Blue Line Protection Group, Inc 10-Q for FY2021 Q3
Blue Line Protection Group, Inc. (BLPG)
About this 10-Q
Blue Line Protection Group, Inc filed this 10-Q on October 28, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.16M
- up 6.7% from $1.09M a year earlier
- Net loss
- $441.7K
- compared with net income of $31.1K a year earlier
- Diluted EPS
- -$0.05
- compared with $0.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
OR
For the transition period from __________________ to _________________
Commission
file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
| ||
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
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.
Indicate
by a checkmark whether the registrant has submitted electronically every Interactive Date File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of October 28, 2021, the registrant had outstanding shares of common stock.
FORWARD-LOOKING STATEMENTS
The information in this report contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (“the Exchange Act”), which are subject to the “safe harbor” created by those sections. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “should,” “could,” “predicts,” “potential,” “continue,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. All forward-looking statements in this Form 10-Q are made based on our current expectations, forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. In evaluating these statements, you should specifically consider various factors, uncertainties and risks that could affect our future results or operations. These factors, uncertainties and risks may cause our actual results to differ materially from any forward-looking statement set forth in this Form 10-Q. You should carefully consider these risk and uncertainties described and other information contained in the reports we file with or furnish to the SEC before making any investment decision with respect to our securities. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.
| 2 |
TABLE OF CONTENTS
| 3 |
BLUE LINE PROTECTION GROUP, INC.
CONSOLIDATED BALANCE SHEETS
| September 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | (audited) | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses and deposits | ||||||||
| Total current assets | ||||||||
| Fixed assets: | ||||||||
| Right to use assets | ||||||||
| Machinery and equipment, net et, net of accumulated depreciation of $ | ||||||||
| Security Deposit | ||||||||
| Fixed assets of discontinued operations | ||||||||
| Total fixed assets | ||||||||
| Total assets | ||||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Financed lease liabilities | ||||||||
| Notes payable | ||||||||
| Notes payable - related parties | ||||||||
| Convertible notes payable, net of unamortized discount | ||||||||
| Convertible notes payable - related parties, net of unamortized discount | ||||||||
| Current portion of operating lease obligation | ||||||||
| Derivative liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Financed lease liabilities - long term | ||||||||
| Operating lease liability-long term | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ deficit: | ||||||||
| Preferred Stock, $ par value, shares authorized, shares issued and outstanding as of September 30, 2021 and December 31, 2019, respectively | ||||||||
| Common Stock, $ par value, shares authorized, and issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | ||||||||
| Common Stock, owed but not issued, shares and shares as of September 30, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-1 |
BLUE LINE PROTECTION GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the three months ended | For the nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Operating Income | ||||||||||||||||
| Other income (expenses): | ||||||||||||||||
| Gain on settlement of accounts payable | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income / (Loss) on derivative | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Income / (loss) | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Net Income / (loss) per common share: Basic | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Net Income / (loss) per common share: Diluted | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Weighted average number of | ||||||||||||||||
| common shares outstanding- Basic | ||||||||||||||||
| Weighted average number of common shares outstanding- Basic | ||||||||||||||||
| common shares outstanding- Diluted | ||||||||||||||||
| Weighted average number of common shares outstanding- Diluted | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-2 |
BLUE LINE PROTECTION GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the nine months ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating activities | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of discounts on notes payable | ||||||||
| Amortization of right to use | ||||||||
| Loan fees | ||||||||
| Gain on settlement of accounts payable | ( | ) | ||||||
| Noncash operating lease expense | ||||||||
| Change in fair value of derivative liabilities | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) in accounts receivable | ( | ) | ( | ) | ||||
| (Increase) / decrease in deposits and prepaid expenses | ||||||||
| Increase (decrease) in accounts payable and accrued liabilities | ||||||||
| Increase (decrease) in lease obligations | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net cash provided by/(used in) investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Proceeds from notes payable | ||||||||
| Repayments on convertible notes payable - related party | ( | ) | ||||||
| Repayments on convertible notes payable | ( | ) | ||||||
| Repayments from notes payable - related party | ( | ) | ( | ) | ||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net increase in cash | ||||||||
| Cash - beginning | ||||||||
| Cash - ending | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Capitalized leased fixed assets | $ | $ | ||||||
| Common stock issued for conversion of debt and interest | $ | $ | ||||||
| Derivative resolution | $ | $ | ||||||
| Accounts payable converted to notes payable - related party | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
BLUE LINE PROTECTION GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
| Additional | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Stock | Accumulated | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Payable | Deficit | Deficit | |||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Common stock issued for conversion of debt and fees | ||||||||||||||||||||||||||||||||
| Common stock issued for conversion of debt and fees, shares | ||||||||||||||||||||||||||||||||
| Common stock issued for conversion of debt and accrued interest | - | - | - | - | ||||||||||||||||||||||||||||
| Rounding from reverse stock split | ||||||||||||||||||||||||||||||||
| Rounding from reverse stock split, shares | ||||||||||||||||||||||||||||||||
| Derivative resolution | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Common stock issued for conversion of debt and fees | - | - | - | - | ||||||||||||||||||||||||||||
| Rounding shares issued from reverse stock split | - | - | - | - | - | - | - | |||||||||||||||||||||||||
| Derivative resolution | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
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 shares of its common stock and shares of preferred stock, each with a par value of $ per share.
