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Blow Drive Interlock Corp (BDIC) SEC Filing 10-Q Quarterly report for the period ending Tuesday, June 30, 2020

Blow Drive Interlock Corp

CIK: 1586495 Ticker: BDIC
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2020
Aug. 11, 2020
Document And Entity Information  
Entity Registrant NameBlow & Drive Interlock Corp 
Entity Central Index Key0001586495 
Document Type10-Q 
Document Period End DateJun. 30, 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 131,350,683
Document Fiscal Period FocusQ2 
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 June 30, 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   46-3590850
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
1427 S. Robertson Blvd.    
Los Angeles, CA   90035
(Address of principal executive offices)   (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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   None   None

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, no par value

 

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 [  ] Smaller reporting company [X]  
(Do not check if a smaller reporting company)    
  Emerging growth company [  ]  

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] 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 August 11, 2020, there were 131,350,683 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, 2019, filed on March 30, 2020, 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 30
   
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 37
     
ITEM 4 Controls and Procedures 37
   
PART II – OTHER INFORMATION 38
     
ITEM 1 Legal Proceedings 38
     
ITEM 1A Risk Factors 38
     
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds 38
     
ITEM 3 Defaults Upon Senior Securities 39
     
ITEM 4 Mine Safety Disclosures 39
     
ITEM 5 Other Information 39
     
ITEM 6 Exhibits 40

 

 3 
 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1 Financial Statements

 

The consolidated balance sheets as of June 30, 2020 (unaudited) and December 31, 2019, the consolidated statements of operations for the three and six months ended June 30, 2020 and 2019, the consolidated statement of stockholders equity (deficit) for the three and six months ended June 30, 2020, and the consolidated statements of cash flows for the six months ending June 30, 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 
 

 

BLOW & DRIVE INTERLOCK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   (Unaudited)     
   As of   As of 
   June 30, 2020   December 31, 2019 
         
ASSETS          
           
Current Assets:          
Cash  $1,593   $91,314 
Accounts receivable, net of allowance for doubtful accounts $0   37,030    20,848 
Prepaid expenses   -    1,199 
Total current assets   38,623    113,361 
Deposits   6,481    6,481 
           
Total assets  $45,104   $119,842 
           
LIABILITIES AND SHAREHOLDERS’ DEFICIT          
           
Current Liabilities:          
Accounts payable  $256   $150 
Accrued expenses   10,146    35,571 
Accrued royalty payable - related party   -    71,465 
Accured interest   56,155    15,660 
Accrued interest - related party   998,618    717,120 
Income taxes payable   -    6,730 
Notes payable   67,159    67,159 
Notes payable - related party, current portion   246,800    384,200 
Convertible notes payable, net of debt discount of $8,965 and $6,403, respectively   20,846    7,500 
Derivative liability   29,907    29,907 
Total current liabilities   1,429,887    1,335,462 
           
Non-current Liabilities:          
Notes payable - net of current portion   150,000    - 
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 non-current liabilities   2,170,000    2,031,035 
           
Total liabilities   3,599,887    3,366,497 
           
Commitments and contingencies          
           
Shareholders’ Deficit:          
Preferred stock, par value $0.001, 20,000,000 shares authorizard, 1,000,000 and 1,000,000 shares issued or issuable and outstanding   1,000    102,000 
Common stock, par value $0.0001, 10,000,000,000 shares authorized, 131,350,683 and 131,350,683 shares issued or issuable and outstanding   13,135    3,135 
Additional paid-in-capital   3,676,636    3,514,171 
Accumulated deficit   (7,245,554)   (6,865,961)
Total shareholders’ deficit   (3,554,783)   (3,246,655)
           
Total liabilities and shareholders’ deficit  $45,104   $119,842 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 5 
 

 

BLOW & DRIVE INTERLOCK CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   Six Months Ended June 30,   Three Months Ended June 30, 
   2020   2019   2020   2019 
                 
Revenues:                    
Monitoring revenues  $-   $363,243   $-   $149,556 
Distributorship revenues   76,015    36,681    37,030    18,990 
Total revnues   76,015    399,924    37,030    168,546 
                     
Cost of revenues:                    
Monitoring cost of revenue   -    25,233    -    3,598 
Distribution cost of revenue   -    -    -    - 
Total cost of revenues   -    25,233    -    3,598 
                     
