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Blow Drive Interlock Corp (BDIC) SEC Filing 10-Q Quarterly report for the period ending Tuesday, March 31, 2020

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BDIC Quarterly Reports

Blow Drive Interlock Corp

CIK: 1586495 Ticker: BDIC
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2020
May 15, 2020
Document And Entity Information  
Entity Registrant NameBlow & Drive Interlock Corp 
Entity Central Index Key0001586495 
Document Type10-Q 
Document Period End DateMar. 31, 2020 
Amendment Flagfalse 
Current Fiscal Year End Date--12-31 
Entity Current Reporting StatusYes 
Entity Interactive Data CurrentYes 
Entity Filer CategoryNon-accelerated Filer 
Entity Small Business Flagtrue 
Entity Emerging Growth Companyfalse 
Entity Shell Companyfalse 
Entity Common Stock, Shares Outstanding 31,350,683
Document Fiscal Period FocusQ1 
Document Fiscal Year Focus2020 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

 

[  ] 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: 000-55053

 

Blow & Drive Interlock Corporation

(Exact name of registrant as specified in its charter)

 

Delaware

(State or other jurisdiction of

incorporation or organization) 

 

46-3590850

(I.R.S. Employer

Identification No.) 

     

1427 S. Robertson Blvd.

Los Angeles, CA

(Address of principal executive offices)

 

 

90035

(Zip Code)

 

(877) 238-4492

Registrant’s telephone number, including area code

 

(Former address, if changed since last report)
 
(Former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes[X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes [X] No [  ]

  

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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer [  ]   Accelerated filer [  ]

 

 

Non-accelerated filer [  ]

(Do not check if a smaller reporting company)

  Smaller reporting company [X]

 

  Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ________

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes[  ] No [X].

 

Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:

 

Indicate by check mark whether the registrant filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [  ] No [  ]

 

Applicable only to corporate issuers:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 15, 2020, there were 31,350,683 shares of common stock, $0.0001 par value, issued and outstanding.

 

 

 

   
 

 

CAUTIONARY STATEMENT

 

All statements included or incorporated by reference in this Quarterly Report on Form 10-Q (this “Form 10-Q”), other than statements or characterizations of historical fact, are “forward-looking statements” within the meaning of the Securities Exchange Act of 1934 as amended (the “Exchange Act”). Examples of forward-looking statements include, but are not limited to, statements concerning projected sales, costs, expenses and gross margins; our accounting estimates, assumptions and judgments; the prospective demand for our products; the projected growth in our industry; the competitive nature of and anticipated growth in our industry; and our prospective needs for, and the availability of, additional capital. These forward-looking statements are based on our current expectations, estimates, approximations and projections about our industry and business, management’s beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified by such words as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing,” similar expressions and variations or negatives of these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors, some of which are set forth in the “Risk Factors” section of our Report on Form 10-K for the year ended December 31, 2018, filed on July 19, 2019, and this Report, which could cause our financial results, including our net income or loss or growth in net income or loss to differ materially from prior results, which in turn could, among other things, cause the price of our common stock to fluctuate substantially. These forward-looking statements speak only as of the date of this report. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law.

 

 2 
   

 

BLOW & DRIVE INTERLOCK CORPORATION

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION 4
     
ITEM 1 Financial Statements 4
     
ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 29
     
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 35
     
ITEM 4 Controls and Procedures 35
     
PART II – OTHER INFORMATION 36
     
ITEM 1 Legal Proceedings 36
     
ITEM 1A Risk Factors 36
     
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds 36
     
ITEM 3 Defaults Upon Senior Securities 36
     
ITEM 4 Mine Safety Disclosures 36
     
ITEM 5 Other Information 37
     
ITEM 6 Exhibits 39

 

3
 

 

PART I – FINANCIAL INFORMATION

ITEM 1 Financial Statements

 

The consolidated balance sheets as of March 31, 2020 (unaudited) and December 31, 2019, the consolidated statements of operations for the three months ended March 31, 2020 and 2019, the consolidated statement of stockholders equity (deficit) for the three months ended March 31, 2020, and the consolidated statements of cash flows for the three months ending March 31, 2020 and 2019, follow. The unaudited interim condensed financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. All such adjustments are of a normal and recurring nature.

 

4
 

 

PART I – FINANCIAL INFORMATION

 

BLOW & DRIVE INTERLOCK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   As of   As of 
   March 31, 2020   December 31, 2019 
   (Unaudited)     
         
ASSETS          
           
Current Assets:          
Cash  $162,884   $91,314 
Accounts receivables   13,956    20,848 
Prepaid expenses   -    1,199 
Total current assets   176,840    113,361 
Deposits   6,481    6,481 
           
Total assets  $183,321   $119,842 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current Liabilities:          
Accounts payable  $426   $150 
Accrued expenses   10,210    35,571 
Accrued royalty payable - related party   -    71,465 
Accrued interest   48,583    15,660 
Accrued interest - related party   847,118    717,120 
Income taxes payable   -    6,730 
Notes payable   67,159    67,159 
Notes payable - related party, current portion   298,700    384,200 
Convertible notes payable, net of debt disocunt of $222,715 and $8,965, respectively   42,035    7,500 
Derivative liability   488,889    29,907 
Total current liabilities   1,803,120    1,335,462 
Notes payable - related party, net of current portion   2,020,000    2,020,000 
Convertible notes payable, net of debt discount, net of current portion   -    11,035 
Total liabilities   3,823,120    3,366,497 
           
Commitments and contingencies          
           
Stockholders’ Deficit:          
Preferred stock, par value $0.001, 20,000,000 shares authorized, 1,000,000 and 1,000,000 shares issued or issuable and outstanding   102,000    102,000 
Common stock, par value $0.0001, 100,000,000 shares authorized, 31,350,683 and 31,350,683 shares issued or issuable and outstanding   3,135    3,135 
Additional paid-in-capital   3,585,636    3,514,171 
Accumulated deficit   (7,330,570)   (6,865,961)
Total shareholders’ deficit   (3,639,799)   (3,246,655)
           
Total liabilities and shareholders’ deficit  $183,321   $119,842 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5
 

 

BLOW & DRIVE INTERLOCK CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three months Ended March 31, 
   2020   2019 
         
Revenues:          
Monitoring revenues  $-   $213,687 
Distributorship revenues   38,985    17,691 
Total revenues   38,985    231,378 
           
Cost of revenues:          
Monitoring cost of revenue   -    21,635 
Distribution cost of revenue   -    - 
Total cost of revenues   -    21,635 
           
Gross profit   38,985    209,743 
           
Operating expenses:          
Payroll   9,099    98,040 
Professional fees   22,030    41,546 
General and administrative   30,312    60,074 
Total operating expenses   61,441    199,660 
           
Loss from operations   (22,456)   10,083 
           
Other Income (expense):          
Interest expense, net   (162,921)   (176,824)
Interet expense - amortization of debt discount   (23,750)   - 
Derivative expense   (255,482)   - 
Change in fair value of derivative liability   -    (1,832)
Gain (loss) on extinguishment of debt   -    54,764 
Total other income (expense)   (442,153)   (123,892)
           
Loss before income taxes   (464,609)   (113,809)
           
Income taxes   -    1,600 
           
Net profit (loss)  $(464,609)  $(115,409)
           
Earnings (loss) per share:          
Basic and Diluted  $(0.01)  $(0.00)
           
Weighted-average shares of common stock outstanding:          
Basic and Diluted   31,350,683    30,447,549 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

6
 

 

BLOW & DRIVE INTERLOCK CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

 

   Preferred Stock - Series A   Common Stock   Additional Paid-In   Accumulated   Total
Stockholders’ Equity
 
   Shares   Amount   Shares   Amount   Capital   Deficit   (Deficit) 
                             
Balance December 31, 2018   1,000,000   $1,000    31,073,529   $3,107   $3,489,698   $(6,096,322)  $(2,602,517)
                                    
Shares issued for services   -    -    1,033,763    103    24,398    -    24,501 
Shares returned related to anti-dilution   -    -    (756,609)   (75)   75    -    - 
Shares issued in eschange for interest payable   10,000,000    101,000    -    -    -    -    101,000 
Net loss   -    -    -    -    -    (769,639)   (769,639)
                                    
Balance December 31, 2019   11,000,000   $102,000    31,350,683   $3,135   $3,514,171   $(6,865,961)  $(3,246,655)
                                    
Write off royalty payables                       71,465         71,465 
Net loss   -    -    -    -    -    (464,609)   (464,609)
                                    
Balance March 31, 2020   11,000,000   $102,000    31,350,683   $3,135   $3,585,636   $(7,330,570)  $(3,639,799)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

7
 

 

BLOW & DRIVE INTERLOCK CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Three months Ended March 31, 
   2020   2019 
         
Cash flows from operating activities:          
Net loss  $(464,609)  $(115,409)
Adjustments to reconcile net loss to net cash used in operating activities          
Stock or warrants issued for services   -    24,500 
Amortization of debt discount   23,750    15,754 
Derivative expense   255,482    - 
Change in fair value of derivative liability   -    1,832 
(Gain)/loss on extinguishment of debt   -    (54,764)
Changes in operating assets and liabilities          
Accounts receivable   6,892    (6,475)
Prepaid expenses   1,199    (1,523)
Accounts payable   276    - 
Accrued expenses   (25,361)   (30,440)
Accrued royalties payable   -    15,300 
Accrued interest   26,193    9,621 
Accrued interest related party   129,998    151,500 
Deferred revenue   -    (71,717)
Net cash used in operating activities   (46,180)   (61,821)
           
Cash flows from financing activities:          
Principal payments on notes payable   (85,500)   (31,589)
Proceeds from issuance of notes payable related party   -    117,200 
Proceeds from issuance of convertible notes payable   203,250    - 
Net cash provided by financing activities   117,750    85,611 
           
Net increase in cash   71,570    23,790 
           
Cash at beginning of period   91,314    775 
           
Cash at end of period  $162,884   $24,565 
           
           
Supplemental disclosures of cash flow information          
Cash paid during the period for:          
Interest paid  $-   $- 
Income taxes paid  $800   $800 
           
Supplemental disclosure of non-cash investing and financing activities          
Common stock and warrants issued for services  $-   $24,500 
Write-off of royalties payable from related party to additional paid in capital  $71,465   $- 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

8
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

 

Blow & Drive Interlock (“the Company”) was incorporated on July 2, 2013 under the laws of the State of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions. The Company markets and rents alcohol ignition interlock devices to DUI/DWI offenders as part of their mandatory court or motor vehicle department programs. The Company has approval for its device in the following states: Arizona and Texas.