On March 14, 2014, the Company acquired Blue Line Protection Group, Inc., a Colorado corporation formed in February 2014 (“Blue Line Colorado”), as a wholly-owned subsidiary of the Company. Blue Line Colorado provides protection, compliance, and financial services to the lawful cannabis industry.
On May 2, 2014, the Company changed its name from The Engraving Masters, Inc. to Blue Line Protection Group, Inc. (“BLPG”)
The Company provides logistics, and compliance services for businesses engaged in the legal cannabis industry. The Company offers asset logistic services, such as armored transportation service; including shipment protection, money escorts, asset vaulting, financial services, such as handling transportation and storage of currency; training; and compliance services.
Note 2 – Accounting policies and procedures
Interim financial statements
The unaudited interim consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
In the opinion of management, these statements reflect all adjustments, all of which are of a normal recurring nature, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2020 and notes thereto included in the Company’s annual report on Form 10-K. The Company follows the same accounting policies in the preparation of interim reports.
Results of operations for the interim periods are not indicative of annual results.
| F-5 |
Principles of consolidation
For the three and nine months ended September 30, 2021 and 2020, 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 financial statements present the balance sheets, statements of operations, stockholder’s equity (deficit) and cash flows of the Company. The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America.
The Company has adopted December 31 as its fiscal year end.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The
Company maintains a cash balance in a non-interest-bearing account that currently does not exceed federally insured limits. For the purpose
of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be
cash equivalents. There were
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
| F-6 |
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 | ||
| Furniture and Equipment | ||
| Buildings and Improvements |
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
Impairment of long-lived assets
The Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost or carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and its fair value or disposable value. As of September 30, 2021 and December 31, 2020, the Company determined that none of its long-lived assets were impaired.
Concentration of business and credit risk
The Company has no significant off-balance sheet risks such as foreign exchange contracts, option contracts or other 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
The
Company had two major customers which generated
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.
| F-7 |
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). |
The following table presents the derivative financial instruments, the Company’s only financial liabilities, measured and recorded at fair value on the Company’s consolidated balance sheet on a recurring basis, and their level within the fair value hierarchy as of September 30, 2021 and December 31, 2020:
September 30, 2021
Schedule of Fair Value of Liabilities Measured on Recurring Basis
| Amount | Level 1 | Level 2 | Level 3 | |||||||||||||
| Embedded conversion derivative liability | $ | $ | $ | $ | ||||||||||||
| Warrant derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
December 31, 2020
| Amount | Level 1 | Level 2 | Level 3 | |||||||||||||
| Embedded conversion derivative liability | $ | $ | $ | $ | ||||||||||||
| Warrant derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The embedded conversion feature in the convertible debt instruments that the Company issued that became convertible qualified them as derivative instruments since the number of shares issuable under the notes are indeterminate based on guidance in FASB ASC 815, Derivatives and Hedging. These convertible notes tainted all other equity linked instruments including outstanding warrants and fixed rate convertible debt on the date that the instrument became convertible. The valuation of the derivative liability of the warrants was determined through the use of Black Scholes option-pricing model (See Note 8).