Gross profit   76,015    374,691    37,030    164,948 
                     
Operating expenses:                    
Payroll   17,505    210,718    8,406    112,678 
Professional fees   43,300    147,297    21,270    105,751 
General and administrative   32,999    131,492    2,687    71,418 
Total operating expenses   93,804    489,507    32,363    289,847 
                     
Income (loss) from operations   (17,789)   (114,816)   4,667    (124,899)
                     
Other income (expense):                    
Interest expense, net   (351,053)   (338,808)   (188,132)   (161,984)
Interest expense - amortization of debt discount   (40,465)   -    (16,715)   - 
Derivative expense   (255,482)   -    -    - 
Change in fair value of derivative liability   -    (7,390)   -    (5,558)
Gain (loss) on extinguishment of debt   283,196    54,764    283,196    - 
Other income   2,000    -    2,000    - 
Total other income (expense)   (361,804)   (291,434)   80,349    (167,542)
                     
Income (loss) before income taxes   (379,593)   (406,250)   85,016    (292,441)
                     
Income tax   -    1,600    -    - 
                     
Net income (loss)  $(379,593)  $(407,850)  $85,016   $(292,441)
                     
Earnings (loss) per share:                    
Basic and Diluted  $(0.00)  $(0.01)  $0.00   $(0.01)
                     
Weighted average number of shares outstanding:                    
Basic and Diluted   85,871,231    30,447,549    85,871,231    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   Preferred Stock - Series B   Common Stock   Additional Paid-In   Accumulated  

Total

Stockholders’ Equity

 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   (Deficit) 
                                     
Balance April 1, 2020   1,000,000   $1,000    10,000,000   $101,000    31,350,683   $3,135   $3,585,636   $(7,330,570)  $(3,639,799)
                                              
Conversion of preferred stock to Common Stock   -    -    (10,000,000)   (101,000)   100,000,000    10,000    91,000    -    - 
Net income   -    -    -    -    -    -    -    85,016    85,016 
                                              
Balance June 30, 2020   1,000,000   $1,000    -   $-    131,350,683   $13,135   $3,676,636   $(7,245,554)  $(3,554,783)

 

   Preferred Stock - Series A   Common Stock   Additional Paid-In   Accumulated  

Total

Stockholders’ Equity

 
   Shares   Amount   Shares   Amount   Capital   Deficit   (Deficit) 
                             
Balance April 1, 2019   1,000,000   $1,000    30,566,920   $3,057   $3,514,249   $(6,211,731)  $(2,693,425)
                                    
Net loss   -    -    -    -    -    (292,441)   (292,441)
                                    
Balance June 30, 2019   1,000,000   $1,000    30,566,920   $3,057   $3,514,249   $(6,504,172)  $(2,985,866)

 

   Preferred Stock - Series A   Preferred Stock - Series B   Common Stock   Additional Paid-In   Accumulated  

Total

Stockholders’ Equity

 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   (Deficit) 
                                     
Balance January 1, 2020   1,000,000   $1,000    10,000,000   $101,000    31,350,683   $3,135   $3,514,171   $(6,865,961)  $(3,246,655)
                                              
Write off royalty payables   -    -    -    -    -    -    71,465    -    71,465 
Conversion of preferred stock to Common Stock   -    -    (10,000,000)   (101,000)   100,000,000    10,000    91,000    -    - 
Net loss   -    -    -    -    -    -    -    (379,593)   (379,593)
                                              
Balance June 30, 2020   1,000,000   $1,000    -   $-    131,350,683   $13,135   $3,676,636   $(7,245,554)  $(3,554,783)

 

   Preferred Stock - Series A   Common Stock   Additional Paid-In   Accumulated  

Total

Stockholders’ Equity

 
   Shares   Amount   Shares   Amount   Capital   Deficit   (Deficit) 
                             
Balance January 1, 2019   1,000,000   $1,000    31,073,529   $3,107   $3,489,698   $(6,096,322)  $(2,602,516)
                                    
Shares issued for services   -    -    250,000    25    24,475    -    24,500 
Shares returned related to anti-dilution   -    -    (756,609)   (75)   75    -    - 
Net loss   -    -    -    -    -    (407,850)   (407,850)
                                    
Balance June 30, 2019   1,000,000   $1,000    30,566,920   $3,057   $3,514,248   $(6,504,172)  $(2,985,866)

 