 

In 2015, the Company formed BDI Manufacturing, Inc., an Arizona corporation which is a 100% wholly owned subsidiary of Blow & Drive Interlock Corporation. The Company markets, installs and monitors a breath alcohol ignition interlock device (BAIID) called the BDI-747/1, which is a mechanism that is installed on the steering column of an automobile and into which a driver exhales. The device in turn provides a blood-alcohol concentration analysis. If the driver’s blood-alcohol content is higher than a certain pre-programmed limit, the device prevents the ignition from engaging and the automobile from starting. These devices are often required for use by DUI or DWI (“driving under the influence” or “driving while intoxicated”) offenders as part of a mandatory court or motor vehicle department program.

 

The Company licenses the rights to third party distributors to promote the BDI-747/1 and provide services related to the device. The distributorships are for specific geographical areas (either entire states or certain counties within states). The Company currently has entered into six distributorship agreements. Under the distribution agreements the Company typically receives a onetime fee, and then is entitled to receive a per unit registration fee and a per unit monthly fee for each BDI-747/1 unit the distributor has in inventory or on the road beginning thirty (30) days after the distributor receives the unit.

 

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying interim unaudited condensed consolidated financial statements (“Interim Financial Statements”) of the Company and its wholly-owned subsidiary have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these Interim Financial Statements do not include all of the information and notes required by GAAP for complete financial statements. These Interim Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K. In the opinion of management, the Interim Financial Statements included herein contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the Company’s financial position, the results of operations and cash flows for the periods presented.

 

Principles of Consolidation and Basis of Presentation

 

The accompanying consolidated financial statements include the results of operations of BDI Manufacturing (the Subsidiary). All material intercompany accounts and transactions between the Company and the Subsidiary have been eliminated in consolidation.

 

Consolidation

 

The accompanying consolidated financial statements include the results of operations of BDI Manufacturing (the Subsidiary). All material intercompany accounts and transactions between the Company and the Subsidiary have been eliminated in consolidation.

 

9
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Going Concern

 

The Company’s unaudited condensed consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and allow it to continue as a going concern. As of March 31, 2020, the Company had an accumulated deficit of $7,330,570 and net loss of $464,609 for the three months ended March 31, 2020. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease or reduce its operations.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. The Company will continue to raise funds through the sale of its equity securities or issuance of notes payable to obtain additional operating capital. The Company is dependent upon its ability to, and will continue to attempt to, secure additional equity and/or debt financing until the Company can earn revenue and realize positive cash flow from its operations. There are no assurances that the Company will be successful in earning revenue and realizing positive cash flow from its operations. Without sufficient financing it would be unlikely that the Company will continue as a going concern.

 

Based on the Company’s current rate of cash outflows, cash on hand and proceeds from the prior sale of equity securities and issuance of notes payable, management believes that its current cash will not be sufficient to meet the anticipated cash needs for working capital for the next 12 months. The Company’s plans with respect to its liquidity issues include, but are not limited to, the following:

 

  1)

Continue to issue restricted stock for compensation due to consultants and for its legacy accounts payable in lieu of cash payments; and

     
  2)

Seek additional capital to continue its operations as it rolls out its current products. The Company is currently evaluating additional debt or equity financing opportunities and may execute them when appropriate. However, there can be no assurances that the Company can consummate such a transaction or consummate a transaction at favorable pricing.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and achieve profitable operations. These condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. 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 periods. Actual results could differ from those estimates.

 

10
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Revenue Recognition

 

The Company recognizes revenue when earned and related costs of sales and expenses when incurred. The Company recognizes revenue in accordance with FASB ASC Topic 605-10-S99, Revenue Recognition, Overall, SEC Materials (“Section 605-10-S74”). Section 605-10-S99 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured. Cost of revenue consists of the cost of the purchased goods and labor related to the corresponding sales transaction. When a right of return exists, the Company defers revenues until the right of return expires. The Company recognizes revenue from services at the time the services are completed. Monthly per unit fee revenue is earned and recognized over the term of the contract as support services are provided. Revenues from territory exclusivity are earned when there is persuasive evidence of an arrangement, delivery has occurred, the sales price has been determined and collectability has been reasonably assured.

 

On January 1, 2019, the Company adopted FASB Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance.

 

The Company’s principal activity from which it generates revenue is a service which is the use of its interlock units. Revenue is measured based on considerations specified in a contract with a customer. A contract exists when it becomes a legally enforceable agreement with a customer. These contracts define each party’s rights, payment terms and other contractual terms and conditions of the sale. Consideration is typically paid at time of sale via credit card, check, or cash when the interlock units are installed on customers’ vehicles

 

A performance obligation is a promise in a contract to provide a distinct service to the customer, which for the Company is transfer of a service to customers. Performance obligations promised in a contract are identified based on the services that will be provided to the customer that are both capable of being distinct and are distinct in the context of the contract, whereby the service is separately identifiable from other promises in the contract. The Company has concluded the services accounted for as the single performance obligation.

 

The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. The transaction price is determined based on the consideration to which the Company will be entitled to receive in exchange for transferring goods to the customer. The Company does not issue refunds.

 

The Company recognizes revenue when it satisfies a performance obligation in a contract by providing a service to a customer when the Company installs the interlock units on the customers’ vehicles. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

 

Advertising and Marketing Costs

 

Advertising and marketing costs are recorded as general and administrative expenses when they are incurred. Advertising and marketing expenses were $25,000 and $0 for the three months ended March 31, 2020 and 2019, respectively

 

11
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Accounts Receivable and Allowance for Doubtful Accounts

 

The Company’s accounts receivable primarily consist of trade receivables. The Company records an allowance for doubtful accounts that is based on historical trends, customer knowledge, any known disputes, and the aging of the accounts receivable balances combined with management’s estimate of future potential recoverability. Receivables are written off against the allowance after all attempts to collect a receivable have failed. The Company believes its allowance for doubtful accounts as of March 31, 2020 and December 31, 2019 is adequate, but actual write-offs could exceed the recorded allowance.

 

Royalty Accrual

 

The Company entered into royalty agreement to be paid out in perpetuity based on number of units sold for specified product model in years 2019, 2018, 2017 and 2016 in connection with notes payable as discussed in Note 8. These estimates were performed at the inception for the notes to reflect the associated debt discount. The Company accrued royalties and was reduced by payments until December 31, 2019. The Company wrote off $71,465 in accrued royalties to additional paid in capital on January 1, 2020 due to The Doheny Group waived all unpaid royalties as of January 1, 2020.

 

Derivative Liability

 

The Company applies the provisions of ASC Topic 815-40, Contracts in Entity’s Own Equity (“ASC Topic 815-40”), under which convertible instruments, which contain terms that protect holders from declines in the stock price, may not be exempt from derivative accounting treatment. As a result, embedded conversion options (whose exercise price is not fixed and determinable) in convertible debt (which is not conventionally convertible due to the exercise price not being fixed and determinable) are initially recorded as a liability and are revalued at fair value at each reporting date using the Monte-Carlo method. The Company revalues these derivatives each quarter using the Monte-Carlo method. The change in valuation is accounted for as a gain or loss in derivative liability.

 

Convertible Debt and Warrants Issued with Convertible Debt

 

Convertible debt is accounted for under the guidelines established by ASC 470, Debt with Conversion and Other Options and ASC 740, Beneficial Conversion Features. The Company records a beneficial conversion feature (“BCF”) when convertible debt is issued with conversion features at fixed or adjustable rates that are below market value when issued. If, however, the conversion feature is dependent upon a condition being met or the occurrence of a specific event, the BCF will be recorded when the related contingency is met or occurs. The BCF for the convertible instrument is recorded as a reduction, or discount, to the carrying amount of the convertible instrument equal to the fair value of the conversion feature. The discount is then amortized to interest over the life of the underlying debt using the effective interest method.

 

The Company calculates the fair value of warrants issued with the convertible instruments using the Monte-Carlo method, using the same assumptions used for valuing employee options for purposes of ASC 718, Compensation – Stock Compensation, except that the contractual life of the warrant is used. Under these guidelines, the Company allocates the value of the proceeds received from a convertible debt transaction between the conversion feature and any other detachable instruments (such as warrants) on a relative fair value basis. The allocated fair value is recorded as a debt discount or premium and is amortized over the expected term of the convertible debt to interest expense.

 

For modifications of convertible debt, the Company records a modification that changes the fair value of an embedded conversion feature, including a BCF, as a debt discount which is then amortized to interest expense over the remaining life of the debt. If modification is considered substantial (i.e. greater than 10% of the carrying value of the debt), an extinguishment of debt is deemed to have occurred, resulting in the recognition of an extinguishment gain or loss.

 

12
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Fair Value of Financial Instruments

 

The Company utilizes ASC 820-10, Fair Value Measurement and Disclosure, for valuing financial assets and liabilities measured on a recurring basis. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

 

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 table below describes the Company’s valuation of financial instruments using guidance from ASC 820-10:

 

Description  Level 1   Level 2   Level 3 
             
Derivative liability – December 31, 2019  $-   $-   $29,907 
Derivative liability – March 31, 2020   -    -    

488,889

 

 

Net Income (Loss) Per Share

 

Basic earnings per share is calculated by dividing income available to common stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share is computed using the weighted average number of common and dilutive common share equivalents outstanding during the period.

 

Related Parties

 

Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the management and policies of the Company.

 

13
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Concentrations

 

All of the Company’s ignition interlock devices are purchased from one supplier in China. The loss of this supplier could have a material impact on the Company’s ability to timely obtain additional units.

 

For the three months ended March 31, 2020, one distributor, licensed in four states, makes up approximately 100% percent of all revenues from distributors at March 31, 2020. The loss of this distributer would have a material impact on the Company’s revenues. Per an agreement dated August 1, 2019, the Company and its largest distributor, BDI interlock collects the revenue directly from the clients and pays majority of the expenses and in return pays BDIC a leasing fee per on road unit on a monthly basis. This agreement is still in place for the future.

 

Income Taxes

 

The Company accounts for its income taxes in accordance with Income Taxes Topic of the FASB ASC 740, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

 

The Company also follows ASC 740-10-25, which provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements in accordance with ASC Topic 740, “Accounting for Income Taxes” . ASC 740-10-25 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

 

Derivative Liabilities

 

The Company assessed the classification of its derivative financial instruments as of March 31, 2020, which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.

 

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as defined.

 

Convertible Instruments

 

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities”.

 

ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control or could require net cash settlement, then the contract shall be classified as an asset or a liability.

 

14
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Recently Issued Accounting Pronouncements

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This standard removes, modifies, and adds certain disclosure requirements for fair value measurements. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. While the Company is currently in the process of evaluating the effects of this standard on the consolidated financial statements, the Company plans to adopt ASU No. 2018-13 in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and expects the impact from this standard to be immaterial.

 

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company’s accounting for the service element of a hosting arrangement that is a service contract is not affected by the proposed amendments and will continue to be expensed as incurred in accordance with existing guidance. This standard does not expand on existing disclosure requirements except to require a description of the nature of hosting arrangements that are service contracts. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued. Entities can choose to adopt the new guidance prospectively or retrospectively. The Company plans to adopt the updated disclosure requirements of ASU No. 2018-15 prospectively in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and expects the impact from this standard to be immaterial.