Revenue Recognition
The Company recognizes revenue when delivery of the promised goods or services is transferred to its customers in an amount that reflects the consideration that the Company expects to be entitled to in exchange for those goods or services. We determine revenue recognition through the following 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. |
| F-8 |
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 services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers. The Company adopted the standard using the modified retrospective approach effective January 1, 2018. The adoption of these standards did not have an impact on the Company’s Statements of Operations for the year ended December 31, 2018.
In general, the Company’s business segmentation is aligned according to the nature and economic characteristics. Revenue is characterized by several lines of services and typically the pricing is fixed.
Schedule of Revenue by Major Customers by Reporting Segments
| Three months ended September 30, | ||||||||
| Revenue Breakdown by Streams | 2021 | 2020 | ||||||
| Service: Transportation | $ | $ | ||||||
| Service: Currency Processing | ||||||||
| Service: Compliance | ||||||||
| Total | $ | $ | ||||||
| Nine months ended September 30, | ||||||||
| Revenue Breakdown by Streams | 2021 | 2020 | ||||||
| Service: Transportation | $ | $ | ||||||
| Service: Currency Processing | ||||||||
| Service: Compliance | ||||||||
| Total | $ | $ | ||||||
Gain on settlement of accounts payable
Represents
a $
Advertising costs
The Company expenses all costs of advertising as incurred.
General and administrative expenses
The significant components of general and administrative expenses consist mainly of rent and compensation.
Share-Based Compensation
Share-based compensation expense is recorded as a result of stock options granted in return for services rendered. Previously, the share-based payment arrangements with employees were accounted for under ASC 718, while nonemployee share-based payments issued for goods and services are accounted for under ASC 505-50. ASC 505-50 differs significantly from ASC 718. On June 20, 2018, the FASB issued ASU 2018-07, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The Company has adopted the new standard and has made some adjustment with regard to the share-based compensation costs. Under the ASU 2018-07, the measurement of equity-classified nonemployee share-based payments is generally fixed on the grant date and the options are no longer revalued on each reporting date. The expenses related to the share-based compensation are recognized on each reporting date. The amount is calculated as the difference between total expenses incurred and the total expenses already recognized.
| F-9 |
Cost of Revenue
The Company’s cost of revenue primarily consists of labor, fuel costs and items purchased by the Company specifically for the benefit of the Company’s clients.
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. For the periods presented all common stock equivalents were excluded from the calculation of diluted loss per share as their effect would be anti-dilutive.
The following is a reconciliation of the numerator and denominator used in the basic and diluted earnings per share (“EPS”) calculations for the three and nine months September 30, 2021 and 2020.
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. For the periods presented all common stock equivalents were excluded from the calculation of diluted loss per share as their effect would be anti-dilutive.
Schedule of Basic and Diluted Earnings Per Share (“EPS”)
| Three months ended September 30, 2021 | Three months ended September 30, 2020 | Six Months ended June 30, 2021 | Nine Months ended September 30, 2020 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Denominator: | ||||||||||||||||
| Weighted-average shares of common stock | ||||||||||||||||
| Dilutive effect of warrants | - | - | - | |||||||||||||
| Dilutive effect of convertible instruments | - | - | ||||||||||||||
| Diluted weighted-average of common stock | ||||||||||||||||
| Net loss per common share from: | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Diluted | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| F-10 |
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 elected the practical expedient under ASU 2018-11 “Leases: Targeted Improvements” which allows the Company to apply the transition provision for Topic 842 at the Company’s adoption date instead of at the earliest comparative period presented in the financial statements. Therefore, the Company recognized and measured leases existing at January 1, 2019 but without retrospective application. Therefore, there was no impact recorded to beginning retained earnings or the statement of operations
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, accumulated deficit and had a working capital deficit as of September 30, 2021. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. The Company is significantly dependent upon its ability, and will continue to attempt, to secure additional equity and/or debt financing. There are no assurances that the Company will be successful and without sufficient financing it would be unlikely for the Company to continue as a going concern.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. These financial statements do not include any adjustments that might arise from this uncertainty.
| F-11 |
Note 4 – Commitments and contingencies
Contingencies
On
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 $
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 $
On
April 14, 2016, the Company entered into an agreement with an unrelated third party to provide the Company with investor relations services.
