing existing businesses or providing services thatdate, have been identifiedgenerated without using paid media. Our armed operators conduct the majority of our marketing and advertising efforts. Several of our operators are former police officers or military personnel and are the face of our company. They interact with business owners, employees, and customers on a daily basis. As such, they generate significant brand awareness and word-of-mouth goodwill. Complementary to this, our sales team and our management actively engage with business owners directly to generate awareness of our company and the services we provide, as fundamentalwell as to mostidentify the potential for sales or referrals.
In addition to a direct sales approach and word-of-mouth advertising, we have been featured in news articles and video documentaries by outlets such as the Wall Street Journal, USA Today, Fortune and CNBC, which have served to increase brand awareness nationwide. We have also attended a variety of the growers, medicinal or recreational retailers.
Industry Background
The total market for marijuana, legal or otherwise, is estimated to 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 marijuanacannabis industry, that management expectsprojected to be worth over $50reach as high as $37 billion in retail sales by the year 2020. Marijuana sales reportedly averaged about $1,000,000 per day in the first five days of legalization in Colorado, and fiscal-year 2014 sales exceeded $700,000,000. California and Colorado each expect to collect tax revenue of approximately $100,000,000 during their 2015 fiscal years. The economic impact on employment, ancillary products, service providers, community improvements and real estate markets is enormous.
Competition
We believe the primary factors in attracting and retaining customers are expertise, service quality, and price. Our competitive advantages include:
● | Brand name recognition; |
● | Reputation; | |
● | Expertise in regulatory and banking compliance; |
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● | Operational excellence; |
● | Cash processing, transportation and storage capabilities; |
● | Security and logistics infrastructure; |
● | Services beyond |
● | Economies of scale as we increase the amount and number of items we securely transport. |
Our cost structure is generally competitive, although certain competitors may have lower costs due to a variety of factors, including lower wages, lower initial and ongoing training requirements, less costly employee benefits, or less stringent security and service standards. We anticipate facing competitive pricing pressure in many markets; however, we plan to resist competing on price alone. We believe our high levels of service and security, as well as value-added solutions, differentiates us from competitors.
We compete with companies of all sizes in a variety of geographies that offer solutions that compete with single elements of our platform, such as regulatory compliance, armed security, armored transportation services and moneycash processing. The security services industry is a large and competitive market. More specifically, however, the market for security and storage solutions as it pertains to medical marijuana companies is a nascent market, resulting in a highly fragmented and fractured marketplace. Some of the companies we compete with are much larger than us, and such companies have significantly greater resources than us. None of the large security companies, such as Brinks, Argyle, Tyco or Torment, are currently competing in this market segment, although there can be no guarantee this trend will continue.
Significantly all of our current and potential traditional competitors have longer operating histories, larger customer or user bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. Our competitors may be able to secure experienced employees, accommodate customers more efficiently and adopt more aggressive pricing policies than we can. Many of these current and potential competitors can devote substantially more resources to advertising, marketing and attracting experienced talent than we can. In addition, larger, more well-established and financed entities may acquire, invest in or form joint ventures with our competitors.
Government Approval of Principal Products
In most jurisdictions we are required to obtain governmentalgovernment approval in connection with the ability to provide security and/or investigative services. We expect to make every effort to comply with all existing and pending regulatory conditions and licensing requirements in each state we currently or potentially operate in.
Continued development of the marijuana industry is dependent upon continued legislative authorization of marijuana at the state level. Any number of factors could slow or halt progress in this area. Further, progress, while encouraging, is not assured. While there may be ample public support for legislative action, numerous factors impact the legislative process. Any one of these factors could slow or halt use of marijuana, which would negatively impact our proposed business.
Marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal laws. There are currently 2337 states and the District of Columbia allowing its citizens to use Medical Marijuana. Additionally, Alaska, Colorado, Oregon,18 states and Washington State, as well as Washington D.C., have voted to legalizelegalized cannabis for adult recreational use. The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The former Obama administration has effectively stated that it is not an efficient use of resources to direct law federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana. However, there is no guarantee that the administration will not change its stated policy regarding the low-priority enforcement of federal laws. Additionally, any new Trump administration that follows could change this policy and decide to enforce the federal laws strongly. Active enforcement of the current federal regulatory position on cannabis may thus indirectly and adversely affect our revenues and profits. Any such change in the federal government’s enforcement of current federal laws could cause significant financial damage to us. While we do not intend to harvest, distribute or sell cannabis, we may be irreparably harmed by a change in enforcement by the Federal or state governments.
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Intellectual Property
We are developing a proprietary streamlined government-certified software capable of tracking all movements of cannabis products through to cash to taxes paid to deposits with the Federal Reserve Bank. The technology behind our software is being engineered and developed by subcontractors, and we consider it proprietary and confidential, and protected under trade secret laws. We have not sought to patent our aspect of this technology; however, we have not yet determined if we will seek to patent any aspect of the software in the future.
We plan to protect our proprietary and confidential information through a series of non-compete and non-disclosure contracts with our employees, contractors and other interested parties. The law of protection of confidential information effectively allows a perpetual monopoly in secret information, and it does not expire as would a patent. The lack of formal protection, however, means that a third party is not prevented from independently duplicating and using the secret information once it is discovered.
Number of total employees and number of full time employees
As of the date of this Annual Report,March 31, 2023, we have about 87 full-had approximately 32 full and part-time employees, 95%some of whomwhich are ex-militaryformer military or ex-police.
Properties
We lease our offices in Denver, Colorado pursuant to Security Holders
We lease our offices in Phoenix, Arizona pursuant to a lease which expires on May 31, 2023. We have the option to extend the term of the lease for two additional five-year periods. The lease requires rental payments of approximately $4,113.56 per month which increases approximately 3% annually.
ITEM 1A. | RISK FACTORS |
We may not be able to attain profitability without additional funding, which may be unavailable.
We have limited capital resources. To date, we have not earned a profit or generated cash from our operations. Unless we begin to generate sufficient revenues from our proposed business to finance operations as a going concern, we may experience liquidity and solvency problems. Such liquidity and solvency problems may force us to go out of business if additional financing is not available. We have no intention of liquidating. In the event our cash resources are insufficient to continue operations, we intend to raise additional capital through offerings and sales of equity or debt securities. In the event we are unable to raise sufficient funds, we will be forced to go out of business and will be forced to liquidate. A possibility of such outcome presents a risk of complete loss of investment in our common stock.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 2. | PROPERTIES |
See Item 1. Business.
ITEM 3. | LEGAL PROCEEDINGS |
None.
ITEM 4. | MINE SAFETY DISCLOSURES |
None.
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PART II
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND MARKET INFORMATION FOR COMMON STOCK |
The high and low closing prices of our common stock for the periods indicated are set forth below. These closing prices do not reflect retail mark-up, markdown or commissions.
Year ended December 31, 2014 | High | Low | |
First Quarter | N/A | N/A | |
Second Quarter | $ 0.80 | $ 0.70 | |
Third Quarter | $ 0.81 | $ 0.31 | |
Fourth Quarter | $ 0.50 | $ 0.19 | |
Prices for transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny2021 reflect a 100-for-1 reverse stock as that used in Rule 3a51-1 of the Exchange Act.
Year ended December 31, 2022 | High | Low | ||||||
First Quarter | $ | 0.50 | $ | 0.31 | ||||
Second Quarter | $ | 0.41 | $ | 0.12 | ||||
Third Quarter | $ | 0.45 | $ | 0.17 | ||||
Fourth Quarter | $ | 0.25 | $ | 0.15 |
Year ended December 31, 2021 | High | Low | ||||||
First Quarter | $ | 2.30 | $ | 0.13 | ||||
Second Quarter | $ | 2.15 | $ | 0.76 | ||||
Third Quarter | $ | 1.98 | $ | 0.54 | ||||
Fourth Quarter | $ | 2.95 | $ | 0.78 |
As of the date of this filing,March 31, 2023 we had 123,994,0168,250,144 outstanding shares of $0.001 par value common stock issued and outstanding held by approximately 236216 shareholders of record. Our transfer agent is:is Pacific Stock Transfer Company, 4045 South Spencer Street, Suite 403, Las Vegas, NV 89119, phone (702) 361-3033.
Plan Category | Number of Securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance |
(a) | (b) | (c) | |
Equity compensation plans approved by security holders | - | - | - |
Equity compensation plans not approved by security holders | 900,000 | $0.25 | 14,100,000 |
Total | 900,000 | $0.25 | 14,100,000 |
ITEM 6. | SELECTED FINANCIAL DATA |
Not applicable.
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION |
Certain statements contained in all partsset forth below under this caption constitute forward-looking statements. See “Forward-Looking Statements” preceding Item 1 of this document that are not historical facts are, or may be deemed to be, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, thoseAnnual Report on Form 10-K for additional factors relating to such statements.
You should read the following: the Company's ability to secure necessary financing; expected growth; future operating expenses; future margins; fluctuationsfollowing discussion and analysis of financial condition and results of operations in interest rates; ability to continue to grow and implement growth, and regarding future growth, cash needs, operations, business plans and financial results and any other statements that are not historical facts.
Results of revenue
Material changes in line with growthitems in our operations.
Increase (I) or | ||||
Item | Decrease (D) | Reason | ||
Revenue | D | Decrease in services | ||
Gross Profit | D | Decrease in services and increase in expenses | ||
General and Administrative Expenses | I | Expansion of services | ||
Interest expense | D | Decrease in borrowings | ||
Loss on derivate securities | I | Reduced debt and lower stock price |
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December 31, 2014 | ||||
Cash and equivalents | $ | 211,922 | ||
Accounts and accrued receivables, net | 116,891 | |||
Notes receivable | 46,451 | |||
Prepaid assets | 2,500 | |||
Fixed assets, net | 1,287,991 | |||
Total assets | $ | 1,665,755 | ||
Accounts payable and accrued liabilities | 295,863 | |||
Notes payable, aggregate | 290,271 | |||
Long-term debt, including current portion | 695,515 | |||
Total liabilities | $ | 1,281,649 |
Year ended | ||||
December 31, 2014 | ||||
Net cash used by operations | $ | (443,425 | ) | |
Net cash used by investing activities | (1,131,614 | ) | ||
Net cash provided by financing activities | 1,784,117 | |||
Net increase in cash | 209,078 | |||
Cash at the beginning of the period | 2,844 | |||
Cash as the end of the period | $ | 211,922 |
Capital Resources and Liquidity
Our material sources and <uses> of cash used in operating activities was $443,425 forduring the yearyears ended December 31, 2014, the bulk of which was primarily attributable to expenditures related to our entry into the market for protection, compliance2022 and financial services catering2021 were:
2022 | 2021 | |||||||
$ | $ | |||||||
Cash provided by <used in> operations | 369,471 | 903,374 | ||||||
Purchase of property, plant and equipment | <33,725> | <66,002> | ||||||
Loan payments | <717,850> | <419,945> | ||||||
Loan proceeds | - | - |
General
See Notes 6 and 7 to the lawful cannabis industry. Our management expects to continue to experience net cash outflows related to operating activitiesfinancial statements included as part of this report for at least the next fiscal quarter, related primarily to continuing operations, the introduction of new service offerings and expansion into new geographic markets.