 

Other recently issued accounting updates are not expected to have a material impact on the Company’s Interim Financial Statements.

 

NOTE 3 – SEGMENT REPORTING

 

The Company has one reportable segment: Distributorships.

 

Distributorships

 

The Company enters into arrangements that include multiple deliverables, which typically consist of the sale of exclusive distributorship territory rights, startup supplies package, promotional material, three weeks of onsite training and ongoing monthly support services. The Company accounts for each material element within an arrangement with multiple deliverables as separate units of accounting. Revenue is allocated to each unit of accounting under the guidance of ASC Topic 605-25, Multiple-Element Revenue Arrangements, which provides criteria for separating consideration in multiple-deliverable arrangements by establishing a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence if VSOE is not available, or estimated selling price if neither VSOE nor third-party evidence is available. The Company is required to determine the best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis. The Company generally does not separately sell distributorships or training on a standalone basis. Therefore, the Company does not have VSOE for the selling price of these units nor is third party evidence available and thus management uses its best estimate of selling prices in their allocation of revenue to each deliverable in the multiple element arrangement.

 

15
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 3 – SEGMENT REPORTING (continued)

 

The following table summarizes net sales and identifiable operating income by segment:

 

   Three months Ended March 31, 
   2020   2019 
         
Segment gross profit (a):          
Monitoring  $-   $192,052 
Distirutorships   38,985    17,691 
Gross profit   38,985    209,743 
           
Identifiable segment operating expenses (b):          
Monitoring   -    - 
Distributorships   -    - 
    -    - 
           
Identifiable segment operating income (c ):          
Monitoring   -    192,052 
Distirutorships   38,985   17,691 
    38,985    209,743 
           
Reconciliation of identifiable segment income to corporate income (d):          
Payroll   9,099    98,040 
Professional fees   22,030    41,546 
General and administrative expenses   30,312    60,074 
Interest expense   162,921    176,824 
Interest expense - amortization of debt discount   23,750    - 
Derivative expense   255,482    - 
Change in fair value of derivative liability   -    1,832 
Gain (loss) on extinguishment of debt   -    (54,764)
    503,594    323,552 
           
Loss before income taxes   (464,609)   (113,809)
           
Income taxes   -    1,600 
           
Net profit (loss)  $(464,609)  $(115,409)
           
Total net property, plant, and equipment assets          
Monitoring  $-   $- 
Distributorships   -    - 
Corporate   -    - 
   $-   $- 

 

(a) Segment gross profit includes segment net sales less segment cost of sales

(b) Identifiable segment operating expenses consists of identifiable depreciation expense

(c) Identifiable segment operating incomes consists of segment gross profit less identifiable operating expense

(d) General corporate expense consists of all other non-identifiable expenses

 

16
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 4 – NOTES PAYABLE

 

Notes payable consist of the following:

 

   As of   As of 
   March 31, 2020   December 31, 2019 
         
December 2017 ($50,000) - 15% interest due in December 2020 including issuance of 100,000 shares of common stock with exercise price at $0.25 per share.  $-   $- 
October 2018 ($60,000) - $561 daily principal and interest until paid in full.   -    - 
October 2018 ($72,800) - $11,527 monthly principal and interest for first six months, $9,975 monthly principal and interest last six months   67,159    67,159 
           
Total notes payable   67,159    67,159 
           
Less: debt discount   -    - 
           
Total notes payable, net of debt discount   67,159    67,159 
           
Less: non-current portion   -    - 
           
Notes payable, current portion, net of debt discount  $67,159   $67,159 

 

December 2017 - $50,000

 

On December 1, 2017, the Company provided an agreement to a third party to obtain a $50,000 promissory note in exchange for $50,000 in cash. The promissory note had a maturity date of December 1, 2020 and bears interest at 15% per annum. The note required total payments of $1,733 per month. The Company recorded a debt discount of $22,650 related to the value of the issued shares associated with the process of obtaining the note to be amortized over the life of the note. In January 2019, the note was settled with no additional payment. $43,930 was recognized as a gain on settlement.

 

Total interest expense was $0 and $0 for the three months ended March 31, 2020 and 2019, respectively.

 

October 2018 - $60,000

 

On October 11, 2018, the Company provided an agreement to a third party to obtain a $60,000 promissory note in exchange for $59,105 in cash ($895 in processing fee was deducted from cash). The promissory note had a maturity date of May 5, 2019 and bears interest at 55% per annum. The note required total payments of $561.43 each business day. The note was settled on January 16, 2019 for $30,806, and a gain on settlement was recorded for $10,834.

 

Total interest expense was $0 and $339 for the three months ended March 31, 2020 and 2019, respectively.

 

October 2018 - $72,800

 

On October 4, 2018, the Company provided an agreement to a third party to obtain a $72,800 promissory note in exchange for $72,800 in cash. The promissory note had a maturity date of October 4, 2019 and bears interest at 51% per annum. The note required total payments of $11,526.67 per month for the first six months and $6,794.67 per month for the last six months.

 

Total interest expense was $8,563 and $8,563 for the three months ended March 31, 2020 and 2019, respectively.

 

17
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 5 – NOTES PAYABLE TO RELATED PARTIES

 

Notes payable to related parties consist of the following:

 

   As of   As of 
   March 31, 2020   December 31, 2019 
         
August 2018 ($1,365,000) – Replaced August 2018 note ($1,365,000) that replaced November 2017 note ($765,000 balance at August 1, 2018), February 2018 note ($100,000) and March 2018 note ($500,000). Includes $635,000 penalty on default of August 2018 ($1,365,000) note and $20,000 for missed payment on August 2018 note. Interest only monthly payment of $50,500 for life of note. Entire principal due December 1, 2023.  $2,020,000   $2,020,000 
December 2018 ($6,000) – No interest with principal due on December 17, 2019.   -    - 
December 2018 ($23,000) – No interest with principal due on December 13, 2019.   -    - 
January 2019 ($32,700) – No interest with principal due on January 3, 2020.   -    - 
January 2019 ($40,000) – No interest with principal due on January 11, 2020.   -    - 
January 2019 ($14,500) – No interest with principal due on January 15, 2020.   -    14,500 
February 2019 ($15,000) – No interest with principal due on February 1, 2020.   -    15,000 
February 2019 ($5,000) – No interest with principal due on February 19, 2020.   -    5,000 
March 2019 ($10,000) – No interest with principal due on March 4, 2020.   -    10,000 
May 1, 2019 ($20,000) - Principal only due May 1, 2020. No interest   -    20,000 
June 3, 2019 ($89,000) - Principal only due June 3, 2020. No interest   89,000    89,000 
July 10, 2019 ($13,000) - Principal only due July 10, 2020. No interest   -    13,000 
July 18, 2019 ($8,000) - Principal only due July 18, 2020. No interest        8,000 
July 25, 2019 ($25,000) - Principal only due July 25, 2020. No interest   25,000    25,000 
September 27, 2019 ($101,700) - Principal only due September 27, 2020. No interest   101,700    101,700 
December 31, 2019 ($83,000) - Principal only due December 31, 2020. No interest   83,000    83,000 
           
Total notes payable to related parties   2,318,700    2,404,200 
           
Less: non-current portion   (2,020,000)   (2,020,000)
           
Notes payable to related parties, current portion  $298,700   $384,200 

 

18
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 5 – NOTES PAYABLE TO RELATED PARTIES (continued)

 

December 2018 - $2,222,000

 

On December 1, 2018, the Company entered into an agreement with a related third party to replace the August 2018 note of $1,365,000 with a new note for $2,020,000. The new note also includes a default penalty of $635,000 on the August 2018 note and $20,000 for a missed payment on the August 2018 note. The note calls for interest only payments of $50,500 per month for the life of the note. The entire principal is due on December 1, 2023. Accrued interest payments totaling $202,000 were not made by the Company. Per the note agreement, this amount was added to the principal, thus increasing the principal amount to $2,222,000.

 

Total interest expense was $151,500 and $151,500 for the three months ended March 31, 2020 and 2019, respectively.

 

December 2018 - $6,000

 

On December 17, 2018, the Company entered into an agreement with a related party, Doheny Group, to obtain a $6,000 loan. The note bears no interest and is due in full on December 17, 2019.

 

December 2018 - $23,000

 

On December 31, 2018, the Company entered into an agreement with a related party, Doheny Group, to obtain a $23,000 loan. The note bears no interest and is due in full on December 31, 2019.

 

January 2019 - $32,700

 

On January 3, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $32,700 loan. The note bears no interest and is due in full on January 3, 2020.

 

January 2019 - $40,000

 

On January 11, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $40,000 loan. The note bears no interest and is due in full on January 11, 2020.

 

January 2019 - $14,500

 

On January 15, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $14,500 loan. The note bears no interest and is due in full on January 15, 2020.

 

February 2019 - $15,000

 

On February 1, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $15,000 loan. The note bears no interest and is due in full on February 1, 2020.

 

February 2019 - $5,000

 

On February 19, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $5,000 loan. The note bears no interest and is due in full on February 19, 2020.

 

March 2019 - $10,000

 

On March 4, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $10,000 loan. The note bears no interest and is due in full on March 4, 2020.

 

19
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 5 – NOTES PAYABLE TO RELATED PARTIES (continued)

 

May 2019 - $20,000

 

On May 1, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $10,000 loan. The note bears no interest and is due in full on May 1, 2020.

 

June 2019 - $89,000

 

On June 3, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $89,000 loan. The note bears no interest and is due in full on June 3, 2020.

 

July 2019 - $13,000

 

On July 10, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $13,000 loan. The note bears no interest and is due in full on July 10, 2020.

 

July 2019 - $8,000

 

On July 18, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $8,000 loan. The note bears no interest and is due in full on July 18, 2020.

 

July 2019 - $25,000

 

On July 25, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $25,000 loan. The note bears no interest and is due in full on July 25, 2020.

 

September 2019 - $101,700

 

On September 27, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $101,700 loan. The note bears no interest and is due in full on September 27, 2020.

 

December 2019 - $83,000

 

On December 31, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $83,000 loan. The note bears no interest and is due in full on December 31, 2020.