Upon signing the agreement, the Company paid the investor relations consultant $ and agreed to issue the consultant shares
of its restricted common stock. The agreement required the Company to pay the consultant an additional $ prior to June 14, 2016.
The Company cancelled the agreement and is of the opinion that the shares are not owed to the consultant. As of September 30, 2021 and
December 31, 2020 there was
During
the nine months ended September 30, 2021 the Company recorded a gain of $
Finance leases
On
July 25, 2017, the Company recorded a finance lease obligation for a leased a vehicle for $
On
April 25, 2018, the Company recorded a finance lease obligation for a leased a vehicle for $
On
August 16, 2018, the Company recorded a finance lease obligation for a leased a vehicle for $
On
August 16, 2018, the Company recorded a finance lease obligation for a leased a vehicle for $
On
March 1, 2019, the Company recorded finance lease obligation for a leased a vehicle for $
| F-12 |
On
June 2, 2021, the Company recorded finance lease obligation for a leased a vehicle for $
Schedule of Future Minimum Leases Payments
| Future minimum lease payments as of September 30, 2021: | ||||
| 2021 | $ | |||
| 2022 and thereafter | ||||
| Total minimum lease payments | $ | |||
Operating Leases
On
October 27, 2016 the Company sold its building located at 5765 Logan Street Denver, Colorado to an unrelated third party for $.
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
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
The
Company adopted ASC 842 and recorded right of use asset and operating lease liability of $
Supplemental balance sheet information related to leases is as follows:
Schedule of Operating Leases
September 30, 2021
| Operating Leases | Classification | September 30, 2021 | ||||
| Right-of-use assets | Operating right of use assets | $ | ||||
| Total | $ | |||||
| Current lease liabilities | Current operating lease liabilities | |||||
| Non-current lease liabilities | Long-term operating lease liabilities | |||||
| Total | $ | |||||
| F-13 |
Lease term and discount rate were as follows:
Summary of Operating Lease Liabilities
| September 30, 2021 | ||||
| Weighted average remaining lease term (years) | ||||
| Weighted average discount rate | % | |||
The following summarizes lease expenses for the nine months ended September 30, 2021:
Finance lease expenses:
| Depreciation/amortization expense | $ | |||
| Interest on lease liabilities | ||||
| Finance lease expense | $ |
Supplemental disclosures of cash flow information related to leases were as follows:
Schedule of Cash Flow Information Related to Lease
| September 30, 2021 | ||||
| Cash paid for operating lease liabilities | $ | |||
| Operating right of use assets obtained in exchange for operating lease liabilities | $ | |||
Maturities of lease liabilities were as follows as of September 30, 2021:
Schedule of Maturities of Lease Liabilities
| Operating Leases | ||||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
December 31, 2020
| Operating Leases | Classification | December 31, 2020 | ||||
| Right-of-use assets | Operating right of use assets | $ | ||||
| Total | $ | |||||
| Current lease liabilities | Current operating lease liabilities | |||||
| Non-current lease liabilities | Long-term operating lease liabilities | |||||
| Total | $ | |||||
| F-14 |
Lease term and discount rate were as follows:
| December 31, 2020 | ||||
| Weighted average remaining lease term (years) | ||||
| Weighted average discount rate | % | |||
The following summarizes lease expenses for the year ended December 31, 2020:
Finance lease expenses:
| Depreciation/amortization expense | $ | |||
| Interest on lease liabilities | ||||
| Finance lease expense | $ |
Supplemental disclosures of cash flow information related to leases were as follows:
| December 31, 2020 | ||||
| Cash paid for operating lease liabilities | $ | |||
| Operating right of use assets obtained in exchange for operating lease liabilities | $ | |||
Maturities of lease liabilities were as follows as of December 31, 2020:
| Operating Leases | ||||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
Note 5 – Fixed assets
Machinery and equipment consisted of the following at:
Schedule of Machinery and Equipment
| September 30, 2021 | December 31, 2020 | |||||||
| Automotive vehicles | $ | $ | ||||||