Other than as disclosed above, we received $108,549 in repayments. The sale of membership units held for investment purposes anddo not earmarked for resale generated cash in the amount of $200,000. Additionally, during the year ended December 31, 2014 we purchased a commercial building for a total purchase price of $750,000, for which we paid a down payment of $75,000 and financed the remaining $675,000 in the form of a promissory note. Through December 31, 2014, approximately $348,553 in capital improvements were made to the property. The expansion into additional geographic territories is expected to require additional investment in equipment and vehicles, although the cost of such will vary materially and cannot be readily estimated by management.
Other than as disclosed elsewhere in this report, we do not know of additional equity securities will result in dilution to our stockholders. The incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business operations and could harm our overall business prospects.
Other than as disclosed in this Item 7, we may not adequately encapsulate unforeseen economic or industry specific factors that may be beyond our control. These external forces may restrict growth and advertising spending by our clients, which could, in turn, adversely affect our operations.
We do not have any firm commitments or arrangements from any person to provide us with any equity capital. During the next 12 months, we anticipate that we will incur approximately $1,896,000 of general and administrative expenses in order to execute our current business plan. We also plan to incur sales, marketing, research and development expenses during the next 12 months. We may need to obtain additional capital.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
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 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.Revenue recognition. As all of our Revenue is generated from services offerings, Revenue recognition is the carrying valuesame for each of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment there was no impairment as December 31, 2014 and 2013. Depreciation expense for the years ended December 31, 2014 and 2013 totaled $27,172 and $0, respectively.
Stock-based compensation. The Company estimates losses on receivables based on known troubled accounts, if any, and historical experience of losses incurred. The allowance for doubtful customer and vendor receivables was $18,864 and $0 at December 31, 2014 and 2013, respectively.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached by the FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. 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.
Significant Accounting Policies
See Note 2 to the financial statements included as part of this report for a description of our significant accounting policies.
Recent Accounting Pronouncements
From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update (“ASU”). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not currentlyexpected to have a partymaterial impact on our consolidated financial statements upon adoption.
To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included as part of this Report.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
Not applicable.
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Our financial statements are contained later in this report beginning on page F-1.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS |
None
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ITEM 9A | CONTROLS AND PROCEDURES |
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the Commission’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. We evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. As a result of this evaluation, management concluded that our disclosure controls and procedures were not effective as of December 31, 2022 for the same reasons that our internal control over financial reporting was not effective:
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
1. | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; | |
2. | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and | |
3. | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any pendingevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or threatened legal proceedings. The company has one potential contingent liability. A shareholderthat the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and employee asserts he has loanedpresentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
12 |
As of December 31, 2022, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013) and SEC guidance on conducting such assessments. Based on that evaluation, management concluded that, during the period covered by this report, such internal controls and procedures were not effective due to the following material weakness identified:
● | Lack of controls over related party transactions. The Company did not establish a formal written policy for the approval, identification, and authorization of related party transactions. | |
● | Lack of appropriate segregation of duties, |
● | Lack of control procedures that include multiple levels of supervision and review, and | |
● | There is an overreliance upon independent financial reporting consultants for review of critical accounting areas and disclosures and material, nonstandard transactions. |
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company cashto provide only the management’s report in this annual report.
Implemented or Planned Remedial Actions in response to the Material Weaknesses
We will continue to strive to correct the above noted weakness in internal control once we have adequate funds to do so. We believe appointing a director who qualifies as a financial expert will improve the overall performance of our control over our financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2022 that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting.
The Company’s management, including the chief executive officer and paid for various expenses on behalfprincipal financial officer, do not expect that its disclosure controls or internal controls will prevent all errors or all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the Companycontrol system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.
ITEM 9B. | OTHER INFORMATION |
None.
13 |
PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Our directors are elected by the stockholders to a term of one year and serve until their successors are elected and qualified. The officers are appointed by our Board of Directors to a term of one year and serve until his/her successor is duly elected and qualified, or until he/she is removed from office.
The names and ages of our directors and executive officers and their positions are as follows:
Name | Age | Position | ||
Daniel Allen | 71 | Chief Executive, Financial and Accounting Officer and a Director | ||
Doyle Knudson | 71 | Director | ||
Andrew Berman | 63 | Director |
Daniel Allen was elected an officer and director July 28, 2015. Mr. Allen resigned as an Officer on March 13, 2020. Mr. Allen provided us with consulting services in the aggregate amountareas of $447,896. Thebanking and financing for four months in 2014. Between April 2013 and March 2014 Mr. Allen served as the Regional Vice President of Sunflower Bank in Longmont, Colorado. Between June 2001 and April 2013, Mr. Allen was the Chairman and Chief Executive Officer of Mile High Banks in Longmont, Colorado. Mr. Allen holds a Bachelor of Science in Management and Finance from the University of Utah. On March 13th, 2020, Daniel Allen resigned from his position as CEO. Dan remains an active member of our Board.
Doyle Knudson was elected as one of our directors on July 28, 2015. Between 1975 and 2002 Mr. Knudson held various positions with C.H. Robinson Company, is disputing its needa large multimodal transportation service provider. In 1975 he started in the corporate marketing center responsible for information services for carrier capacity, carrier insurance verification and research at the ICC in Washington, DC for common carrier authority. In 1976 Mr. Knudson was transferred to pay this claimRoss Truck, a division of C.H. Robinson – customer support for publication logistics for Target stores and RR Donnelly. In 1978 Mr. Knudson was transferred to Lake Wales, FL as a Transportation Salesman responsible for customer development with agri business customers. In 1982 Mr. Knudson was promoted and transferred as Transportation Manager when he opened a new branch office in Houston, TX. In 1987 Mr. Knudson was promoted to General Manager at a new branch office in El Paso, TX, developing and providing logistics services for Coca Cola; Phelps, Dodge, Dell Computers and Phillips Electronics.
Andrew Berman was elected as one of our directors on February 28, 2023. Berman has a B.A. from the University of Michigan and a J.D. from the University of Miami School of Law. His work experience includes practicing law, Business Affairs at America Online, C-level roles in technology businesses, private investing, and extensive cannabis experience in 5 states since 2015. This cannabis work includes Maui Wellness Group (HI), Ohio Grown Therapies (OH), CEO of Harborside Inc. (CA), which he took public on the grounds thatCSE in 2019, President of Greenfield Cannabis Co. (CA), a numbercultivator and manufacturer of itemspremier cannabis products located in Monterey County, and PRICH Biotech, Puerto Rico’s largest vertical operator. Berman also has broad government relations experience, having been twice elected to the claim were unauthorizedCity Council for the City of Mill Valley, California, including two terms as Mayor.
Audit Committee, Independent Directors and minimal, if any, supporting documentation was provided to substantiate the validity of the claim. While the Company can reasonably estimate the liability, it is improbable that the Company will pay, due the Claimant’s (a) failure mutually agree upon the alleged amounts owed and (b) failure to validate the claims.
We do not have any off-balance sheet arrangements.an Audit Committee; our board of directors currently acts as our Audit Committee. Doyle Knudson is an independent director, as that term is defined in the rules of the NYSE American. None of our directors is considered a “Financial Expert”.
Code of Ethics
We have not adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions since one person, Daniel Allen, serves in all the above capacities.
14 |
ITEM 11. | EXECUTIVE COMPENSATION |
Overview of Compensation Program
Our Board of Directors acts as our Compensation Committee and has responsibility for establishing, implementing and continually monitoring adherence to our compensation philosophy. The Board of Directors ensures that the total compensation paid to our executives is fair, reasonable and competitive.
Compensation Philosophy and Objectives
The Board of Directors believes that the most effective executive compensation program is one that is designed to reward the achievement of specific annual, long-term and strategic goals by the Company and that aligns executives’ interests with those of the stockholders by rewarding performance above established goals, with the ultimate objective of improving stockholder value. As a result of the size of the Company and only having two executive officers, the Board evaluates both performance and compensation on an informal basis. Upon hiring additional executives, the Board intends to evaluate the necessity of establishing a Compensation Committee to evaluate both performance and compensation to ensure that the Company maintains its ability to attract and retain superior employees in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly-situated executives of peer companies. To that end, the Board believes executive compensation packages provided by the Company to its executives, including the named executive officers, should include both cash and stock-based compensation that reward performance as measured against established goals.
Role of Executive Officers in Compensation Decisions
Our Directors make all compensation decisions for, and approve recommendations regarding, equity awards to our Directors and employees.
Summary Compensation Table
The following documents (pages F-1table sets forth for the fiscal years ended December 31, 2022 and 2021 the compensation paid by the Company to F-12) form partthose years to its officers:
Summary Compensation Table (in $) | ||||||||||||||||||||||||
Name and Principal Position | Year | Salary (1) | Stock Awards (2) | Option Awards (3) | All Other Compensation (4) | Total | ||||||||||||||||||
Daniel Allen | 2022 | $ | 80,769 | $ | - | $ | 94,711 | - | $ | 175,480 | ||||||||||||||
Chief Executive Officer(5) | ||||||||||||||||||||||||
Doyle Knudson | 2022 | $ | - | $ | - | $ | 142,066 | - | $ | 142,066 | ||||||||||||||
Board Member | ||||||||||||||||||||||||
Evan DeVoe | 2022 | $ | 172,083 | $ | - | $ | - | - | $ | 172,083 | ||||||||||||||
Chief Executive Officer(5) | 2021 | $ | 188,462 | $ | - | $ | - | - | $ | 188,462 |
(1) | The dollar value of base salary (cash and non-cash) earned during the year. |
(2) | The fair value of the shares of common stock issued during the periods covered by the table calculated on the grant date in accordance with ASC 718-10-30-3. |
(3) | The fair value of all stock options granted during the periods covered by the table calculated on the grant date in accordance with ACS 718-10-30-3. |
(4) | All other compensation received that we could not properly report in any other column of the table including the dollar value of any insurance premiums we paid for life insurance for the benefit of the named executive officer. |
(5) | Evan DeVoe resigned as our Chief Financial and Accounting Officer on July 29, 2022. On August 4, 2022 Daniel Allen became our new Chief Executive, Financial and Accounting Officer. |
15 |
Equity Compensation Plan
Up to 15,000,000 shares of common stock are reserved for issuance under our 2014-2015 Stock Incentive Plan (“the Plan”).