 

20
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 6 – CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable consists of the following:

 

   As of   As of 
   March 31, 2020   December 31, 2019 
         
August 2015 ($15,000) - 7.5% interest bearing convertible debenture due on August 7, 2017 with interest only payments and due upon maturity.  $7,500   $7,500 
March 2018 ($20,000) – 10% interest bearing convertible debenture due on March 9, 2021, with interest paid in cash for the first six months, and either in cash or shares of common stock thereafter. Principal is due March 9, 2021, paid either in cash or common stock, at the Company’s discretion   20,000    20,000 
February 2020 ($112,750) - 12% interest bearing convertible debenture due on December 24, 2020 with interest only payments and due upon maturity.   112,750    - 
February 2020 ($75,000) - 10% interest bearing convertible debenture due on November 24, 2020 with interest only payments and due upon maturity.   75,000    - 
February 2020 ($50,000) - 10% interest bearing convertible debenture due on February 24, 2021 with interest only payments and due upon maturity.   50,000    - 
           
Total convertible notes payable   265,250    27,500 
           
Less: debt discount   (223,215)   (8,965)
           
Total notes payable, net of debt discount   42,035    18,535 
           
Less: non-current portion   -    (11,035)
           
Convertible notes payable, current portion, net of debt discount  $42,035   $7,500 

 

August 2015 - $15,000

 

On August 7, 2015, the Company entered into an agreement with a third party non-affiliate and issued a 7.5% interest bearing convertible debenture for $15,000 due on August 7, 2017, with conversion features commencing after 180 days following the date of the note. Payments of interest only were due monthly beginning September 2015. The loan is convertible at 70% of the average of the closing prices for the common stock during the five trading days prior to the conversion date. In connection with this Convertible note payable, the Company recorded a $5,770 discount on debt, related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note is converted or repaid. This note was bifurcated with the embedded conversion option recorded as a derivative liability at fair value (See Note 9). On May 6, 2016 the note holder elected to convert $7,500 in principal into 30,000 shares of common stock. The note is currently in default.

 

In connection with the issuance of the August Convertible Note Payable, the Company issued a warrant on August 7, 2015 to purchase 30,000 shares of the Company’s common stock at a purchase price of $0.50 per share. The Black Scholes model was used in valuing the warrants in determining the relative fair value of the warrants issued in connection with the convertible note payable using the following inputs: Expected Term – 3 years, Expected Dividend Rate – 0%, Volatility – 100%, Risk Free Interest Rate -1.08%. The Company recorded an additional $4,873 discount on debt, related to the relative fair value of the warrants issued associated with the note to be amortized over the life of the note.

 

Total interest expense was $141 and $141 for the three months ended March 31, 2020 and 2019, respectively.

 

21
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 6 – CONVERTIBLE NOTES PAYABLE (continued)

 

March 2018 - $20,000

 

On March 9, 2018, the Company entered into an agreement with a non-affiliated shareholder and issued a 10% interest bearing convertible debenture for $20,000 due on March 9, 2021. Payments of interest is in cash for the first six months, thereafter, interest may be paid either in cash or common stock of the Company. The loan is convertible at 61% of the average of the closing prices for the common stock during the five trading days prior to the conversion date but may not be converted if such conversion would cause the holder to own more than 4.9% of outstanding common stock after giving effect to the conversion. In connection with this Convertible Note Payable, the Company recorded a $20,000 discount on debt (the total discount was $47,768, of which $27,768 was expensed), related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note is converted or repaid. This note was bifurcated with the embedded conversion option recorded as a derivative liability at fair value. As of March 31, 2018, this note has not been converted.

 

Total interest expense was $500 and $500 for the three months ended March 31, 2020 and 2019, respectively.

 

February 2020 - $112,750

 

On February 24, 2020, the Company entered into an agreement with a non-affiliated shareholder and issued a 12% interest bearing convertible debenture for $112,750 due on December 24, 2020. Payments of interest is in lawful money of the Unites States of America. The loan is convertible at the lesser of (i) the lowest trading price during the previous twenty-five trading day periods ending on the latest complete trading day prior to the date of this note, and (ii) the variable conversion price. The “Variable Conversion Price” shall mean 50% multiplied by the market price. In connection with this Convertible Note Payable, the Company recorded a $12,750 discount on debt, related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note is converted or repaid. This note was bifurcated with the embedded conversion option recorded as a derivative liability at fair value. As of March 31, 2020, this note has not been converted.

 

Total interest expense was $1,200 for the three months ended March 31, 2020.

 

February 2020 - $75,000

 

On February 24, 2020, the Company entered into an agreement with a non-affiliated shareholder and issued a 10% interest bearing convertible debenture for $75,000 due on November 24, 2020. Payments of interest is in lawful money of the Unites States of America. The loan is convertible at the lesser of (i) the lowest trading price during the previous twenty-five trading day periods ending on the latest complete trading day prior to the date of this note, (ii) 50% of the lowest traded price for the common stock on the principal market during the twenty-five consecutive trading days on which at least 100 shares of common stock were traded including and immediately preceding the conversion date. In connection with this Convertible Note Payable, the Company recorded a $15,000 discount on debt, related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note is converted or repaid. This note was bifurcated with the embedded conversion option recorded as a derivative liability at fair value. As of March 31, 2020, this note has not been converted.

 

Total interest expense was $600 for the three months ended March 31, 2020.

 

February 2020 - $50,000

 

On February 25, 2020, the Company entered into an agreement with a non-affiliated shareholder and issued a 10% interest bearing convertible debenture for $50,000 due on February 24, 2021. Payments of interest is in lawful money of the Unites States of America. The loan is convertible at the lesser of (i) 55% multiplied by the lowest trading price during the previous twenty-five trading day period ending on the latest complete trading prior to the date of this note or (ii) the variable conversion price. The “Variable Conversion Price” shall mean 55% multiplied by the market price. In connection with this Convertible Note Payable, the Company recorded a $6,750 discount on debt, related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note is converted or repaid. This note was bifurcated with the embedded conversion option recorded as a derivative liability at fair value. As of March 31, 2020, this note has not been converted.

 

Total interest expense was $418 for the three months ended March 31, 2020.

 

22
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 7 – DERIVATIVE LIABILITIES

 

Derivative liabilities consisted of the following:

 

   As of   As of 
   March 31, 2020   December 31, 2019 
         
August 2015 - $15,000 convertible debt  $6,358   $6,358 
March 2018 - $20,000 convertible debt   23,549    23,549 
February 2020 – $112,750 convertible debt   205,021    - 
February 2020 – $75,000 convertible debt   106,248    - 
February 2020 – $50,000 convertible debt   147,713    - 
           
Total derivative liabilities  $488,889   $29,907 

 

The Company applies the provisions of ASC Topic 815-40, Contracts in Entity’s Own Equity (“ASC Topic 815-40”), under which convertible instruments, which contain terms that protect holders from declines in the stock price, may not be exempt from derivative accounting treatment. As a result, embedded conversion options (whose exercise price is not fixed and determinable) in convertible debt (which is not conventionally convertible due to the exercise price not being fixed and determinable) are initially recorded as a liability and are revalued at fair value at each reporting date using the Monte-Carlo method.

 

On February 24, 2020, BDIC issued a convertible promissory note for $112,750 to Auctus Fund (“Auctus”) (the “Auctus Note”), due December 24, 2020 (the “Maturity Date”). The Auctus Note incurred a onetime interest charge of 12%, which was recorded at issuance, and was due upon payback of the Auctus Note. The Auctus Note included an original issue discount of $12,750, netting the balance received by BDIC from Auctus at $100,000. The Auctus transaction included commitment fees, which took the form of an obligation by BDIC a ten-month warrant to purchase 1,127,500 shares (the “Commitment Shares”) which are only provided in the event of default. Upon the occurrence of an event of default, as defined in the Auctus Note, the conversion price shall become equal to a 50% of the lowest traded price for the Company’s common stock in the 25 consecutive trading days preceding the notice of conversion and the balance due shall be multiplied by 50% (the “Default Provision”).

 

On February 24, 2020, BDIC issued a convertible promissory note for $75,000 to EMA Financial (“EMA”) (the “EMA Note”), due November 24, 2020 (the “Maturity Date”). The EMA Note incurred a onetime interest charge of 10%, which was recorded at issuance, and was due upon payback of the EMA Note. The EMA Note included an original issue discount of $15,000, netting the balance received by BDIC from EMA at $60,000. Upon the occurrence of an event of default, as defined in the EMA Note, the conversion price shall become equal to a 50% of the lowest traded price for the Company’s common stock in the 25 consecutive trading days preceding the notice of conversion and the balance due shall be multiplied by 50% (the “Default Provision”).

 

On February 25, 2020, BDIC issued a convertible promissory note for $50,000 to Crown Bridge Partners (“Crown”) (the “Crown Note”), due February 24, 2021 (the “Maturity Date”). The Crown Note incurred a onetime interest charge of 10%, which was recorded at issuance, and was due upon payback of the Crown Note. The Crown Note included an original issue discount of $6,750, netting the balance received by BDIC from Crown at $43,250. The Crown transaction included commitment fees, which took the form of an obligation by a nine-month warrant to purchase 416,666 shares (the “Commitment Shares”) which are only provided in the event of default. Upon the occurrence of an event of default, as defined in the Crown Note, the conversion price shall become equal to a 55% of the lowest traded price for the Company’s common stock in the 25 consecutive trading days preceding the notice of conversion and the balance due shall be multiplied by 55% (the “Default Provision”).

 

Derivative financial instruments, as defined in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.

 

23
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 7 – DERIVATIVE LIABILITIES (continued)

 

The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors.

 

Based on ASC 815, the Company determined that the convertible debt contained embedded derivatives and valued the derivative using the Monte-Carlo method. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates (such as volatility, estimated life and interest rates) that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, the Company’s operating results will reflect the volatility in these estimate and assumption changes.

 

The Company performs valuation of derivative instruments at the end of each reporting period. The fair value of derivative instruments is recorded and shown separately under current liabilities as these instruments can be converted anytime. Changes in fair value are recorded in the consolidated statement of income under other income (expenses).

 

August 2015 Convertible Debt - $15,000

 

In August 2015, the Company entered into a $15,000 convertible note with variable conversion pricing. The following inputs were used within the Black Sholes Model to determine the initial relative fair values of the $15,000 convertible note with expected term of 1.58 years, expected dividend rate of 0%, volatility of 100% and risk-free interest rate 0.61%.

 

March 2018 Convertible Debt - $20,000

 

In March 2018, the Company entered into a $20,000 convertible note with variable conversion pricing. The following inputs were used within the Black Sholes Model to determine the initial relative fair values of the $20,000 convertible note with expected term of 3.35 years, expected dividend rate of 0%, volatility of 413% and risk free interest rate 2.90%.

 

February 2020 - $112,750

 

In February 2020, the Company entered into a $112,750 convertible note with variable conversion pricing. The following inputs were used within the Monte-Carlo method to determine the initial related fair values of the $112,750 convertible note with expected term of 0.83 years, expected dividend rate of 0%, volatility of 325% and risk-free interest rate 2%.

 

February 2020 - $75,000

 

In February 2020, the Company entered into a $75,000 convertible note with variable conversion pricing. The following inputs were used within the Monte-Carlo method to determine the initial related fair values of the $75,000 convertible note with expected term of 1 years, expected dividend rate of 0%, volatility of 325% and risk-free interest rate 2%.