| Furniture and equipment | ||||||||
| Machinery and Equipment | ||||||||
| Leasehold improvements | ||||||||
| Fixed assets, total | ||||||||
| Total : accumulated depreciation | ( | ) | ( | ) | ||||
| Fixed assets, net | $ | $ | ||||||
Depreciation
expense for the three and nine months ended September 30, 2021 and September 30, 2020 were $
Note 6 – Notes payable
Notes payable to non-related parties
During
February 2015, the Company borrowed $
| F-15 |
During
April 2015, the Company borrowed $
On
January 5, 2016, the Company borrowed $
On
May 15, 2019 the Company entered in a
Convertible notes payable to non-related parties
On
October 18, 2017, the Company borrowed $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 10% (default interest )
and has a maturity date of . 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 September 30, 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 and agreed to pay them discuss
additional amount bounded to interest expense for the settlement $
On
March 21, 2018, the Company borrowed $ from an unrelated third party. The Company paid $ of fees associated with the loan
and had amortized $ of the costs 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 $ is being amortized over the life of the note
using the effective interest method resulting in $ of interest expense for the year ended December 31, 2018. During the year ended
December 31, 2019 $ of principle and interest were converted into shares of common stock resulting in a loss of $.
During the year ended December 31, 2019 the Company recorded amortization expense of $. On September 18, 2020 Crown Bridge Partners,
LLC converted notes payable in the principal amount of $
| F-16 |
During
the nine months ended September 30, 2021 and 2020, the Company recognized amortization expense of $
Note 7 – Notes payable – related parties
On July 31, 2014, the Company borrowed $ from an entity controlled by an officer and shareholder of the Company. The loan is due and payable on demand and bears no interest. As of September 30, 2021 and December 31, 2020, the principal balance owed on this loan is $ and $, respectively.
As
of December 31, 2014, a related party loaned the Company $
As
of December 31, 2014, a related party loaned the Company $
On
July 7, 2016, the Company borrowed $
On
August 8, 2016, the Company entered into a promissory note with Hypur Inc., a Nevada Corporation, a related party, pursuant to which
the Company borrowed $
On
September 20, 2016, the Company borrowed $
On
October 29, 2018, the Company borrowed $
| F-17 |
On
November 21, 2018, the Company borrowed $
On
November 26, 2018, the Company borrowed $
On
May 10, 2019, the Company borrowed $
On
September 3, 2019, the Company borrowed $
During
the year ended December 31, 2020, the Company repaid Patrick Deparini $
Convertible notes payable to related parties
On
November 13, 2015, the Company borrowed $
In
November 2015, the Company entered into an arrangement with a related party, whereby the Company borrowed $
| F-18 |
In
July 2015, the Company entered into an arrangement with a related party, whereby the Company could borrow up to $
On
September 1, 2016, the Company entered into, an convertible promissory note with Hypur Ventures, L.P., a Delaware limited partnership
(the “Hypur Ventures”) which is a related party pursuant to which the Company to borrow $
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 $
On
March 7, 2017, the Company borrowed $
On
May 26, 2017, the Company borrowed $
On
July 13, 2017, the Company borrowed $
| F-19 |
On
April 13, 2018, the Company borrowed $
On
June 14, 2018, the Company issued a note payable in the amount of $
On
July 2, 2018, the Company borrowed $
On
August 6, 2018, the Company borrowed $
On
January 18, 2019, 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 to borrow $
| F-20 |
On
March 5, 2019, the Company entered into, an convertible promissory note with Hypur Ventures, L.P., a Delaware limited partnership (the
“Hypur Ventures”) which is a related party pursuant to which the Company to borrow $
On October 1, 2017, these notes were tainted by the variable conversion price notes and remained tainted as of December 31, 2019. The Company re-measured the fair value of derivative liabilities on September 30, 2021 and December 31, 2020. 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 measured using level 3 inputs.