The purposes of the report onPlan are to enhance our ability to attract and retain the Financial Statements
Shares that are eligible for grant under the Plan include Incentive Stock Options, Non-Qualified Stock Options and Restricted Stock. “Incentive Options” are any options designated and qualified as an “incentive stock option” as defined in Section 422 of the Internal Revenue Code. “Non-Qualified Options” are any options that are not an Incentive Option. To the extent that any option designated as an Incentive Option fails in whole or in part to qualify as an Incentive Option, it will constitute a Non-Qualified Option. “Restricted Stock” are shares of common stock issued pursuant to any restrictions and conditions as established by the Plan.
Only our employees (including our officers and Directors if they are employees) are eligible to receive Incentive Options under the Plan.
Our employees, officers and Directors (whether or not employed by us), and service providers are eligible to receive Non-Qualified Options or acquire Restricted Stock under the Plan.
The following tables list the options granted, cancelled and exercised during the fiscal years ended December 31, 2022 and 2021 to our officers and directors pursuant to the Plan:
Options Granted
Name | Grant Date | Options Granted | Exercise Price | Expiration Date | ||||||||
Dan Allen | 10/1/22 | 1,000,000 | $ | 0.21 | 9/30/2027 | |||||||
Doyle Knudson | 10/1/22 | 1,500,000 | $ | 0.21 | 9/30/2027 |
Options Cancelled
Employee | Total Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |||||||||
None | - | - | - |
Options Exercised
Name | Date of Exercise | Shares Acquired on Exercise | Value Realized | |||||||||
None | - | - | - |
16 |
The following shows certain information as of December 31, 2022 concerning the stock options and stock bonuses granted pursuant to the Plan. Each option represents the right to purchase one share of common stock.
Plan Name | Number of Securities to be Issued Upon Exercise of Outstanding Options (a) | Weighted- Average Exercise Price of Outstanding Options | Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans, Excluding Securities Reflected in Column (a) | |||||||||
Stock Incentive Plan | 7,700,000 | $ | 0.21 | 4,287,000 |
Directors’ Compensation
Our directors are not entitled to receive compensation for services rendered to us, or for each meeting attended except for reimbursement of out-of-pocket expenses. We have no formal or informal arrangements or agreements to compensate our director for services she provides as a director of our company.
ITEM 12. |
The following table shows the beneficial ownership of the Company’s common stock as of March 31, 2023 by (i) each person whom the Company knows beneficially owns more than 5% of the outstanding shares of the Company’s common stock; (ii) each of the Company’s officers and directors; and (iii) all the officers and directors as a group. Unless otherwise indicated, each owner has sole voting and investment powers over his shares of common stock.
Name and Address of Owner | Shares Owned | Percent of Class | ||||||
Daniel Allen | 8,366 | * | ||||||
Doyle Knudson | 71,172 | * | ||||||
Andrew Berman | - | * | ||||||
All Directors and Officers as a group (3 persons) | 79,538 | * |
* | less than 1%. |
Note: As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or share investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of a security).
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
See Note 7 to the Financial Statements included as a part of this report for information regarding notes payable to related parties.
17 |
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The following table sets forth fees billed to us by our independent auditors for the years ended 2022 and 2021 for (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of our financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.
SERVICES | 2022 | 2021 | ||||||
Audit- M&K CPA | $ | 56,850 | $ | 53,450 | ||||
Tax fees | - | - | ||||||
All other fees | - | - |
Audit fees and audit related fees represent amounts billed for professional services rendered for the audit of our annual financial statements and the review of our interim financial statements. Before our independent accountants were engaged by to render these services, their engagement was approved by our Directors.
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
Exhibit Number | Name and/or Identification of Exhibit | |
3 | Articles of Incorporation & By-Laws | |
(a) Articles of Incorporation (1) | ||
(b) By-Laws (1) | ||
31 | Rule 13a-14(a)/15d-14(a) Certifications | |
32 | Certification under Section 906 of the Sarbanes-Oxley Act (18 U.S.C. Section 1350) | |
101 | Interactive Data Files (2) | |
(INS) Inline XBRL Instance Document | ||
(SCH) Inline XBRL Taxonomy Extension Schema Document | ||
(CAL) Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
(DEF) Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
(LAB) Inline XBRL Taxonomy Extension Label Linkbase Document | ||
(PRE) Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
(1) | Incorporated by reference to the Registration Statement on Form 10-SB, previously filed with the SEC on November 28, 2007. |
(2) | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
ITEM 16. | FORM 10-K SUMMARY |
None.
18 |
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
BLUE LINE PROTECTION GROUP, INC. | ||
March 31, 2023 | By: | /s/ Daniel Allen |
Daniel Allen, Principal Executive Officer |
In accordance with the requirements of the Securities Act of 1933, this Annual Report was signed by the following persons in the capacities and on the dates stated:
Signature | Title | Date | ||
Principal Executive, Financial and | March 31, 2023 | |||
Daniel Allen | Accounting Officer and a Director | |||
Director | March 31, 2023 | |||
Doyle Knudson | ||||
Director | March 31, 2023 | |||
Andrew Berman |
19 |
Blue Line Protection Group, Inc.
INDEX TO FINANCIAL STATEMENTS
F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Blue Line ProductionProtection Group, Inc.asInc. (the Company) as of December 31, 2014, and 2013,2022, and the related consolidated statements of income,operations, stockholders’ equity (deficit),deficit, and cash flows for each of the years in the two-year period ended December 31, 2014. Blue Line Production Group, Inc.’s management is responsible for these2022, and the related notes (collectively referred to as the consolidated financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has incurred recurringsuffered net losses and recurring negative cash flow from operating activities, andoperations for the year ended December 31, 2022, has an accumulated deficit and has a net capital deficiency as of December 31, 2022, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning theseregarding those matters are also describeddiscussed in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-2 |
Derivative Liabilities
As discussed in Note 8, the Company borrows funds through the use of convertible notes payable that contain a conversion price that may be fixed or fluctuates with the stock price.
Auditing management’s estimates of the fair value of the derivative liability involves significant judgments and estimates given the embedded conversion features of the notes.
To evaluate the appropriateness of the fluctuation of the conversion price, the embedded conversion feature requires bifurcation from the host contract and is recorded as a liability subject to market adjustments as of each reporting period. Significant judgment is exercised by the Company in determining derivative liability values for these convertible note agreements, including the use of a specialist engaged by management.
We evaluated management’s conclusions regarding their derivative liability, reviewed support for the significant inputs used in the valuation model, and assessed the model for reasonableness. In addition, we evaluated the Company’s disclosure in relation to this matter included in Note 8 to the consolidated financial statements.
Capital Stock and Other Equity Accounts
As discussed in Note 9, the Company issues stock options as stock-based compensation to employees.
Auditing management’s calculation of the fair value of the options issued can be a significant judgment given the fact that the Company uses management estimates on various inputs to the calculations.
To test the valuation of the options, we evaluated management’s significant judgments and estimates. Significant judgements and estimates related to the valuation of the options include fair valuing of the options which involve significant estimates of volatility, grant terms, risk-free rates and the use of historical trading data.
We evaluated management’s conclusions regarding their fair values and reviewed support for the significant inputs used in the valuation model, as well as assessing the model for reasonableness. In addition, we evaluated the Company’s disclosure in relation to this matter included in Note 9 to the consolidated financial statements
M&K CPAS, PLLC | |
We have served as the Company’s auditor since 2020. Houston, TX | |
March 31, 2023 |
F-3 |
December 31, | ||||||
2014 | 2013 | |||||
Assets | ||||||
Current assets: | ||||||
Cash and equivalents | $ | 211,922 | $ | 2,844 | ||
Accounts receivable, net | 62,101 | - | ||||
Accrued receivables | 54,790 | - | ||||
Notes receivable | 46,451 | - | ||||
Prepaid expenses and deposits | 2,500 | - | ||||
Total current assets | 377,764 | 2,844 | ||||
Fixed assets | ||||||
Total fixed assets, net | 189,438 | - | ||||
Property, plant and equipment | 750,000 | - | ||||
Building improvements | 348,553 | - | ||||
Total fixed assets | 1,287,991 | - | ||||
Total assets | $ | 1,665,755 | $ | 2,844 | ||
Liabilities and Stockholders’ (Deficit) | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 143,019 | $ | 2,300 | ||
Accrued liabilities | 152,844 | - | ||||
Notes payable | 2,000 | 2,000 | ||||
Note payable – related parties | 288,271 | - | ||||
Current portion of long-term debt | 3,735 | - | ||||
Total current liabilities | 589,869 | 4,300 | ||||
Long-term liabilities | ||||||
Long-term debt | 691,780 | - | ||||
Total long-term liabilities | 691,780 | - | ||||
Total liabilities | 1,281,649 | - | ||||
Stockholders’ (deficit) | ||||||
Preferred stock, $0.001 par value, 100,000,000 shares | ||||||
authorized, no shares issued and outstanding | - | - | ||||
Common stock, $0.001 par value, 1,400,000,000 shares | ||||||
authorized, 122,845,282 and 106,820,000 shares | ||||||
issued and outstanding as of 12/31/14 and 12/31/13 | 122,845 | 106,820 | ||||
Common stock, owed but not issued, 748,750 shares and | ||||||
0 shares as of 12/31/14 and 12/31/13 | 749 | - | ||||
Additional paid-in capital | 2,788,934 | (5,795) | ||||
Accumulated deficit | (2,528,422) | (102,481) | ||||
Total stockholders’ (deficit) | 384,106 | (1,456) | ||||
Total liabilities and stockholders’ (deficit) | $ | 1,665,755 | $ | 2,844 |
BLUE LINE PROTECTION GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, | December 31, | |||||||
2022 | 2021 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and equivalents | $ | 280,073 | $ | 662,177 | ||||
Accounts receivable | 373,175 | 328,042 | ||||||
Prepaid expenses and deposits | 31,553 | 34,378 | ||||||
Total current assets | 684,801 | 1,024,597 | ||||||
Long-term assets: | ||||||||
Right to use assets | 408,616 | 529,711 | ||||||
Machinery and equipment, net et, net of accumulated depreciation of $704,433 and $586,130, respectively | 254,227 | 284,776 | ||||||
Fixed assets of discontinued operations | 2,782 | 2,782 | ||||||
Total long-term assets | 665,625 | 817,269 | ||||||
Security Deposit | 31,920 | 28,958 | ||||||
Total assets | 1,382,346 | 1,870,824 | ||||||
Liabilities and Stockholders’ Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 555,445 | $ | 738,221 | ||||
Financed lease liabilities | 31,719 | 29,301 | ||||||
Notes payable - related parties | 152,771 | 541,272 | ||||||
Convertible notes payable - related parties, net of unamortized discount | 604,256 | 575,000 | ||||||
Current portion of operating lease obligation | 112,250 | 125,266 | ||||||
Derivative liabilities | 451,119 | 712,784 | ||||||
Total current liabilities | 1,907,560 | 2,721,844 | ||||||
Long-term liabilities: | ||||||||
Financed lease liabilities - long term | 37,568 | 16,402 | ||||||
Notes payable - related parties | 1,000,500 | 1,313,817 | ||||||
Operating lease liability-long term | 328,116 | 440,366 | ||||||
Total long-term liabilities | 1,366,184 | 1,770,585 | ||||||
Total liabilities | 3,273,744 | 4,492,429 | ||||||
Stockholders’ deficit: | ||||||||
Preferred Stock, $ | par value, shares authorized, shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively20,000 | 20,000 | ||||||
Common Stock, $ | par value, shares authorized, and issued and outstanding as of December 31, 2022 and December 31, 2021, respectively8,251 | 8,486 | ||||||
Common Stock, owed but not issued, | shares and shares as of December 31, 2022 and December 31, 2021, respectively13 | 13 | ||||||
Additional paid-in capital | 10,046,096 | 9,021,126 | ||||||
Accumulated deficit | (11,965,758 | ) | (11,671,230 | ) | ||||
Total stockholders’ deficit | (1,891,398 | ) | (2,621,605 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 1,382,346 | $ | 1,870,824 |
The accompanying notes are an integral part of these consolidated financial statements.