 

February 2020 - $50,000

 

In February 2020, the Company entered into a $50,000 convertible note with variable conversion pricing. The following inputs were used within the Monte-Carlo method to determine the initial related fair values of the $50,000 convertible note with expected term of 0.75 years, expected dividend rate of 0%, volatility of 325% and risk-free interest rate 2%

 

24
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 7 – DERIVATIVE LIABILITIES (continued)

 

The Company revalues these derivatives each quarter using the Monte-Carlo method. The change in valuation is accounted for as a gain or loss in derivative liability. The following table describes the derivative liability as of December 31, 2019 and March 31, 2020.

 

   As of           As of 
   December 31, 2019   Additions   Changes   March 31, 2020 
                 
August 2015 - $15,000 convertible debt  $6,358   $-   $-   $6,358 
March 2018 - $20,000 convertible debt   23,549    -    -    23,549 
February 2020 – $112,750 convertible debt   -    112,750    92,271    205,021 
February 2020 – $75,000 convertible debt   -    75,000    31,248    106,248 
February 2020 – $50,000 convertible debt   -    50,000    97,713    147,713 
                     
Total derivative liabilities  $29,907   $237,750   $221,232   $488,889 

 

NOTE 8 – ACCRUED ROYALTY PAYABLE

 

The Company has estimated the royalties to be paid out in perpetuity under royalty agreements. The Company entered into royalty agreement as follows:

 

  November 2017 Royalty Agreement – The Company entered into a royalty agreement with a related party on November 1, 2017 in relation to a note payable of $900,000. This note replaced the September and November 2016 Royalty Agreements. Under the royalty agreement, the Company is required to pay a royalty fee of from $1.50 to $3.00 per month for every ignition interlock devise that the Company has on the road in customers’ vehicles, the amount depending on how many devices are installed.
     
  August 2018 Royalty Agreement – the Company entered into a royalty agreement with a related party on August 1, 2018 in relation to a note payable of $1,365,000. This note replaced the November 2017 Royalty Agreement as well as other, non-royalty notes payable. Under the royalty agreement, the Company is required to pay $1.50 and accrue an additional $3.50 for every ignition interlock devise for the first nine months of the note payable. After the first nine months, the Company is required to pay $1.50 per devise and the amount accrued during the first nine months will be paid monthly through the next twelve months. After the note payable is paid in full, the Company is required to pay $3.00 per devise in perpetuity.
     
  December 2018 royalty Agreement – the Company entered into a royalty agreement with a related party on December 1, 2018 in relation to a note payable of $2,020,000. This note replaced the August 2018 Royalty Agreement. Under the royalty agreement, the Company is required to pay a royalty fee of $5.00 per month for every ignition interlock device that the Company has on the road in customers’ vehicles.
     
 

January 2020 addendum Agreement – the Company entered into an addendum to loan security agreement with a related party on January 1, 2020 in relation to all past, present and future monies owed for royalties. Under the addendum, The Doheny Group waives the royalties effective January 1, 2020.

 

 

25
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 8 – ACCRUED ROYALTY PAYABLE (continued)

 

Based on the royalty agreement, the Company had the following royalty accruals:

 

   As of   As of 
   March 31, 2020   December 31, 2019 
         
November 2017 royalty agreement  $-   $3,326 
August 2018 royalty agreement   -    18,058 
December 2018 royalty agreement   -    50,081 
           
Total accrued royalties  $-   $71,465 

 

Royalty expense was $0 and $15,300 for the three months ended March 31, 2020 and 2019, respectively.

 

NOTE 9 – STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

The Company’s articles of incorporation authorize the Company to issue up to 20,000,000 preferred shares of $0.001 par value.

 

Series A Preferred Stock

 

The Company has been authorized to issue 1,000,000 shares of Series A Preferred Stock. The Series A shares have the following preferences: no dividend rights; no liquidation preference over the Company’s common stock; no conversion rights; no redemption rights; no call rights by the Company; each share of Series A Preferred stock will have one hundred (100) votes on all matters validly brought to the Company’s common stockholders.

 

During the three months ended March 31, 2017, the Company entered into a material definitive agreement to issue 1,000,000 shares of series A preferred stock to an officer and director of the Company with a preliminary estimated value of $350,000. As of March 31, 2020, the total number of preferred shares issued or issuable was 1,000,000.

 

Common Stock

 

The Company has authorized 100,000,000 shares of $.0001. Holders of common stock are entitled to one vote for each share held. There are no restrictions that limit the Company’s ability to pay dividends on its common stock, subject to the requirements of the Delaware Revised Statutes. The Company has not declared any dividends since incorporation.

 

During the three months ended March 31, 2020, the Company issued 0 additional shares of its common stock. The total number of shares issued or issuable as of March 31, 2020 was 31,350,683.

 

26
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 10 – STOCK WARRANTS

 

The Company issued warrants in individual sales and in connection with common stock purchase agreements. The warrants have expiration dates ranging from three to four years from the date of grant and exercise prices ranging from $0.10 to $1.00.

 

A summary of warrant activity for the periods presented is as follows:

 

       Weighted Average     
   Warrants for   Weighted Average   Remaining   Aggregate 
   Common Shares   Exercise Price   Contractual Term   Intrinsic Value 
                 
Outstanding as of December 31, 2018   5,677,586   $0.60    2.40   $621,497 
Granted   -    -    -    - 
Exercised   -    -    -    - 
Forfeited, cancelled, expired   -    -    -    - 
Outstanding as of December 31, 2019   5,677,586    0.60    2.40    621,497 
Granted   1,544,166    0.07    0.80    - 
Exercised   -    -    -    - 
Forfeited, cancelled, expired   -    -    -    - 
Outstanding as of March 31, 2020   7,221,752   $0.49    2.06   $621,497 

 

NOTE 11 – INCOME (LOSS) PER SHARE

 

Net income (loss) per share is provided in accordance with FASB ASC 260-10, “Earnings per Share”. Basic net income (loss) per common share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding, assuming all dilutive potential common shares were issued, unless doing so is anti-dilutive.

 

The following shares are not included in the computation of diluted income (loss) per share, because their inclusion would be anti-dilutive:

  

   Three Months Ended March 31, 
   2020   2019 
Preferred shares   -    - 
Convertible notes   -    408,375 
Warrants   7,221,752    6,537,586 
Options   -    - 
Total anti-dilutive weighted average shares   7,221,752    6,945,961 

 

If all dilutive securities had been exercised at March 31, 2020, the total number of common shares outstanding would be as follows:

 

Common Shares   31,350,683 
Preferred Shares   - 
Convertible notes   - 
Warrants   7,221,752 
Options   - 
      
Total potential shares   38,572,435 

 

27
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 12 – COMMITMENTS AND CONTINGENCIES

 

The Company currently does not have any facility lease commitments or lease obligations.

 

Legal Proceedings

 

In the ordinary course of business, the Company from time to time is involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon the Company’s financial condition and/or results of operations. However, in the opinion of management, other than as set forth herein, matters currently pending or threatened against the Company are not expected to have a material adverse effect on the Company’s financial position or results of operations.

 

NOTE 13 – RELATED PARTY TRANSACTIONS

 

The Company had the following related party transactions:

 

  Refer to related party notes payable.

 

NOTE 14 – SUBSEQUENT EVENTS

 

The Company follows the guidance in FASB ASC Topic 855, Subsequent Events (“ASC 855”), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before the consolidated financial statements are issued or are available to be issued. ASC 855 sets forth (i) the period after the balance sheet date during which management of a reporting entity evaluates events or transactions that may occur for potential recognition or disclosure in the consolidated financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its consolidated financial statements, and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.

 

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ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Disclaimer Regarding Forward Looking Statements

 

Our Management’s Discussion and Analysis or Plan of Operations contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

 

Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

 

Overview

 

We are a previous development stage company that was incorporated in the State of Delaware in July 2013. In the year ending December 31, 2019, we generated total revenues of $534,827, compared to $942,160 in the year ending December 31, 2018. For the three months ended March 31, 2020 and 2019, we had total revenues of $38,985 and $231,378, respectively, and a net loss of $464,609 and $115,409, respectively.

 

We market distributorships to lease our breath alcohol ignition interlock device called the BDI-747/1, which is a mechanism that is installed on the steering column of an automobile and into which a driver exhales, to distributors who, in turn, lease them to end users. The device provides a blood-alcohol concentration analysis. If the driver’s blood-alcohol content is higher than a certain pre-programmed limit, the device prevents the ignition from engaging and the automobile from starting. These devices are often required for use by DUI or DWI (“driving under the influence” or “driving while intoxicated”) offenders as part of a mandatory court or motor vehicle department program.

 

At July 27, 2015 we began production of our patent pending BDI Model #1 power line filter to attach to our BDI-747 Breath Alcohol Ignition Interlock Device which together were certified by NHSTA on June 17, 2015 to work to together to meet or exceed 2013 NHSTA guidelines.

 

As of December 31, 2017, the BDI-747/1 was approved for use in five states, namely Oregon, Texas, Arizona, Kentucky, and Tennessee. As of December 31, 2018, the BDI-747/1 device was approved in Oregon, Texas, Arizona, and Kentucky. As of March 31, 2020, the BDI-747/1 device was only approved in Arizona and Texas. The states where our BDI-747/1 device is approved has decreased primarily as a result of new state certification rules that require increased capital investment that we are not able to afford.

 

As of December 31, 2019, we had approximately 513 units on the road, with all devices leased through our distributors, compared to December 31, 2018, when we had approximately 1,100 units on the road, with approximately 885 devices being leased directly from us and approximately 215 devices leased through our distributors. The decrease in the total number of devices we have on the road is primarily due to the fact the BDI-747/1 device was approved in fewer states in 2019 compared to 2018. As of March 31, 2020, we had approximately 396 units on the road, with all the units leased through our distributors.

 

On August 1, 2019, we shifted our business model such that we will only be responsible for manufacturing new units and leasing our new and existing units to distributors. The distributors will be responsible for leasing the units to end users, as well as marketing, installing and servicing the units at the distributors’ cost. The distributors are currently paying us between $25 and $35 per unit per month for all units the distributor has on the road with an end user. As a result of this shift, in future periods we anticipate all of our units being classified as leased through a distributor and all of our revenue, cost of sales and expenses will be related to distributorship operations and not related to direct monitoring revenue. This shift is the reason all units as of March 31, 2020 are classified as leased through a distributor with no units leased directly from us.

 

29
 

 

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

Overview (continued)

 

Due to the decrease in the number of states where our BDI-747/1 device is approved, and the resulting decrease in the number of devices we have on the road, our management has been exploring all options related to our business, including, but not limited to: (i) taking out loans or selling our stock in order to raise money to continue, and try to expand, our current business; (ii) trying to acquire a synergistic business and grow our current business; or (iii) selling our current business and trying to find another business to, in or out of our current business segment, to take over the public corporation.

 

Our website is www.blowanddrive.com.