The change in the fair value of derivative liabilities is as follows:
Schedule of Derivative Liabilities at Fair Value
| Balance - December 31, 2019 | $ | |||
| Addition of new derivative as a derivative loss | - | |||
| Settlement of derivatives upon conversion | ( |
) | ||
| Debt discount from derivative liability | ||||
| Loss on change in fair value of the derivative | ||||
| Balance - December 31, 2020 | $ | |||
| Settlement of derivatives upon conversion | ( |
) | ||
| Loss on change in fair value of the derivative | ||||
| Balance – September 30, 2021 | $ |
The table below shows the Black-Scholes option-pricing model inputs used by the Company to value the derivative liability at each measurement date:
Schedule of Derivative Instruments, Black-Scholes Option-pricing Model Inputs Used
| Nine Months ended September 30, 2021 | Year ended December 31, 2020 | |||||||
| Expected term | ||||||||
| Expected average volatility | % | % | ||||||
| Expected dividend yield | ||||||||
| Risk-free interest rate | % | % | ||||||
Note 9 – Stockholders’ equity
The
Company was originally authorized to issue
shares of common stock and shares of preferred stock.
| F-21 |
Common stock
On
February 28, 2021 Crown Bridge Partners, LLC converted notes payable in the principal amount of $
Preferred stock
On
May 3, 2016, the Company entered into, an agreement with Hypur Ventures, L.P., a Delaware limited partnership (the “Hypur Ventures”)
which is a related party pursuant to which the Company sold to Hypur Ventures, in a private placement, shares of the Company’s
preferred stock and
Between
July and August of 2016 Hypur Ventures purchased an additional shares of the Company’s preferred stock and
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 $
The Company has reserved thirty million shares of common stock that may be issued upon the conversion and/or exercise of the preferred stock and the warrants. The preferred stock sold to Hypur Ventures will be subject to the terms and conditions of the Certificate of Designation, as well as further documentation to be drafted in accordance with the terms and conditions agreed upon between the Company and Hypur Ventures.
Note 10 – Options and warrants
Options
All stock options have an exercise price equal to the fair market value of the common stock on the date of grant. The fair value of each option award is estimated using a Black-Scholes-Merton option valuation model. The Company has not paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes-Merton option valuation model. Volatility is an estimate based on the calculated historical volatility of similar entities in industry, in size and in financial leverage, whose share prices are publicly available. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company has no historical experience with which to establish a basis for determining an expected life of these awards. Therefore, the Company only gave consideration to the contractual terms and did not consider the vesting schedules, exercise patterns and pre-vesting and post-vesting forfeitures significant to the expected life of the option award. The Company bases the risk-free interest rate used in the Black-Scholes-Merton option valuation model on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term equal to the expected life of the award.
| F-22 |
All of the options granted by the Company expired as of December 31, 2020.
Summary of Stock Option Activity
| Number Of Options | Weighted-Average Exercise Price | |||||||
| Outstanding at December 31, 2019 | $ | |||||||
| Granted | $ | |||||||
| Expired | ( | ) | $ | |||||
| Cancelled | $ | |||||||
| Outstanding at December 31, 2020 | $ | |||||||
| Options exercisable at December 31, 2020 | $ | |||||||
stock options were granted during the nine months ended September 30, 2021.
Schedule of Stock Options Outstanding and Exercisable Exercise Price Range
| OPTIONS OUTSTANDING AND EXERCISABLE AT DECEMBER 31, 2020 | ||||||||||||||||||||||
| 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 and modified awards recognized in the consolidated statement of operations for nine months ended September 30, 2021 and 2020 was $ and $ respectively.
Warrants
The following is a summary of the Company’s warrant activity for the nine months ended September 30, 2021:
Summary of Warrants Activity
| Number Of Warrants | Weighted-Average Exercise Price | |||||||
| Outstanding at December 31, 2020 | $ | |||||||
| Granted | $ | |||||||
| Expired | ( | ) | $ | |||||
| Cancelled | $ | |||||||
| Outstanding at September 30, 2021 | $ | |||||||
| Warrants exercisable at December 31, 2020 | $ | |||||||
| Warrants exercisable at September 30, 2021 | $ | |||||||
The following tables summarize information about warrants outstanding and exercisable at December 31, 2020:
Schedule of Warrants Outstanding and Exercisable Exercise Price Range
| WARRANTS OUTSTANDING AND EXERCISABLE AT DECEMBER 31, 2020 | ||||||||||||||||||||||
| Range of Exercise Prices | Number of Warrants Outstanding | Weighted- Average Remaining Contractual Life in Years | Weighted- Average Exercise Price | Number Exercisable | Weighted- Average Exercise Price | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
Note 11 – Subsequent events
The Company has evaluated all other subsequent events from the balance sheet date through the date the financial statements were issued and has determined there are no additional events required to be disclosed.
| F-23 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
You should read the following discussion and analysis of financial condition and results of operations in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Report.
