BLUE LINE PROTECTION GROUP, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

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 contained elsewhere in this report.

We were originally incorporated into Nevada on September 11, 2006under the name of The Engraving Masters, Inc. (the company”).

On May 2, 2014we changed our name to Blue Line Protection Group, Inc.

We provide armed protection and transportation, banking, compliance and training services to businesses engaged in the legal cannabis industry. In the three months ended March 31, 2022 nearly all of our revenue came from transportation and currency processing services.

It is estimated that the total market for marijuana, legal or not, will exceed the economic value of corn and wheat combined. Marijuana is widely considered the biggest cash crop United States. The companies 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 it to consumers. Producer operations typically cover a large geographic footprint, making them vulnerable to theft, as do grower shipments to testing labs or retail dispensaries. Additionally, due to the current federal marijuana legislation and banking environment, growers are finding it increasingly difficult to secure their money, purchase equipment, and secure financing for expansion.

Dispensaries are the face of the legal cannabis industry. All legal sales of cannabis products are made through state-licensed dispensaries. To maintain their licenses, dispensaries must comply with various state-mandated reporting requirements, including reporting every gram of cannabis entering and leaving the store. Dispensaries also face financial and banking challenges similar to those faced by producers.

We do not grow, test, transport or sell marijuana.

Armed protection and transport

Protecting products and money throughout the distribution channel is fundamental to the legal cannabis industry. Growers ship product from their grow facilities to independent labs where it is tested for compliance with state-mandated parameters. From the labs, the product is then delivered to retail dispensaries, where it is sold to the public.

Due to the current banking and regulatory environment, payments between each stage of the distribution network are made in cash: from the customer to the producer. Therefore, these companies are forced to carry bags of cash between growers and dispensaries and their own vaults or storage facilities.

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

We started our security and protection operations in Colorado in February 2014. Since then, we have grown into 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 to dispensaries via armed and armed transport, cash handling, storage and related credit. Money processing services typically include counting, sorting, and packing change.

From December 31, 2019 we dropped our Service-Guards segment.

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Results of Operations

Material changes in line items in our Statement of Operations for the three
months ended March 31, 2022 as compared to the same period last year, are
discussed below:

                                         Increase (I) or
Item                                      Decrease (D)     Reason
Revenue                                        (D)         Accrual of revenue
Interest expense                               (D)         Decrease in borrowings
Loss on change in fair value of                (D)          Decrease in Company's
derivative securities                                      stock price

Capital resources and liquidity

Our material sources and of cash during the three months ended March 31, 2022 and 2021 were:

                                        2022            2021

Cash provided (used) by operations   $   238,938     $  323,694
Purchase of equipment                          -              -
Loan proceeds                                  -              -
Loan payments                          <309,329>       <39,371>

From March 31, 2022 we had no significant capital commitments other than loan repayments.

Except as disclosed in this Section 2, we do not anticipate material capital requirements for the three months ending March 31, 2022.

Apart from what is described above, we are not aware 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 have no commitment or arrangement from anyone to provide us with equity.

Over the next twelve months, we expect to hire approximately
$2,000,000 general and administrative expenses to execute our current business plan. We also expect to incur significant sales, marketing, research and development expenditures over the next 12 months. We need to obtain additional funding to continue our operations. We may not be able to obtain additional financing on terms favorable to us or at all. We may not be able to obtain sufficient financing to continue our operations or, if we receive financing, to generate adequate revenues in the future or to operate profitably in the future. These conditions raise substantial doubts about our ability to continue our business.

Off-balance sheet arrangements

We have not entered into any off-balance sheet arrangements.

Critical accounting policies

Management considers the following policies to be essential because they are both important to the representation of our financial condition and results of operations, and they require management to make judgments and estimates on matters that are inherently uncertain .

Accounts Receivable. Accounts receivable are shown 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 the status of accounts receivable could result in the need for additional provisions in the future. Periodically, management assesses our accounts receivable and determines the requirement for an allowance for doubtful accounts based on its assessment of the current and recoverable status of individual accounts with balances that are more than 90 days past due. Account balances are charged to the allocation once all collection efforts have been exhausted and the potential for collection is considered low.

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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 represent the transfer of goods or services to customers for 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 disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and changes in judgments and assets recognized at from the costs incurred to obtain or perform a contract. ASC 606-10-50-5 requires entities to disclose disaggregated revenue information in categories (such as type of good or service, geography, market, type of contract, etc.) that describe how the nature, amount, timing and uncertainty of revenues and cash flows are influenced by economic factors. ASC 606-10-55-89 explains that the extent to which an entity’s revenues are disaggregated depends on the facts and circumstances that relate to the entity’s contracts with customers and that some entities may need to Use more than one type of category to meet income disaggregation objectives. In August 2015, the FASB issued ASU No. 2015-14, which delayed the effective date of the new revenue standard by one year and permitted entities to early adopt the new revenue standard. from the date of initial entry into force. There have been several updates to the standards modifying these guidelines or providing corrections or improvements to issues in the guidelines. The requirements of these standards relating to Subject 606 are effective for interim and annual periods commencing after December 15, 2017. This standard permitted the adoption of one of two transition methods, namely the retrospective transition method or the 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 had no impact on our statements of earnings for the three months ended March 31, 2022.

Stock-based compensation. We account for stock-based compensation in accordance with the guidance in ASC Sections 505 and 718, which require us to record expenses related to the fair value of our employees’ stock option awards. This eliminates accounting for stock-based compensation transactions using intrinsic value and instead requires such transactions to be accounted for using a fair value-based method. We accrue the cost of all equity-based awards using a phased vesting method over the award’s vesting period.

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. 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 reliable. The value of equity instruments issued for consideration other than employee services is determined at the earlier of a performance commitment or performance completion by the provider of goods or services as defined by FASB ASC 718 -10.

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