 

30
 

 

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

Results of Operations

 

   Three months Ended March 31,         
   2020   2019   Changes 
   Amount   % of Revenue   Amount   % of Revenue   Amount   % 
Revenues:                              
Monitoring revenues  $-    0.0%  $213,687    92.4%  $(213,687)   n/a 
Distributorship revenues   38,985    100.0%   17,691    7.6%   21,294    120.4%
Total revenues   38,985    100.0%   231,378    100.0%   (192,393)   -83.2%
                               
Cost of revenues:                              
Monitoring cost of revenue   -    0.0%   21,635    9.4%   (21,635)   -100.0%
Distribution cost of revenue   -    0.0%   -    0.0%   -    0.0%
Total cost of revenues   -    0.0%   21,635    9.4%   (21,635)   -100.0%
                               
Gross profit   38,985    100.0%   209,743    90.6%   (170,758)   -81.4%
                               
Operating expenses:                              
Payroll   9,099    23.3%   98,040    42.4%   (88,941)   -90.7%
Professional fees   22,030    56.5%   41,546    18.0%   (19,516)   -47.0%
General and administrative   30,312    77.8%   60,074    26.0%   (29,762)   -49.5%
Total operating expenses   61,441    157.6%   199,660    86.3%   (138,219)   -69.2%
                               
Gain (loss) from operations   (22,456)   -57.6%   10,083    4.4%   (32,539)   -322.7%
                               
Other Income (expense):                              
Interest expense, net   (162,921)   -417.9%   (176,824)   -76.4%   13,903    -7.9%
Interest expense - amortization of debt discount   (23,750)   -60.9%   -    0.0%   (23,750)   n/a 
Derivative expense   (255,482)   -655.3%   -    0.0%   (255,482)   n/a 
Change in fair value of derivative liability   -    0.0%   (1,832)   -0.8%   1,832    -100.0%
Gain (loss) on extinguishment of debt   -    0.0%   54,764    23.7%   (54,764)   -100.0%
Total other income (expense)   (442,153)   -1134.2%   (123,892)   -53.5%   (318,261)   256.9%
                               
Loss before income taxes   (464,609)   -1191.8%   (113,809)   -49.2%   (350,800)   308.2%
                               
Income taxes   -    0.0%   1,600    0.7%   (1,600)   -100.0%
                               
Net profit (loss)  $(464,609)   -1191.8%  $(115,409)   -49.9%  $(349,200)   302.6%

 

Operating Loss; Net Loss

 

Our net loss increased by $349,200, from ($115,409) for the three months ended March 31, 2019 to ($464,609) for the three months ended March 31, 2020. Our operating gain (loss) decreased by $32,539, from $10,083 to ($22,456) for the same periods. The decrease in our net loss for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, is primarily the result of lower revenue, a large derivative liability expense and higher interest expense. These changes are detailed below.

 

Revenue

 

Monitoring Revenues. Monitoring revenues decreased by $213,687, or 100.0%, to $0 in the first quarter of fiscal year 2020 from $213,687 in the first quarter last year. The decrease is due to change in our business model where all of clients come from distributors and we no longer lease devices directly to end users.

 

Distributorship Revenues. Distributorship revenues increased by $21,294, or 120.4%, to $38,985 in the first quarter of fiscal year 2020 from $17,691 in the first quarter last year. The increase is due to change in our business model where all of clients come from distributors and we no longer lease devices directly to end users.

 

31
 

 

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

Cost of Revenue

 

Our cost of revenue for the three months ended March 31, 2020 was $0, compared to $21,635 for the three months ended March 31, 2019. Our cost of revenue for the three months ended March 31, 2020 and March 31, 2019, was completely related to our monthly monitoring services we provided directly to our end-user customers. The decrease in our cost of revenue was due to the fact we ordered more parts and supplies from our supplier in the period in 2019 compared to the period in 2020.

 

Payroll

 

Payroll expense decreased by $88,941, or -90.7%, to $9,099 in the first quarter of fiscal year 2020 from $98,040 in the first quarter last year. The decrease in payroll is due to decreasing personnel in the first quarter of fiscal year 2020 compared to first quarter of last year. Our decrease in personnel is related to the shift in our business model, where our distributors now lease the devices to end-users and handle the maintenance, monitoring, etc. for the devices.

 

Professional Fees

 

Professional fees decreased by $19,516, or 47.0%, to $22,030 in the first quarter of fiscal year 2020 from $41,546 in the first quarter last year. These fees are largely related to fees paid for legal, accounting and audit services. We expect these fees to grow if our business expands. In the event we undertake an unusual transaction, such as an acquisition, securities offering, or file a registration statement, we would expect these fees to substantially increase during that period.

 

General and Administrative Expenses

 

General and administrative expenses decreased by $29,762, or -49.5%, to $30,312 in the first quarter of fiscal year 2020 from $60,074 in the first quarter last year. The decrease is due to the following:

 

  Decrease of approximately $15,000 in royalty expense in the first quarter of fiscal year 2020 compared to first quarter last year.
  Decrease of approximately $9,000 in special part and gases expense as we did not have any special part/gases purchase in the first quarter of fiscal year 2020 compared to first quarter of last year.

 

Interest Expense

 

Interest expense decreased by $13,903, or 7.9%, to $162,921 in the first quarter of fiscal year 2020 from $176,824 in the first quarter last year. Our interest expense is related to the interest we own on short term note payables. The decrease is due to decrease in loans from short term note payable

 

Interest Expense – related party

 

Interest expense increased by $23,750, to $23,750 in the first quarter of fiscal year 2020 from $0 in the first quarter last year. The increase is due to increase in loans from convertible note payable.

 

Derivative Expense

 

During the three months ended March 31, 2020, we had a derivative expense of $255,482, compared to $0 for the three months ended March 31, 2019. The derivative expense in the three months ended March 31, 2020, was related to conversion feature on certain convertible promissory notes we entered into during the period, which are described herein.

 

Change in Fair Value of Derivative Liability

 

During the three months ended March 31, 2020, we had a change in fair value of derivative liability of $0 compared to ($1,832) for the three months ended March 31, 2019. Change in fair value of derivative liability results from changes in valuation at end of the reporting period. Since the conversion price on the promissory note is calculated based on a discount to the closing price of our common stock, as our closing price fluctuates it changes the fair value of the derivative liability.

 

32
 

 

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

Gain on Extinguishment of Debt

 

Our gain on extinguishment of debt decreased by $54,764, or -100.0%, to $0 in the first quarter of fiscal year 2020 from $54,764 in the first quarter last year. The decrease is due to forgiveness and settlement of debt in the first quarter of fiscal 2020.

 

Liquidity and Capital Resources for the Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

 

Introduction

 

Our cash on hand as of March 31, 2020 was $162,884, compared to $91,314 at December 31, 2019. During the three months ended March 31, 2020 and 2019, because of our operating losses, we did not generate positive operating cash flows. As a result, we have short term cash needs. These needs are being satisfied through proceeds from the sales of our securities and loans from both related parties and third parties. We currently do not believe we will be able to satisfy our cash needs from our revenues for some time.

 

Our cash, current assets, total assets, current liabilities, and total liabilities as of March 31, 2020 and as of December 31, 2019, respectively, are as follows:

 

   March 31, 2020   December 31, 2019   Changes 
             
Cash  $162,884   $91,314   $71,570 
Total current assets  $176,840   $113,361   $63,479 
Total assets  $183,321   $119,842   $63,479 
Total current liabilities  $1,803,120   $1,335,462   $467,658 
Total liabilities  $3,823,120   $3,366,497   $456,623 

 

Our current assets increased as of March 31, 2020 as compared to December 31, 2019, primarily due to us having more cash on hand at March 31, 2020. The increase in our total assets between the two periods was also primarily related to us having more cash on hand and at March 31, 2020.

 

Our current liabilities increased as of March 31, 2020 as compared to December 31, 2019. This increase was primarily due to increases in accrued interest, accrued interest-related party, and derivative liability, partially offset by decreases in accrued expenses, income taxes payable, and notes payable, related party.

 

In order to repay our obligations in full or in part when due, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.

 

Sources and Uses of Cash

 

Our cash flows from operating, investing and financing activities are summarized as follows:

 

   Three Months Ended March 31,     
   2020   2019   Changes 
             
Net cash provided by (used in):               
Operating activities  $(46,180)  $(61,821)  $15,641 
Financing activities   117,750    85,611    32,139 
Net increase in cash  $71,570   $23,790   $47,780 

 

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ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

Operations

 

We had net cash used in operating activities of $46,180 for the three months ended March 31, 2020, as compared to $61,821 for the three months ended March 31, 2019. For the period in 2020, the net cash used in operating activities consisted primarily of our net income (loss) of ($464,609), adjusted primarily by derivative expense of $255,482, and amortization of debt discount of $23,750, as well as changes in, accrued expenses of ($25,361), accounts receivable $6,892, prepaid expenses of $1,199, accrued interest-related party of $129,998, and accrued interest of $26,193. For the period in 2019, the net cash used in operating activities consisted primarily of our net income (loss) of ($115,409), adjusted primarily by stock or warrants issued for services of $24,500, amortization of debt discount of $15,754, gain on extinguishment of debt of ($54,764), as well as changes in, accrued expenses of ($30,440), accounts receivable of ($6,475), prepaid expenses of ($1,523), deferred revenue of ($71,717), accrued royalties payable of $15,300, accrued interest- related party of $151,500, and accrued interest of $9,621.

 

Investments

 

We did not have any cash provided by/used in investing activities in the three months ended March 31, 2020 or March 31, 2019.

 

Financing

 

We had net cash provided by (used in) financing activities for the three months ended March 31, 2020 of $117,750, compared to $85,611 for the three months ended March 31, 2019. For the three months ended March 31, 2020, our net cash from financing activities consisted of proceeds from issuance of convertible notes payable of $203,250, partially offset by repayments of notes payable of $85,500. For the three months ended March 31, 2019, our net cash from financing activities consisted of proceeds from related party notes payable of $117,200, partially offset by repayments of notes payable of $31,589.

 

Critical Accounting Estimates

 

As discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended December 30, 2019, we consider our estimates on inventory valuation, long-lived assets and self-insurance liabilities to be the most critical in understanding the judgments that are involved in preparing our consolidated financial statements. There have been no significant changes to these estimates in the three months ended March 31, 2020.

 

Our adoption of ASC 606, Revenue Recognition, did not change the way the Company recognized revenue for the first quarter 2020 compared to same quarter of last year.

 

Recently Issued Accounting Updates

 

See Note 2 to the Interim Financial Statements included in Part I, Item 1, Financial Statements , of this Quarterly Report on Form 10-Q.

 

Off Balance Sheet Arrangements

 

We have no off balance sheet arrangements.

 

Commitments and Contingent Liabilities

 

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. As of March 31, 2020, we have no contingent liability that is required to be recorded nor disclosed.