We were originally incorporated in Nevada on September 11, 2006, under the name The Engraving Masters, Inc. (the “Company”).
On May 2, 2014, we changed our name to Blue Line Protection Group, Inc.
We provide armed protection and transportation, banking, compliance and training services for businesses engaged in the legal cannabis industry. During the nine months ended September 30, 2021 substantially all of our revenue was derived from transportation and currency processing services.
It is estimated that the total market for marijuana, legal or otherwise, will exceed the economic value of corn and wheat combined. Marijuana is widely considered the largest cash crop in the United States. Businesses have been positioning themselves for years, each trying to establish a leadership position in the legal marijuana industry.
Cultivation facilities are the producers of legal cannabis that eventually make its way to consumers. Growers’ operations typically span a large geographic footprint, making them susceptible to theft, as are shipments from the growers to testing laboratories or to retail dispensaries. Additionally, due to current federal marijuana legislation and banking environment, growers are finding it increasingly difficult to secure their cash, purchase equipment and obtain financing for expansion.
Dispensaries are the retail face of the legal cannabis industry. All legal sales of cannabis products are transacted through dispensaries that are state-licensed. To maintain their licenses, dispensaries must comply with a variety of state-mandated reporting requirements, including reporting every gram of cannabis passing in and out of the store. Dispensaries also face financing and banking challenges similar to those that growers encounter.
We do not grow, test, transport or sell marijuana.
Armed Protection and Transportation
Fundamental to the legal cannabis industry is the protection of product and cash throughout the distribution channel. Growers ship product from their cultivation facilities to independent laboratories where it is tested for compliance with state-mandated parameters. From the labs, the product is then delivered to the retail dispensaries, where it is sold to the public.
Due to the current banking and regulatory environments, payments between each step in the distribution network are made in cash: from the customer back to the grower. Therefore, these businesses are forced into having to transport bags of money between growers and dispensaries and their own vaults or storage facilities.
The risk of theft of cash and product is present at every stage, even when they are not in transit. Accordingly, all cannabis businesses require security measures to prevent theft, mitigate risk to employees and maintain regulatory compliance.
We began our security and protection operations in Colorado in February 2014. Since then, we have become the largest legal cannabis protection services company in the state. We offer a fully integrated approach to managing the movement of cannabis and cash from growers through dispensaries via armed and armored transport, money processing, vaulting and related credit. Money processing services generally include counting, sorting and wrapping currency.
As of December 31, 2019 we discontinued our Service-Guards segment.
We also offer security monitoring, asset vaulting, and VIP and dignitary protection.
| 4 |
Results of Operations
Material changes in line items in our Statement of Operations for the three months ended September 30, 2021 as compared to the same period last year, are discussed below:
| Increase (I) or | ||||
| Item | Decrease (D) | Reason | ||
| Revenue | I | Increase in customer services | ||
| Interest expense | D | Reduction in debt | ||
| Loss on change in fair value of derivative securities | I | Reduction in debt and change in stock price |
Material changes in line items in our Statement of Operations for the nine months ended September 30, 2021 as compared to the same period last year, are discussed below:
| Increase (I) or | ||||
| Item | Decrease (D) | Reason | ||
| Revenue | I | Increase in customer services | ||
| Interest expense | I | Settlement interest on debt | ||
| Loss on change in fair value of derivative securities | D | Decrease in the price of our common stock and reduction of debt |
Capital Resources and Liquidity
Our material sources and <uses> of cash during the nine months ended September 30, 2021 and 2020 were:
| 2021 | 2020 | |||||||
| Cash provided (used) by operations | $ | 643,139 | $ | 382,152 | ||||
| Purchase of equipment | <66,000 | > | <24,970 | > | ||||
| Loan proceeds | - | 24,000 | ||||||
| Loan payments | <368,406 | > | <118,037 | > | ||||
As of September 30, 2021 we did not have any material capital commitments other than loan payments.