F-4 |
For the years ended | ||||||||
December 31, | ||||||||
2014 | 2013 | |||||||
Revenue, net | $ | 1,032,168 | $ | - | ||||
Cost of revenue | (778,777 | ) | - | |||||
Gross profit | 253,391 | - | ||||||
Expenses: | ||||||||
Advertising | 189,536 | - | ||||||
Depreciation | 27,172 | - | ||||||
Executive compensation | 104,892 | - | ||||||
General and administrative expenses | 657,633 | 15,288 | ||||||
Professional fees | 916,766 | - | ||||||
Salaries and wages | 502,032 | - | ||||||
Stock-based compensation | 480,675 | - | ||||||
Total expenses | 2,878,706 | 15,288 | ||||||
Operating loss | (2,625,315 | ) | (15,288 | ) | ||||
Other income: | ||||||||
Interest expense | (11,308 | ) | - | |||||
Interest income | 10,683 | - | ||||||
Gain on sale of securities | 199,999 | - | ||||||
Total other income | 199,374 | - | ||||||
Loss before provision for income taxes | (2,425,941 | ) | (15,288 | ) | ||||
Provision for income taxes | - | - | ||||||
Net loss | $ | (2,425,941 | ) | $ | (15,288 | ) | ||
Weighted average number of | ||||||||
common shares outstanding - basic | 116,942,037 | 106,820,000 | ||||||
Weighted average number of common shares outstanding – fully diluted | 122,184,808 | 106,820,000 | ||||||
Net loss per share - basic | $ | (0.02 | ) | $ | (0.00 | ) | ||
Net loss per share – fully diluted | $ | (0.02 | ) | $ | (0.00 | ) |
BLUE LINE PROTECTION GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
2022 | 2021 | |||||||
For the years ended | ||||||||
December 31, | ||||||||
2022 | 2021 | |||||||
Revenue | $ | 3,876,227 | $ | 4,659,393 | ||||
Cost of revenue | (1,278,239 | ) | (1,284,876 | ) | ||||
Gross profit | 2,597,988 | 3,374,517 | ||||||
Operating expenses: | ||||||||
General and administrative expenses | 2,517,149 | 2,118,601 | ||||||
Total expenses | 2,517,149 | 2,118,601 | ||||||
Operating Income | 80,839 | 1,255,916 | ||||||
Other income (expenses): | ||||||||
Gain on settlement of accounts payable | - | 533 | ||||||
Interest expense | (194,643 | ) | (583,149 | ) | ||||
Income / (Loss) on derivative | (180,724 | ) | 1,077,289 | |||||
Total other income / (expenses) | (375,367 | ) | 494,673 | |||||
Net income / (loss) | $ | (294,528 | ) | $ | 1,750,589 | |||
Net income per common share: Basic and Diluted | $ | (0.04 | ) | $ | 0.21 | |||
Net Income / (loss) per common share: Diluted | $ | (0.04 | ) | $ | 0.14 | |||
Weighted average number of | ||||||||
common shares outstanding- Basic | 8,398,062 | 8,457,364 | ||||||
Weighted average number of common shares outstanding- Basic | 8,398,062 | 8,457,364 | ||||||
common shares outstanding- Diluted | 8,398,062 | 12,314,864 | ||||||
Weighted average number of common shares outstanding- Diluted | 8,398,062 | 12,314,864 |
The accompanying notes are an integral part of these consolidated financial statements.
F-5 |
Additional | Subscriptions | Total | ||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in | Payable/ | Accumulated | Stockholders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | (Receivable) | (Deficit) | Equity | |||||||||||||||||||||||||
Beginning Balance | ||||||||||||||||||||||||||||||||
January 1, 2013 | - | $ | - | 106,820,000 | $ | 106,820 | $ | (21,045 | ) | $ | - | $ | (87,193 | ) | $ | (1,418 | ) | |||||||||||||||
Donated capital | - | - | - | - | 15,250 | - | - | 15,250 | ||||||||||||||||||||||||
Net loss | ||||||||||||||||||||||||||||||||
For the year ended | ||||||||||||||||||||||||||||||||
December 31, 2013 | - | - | - | - | - | - | (15,288 | ) | (15,288 | ) | ||||||||||||||||||||||
Balance, December 31, 2013 | - | - | 106,820,000 | 106,820 | (5,795 | ) | - | (102,481 | ) | 7,106 | ||||||||||||||||||||||
Donated capital | - | - | - | - | 127,106 | - | - | 127,106 | ||||||||||||||||||||||||
March 27, 2014 | ||||||||||||||||||||||||||||||||
Issued for cash | ||||||||||||||||||||||||||||||||
$0.09 per share | - | - | 13,068,050 | 13,068 | 1,200,393 | - | - | 1,213,461 | ||||||||||||||||||||||||
March 27, 2014 | ||||||||||||||||||||||||||||||||
Issued for fixed asset | ||||||||||||||||||||||||||||||||
$0.09 per share | - | - | 323,078 | 323 | 29,677 | - | - | 30,000 | ||||||||||||||||||||||||
April 8, 2014 | ||||||||||||||||||||||||||||||||
Issued to retire notes payable | ||||||||||||||||||||||||||||||||
$0.09 per share | - | - | 1,346,154 | 1,346 | 123,654 | - | - | 125,000 | ||||||||||||||||||||||||
June 11, 2013 | ||||||||||||||||||||||||||||||||
Stock owed by not issued for services | ||||||||||||||||||||||||||||||||
$0.67 per share | - | - | - | - | 187,320 | 280 | - | 187,600 | ||||||||||||||||||||||||
September 15, 2014 | ||||||||||||||||||||||||||||||||
Issued for cash | ||||||||||||||||||||||||||||||||
$0.32 per share | - | - | - | - | 149,531 | 469 | - | 150,000 | ||||||||||||||||||||||||
October 1, 2014 | ||||||||||||||||||||||||||||||||
Issuance of nonqualified stock options | - | - | - | - | 13,160 | - | - | 13,160 | ||||||||||||||||||||||||
October 22, 2014 | ||||||||||||||||||||||||||||||||
Issued for services | ||||||||||||||||||||||||||||||||
$0.38 per share | - | - | 1,250,000 | 1,250 | 473,750 | - | - | 475,000 | ||||||||||||||||||||||||
December 24, 2014 | ||||||||||||||||||||||||||||||||
Issued to employees for services | ||||||||||||||||||||||||||||||||
$0.25 per share | - | - | 38,000 | 38 | 9,462 | - | - | 9,500 | ||||||||||||||||||||||||
December 31, 2014 | ||||||||||||||||||||||||||||||||
Amortization of | ||||||||||||||||||||||||||||||||
employee stock options | - | - | - | - | 480,676 | - | - | 480,676 | ||||||||||||||||||||||||
Net loss | ||||||||||||||||||||||||||||||||
For the year ended | ||||||||||||||||||||||||||||||||
December 31, 2014 | - | - | - | - | - | - | (2,425,941 | ) | (2,425,941 | ) | ||||||||||||||||||||||
Balance, December 31, 2014 | - | $ | - | 122,845,282 | $ | 122,845 | $ | 2,788,934 | $ | 749 | $ | (2,528,422 | ) | $ | 384,106 |
BLUE LINE PROTECTION GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
Preferred Stock | Common Stock | Additional Paid-in | Stock | Accumulated | Stockholders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Payable | Deficit | Deficit | |||||||||||||||||||||||||
Balance, December 31, 2020 | 20,000,000 | $ | 20,000 | 8,223,574 | $ | 8,224 | $ | 8,031,471 | 13 | $ | (13,421,819 | ) | $ | (5,362,111 | ) | |||||||||||||||||
Common stock issued for conversion of debt and accrued interest | - | - | 260,000 | 260 | 9,750 | - | - | 10,010 | ||||||||||||||||||||||||
Rounding shares issued from reverse stock split | - | - | 1,570 | 2 | - | - | - | 2 | ||||||||||||||||||||||||
Derivative resolution | - | - | - | - | 457,572 | - | - | 457,572 | ||||||||||||||||||||||||
Gain on the forgiveness of accrued interest - related party | - | - | - | - | 522,333 | - | - | 522,333 | ||||||||||||||||||||||||
Net income for the year ended December 31, 2021 | - | - | - | - | - | - | 1,750,589 | 1,750,589 | ||||||||||||||||||||||||
Balance, December 31, 2021 | 20,000,000 | $ | 20,000 | 8,485,144 | $ | 8,486 | $ | 9,021,126 | 13 | $ | (11,671,230 | ) | $ | (2,621,605 | ) | |||||||||||||||||
Balance, December 31, 2021 | 20,000,000 | $ | 20,000 | 8,485,144 | $ | 8,486 | $ | 9,021,126 | 13 | $ | (11,671,230 | ) | $ | (2,621,605 | ) | |||||||||||||||||
Balance, value | 20,000,000 | $ | 20,000 | 8,485,144 | $ | 8,486 | $ | 9,021,126 | 13 | $ | (11,671,230 | ) | $ | (2,621,605 | ) | |||||||||||||||||
Cancellation of common stock | - | - | (260,000 | ) | (260 | ) | 260 | - | - | - | ||||||||||||||||||||||
Common stock issued for services | - | - | 25,000 | 25 | 4,725 | - | - | 4,750 | ||||||||||||||||||||||||
Stock options expense | - | - | - | - | 327,596 | - | - | 327,596 | ||||||||||||||||||||||||
Forgiveness of interest - related party | - | - | - | - | 250,000 | - | - | 250,000 | ||||||||||||||||||||||||
Derivative resolution | - | - | - | - | 442,389 | - | - | 442,389 | ||||||||||||||||||||||||
Net Income for the year ended December 31, 2022 | - | - | - | - | - | - | (294,528 | ) | (294,528 | ) | ||||||||||||||||||||||
Balance, December 31, 2022 | 20,000,000 | $ | 20,000 | 8,250,144 | $ | 8,251 | $ | 10,046,096 | 13 | $ | (11,965,758 | ) | $ | (1,891,398 | ) | |||||||||||||||||
Balance, value | 20,000,000 | $ | 20,000 | 8,250,144 | $ | 8,251 | $ | 10,046,096 | 13 | $ | (11,965,758 | ) | $ | (1,891,398 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
F-6 |
For the years ended | ||||||||
December 31, | ||||||||
2014 | 2013 | |||||||
Operating activities | ||||||||
Net loss | $ | (2,425,941 | ) | $ | (15,288 | ) | ||
Adjustments to reconcile net loss to | ||||||||
net cash used by operating activities: | ||||||||
Depreciation | 27,172 | - | ||||||
Gain on sale of investments | (200,000 | ) | - | |||||
Stock-based compensation expense | 490,176 | - | ||||||
Shares issued for services | 662,600 | - | ||||||
Shares issued for prepaid expenses | 133,161 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
(Increase) in accounts receivable | (116,892 | ) | - | |||||
(Increase) in deposits and prepaid expenses | (2,500 | ) | - | |||||
Increase in accounts payable | 297,298 | 2,300 | ||||||
Increase in long-term liabilities | 691,781 | - | ||||||
Net cash used by operating activities | (443,145 | ) | (12,988 | ) | ||||
Investing activities | ||||||||
Issuance of notes receivable | (155,000 | ) | - | |||||
Receipt of payments from notes receivable | 108,549 | - | ||||||
Sale of investments held to maturity | 200,000 | |||||||
Purchase of fixed assets | (186,610 | ) | - | |||||
Purchase of plant, property and equipment | (1,098,553 | ) | - | |||||