 

34
 

 

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

ITEM 4 Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Pursuant to rules adopted by the Securities and Exchange Commission we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to rules promulgated under the Securities Exchange Act of 1934. This evaluation was done as of the end of March 31, 2020 under the supervision and with the participation of our principal executive officer and our principal financial officer.

 

Based upon our evaluation, our principal executive and financial officer concluded that, as of March 31, 2020, our existing disclosure controls and procedures were not effective. Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, including the principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. With only two officers in charge of such reporting controls, there is no backup to the oversight of such individual and thus such disclosure controls and procedures may not be considered effective.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our first quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Internal Control over Financial Reporting

 

We are responsible for establishing and maintaining adequate internal control over financial reporting in accordance with Rule 13a-15 of the Securities Exchange Act of 1934. Our president conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2020, based on the criteria establish in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was ineffective as of March 31, 2020, based on those criteria. A control system can provide only reasonably, not absolute, assurance that the objectives of the control system are met and no evaluation of controls can provide absolute assurance that all control issues have been detected.

 

Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2020 and identified the following material weaknesses, which are outlined further in our Annual Report on Form 10-K for the year ended December 31, 2018:

 

Inadequate segregation of duties: We have an inadequate number of personnel to properly implement control procedures.

 

We have not documented our internal controls: We have limited policies and procedures that cover the recording and reporting of financial transactions and accounting provisions. As a result we may be delayed in our ability to calculate certain accounting provisions.

 

We do not have effective controls over the control environment. A formally adopted written code of business conduct and ethics that governs our employees, officers, and directors was not in place. Additionally, management has not developed and effectively communicated to our employees its accounting policies and procedures. This has resulted in inconsistent practices. We also do not have independent members on our Board of Directors.

 

We have not been able to timely and accurately record convertible debt transactions, deferred revenue, and derivative liabilities in the financial statements. As a result, we have needed additional time, beyond the filing deadlines, to file our periodic reports.

 

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PART II – OTHER INFORMATION

 

ITEM 1 Legal Proceedings

 

On February 21, 2018, we filed a Complaint in the Superior Court of the State of Arizona, County of Maricopa against EZ Interlock, LLC (Blow & Drive Interlock Corp. v. EZ Interlock, LLC (Case No. CV2018-051689, Superior Court of the State of Arizona, Maricopa County) for Conversion, Implied/Quasi Contract and Quantum Meruit, Unjust Enrichment, Tortious Interference with Business Expectancy/Prospective Business Relations, and Lost Profits. The basis for our lawsuit was that EZ Interlock an authorized installer of ours in the State of Arizona, was a customer of BDI Interlock, LLC, one of our distributors, and EZ Interlock was installing our BDI-747/1 devices for customers in Arizona and collecting fees from such customers, but stopped remitting payment to BDI Interlock, LLC, which, in turn, was unable to remit funds to us. We filed the lawsuit to have EZ Interlock stop installing our devices, return our devices in its possession, and pay the amounts owed to BDI Interlock and us for the customers paying EZ Interlock for our devices. EZ Interlock filed an Answer and Counterclaim on July 23, 2018. Shortly after filing our Complaint, the Court granted our request for a Temporary Restraining Order and Preliminary Injunction from continuing to install devices and return the devices in its possession. On February 7, 2019, our new management elected to dismiss the lawsuit, without prejudice, based on their opinion that our chances of recovering money from EZ Interlock was slim compared to amount that would be necessary to fund the litigation. We received most of our devices back from EZ Interlock. No discovery was conducted during the litigation.

 

In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.

 

ITEM 1A Risk Factors

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds

 

During the three months ended March 31, 2020, we issued the following unregistered securities:

 

As detailed in Item 5, below, on March 2, 2020, we held an initial closing under the Crown SPA, and issued the Crown Note and the warrant to Crown. Based on the representations of Crown in the Crown SPA, the issuance of the Crown Note and the warrant issued to Crown were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933. The investor was accredited and sophisticated, familiar with our operations, and there was no solicitation.

 

As detailed in Item 5, below, on February 26, 2020, we closed the Auctus SPA, and issued the Auctus Note and the warrant to Auctus. Based on the representations of Auctus in the Auctus SPA, the issuance of the Auctus Note and the warrant issued to Auctus were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933. The investor was accredited and sophisticated, familiar with our operations, and there was no solicitation.

 

As detailed in Item 5, below, on February 26, 2020, we closed the EMA SPA and issued the EMA Note. Based on the representations of EMA in the EMA SPA, the issuance of the EMA Note was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933. The investor was accredited and sophisticated, familiar with our operations, and there was no solicitation.

 

ITEM 3 Defaults Upon Senior Securities

 

There have been no events which are required to be reported under this Item.

 

ITEM 4 Mine Safety Disclosures

 

There have been no events which are required to be reported under this Item.

 

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ITEM 5 Other Information

 

Crown Bridge Partners

 

On March 2, 2020, we held an initial closing under a Securities Purchase Agreement (the “Crown SPA”) and corresponding Convertible Promissory Note (the “Crown Note”) with Crown Bridge Partners, LLC (“Crown”), dated February 25, 2020. Under the Crown SPA and the Crown Note, we agreed to issue Crown the Crown Note in the principal amount of Fifty Thousand Dollars ($50,000) in exchange for Forty Three Thousand Two Hundred Fifty Dollars ($43,250), with the remaining going to an original issuance discount of $5,000 and $1,750 for Crown’s legal counsel for drafting the loan documents. The Crown Note bears interest at Ten Percent (10%) per annum and matures twelve (12) months from the date of the funding, or March 2, 2021. Under the terms of the Crown Note, Crown has the right, at any time to convert all or part of the amounts due to it under the Crown Note into shares of our common stock. The conversion price is 55% of the lesser of (a) the lowest traded price in the preceding 25 trading days, or (b) the lowest closing bid price, of our common stock on the twenty-five trading days prior to the conversion date. However, Crown may not convert the amounts due under the Note into shares of our common stock if such conversion would cause it to own more than 4.99% of our then-outstanding common stock. In the event we default under the terms of the Crown Note, we owe 175% of the principal amount then due under the Note, plus any unpaid interest, immediately. We may prepay the amounts loaned to us under the Crown Note as follows: (i) during the initial 90-day period after each tranche, at 135% multiplied by the amount we are prepaying, and (ii) during the 91st through 180 days after each tranche, at 155% multiplied by the amount we are prepaying. Any prepayments are subject to Crown’s written acceptance of such prepayment. After 180 days we cannot prepay the amounts due under the Crown Note. The Crown Note also contains various penalty provisions for failure to comply with certain terms of the note, including, but not limited to, the timely delivery of stock certificates upon conversion, any of which, if violated by us, could cause the principal amount due under the Crown Note to increase.

 

The conversion of the amounts due under the Crown Note into shares of our common stock could cause us to issue numerous shares of our common stock, causing substantial dilution to our existing shareholders. As an example, the current $50,000 principal due under the Crown Note would convert into approximately 2,313,209 shares of our common stock calculated at a 45% discount to our closing stock price on March 2, 2020 of $0.0393 per share. The number of shares of our common stock we may have to issue under the Crown Note depends on a variety of factors, including, but not limited to, our stock price, any penalty principal added to the Crown Note, and the interest we owe on the outstanding principal. If our stock price decreases, we would have to issue additional shares of our stock to cover any conversions. The lower our stock price the more shares we would have to issue. However, due to the limiter contained in the Crown Note, Crown cannot convert into more than 4.99% of our then-outstanding common stock.

 

In addition to issuing the Crown Note, we agreed to issue Crown a warrant to purchase 416,666 shares of our common stock at an exercise price of $0.12 per share. The warrant contains a cashless exercise provision. Each warrant expires five years after the date of issuance.

 

The description of the Crown SPA, the Crown Note, and warrant issued to Crown set forth in this report is qualified in its entirety by reference to the full text of those documents, which are attached hereto as Exhibit 10.15, 10.16 and 10.17.

 

Auctus Fund

 

On February 26, 2020, we closed a Securities Purchase Agreement (the “Auctus SPA”) and corresponding Convertible Promissory Note (the “Auctus Note”) with Auctus Fund, LLC (“Auctus”), dated February 24, 2020. Under the Auctus SPA and the Auctus Note, we agreed to issue Auctus the Auctus Note in the principal amount of One Hundred Twelve Thousand Seven Hundred Fifty Dollars ($112,750) in exchange for One Hundred Thousand Dollars ($100,000), with the remaining going to an original issuance discount of $10,000 and $2,750 for Auctus’ legal counsel for drafting the loan documents. The Auctus Note bears interest at Twelve Percent (12%) per annum and matures on December 24, 2020. Under the terms of the Auctus Note, Auctus has the right, at any time to convert all or part of the amounts due to it under the Auctus Note into shares of our common stock. The conversion price is the lesser of (i) the lowest trading price of our common stock during the preceding twenty-five trading days prior to conversion, or (ii) 50% multiplied by the lowest Trading Price during the twenty-five trading days prior to the conversion date. However, Auctus may not convert the amounts due under the Note into shares of our common stock if such conversion would cause it to own more than 4.99% of our then-outstanding common stock. In the event we default under the terms of the Auctus Note, we owe 150% of the principal amount then due under the Note, plus any unpaid interest, immediately. We may prepay the amounts loaned to us under the Auctus Note as follows: (i) during the initial 90-day period after the issue date, at 135% multiplied by the amount we are prepaying, and (ii) from the 91st through the 180th day after the issue date, at 150% multiplied by the amount we are prepaying. Any prepayments are subject to Auctus’ written acceptance of such prepayment. After 180 days from the issue date we cannot prepay the Auctus Note. The Auctus Note also contains various penalty provisions for failure to comply with certain terms of the note, including, but not limited to, the timely delivery of stock certificates upon conversion, any of which, if violated by us, could cause the principal amount due under the Auctus Note to increase.

 

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The conversion of the amounts due under the Auctus Note into shares of our common stock could cause us to issue numerous shares of our common stock, causing substantial dilution to our existing shareholders. As an example, with Auctus’ note amount of One Hundred Twelve Thousand Seven Hundred Fifty Dollars ($112,750), the principal due under the Auctus Note would convert into 5,737,914 shares of our common stock calculated at a 50% discount to our closing stock price on March 2, 2020 of $0.0393 per share. The number of shares of our common stock we may have to issue under the Auctus Note depends on a variety of factors, including, but not limited to, our stock price, any penalty principal added to the Auctus Note, and the interest we owe on the outstanding principal. If our stock price decreases, we would have to issue additional shares of our stock to cover any conversions. The lower our stock price the more shares we would have to issue. However, due to the limiter contained in the Auctus Note, Auctus cannot convert into more than 4.99% of our then-outstanding common stock.

 

In addition to issuing the Auctus Note, we agreed to issue Auctus a warrant to acquire 1,127,500 shares of our common stock at an exercise price of $0.05 per share. The warrant contains a cashless exercise provision and expires on the fifth anniversary of the warrant.