Other than as disclosed in this Item 2, we do not anticipate any material capital requirements for the twelve months ending September 30, 2022.
Other than as disclosed above, we do not know of any:
| ● | trends, demands, commitments, events or uncertainties that will result in, or that are reasonable likely to result in, our liquidity increasing or decreasing in any material way; or | |
| ● | any significant changes in our expected sources and uses of cash. |
We do not have any commitments or arrangements from any person to provide us with any equity capital.
During the next twelve months, we anticipate that we will incur approximately $1,200,000 of general and administrative expenses in order to execute our current business plan. We also plan to incur significant sales, marketing, research and development expenses during the next 12 months. We must obtain additional financing to continue our operations. We may not be able to obtain additional funding on terms that are favorable to us or at all. We may not be able to obtain sufficient funding to continue our operations, or if we do receive funding, to generate adequate revenues in the future or to operate profitably in the future. These conditions raise substantial doubt about our ability to continue as a going concern.
| 5 |
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
Critical Accounting Policies
Management considers the following policies critical because they are both important to the portrayal of our financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters.
Accounts receivable. Accounts receivable are stated at the amount we expect to collect from outstanding balances and do not bear interest. We provide for probable uncollectible amounts through an allowance for doubtful accounts, if an allowance is deemed necessary. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future. On a periodic basis, management evaluates our accounts receivable and determines the requirement for an allowance for doubtful accounts based on its assessment of the current and collectible status of individual accounts with past due balances over 90 days. Account balances are charged against the allowance after all collection efforts have been exhausted and the potential for recovery is considered remote.
Revenue recognition. In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in Accounting Standards Codification 605, “Revenue Recognition.” This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASC 606-10-50-5 requires that entities disclose disaggregated revenue information in categories (such as type of good or service, geography, market, type of contract, etc.) that depict how the nature, amount, timing, and uncertainty of revenue and cash flow are affected by economic factors. ASC 606-10-55-89 explains that the extent to which an entity’s revenue is disaggregated depends on the facts and circumstances that pertain to the entity’s contracts with customers and that some entities may need to use more than one type of category to meet the objective for disaggregating revenue. In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective date of the new revenue standard by one year, and allowed entities the option to early adopt the new revenue standard as of the original effective date. There have been multiple standards updates amending this guidance or providing corrections or improvements on issues in the guidance. The requirements for these standards relating to Topic 606 are effective for interim and annual periods beginning after December 15, 2017. This standard permitted adoption using one of two transition methods, either the retrospective or modified retrospective transition method.
We adopted these standards at the beginning of the first quarter of fiscal 2018 using the modified retrospective method. The adoption of these standards did not have an impact on our Statements of Operations for the nine months ended September 30, 2021.
Stock-based compensation. We record stock based compensation in accordance with the guidance in ASC Topic 505 and 718, which requires us to recognize expenses related to the fair value of our employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. We recognize the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
Equity Instruments. We account for equity instruments issued in exchange for the receipt of goods or services from non-employees in accordance with FASB ASC 718-10 and the conclusions reached by the FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measureable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.
| 6 |
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of our management, including our Principal Financial Officer and Principal Executive Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q. Disclosure controls and procedures are procedures designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Form 10-Q, is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and is communicated to our management, including our Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our management concluded that, as of September 30, 2021 our disclosure controls and procedures were not effective due to the material weaknesses identified during the audit of our financial statements for the year ended December 31, 2020.
Change in Internal Control over Financial Reporting
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
ITEM 6. EXHIBITS
| Exhibit No. | Description of Exhibit | |
| 31.1 | Rule 13a-14(a) Certifications | |
| 31.2 | Rule 13a-14(a) Certifications | |
| 32 | Section 1350 Certifications | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| 7 |
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
| BLUE LINE PROTECTION GROUP, INC. | ||
| October 28, 2021 | By: | /s/ Evan DeVoe |
| Evan DeVoe, Principal Executive, Financial and Accounting Officer | ||
| 8 |