Net cash used by investing activities | (1,131,614 | ) | - | |||||
Financing activities | ||||||||
Donated capital | 7,106 | 15,250 | ||||||
Repayment of notes payable | (41,008 | ) | - | |||||
Proceeds from notes payable | 166,008 | - | ||||||
Repayment of notes payable – related party | (106,325 | ) | - | |||||
Proceeds from notes payable – related party | 394,596 | - | ||||||
Common stock payable | 748 | - | ||||||
Issuances of common stock | 1,362,992 | - | ||||||
Net cash provided by financing activities | 1,784,117 | 15,250 | ||||||
Net increase (decrease) in cash | 209,078 | 2,262 | ||||||
Cash – beginning of the year | 2,844 | 582 | ||||||
Cash – end of the year | $ | 211,922 | $ | 2,844 | ||||
Supplemental disclosures: | ||||||||
Interest paid | - | - | ||||||
Income taxes paid | - | - | ||||||
Non-cash transactions: | ||||||||
Shares issued for fixed assets | $ | 30,000 | $ | - | ||||
Number of shares issued for fixed assets | 323,078 | - | ||||||
Stock-based compensation | $ | 3,067,525 | $ | - | ||||
Number of stock options issued for stock-based compensation | 11,736,900 | - | ||||||
Shares issued for prepaid services | $ | 120,000 | $ | - | ||||
Number of shares issued for prepaid services | 200,000 | - | ||||||
Shares issued for services | $ | 662,600 | $ | - | ||||
Number of shares issued for services | 1,330,000 | - |
BLUE LINE PROTECTION GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
2022 | 2021 | |||||||
For the years ended | ||||||||
December 31, | ||||||||
2022 | 2021 | |||||||
Operating activities | ||||||||
Net income | $ | (294,528 | ) | $ | 1,750,589 | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 133,146 | 134,371 | ||||||
Amortization of right to use lease asset | 121,095 | 107,257 | ||||||
Common stock issued for services | 4,750 | - | ||||||
Stock Option expense | 327,596 | - | ||||||
Change in fair value of derivative liabilities | 180,724 | (1,077,289 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
(Increase) in accounts receivable | (45,133 | ) | (5,444 | ) | ||||
(Increase) / decrease in deposits and prepaid expenses | (137 | ) | 1,038 | |||||
Increase (decrease) in accounts payable and accrued liabilities | 67,224 | 100,094 | ||||||
Increase (decrease) in lease obligations | (125,266 | ) | (107,242 | ) | ||||
Net cash provided by operating activities | 369,471 | 903,374 | ||||||
Cash flows from investing activities | ||||||||
Purchase of fixed assets | (33,725 | ) | (66,002 | ) | ||||
Net cash provided by/(used in) investing activities | (33,725 | ) | (66,002 | ) | ||||
Financing activities | ||||||||
Repayments on convertible notes payable - related party | - | (175,097 | ) | |||||
Repayments on convertible notes payable | (313,318 | ) | (146,011 | ) | ||||
Repayments from notes payable - related party | (359,244 | ) | (20,000 | ) | ||||
Payments on notes payable | (45,288 | ) | (78,837 | ) | ||||
Net cash used in financing activities | (717,850 | ) | (419,945 | ) | ||||
Net increase in cash | (382,104 | ) | 417,427 | |||||
Cash - beginning | 662,177 | 244,750 | ||||||
Cash - ending | $ | 280,073 | $ | 662,177 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Interest paid | $ | 56,204 | $ | 400,256 | ||||
Income taxes paid | $ | - | $ | - | ||||
Non-cash investing and financing activities: | ||||||||
Capitalized leased fixed assets | $ | 68,872 | $ | 56,735 | ||||
Common stock issued for conversion of debt and interest | $ | - | $ | 10,010 | ||||
Derivative resolution | $ | 442,389 | $ | 457,572 | ||||
Cancellation of common stock | $ | 260 | $ | - | ||||
Gain on the forgiveness of accrued interest - related party | $ | 250,000 | $ | 522,334 |
The accompanying notes are an integral part of these consolidated financial statements.
F-7 |
Blue Line Protection Group, Inc.
Notes to Consolidated Financial Statements
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 $0.001$ per share. shares of its common stock and shares of preferred stock, each with a par value of
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.held. Additionally, the authorized number capital of the Company concurrently increased to shares of $0.001 par value common stock. All references to share and per share amounts in the condensed consolidated financial statements and accompanying notes thereto have been retroactively restated to reflect the forward stock split.
On July 6, 2021, the Company effected a reverse stock split and a pro-rata decrease in its authorized common stock on a basis of 1-for-100, the authorized capital of the Company concurrently decreased to 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. shares of common stock.
The Company provides armed protection, financial solutions, logistics, and compliance services for businesses engaged in the legal cannabis industry. The Company offers asset logistic services, such as armoredarmed transportation service; security services, including shipment protection, money escorts, security monitoring, asset vaulting, VIP and dignitary protection, and others; financial services, such as handling transportation and storage of currency; training; and compliance services.
Note 2 – Accounting policies and procedures
Principles of consolidation
For the years ended December 31, 20142022 and 2013,2021, 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.”
Basis of Presentation
The consolidated financial statements present the balance sheets, statements of operations, stockholder’sstockholders’ equity (deficit) and cash flows of the Company. The consolidated 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.
F-8 |
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 consolidated 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. As of December 31, 2022 the Company has cash in excess of FDIC insured limits of $30,073. There were no cash equivalents as of December 31, 2014 and 2013.
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 historical costDecember 31, 2022 and reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans. Interest income on notes receivable is recognized using the interest method. Interest income on impaired loans is recognized as cash is collected or on a cost-recovery basis.
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:
Schedule of Estimated useful Lives of Property and Equipment
Automotive Vehicles | 5 years | |
Furniture and Equipment | 5 years | |
Buildings and Improvements | the lesser of the life of the lease or the estimated useful life of the lease |
The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment there was no impairment as December 31, 20142022 and 2013.December 31, 2021. Depreciation expense for the years ended December 31, 20142022 and, 2013 totaled $27,1722021 were $133,146 and $0,$134,371 respectively.
F-9 |
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 December 31, 20142022 and 2013,December 31, 2021, the Company determined that none of its long-termlong-lived assets were impaired.
Concentration of business and credit risk
The Company has no significant off-balance sheet riskrisks 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 one major customer which generated 16% of total revenue in the year ended December 31, 2022 and one customer comprised 22% of the account receivable balance at December 31, 2022.
The Company had one major customer which generated 22% of total revenue in the year ended December 31, 2021 and one customer comprised 35% of the account receivable balance at December 31, 2021.
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). |
F-10 |
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 measurementhierarchy as of December 31, 2022 and unobservable (supported by little or no market activity).
December 31, 2022
Schedule of Fair Value of Liabilities Measured on Recurring Basis
Amount | Level 1 | Level 2 | Level 3 | |||||||||||||
Embedded conversion derivative liability | $ | 451,119 | $ | - | $ | - | $ | 451,119 | ||||||||
Warrant derivative liabilities | $ | - | $ | - | $ | - | $ | - | ||||||||
Total | $ | 451,119 | $ | - | $ | - | $ | 451,119 |
December 31, 2021
Amount | Level 1 | Level 2 | Level 3 | |||||||||||||
Embedded conversion derivative liability | $ | 712,784 | $ | - | $ | - | $ | 712,784 | ||||||||
Warrant derivative liabilities | $ | - | $ | - | $ | - | $ | - | ||||||||
Total | $ | 712,784 | $ | - | $ | - | $ | 712,784 |
The embedded conversion feature in the convertible debt instruments that the Company issued that became convertible 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 2 – Accounting policies and procedures (continued)
Revenue recognition
The Company recognizes revenue when alldelivery of the following conditions are satisfied: (1) therepromised goods or services is persuasive evidence oftransferred to its customers in an arrangement; (2)amount that reflects the service has been provided toconsideration that the customer; (3) the amount of feesCompany expects to be paid byentitled to in exchange for those goods or services. We determine revenue recognition through the customer is fixedfollowing five steps:
● | Identify the contract with the customer; | |
● | Identify the performance obligations in the contract; | |
● | Determine the transaction price; | |
● | Allocate the transaction price to the performance obligations in the contract; and | |
● | Recognize revenue when, or as, the performance obligations are satisfied. |
We generate substantially all our revenue from providing services to customers. The Company records revenue when the 5 steps above have been completed.
Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Industry Topics of the Accounting Standards Codification. The updated guidance states that an entity should recognize revenue to depict the transfer of promised goods or determinable; and (4)services to customers in an amount that reflects the collection of its fees is probable.
F-11 |
In general, the Company’s client.
Schedule of Revenue by Major Customers by Reporting Segments
Revenue Breakdown by Streams | 2022 | 2021 | ||||||
Year ended December 31, | ||||||||
Revenue Breakdown by Streams | 2022 | 2021 | ||||||
Service: Transportation | $ | 1,589,435 | $ | 1,775,594 | ||||
Service: Currency Processing | $ | 2,223,404 | $ | 2,800,377 | ||||
Service: Compliance | $ | 63,388 | $ | 83,422 | ||||
Total | $ | 3,876,227 | $ | 4,659,393 |
Advertising costs
The Company expenses all costs of advertising as incurred. There were $189,536 and $0 in advertising costsAdvertising expense for the years ended December 31, 20142022 and 2013,December 31, 2021 amounted to $9,808 and $4,298, respectively.
General and administrative expenses
The significant components of general and administrative expenses consist solelymainly of legalrent and professional fees.
Share-Based Compensation
Share-based compensation
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.
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.
F-12 |
Schedule of Basic and Diluted Earnings Per Share (“EPS”)
Year Ended December 31, 2022 | Year Ended December 31, 2021 | |||||||
Numerator: | ||||||||
Net income / (loss) | $ | (294,528 | ) | $ | 1,750,589 | |||
Denominator: | ||||||||
Weighted-average shares of common stock | 8,398,062 | 8,457,364 | ||||||
Dilutive effect of warrants | - | - | ||||||
Dilutive effect of convertible instruments | - | 3,875,500 | ||||||
Diluted weighted-average of common stock | 8,398,062 | 12,314,864 | ||||||
Net income per common share from: | ||||||||
Basic | $ | (0.04 | ) | $ | 0.21 | |||
Diluted | $ | (0.04 | ) | $ | 0.14 |
Dividends
The Company has not yet adopted any policy regarding payment of dividends. No dividends have been paid or declared since inception.
Income Taxes
The Company follows FASB Codification Topic 740-10-25 (ASC 740-10-25) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
Recent Pronouncements
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 was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is not currently a party to any pending or threatened legal proceedings. The company has one potential contingent liability. A shareholder and employee asserts he has loanedelected the practical expedient under ASU 2018-11 “Leases: Targeted Improvements” which allows the Company cash and paidto apply the transition provision for various expenses on behalfTopic 842 at the Company’s adoption date instead of at the earliest comparative period presented in the financial statements. Therefore, the Company inrecognized and measured leases existing at January 1, 2019 but without retrospective application. Therefore, there was no impact recorded to beginning retained earnings or the aggregate amountstatement of $447,896. The Company is disputing its need to pay this claim on the grounds that a number of items in the claim were unauthorized and minimal, if any, supporting documentation was provided to substantiate the validity of the claim. While the Company can reasonably estimate the liability, it is improbable that the Company will pay, due the Claimant’s (a) failure mutually agree upon the alleged amounts owed and (b) failure to validate the claims.operations
F-13 |
The Company evaluated all other 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 financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has a net loss, of ($2,425,941)accumulated deficit and had a working capital deficit as of December 31, 2014, and had net sales of $1,032,168 during2022. These conditions raise substantial doubt about the year ended December 31, 2014.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. The Company is significantly dependent upon its ability, and will continue to attempt, to secure additional equity and/or debt financing. The Company is currently conducting a private placement of its common stock to raise proceeds to finance its plan of operation. There are no assurances that the Company will be successful and without sufficient financing it would be unlikely for the Company to continue as a going concern.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. These conditions raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments that might arise from this uncertainty.
Note 4 – Deposits
Contingencies
On May 20, 2014,November 6, 2015, Daniel Sullivan sent a wage claim demand to the Company. 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. If litigation is commenced the Company will defend any claims by Mr. Sullivan.
Mile High Real Estate Group, an entity owned by Mr. Sullivan, sent correspondence to the Company 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. The Company will defend any claims of Mile High Real Estate Group.
On April 14, 2016, the Company entered into a Security Deposit Agreementan agreement with a third-party fuel credit provider, wherebythird party to provide the Company was obligatedwith investor relations services. Upon signing the agreement, the Company paid the investor relations consultant $ and agreed to issue the consultant shares of its restricted common stock. The agreement required the Company to pay the consultant an initial security depositadditional $ prior to June 14, 2016. The Company cancelled the agreement and is of the opinion that the shares are not owed to the consultant. As of December 31, 2022 and December 31, 2021 there was a payable recorded of $34,346.
Finance leases
On March 1, 2019, the Company recorded finance lease obligation for a leased a vehicle for $64,354. The Company made a down payment of $30,000 which included delivery fees, taxes and its first month payment and agreed to make 36 monthly payments of $1,129.76, including sales tax. The Company recognized this arrangement as a finance lease based on the determination that the lease exceeded 75% of the economic life of the underlying assets.
On June 2, 2021, the Company recorded finance lease obligation for a leased a vehicle for $56,733. The Company made a down payment of $3,510 which included delivery fees, taxes and its first month payment and agreed to make 24 monthly payments of $2,765.19, including sales tax. The Company recognized this arrangement as a finance lease based on the determination that the lease exceeded 75% of the economic life of the underlying assets
F-14 |
On June 17, 2022, the Company recorded finance lease obligation for a leased vehicle for $69,255. The Company made a down payment of $2,882 which included delivery fees, taxes and its first month payment and agreed to make 36 monthly payments of $2,338, including sales tax. The Company recognized this arrangement as a finance lease based on the determination that the lease exceeded 75% of the economic life of the underlying assets
Schedule of Future Minimum Lease Payments
Future minimum lease payments as December 31, 2022 | ||||
2023 | $ | 31,719 | ||
2024 | 37,568 | |||
Total minimum lease payments | $ | 69,287 |
Operating Leases
On October 27, 2016 the Company sold its building located at 5765 Logan Street Denver, Colorado to an unrelated third party for $$2,500. The balance$677,681. After the sale, the Company leased the building from the purchaser of the Deposit, asproperty. The lease is for an initial term of December 31, 2014, was $2,500. . The Company repaid the mortgage on the building in the amount of
On May 29, 2018 the Company leased a building located at 4328 E. Magnolia Street, Phoenix, Arizona. The lease is for an initial term of one year, with the Company having the option to clients, represented as notes receivable.extend the term of the lease for additional four year periods. The lease requires rental payments of $3,880 per month which will increase 2% annually. The Company paid a $4,369 deposit at the inception of the lease.
On January 22, 2019 the Company leased a building located at 7490 Bridgewater Road, Huber Heights, Ohio. The lease is for an initial term of 63 months. The lease requires rental payments of $3,200 per month and will increase to $3,400 between months 28 through 63. The Company paid a $3,200 deposit at the inception of the lease. During the year ended December 31, 2014,2020 the Company loanedterminated the lease agreement. The Company paid a total$35,760 cancellation fee included in rent expense and recorded a gain of $105,000$8,800 on the termination of the lease.
The Company adopted ASC 842 and recorded right of use asset and operating lease liability of $1,082,241 The Company used 12% as incremental borrowing rate as is the average interest rate of the Company’s outstanding third party note. The lease agreement gives the Company the option to a non-affiliated entityrenew it for two additional 5 year terms but the Company did not consider it likely to exercise that option. Therefore, the Company did not include such amounts in its computations of the present value of remaining lease payment on a revolving basisthe adoption date.
Supplemental balance sheet information related to leases is as follows:
Schedule of Operating Leases
December 31, 2022
Operating Leases | Classification | December 31, 2022 | ||||
Right-of-use assets | Operating right of use assets | $ | 408,616 | |||
Total | $ | 408,616 | ||||
Current lease liabilities | Current operating lease liabilities | $ | 112,250 | |||
Non-current lease liabilities | Long-term operating lease liabilities | $ | 328,116 | |||
Total | $ | 440,366 |
F-15 |
Lease term and discount rate were as follows:
Summary of Operating Lease Liabilities
December 31, 2022 | ||||
Weighted average remaining lease term (years) | 2.50 | |||
Weighted average discount rate | 12 | % |
The following summarizes lease expenses for the year ended December 31, 2022:
Finance lease expenses:
Summary of Lease Expenses
Depreciation/amortization expense | $ | 121,095 | ||
Interest on lease liabilities | 6,673 | |||
Finance lease expense | $ | 127,768 |
Supplemental disclosures of cash flow information related to leases were as follows:
Schedule of Cash Flow Information Related to Lease
December 31, 2022 | ||||
Cash paid for operating lease liabilities | $ | 125,266 | ||
Operating right of use assets obtained in exchange for operating lease liabilities | $ | - |
Maturities of lease liabilities were as follows as of December 31, 2022:
Schedule of Maturities of Lease Liabilities
Operating Leases | ||||
2023 | $ | 158,298 | ||
2024 | $ | 138,532 | ||
2025 | $ | 141,302 | ||
2026 | $ | 107,558 | ||
Total | $ | 545,690 | ||
Less: Imputed interest | $ | (105,324 | ) | |
Present value of lease liabilities | $ | 440,366 |
December 31, 2021
Operating Leases | Classification | December 31, 2021 | ||||
Right-of-use assets | Operating right of use assets | $ | 529,711 | |||
Total | $ | 529,711 | ||||
Current lease liabilities | Current operating lease liabilities | $ | 125,266 | |||
Non-current lease liabilities | Long-term operating lease liabilities | $ | 440,366 | |||
Total | $ | 565,632 |
Lease term and discount rate were as follows:
December 31, 2021 | ||||
Weighted average remaining lease term (years) | 3.50 | |||
Weighted average discount rate | 12 | % |
The following summarizes lease expenses for the year ended December 31, 2021:
Finance lease expenses:
Depreciation/amortization expense | $ | 107,257 | ||
Interest on lease liabilities | 77,121 | |||
Finance lease expense | $ | 184,378 |
F-16 |
Supplemental disclosures of cash flow information related to leases were as follows:
December 31, 2021 | ||||
Cash paid for operating lease liabilities | $ | 107,242 | ||
Operating right of use assets obtained in exchange for operating lease liabilities | $ | - |
Note 5 – Fixed assets
Machinery and equipment consisted of the following at:
Schedule of Machinery and Equipment
December 31, 2022 | December 31, 2021 | |||||||
Automotive vehicles | $ | 565,695 | $ | 485,701 | ||||
Furniture and equipment | $ | 108,265 | $ | 108,265 | ||||
Machinery and Equipment | $ | 135,706 | $ | 135,706 | ||||
Leasehold improvements | $ | 148,994 | $ | 141,234 | ||||
Fixed assets, total | $ | 958,660 | $ | 870,906 | ||||
Total: accumulated depreciation | $ | (704,433 | ) | $ | (586,130 | ) | ||
Fixed assets, net | $ | 254,227 | $ | 284,776 |
During the years ended December 31, 2022 and December 31, 2021 the Company had $2,782 of fixed assets associated with discontinued operations.