 

The description of the Auctus SPA, the Auctus Note, and warrant issued to Auctus set forth in this report is qualified in its entirety by reference to the full text of those documents, which are attached hereto as Exhibit 10.18, 10.19 and 10.20.

 

EMA Financial

 

On February 26, 2020, we closed a Securities Purchase Agreement (the “EMA SPA”) and corresponding Convertible Promissory Note (the “EMA Note”) with EMA Financial, LLC (“EMA”), dated February 24, 2018. Under the EMA SPA and the EMA Note, we agreed to issue EMA the EMA Note in the principal amount of Seventy Five Thousand Dollars ($75,000) in exchange for Sixty Thousand Dollars ($60,000), with the remaining going to an original issuance discount of $11,250, $1,000 to EMA for due diligence, and $2,750 for EMA’s legal counsel for drafting the loan documents. The EMA Note bears interest at Ten Percent (10%) per annum and matures on November 24, 2020. Under the terms of the EMA Note, EMA has the right, at any time to convert all or part of the amounts due to it under the EMA Note into shares of our common stock. The conversion price is the lesser of (i) the lowest closing price of our common stock during the preceding twenty-five trading days prior to conversion (on which at least 100 shares of common stock were traded), or (ii) 50% multiplied by the lowest Trading Price during the twenty-five trading days (on which at least 100 shares of common stock were traded) prior to the conversion date. However, EMA may not convert the amounts due under the Note into shares of our common stock if such conversion would cause it to own more than 4.99% of our then-outstanding common stock, which limitation may be waived by EMA upon 61 days-notice. In the event we default under the terms of the EMA Note, we owe 200% of the principal amount then due under the Note, plus any unpaid interest, immediately. We may prepay the amounts loaned to us under the EMA Note as follows: (i) during the initial 90-day period after the issue date, at 125% multiplied by the amount we are prepaying, and (ii) from the 91st through the 180th day after the issue date, at 135% multiplied by the amount we are prepaying. Any prepayments are subject to EMA’s written acceptance of such prepayment. After 180 days from the issue date we cannot prepay the EMA Note. The EMA Note also contains various penalty provisions for failure to comply with certain terms of the note, including, but not limited to, the timely delivery of stock certificates upon conversion, any of which, if violated by us, could cause the principal amount due under the EMA Note to increase.

 

The conversion of the amounts due under the EMA Note into shares of our common stock could cause us to issue numerous shares of our common stock, causing substantial dilution to our existing shareholders. As an example, with EMA’s note amount of Seventy Five Thousand Dollars ($75,000), the principal due under the EMA Note would convert into 3,816,794 shares of our common stock calculated at a 50% discount to our closing stock price on March 2, 2020 of $0.0393 per share. The number of shares of our common stock we may have to issue under the EMA Note depends on a variety of factors, including, but not limited to, our stock price, any penalty principal added to the EMA Note, and the interest we owe on the outstanding principal. If our stock price decreases, we would have to issue additional shares of our stock to cover any conversions. The lower our stock price the more shares we would have to issue. However, due to the limiter contained in the EMA Note, EMA cannot convert into more than 4.99% of our then-outstanding common stock, unless EMA waived such provision with at least 61 days-notice.

 

The description of the EMA SPA and the EMA Note set forth in this report is qualified in its entirety by reference to the full text of those documents, which are attached hereto as Exhibit 10.21 and 10.22.

 

38
 

 

ITEM 6 Exhibits

 

Item No.  Description
    
3.1 (1)  Certificate of Incorporation of Jam Run Acquisition Corporation dated June 28, 2013
    
3.2 (2)  Articles of Amendment to Articles of Incorporation to Jam Run Acquisition Corporation dated February 6, 2014 (changing corporate name to Blow & Drive Interlock Corporation)
    
3.3 (3)  Articles of Amendment to Articles of Incorporation to Blow & Drive Interlock Corporation dated October 28, 2019 (increasing authorized common stock to Ten Billion (10,000,000,000) shares)
    
3.4 (1)  Bylaws of Jam Run Acquisition Corporation (now Blow & Drive Interlock Corporation) dated June 2013
    
10.1 (4)  Supply Agreement by and between BDI Manufacturing, Inc., an Arizona corporation, and C4 Development Ltd. dated June 29, 2015
    
10.2 (5)  Secured Promissory Note and Agreement with Ira Silver dated January 20, 2016

 

10.3 (5)  Secured Promissory Note and Agreement with Chaim K. Wainer dated October 29, 2015
    
10.4 (6)  Loan and Security Agreement with Doheny Group, LLC dated September 30, 2016
    
10.5 (6)  Phase 1 Loan Agreement with D1oheny Group, LLC dated September 30, 2016
    
10.6 (6)  Royalty Agreement with Doheny Group, LLC dated September 30, 2016
    
10.7 (6)  Common Stock Purchase Agreement with Doheny Group, LLC dated September 30, 2016
    
10.8 (7)  Amendment No. 1 to Loan and Security Agreement with Doheny Group, LLC dated June 3, 2017
    
10.9 (7)  Amendment No. 1 to Royalty Agreement with Doheny Group, LLC dated June 3, 2017
    
10.10 (8)  Form of Securities Purchase Agreement
    
10.11 (8)  Settlement Agreement by and between Blow & Drive Interlock Corporation and J C Lopez/BDI Interlock LLC dated January 21, 2018 (memorializes oral agreement between the parties dated September 30, 2017)
    
10.12 (9)  Agreement to Purchase Common Stock and Preferred Stock dated December 31, 2019
    
10.13 (10)  Debt Conversion and Series A Preferred Stock Purchase Agreement by and between Blow & Drive Interlock Corporation and Laurence Wainer dated March 7, 2017
    
10.14*  Debt Conversion and Series B Preferred Stock Purchase Agreement by and between Blow & Drive Interlock Corporation and The Doheny Group dated September 6, 2019
    
10.15 (11)  Securities Purchase Agreement between Blow & Drive Interlock Corporation and Crown Bridge Partners, LLC dated February 25, 2020
    
10.16 (11)  Convertible Promissory Note issued to Crown Bridge Partners, LLC dated February 25, 2020
    
10.17 (11)  Common Stock Purchase Warrant issued to Crown Bridge Partners, LLC dated February 25, 2020

 

39
 

 

10.18 (11)  Securities Purchase Agreement between Blow & Drive Interlock Corporation and Auctus Fund, LLC dated February 24, 2020
    
10.19 (11)  Convertible Promissory Note issued to Auctus Fund, LLC dated February 24, 2020
    
10.20 (11)  Common Stock Purchase Warrant issued to Auctus Fund, LLC dated February 24, 2020
    
10.21 (11)  Securities Purchase Agreement between Blow & Drive Interlock Corporation and EMA Financial, LLC dated February 24, 2020
    
10.22 (11)  Convertible Promissory Note issued to EMA Financial, LLC dated February 24, 2020
    
31.1  Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith).
    
31.2  Rule 13a-14(a)/15d-14(a) Certification of Chief Accounting Officer (filed herewith).
    
32.1  Section 1350 Certification of Chief Executive Officer (filed herewith).
    
32.2  Section 1350 Certification of Chief Accounting Officer (filed herewith).

 

101.INS **   XBRL Instance Document
     
101.SCH **   XBRL Taxonomy Extension Schema Document
     
101.CAL **   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF **   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB **   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE **   XBRL Taxonomy Extension Presentation Linkbase Document

 

*Filed herewith

 

**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.

 

  (1) Incorporated by reference from our Registration Statement on Form 10, filed with the Commission on September 30, 2013.
     
  (2) Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on June 27, 2019
     
  (3) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on October 31, 2019
     
  (4) Incorporated by reference from our Quarterly Report on Form 10-Q, filed with the Commission on August 13, 2015.
     
  (5) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on March 17, 2016.
     
  (6) Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on November 21, 2016.
     
  (7) Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on August 21, 2017.
     
  (8) Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on February 9, 2018.
     
  (9) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on January 11, 2019.
     
  (10) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on March 15, 2017
     
  (11) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on March 5, 2020

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  

  Blow & Drive Interlock Corporation
     
Dated: May 20, 2020   /s/ David Haridim
  By: David Haridim
    President (Principal Executive Officer)
     

 

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Convertible Notes Payable (Details Narrative)
Convertible Notes Payable (Tables)
Convertible Notes Payable - Schedule Of Convertible Notes Payable (Details)
Convertible Notes Payable - Schedule Of Convertible Notes Payable (Details) (Parenthetical)
Derivative Liabilities
Derivative Liabilities (Details Narrative)
Derivative Liabilities (Tables)
Derivative Liabilities - Schedule Of Derivative Liabilities (Details)
Derivative Liabilities - Schedule Of Derivative Liabilities (Details) (Parenthetical)
Derivative Liabilities - Schedule Of Revalue Of Derivatives Using Black Scholes Model (Details)
Derivative Liabilities - Schedule Of Revalue Of Derivatives Using Black Scholes Model (Details) (Parenthetical)
Income (Loss) Per Share
Income (Loss) Per Share (Tables)
Income (Loss) Per Share - Schedule Of Antidilutive Securities Excluded From Computation Of Earnings Per Share (Details)
Income (Loss) Per Share - Schedule Of Dilutive Securities Of Common Shares Outstanding (Details)
Notes Payable
Notes Payable (Details Narrative)
Notes Payable (Tables)
Notes Payable - Schedule Of Notes Payable (Details)
Notes Payable - Schedule Of Notes Payable (Details) (Parenthetical)
Notes Payable To Related Parties
Notes Payable To Related Parties (Details Narrative)
Notes Payable To Related Parties (Tables)
Notes Payable To Related Parties - Schedule Of Notes Payable To Related Parties (Details)
Notes Payable To Related Parties - Schedule Of Notes Payable To Related Parties (Details) (Parenthetical)
Organization And Nature Of Business
Organization And Nature Of Business (Details Narrative)
Related Party Transactions
Segment Reporting
Segment Reporting (Details Narrative)
Segment Reporting (Tables)
Segment Reporting - Schedule Of Net Sales And Identifiable Operating Income By Segment (Details)
Stock Warrants
Stock Warrants (Details Narrative)
Stock Warrants (Tables)
Stock Warrants - Schedule Of Warrant Activity (Details)
Stockholders' Equity
Stockholders' Equity (Details Narrative)
Subsequent Events

Material Contracts, Statements, Certifications & more

Blow Drive Interlock Corp provided additional information to their SEC Filing as exhibits

Ticker: BDIC
CIK: 1586495
Form Type: 10-Q Quarterly Report
Accession Number: 0001493152-20-009565
Submitted to the SEC: Wed May 20 2020 5:26:19 PM EST
Accepted by the SEC: Wed May 20 2020
Period: Tuesday, March 31, 2020
Industry: Motor Vehicle Parts And Accessories

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