Depreciation expense for the years ended December 31, 2022 and December 31, 2021 were $133,146 and $134,371 respectively.
Note 6 – Notes payable
Convertible notes payable to non-related parties
On October 18, 2017, the Company borrowed $18% per annum % (default interest %) and due within one year from thehas a maturity date of issuance. . The Holder has the option to convert the outstanding principal and accrued interest into common stock of the Company. During the year ended December 31, 2018 the Company paid $ to extend the maturity date until . During the year ended December 31, 2019, the Company paid $ in extension fees. The note was discounted for a derivative (see note 8 for details) and the discount of $ is being amortized over the life of the note using the effective interest method which was fully amortized as of December 31, 2018. During the year ended December 31, 2019 the holder converted $ of accrued interest into shares of common stock resulting in a loss of $ . As of December 31, 2021 and December 31, 2020 the balance outstanding on the loan is $ and $ , respectively. On May 28, 2021 the Company entered into a settlement and release agreement with the borrower repaidand agreed to pay them discuss additional amount bounded to interest expense for the entire $105,000 balancesettlement $400,000. The first payment of $200,000 was due upon signing and Company agreed to make additional $100,000 payments on the 30th and 60th day after signing. The additional $250,000 settlement was record as interest accrued thereupon during the year ended December 31, 2014.2021. As of December 31, 20142022 and December 31, 2021 accrued interest and the principalnote balance had been repaid. from an unrelated third party. The Company paid $ of fees associated with the loan, which was recorded as discount and to be amortized over the term of the debt and was fully amortized as of December 31, 2018. The loan bears interest at a rate of
F-17 |
On March 21, 2018, the Company borrowed $loancosts as of December 31, 2018. The note bears an interest rate: % (default interest lesser of % or maximum permitted by law) and matures on . The note was discounted for a derivative (see note 8 for details) and the discount of $ has been fully amortized over the life of the note using the effective interest income recognized was $121. from an unrelated third party. The Company paid $ of fees associated with the loan and had amortized $ of the
December 31, 2014 | December 31, 2013 | ||||
Automotive vehicles | $ | 173,926 | $ | - | |
Furniture and equipment | 44,204 | - | |||
Fixed assets, total | 218,130 | - | |||
Less: accumulated depreciation | (28,692) | - | |||
Fixed assets, net | $ | 189,438 | $ | - |
Note 7 – Notes payable
Long-term liabilities: Notes payable - related parties
As of December 31, 2014, a non-affiliated third-party loaned2021 the Company an aggregateowed MKM Capital Advisors and two related entities $128,600 plus accrued interest of $2,000$70,088. The amount owed to the MKM entities was represented by three Promissory Notes dated between February 6, 2015 and July 7, 2016. In March 2022 the MKM entities agreed to (i) consolidate the Promissory Notes into a new note in cash.the principal amount of $128,600 and (ii) forgive the accrued interest of $70,088. The note bears no interest and is due upon demand.
As of December 31, 2021 the Company issuedowed CGDK, LLC $1,185,217, plus accrued interest of $452,246. The amount owed to CGDK was represented by seven Promissory Notes dated between July 9, 2015 and August 6, 2018. In March 2022, CGDK agreed to (i) consolidate the Promissory Notes into a new note in the principal amount of $1,185,217 and (ii) forgive the accrued interest of $452,246. The new Promissory Note to one non-affiliated entity in the amount of $25,000. The loan wasis due and payable on demandDecember 31, 2026 and bore no interest. In April 2014,bears an interest (from January 1, 2022 to the lender agreed to convertdate of payment) of 5% per year. During the entireyear ended December 31, 2022, the loan was assumed by Doyle Knudson a related party and the Company repaid $282,643 of principal balanceand accrued interest as of $25,000, into 269,231 shares of common stock.December 31, 2022. As of December 31, 2014,2022, the principal balance owed on thisthe loan is $0. See Note 10 – Stockholders’ Equity for additional information.
Current liabilities: Notes payable – Related Party
On July 31, 2014, the Company borrowed $98,150$ from an entity materially controlled by ana former officer and shareholder of the Company. The loan is due and payable on demand and bears no interest. As of December 31, 2014,2022 and December 31, 2021, the principal balance owed on this loan is $98,150.
As of December 31, 2014, an officer and shareholdera related party loaned the Company an aggregate of $286,446,$180,121, in the form of cash and expenses paid on behalf of the Company. The loan is due and payable on demand and bears no interest. The Company has repaid $106,325$125,500 towards this note during 2015 and as of December 31, 2014,2022 and December 31, 2021 the principal balance owed on this loan is $180,121.was $54,621 and $54,621, respectively.
F-18 |
Current Liabilities: Convertible notes payable on demand and bears no interest. to related parties
As of December 31, 2014,2021 the Company owed Hypur Inc. $688,500 plus accrued interest. The amounts owed to Hypur were represented by eight Promissory Notes dated between September 20, 2016 and September 3, 2019. By an agreement effective January 31, 2022 the Company and Hypur agreed to the following:
● | On March 3, 2022 the Company paid Hypur $137,500, which was applied to principal of the notes. | |
● | On or before each date shown below, the Company paid Hypur $12,500, which applied to principal of the notes. |
Schedule of Related Parties Debt Maturity
Date | Amount | |||
March 31, 2022 | $ | 12,500 | ||
April 30, 2022 | $ | 12,500 | ||
May 31, 2022 | $ | 12,500 | ||
June 30, 2022 | $ | 12,500 |
● | On or before July 31, 2022 the Company will pay Hypur $137,500, which will apply to principal of the notes. | |
● | All principal amounts owed to Hypur under the Promissory Notes will bear interest at 7.5% per year between January 31, 2022 and July 31, 2022 as long as the Company is not in default under the terms of its agreement with Hypur. | |
● | If by July 31, 2022 all payments required by the Company’s agreement with Hypur have been made in a timely fashion, Hypur will forgive $250,000 of accrued interest owed by the Company under the Promissory Notes. | |
● | After July 31, 2022 future payment plans will be negotiated, provided however that any principal amounts owed to Hypur under the Promissory Notes after July 31, 2022 will not bear interest in excess of 7.5% per year with a default rate of 12% per year. | |
● | Hypur will waive any default rights between January 31, 2022 and August 31, 2022 on a month-to-month basis so long as all payments required by the Company’s agreement with Hypur have been made. |
During the year ended December 31, 2022 the Company repaid a total of $359,244. The amount due as of December 31, 2022 is $329,256. Hypur forgave $250,000 of accrued interest owed by the Company under the Promissory Notes, which was recognized as additional paid in capital.
On September 1, 2016, the Company entered into, a 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 borrowed $75,000. The loan was due 180 days from the date of issuance and bears interest at 10% per annum. The note is convertible into common stock at a price of $.05 per share. The note is mandatory redeemable into common stock if the price per share is over $.50 per share during a 10 day period. The principal balance owed on this loan is $10,000.
On October 14, 2016, the Company entered into a convertible promissory note with Hypur Ventures, L.P., a Delaware limited partnership (the “Hypur Ventures”) and a related party, pursuant to which the Company borrowed $100,000. The loan was due 180 days from the date of issuance and bears interest at 10% per annum. The note is convertible into common stock at a price of $.05 per share. The note is mandatory redeemable into common stock if the price per share is over $.50 per share during a 10 day period. The principal balance owed on this loan at September 30, 2022 and December 31, 2021 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 balance is $675,000 and a total of $11,250 in interest payments have been made.
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 December 31, 2022 and December 31, 2021 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 noteprincipal amount. As of December 31, 2022, and December 31, 2021, Hyper has waived the default provision until further notice.
F-19 |
The Company re-measured the fair value of derivative liabilities on December 31, 2022 and December 31, 2021. See Note 8.
Note 8 – Derivative Liability
The Company analyzed the conversion options for derivative accounting consideration under ASC 815, Derivatives and Hedging, and determined that an instrument should be classified as a liability when a conversion option becomes effective.
The derivative liability in connection with the conversion feature of the convertible debt is $20,769,measured using level 3 inputs.
The change in the fair value of which $17,034derivative liabilities is considered a long-termas follows:
Schedule of Derivative Liabilities at Fair Value
Balance – December 31, 2020 | $ | 2,247,645 | ||
Settlement of derivatives upon conversion | $ | (457,572 | ) | |
Gain on change in fair value of the derivative | $ | (1,077,289 | ) | |
Balance – December 31, 2021 | $ | 712,784 | ||
Settlement of derivatives upon conversion | $ | (442,389 | ) | |
Gain on change in fair value of the derivative | $ | 180,724 | ||
Balance – December 31, 2022 | $ | 451,119 |
The table below shows the Black-Scholes option-pricing model inputs used by the Company to value the derivative liability and the current portionat each measurement date:
Schedule of $3,735 is considered a current liability.
Year ended December 31, 2022 | Year ended December 31, 2021 | |||||||
Expected term | 0.25 – 1.09 years | 0.25 – 1.09 years | ||||||
Expected average volatility | 229.64% – 260.80 | % | 138.34% – 162.05 | % | ||||
Expected dividend yield | - | - | ||||||
Risk-free interest rate | 4.12 % – 4.76 | % | 0.06 % – 0.39 | % |
Note 10 - 9 – Stockholders’ equity
The Company was originally authorized to issue $0.001 par value common stock and shares of $0.001 par value preferred stock. On May 6, 2014, the Company effected a forward stock split and a pro-rata increase in its authorized common stock on a basis of 14-to-1, whereby each shareholder received 14 newly issued shares of common stock for each 1 share held. Additionally, the number of authorized shares increased to shares of $0.001 par value common stock. All references to share and per share amounts in the condensedconsolidated financial statements and these notes thereto have been retroactively restated to reflect the forward stock split. shares of
On July 6, 2021, the Company effected a reverse stock split and a pro-rata decrease in its authorized common stock on a basis of 1-for-100, the authorized capital of the Company concurrently decreased to 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. shares of common stock.
F-20 |
Common stock
During the Company issued 22,820,000year ended December 31, 2022, shares of its common stock in a private offering for gross net cash proceeds of $32,100, after deducting $500 in offering costs.
During October 2022 the Company issued a total of 1,076,923 shares of common stock forvalued at $4,750 ($0.19 per share) to an employee, the conversionfair market value on the date of a promissory note in the total amount of $100,000.
Preferred stock
On April 8, 2014, the Company issued a total of 269,231 shares of common stock for the conversion of a promissory note in the total amount of $25,000.
Between July and August of 2016 Hypur Ventures purchased an additional onof the dateCompany’s preferred stock and 5,000,000 common stock warrants with a five year term and an exercise price of issuance$0.10, at a purchase price of $ 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 Nevada Secretary of State. The Company evaluated the convertible preferred stock under FASB ASC 470-20-30 and determined it does not contain a beneficial conversion feature. The intrinsic value of the beneficial conversion feature was $9,500. shares
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 $0.50 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.
Note 1110 – WarrantsOptions and options
Options
All stock options have an exercise price equal to the fair market value of the common stock on the date of grant. The fair value of each option award is estimated using a Black-ScholesBlack-Scholes-Merton option valuation model. 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.
F-21 |
Number Of Shares | Weighted-Average Exercise Price | ||
Outstanding at December 31, 2012 | 0 | $ 0.00 | |
Granted | 0 | $ 0.00 | |
Exercised | 0 | $ 0.00 | |
Vested | 0 | $ 0.00 | |
Cancelled | 0 | $ 0.00 | |
Outstanding at December 31, 2013 | 0 | $ 0.00 | |
Granted | 10,836,900 | $ 0.29 | |
Exercised | 0 | $ 0.00 | |
Vested | 2,204,417 | $ 0.58 | |
Cancelled | 0 | $ 0.00 | |
Outstanding at December 31, 2014 | 10,836,900 | $ 0.29 | |
Options exercisable at December 31, 2013 | 0 | $ 0.00 | |
Options exercisable at December 31, 2014 | 2,204,417 | $ 0.58 |
Summary of Stock Option Activity
Number Of Options | Weighted-Average Exercise Price | |||||||
Outstanding at December 31, 2021 | - | $ | - | |||||
Granted | 3,114,500 | $ | 0.21 | |||||
Expired | - | $ | - | |||||
Cancelled | (92,500 | ) | $ | 0.21 | ||||
Outstanding at December 31, 2022 | 3,022,000 | $ | 0.21 | |||||
Options exercisable at December 31, 2022 | 1,541,000 | $ | 0.21 |
OPTIONS OUTSTANDING AND EXERCISABLE | ||||||||||
Range of Exercise Prices | Number of Options Outstanding | Weighted-Average Remaining Contractual Life in Years | Weighted- Average Exercise Price | Number Exercisable | Weighted- Average Exercise Price | |||||
$ 0.14 - 0.71 | 10,836,900 | 2.39 | $ 0.29 | 2,204,417 | $ 0.58 | |||||
10,836,900 | 2.39 | $ 0.29 | 2,204,417 | $ 0.58 |
Schedule of Stock Options Outstanding and Exercisable Exercise Price Range
OPTIONS OUTSTANDING AND EXERCISABLE AT DECEMBER 31, 2022 | ||||||||||||||||||||||
Range of Exercise Prices | Number of Options Outstanding | Weighted- Average Remaining Contractual Life in Years | Weighted- Average Exercise Price | Number Exercisable | Weighted- Average Exercise Price | |||||||||||||||||
$ | $ | $ |
Total stock-based compensation expense in connection with options granted to employeesand modified awards recognized in the consolidated statement of operations for the years ended December 31, 20142022 and 20132021 was $480,676$ and $0,$ respectively.
Note 1211 – Income taxes
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “TCJA”) that significantly reforms the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The TCJA, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, effective as of January 1, 2018; limitation of the tax deduction for interest expense; limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carry backs, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely); modifying or repealing many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”; and repeal of the federal Alternative Minimum Tax (“AMT”).
The staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. In connection with the initial analysis of the impact of the TCJA, the Company remeasured its deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The remeasurement of the Company’s deferred tax assets and liabilities was offset by a change in the valuation allowance.
For the yearsyear ended December 31, 2014 and 2013,2022 the Company incurredcompany had an operating profit but had a net operating lossesloss as of December 31, 2021 that exceeded the profit and accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At December 31, 20142022 and 2013,2021, the Company had approximately $2,528,422$8,928,421 and $102,481$8,780,500 of federal and state net operating losses. The net operating loss carry forwards, if not utilized, will begin to expire in 2026.2029. The provision for income taxes consisted of the following components for the years ended December 31:
Components of net deferred tax assets, including a valuation allowance, are as follows at December 31:
Schedule of Components of Deferred Tax Assets
2022 | 2021 | |||||||
December 31 | ||||||||
2022 | 2021 | |||||||
Deferred tax assets: | ||||||||
Net operating loss carry forwards | $ | (1,874,970 | ) | $ | (1,843,905 | ) | ||
Valuation allowance | $ | (1,874,970 | ) | (1,843,905 | ) | |||
Total deferred tax assets | $ | - | $ | - |
F-22 |
December 31 | ||||||||
2014 | 2013 | |||||||
Deferred tax assets: | ||||||||
Net operating loss carry forwards | $ | 884,948 | $ | 35,868 | ||||
Valuation allowance | (884,948 | ) | (35,868 | ) | ||||
Total deferred tax assets | $ | - | $ | - |
FASB ASC 740, Income Taxes, requires a valuation allowance to Consolidated Financial Statements
At December 31, 2022 and December 31, 2021, respectively, the Company had $8,928,427 and $8,780,500, respectively, of U.S. net operating loss carryforwards remaining.
As a result of certain ownership changes, the Company may be subject to an annual limitation on the utilization of its U.S. net operating loss carryforwards pursuant to Section 382 of the Internal Revenue Code. A study to determine the effect, if any, of this change, has not been undertaken.
Tax returns for the years ended December 31, 2022, 2021, 2020, 2019, and 2018 are subject to examination by the Internal Revenue Service.
A reconciliation of the Company’s income taxes to amounts calculated at the federal statutory rate is as follows for the years ended December 31:
Schedule of Effective Income taxes (continued)
2022 | 2021 | |||||||
Federal statutory taxes | (21.00 | )% | (21.00 | )% | ||||
Change in tax rate estimate | — | — | ||||||
Change in valuation allowance | 21.00 | % | 21.00 | % | ||||
— | % | — | % |
The valuation allowance for deferred tax assets as of December 31, 20142022 and 20132021 was $884,948$1,874,970 and $35,868,$1,843,905 respectively. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized as of December 31, 20142022 and 201321 and recorded a full valuation allowance.
Reconciliation between the statutory rate and the effective tax rate is as follows at December 31:
2022 | 2021 | |||||||
Federal statutory tax Reconciliation rate | (21.0 | )% | (21.0 | )% | ||||
Permanent difference and other | 21.0 | % | 21.0 | % |
Note 1312 – Related party transactions
On March 14, 2023, the Company donated cash in the amountentered into a lease extension for 4328 E. Magnolia Street location. The lease expires on May 31, 2028, with payments as follows:
Schedule of $127,106 and $15,250, respectively. All donated cash is considered to be additional paid-in capital.
Months 1-12: | $ | 6,379.20 | |||
Months 13-24: | $ | 6,591.84 | |||
Months 25-36: | $ | 6,804.48 | |||
Months 37-48: | $ | 7,017.12 | |||
Months 49-60: | $ | 7,229.76 |
The Company has repaid $106,325 and as of December 31, 2014,evaluated all other subsequent events from the principal balance owed on this loan is $180,121.
Summary Compensation Table | |||||||||
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compen-sation ($) | Non-qualified Deferred Compen-sation Earnings ($) | All Other Compen-sation ($) | Total ($) |
David Uddman (1) | 2014 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Former President | 2013 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Jolene Uddman (1) | 2014 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Former Treasurer | 2013 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Sean Campbell (2) | 2014 | 46,154 | 0 | 0 | 423,090 | 0 | 0 | 0 | 469,244 |
CEO | |||||||||
Ricky G. Bennett (3) | 2014 | 59,469 | 0 | 0 | 203,941 | 0 | 0 | 0 | 263,410 |
VP of Operations | |||||||||
Ted Daniels (4) | 2014 | 23,077 | 0 | 0 | 0 | 0 | 0 | 12,520 | 35,597 |
VP of Sales | |||||||||
Dan Sullivan (5) | 2014 | 45,231 | 0 | 0 | 1,749,620 | 0 | 0 | 37,194 | 1,821,485 |
VP of Marketing | |||||||||
Patrick Deparini (6) | 2014 | 0 | 0 | 0 | 466,564 | 0 | 0 | 0 | 466,564 |
CFO |
Title Of Class | Name, Title and Address of Beneficial Owner of Shares | Amount of Beneficial Ownership | Percent of Class | |||
Common | Sean Campbell, CEO | 14,772,688 | 12.0% | |||
Common | Ricky G. Bennett, VP of Operations and Compliance | 668,000 | 0.5% | |||
Common | Patrick Deparini, CFO | 42,000 | 0.0% | |||
All Directors and Officers as a group (3 persons) | 15,482,688 | 12.5% | ||||
Common | NSG Group, Inc. | 6,280,390 | 5.1% | |||
Common | Dan Sullivan, Former VP of Marketing (1) | 26,754,755 | 21.7% |
SERVICES | 2014 | 2013 | |
Audit fees | $ 20,814 | $ 10,575 | |
Audit-related fees | - | - | |
Tax fees | - | - | |
All other fees | - | - | |
Total fees | $ 20,814 | $ 10,575 |