The accompanying notes are an integral part of these financial statements

 

 7 
 

 

BLOW & DRIVE INTERLOCK CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Six Months Ended June 30, 
   2020   2019 
Cash flows from operating activities:          
Net loss  $(379,593)  $(407,850)
Adjustments to reconcile net income (loss) to net cash used in operating activities          
Stock or warrants issued for services   -    24,500 
Amortization of debt discount   2,311    17,035 
Changes in fair value of derivative liability   -    7,390 
Gain (loss) on extinguishment of debt   238,060    (54,764)
Changes in operating assets and liabilities          
Accounts receivable   (16,182)   (6,430)
Prepaid expenses   1,199    (182)
Accounts payable   106    - 
Accrued expenses   (25,425)   (39,254)
Accrued royalties payable   -    29,750 
Accrued interest   40,185    170,325 
Accrued interest related party   281,498    151,500 
Deferred revenue   -    (74,980)
Income tax payable   (6,730)   - 
Net cash provided by (used in) operating activities   135,429    (182,960)
           
Cash flows from financing activities:          
Borrowings of long-term debt   150,000    - 
Principal payments on notes payable   (137,400)   (31,589)
Principal payments on convertible notes payable   (237,750)   - 
Proceeds from issuance of notes payable related party   -    226,200 
Net cash provided by (used in) financing activities   (225,150)   194,611 
           
Net increase (decrease) in cash   (89,721)   11,651 
           
Cash at beginning of period   91,314    775 
           
Cash at end of period  $1,593   $12,426 
           
Supplemental disclosures of cash flow information          
Cash paid during the period for:          
Interest paid  $6,046   $- 
Income taxes paid  $800   $800 
           
Supplemental disclosure of non-cash investing and financing activities          
Common stock and warrants issued for services  $-   $24,500 

 

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 June 30, 2020, the Company had an accumulated deficit of $7,245,554 and net loss of $379,593 for the six months ended June 30, 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 $0 and $267 for the three months ended June 30, 2020 and 2019, respectively, and $25,000 and $267 for the six months ended June 30, 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 June 30, 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 valuation 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 – June 30, 2020    -    -    29,907 

 

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 six months ended June 30, 2020, one distributor, licensed in four states, makes up approximately 100% percent of all revenues from distributors at June 30, 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 June 30, 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:

 

   Six Months Ended June 30,   Three Months Ended June 30, 
   2020   2019   2020   2019 
                 
Segment gross profit (a):                    
Monitoring  $-   $338,010   $-   $145,958 
Distributorships   76,015    36,681    37,030    18,990 
Gross profit   76,015    374,691    37,030    164,948 
                     
Identifiable segment operating expenses (b):                    
Monitoring   -    -    -    - 
Distributorships   -    -    -    - 
Total operating expenses   -    -    -    - 
                     
Identifiable segment operating income (c):                    
Monitoring   -    338,010    -    145,958 
Distributorships   76,015    36,681    37,030    18,990 
    76,015    374,691    37,030    164,948 
                     
Reconciliation of identifiable segment income to corporate income (d):                    
Payroll   17,505    210,718    8,406    112,678 
Professional fees   43,300    147,297    21,270    105,751 
General and administrative   32,999    131,492    2,687    71,418 
Interest expense, net   351,053    338,808    188,132    161,984 
Interest expense - amortization of debt discount   40,465    -    16,715    - 
Derivative expense   255,482    -    -    - 
Change in fair value of derivative liability   -    7,390    -    5,558 
Gain on extinguishment of debt   (283,196)   (54,764)   (283,196)   - 
Other income   (2,000)   -    (2,000)   - 
    455,608    780,941    (47,986)   457,389 
                     
Income (loss) before provision for income taxes   (379,593)   (406,250)   85,016    (292,441)
                     
Provision for income taxes   -    1,600    -    - 
                     
Net income (loss)  $(379,593)  $(407,850)  $85,016   $(292,441)
                     
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 
   June 30, 2020   December 31, 2019 
         
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 
May 2020 ($150,000) - $731 monthly principal and interest until paid in full.   150,000    - 
           
Total notes payable   217,159    67,159 
           
Less: current portion   (67,159)   (67,159)
           
Notes payable, non-current portion, net of debt discount  $150,000   $- 

 

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 June 30, 2020 and 2019, respectively, and $17,126 and $17,126 for the six months ended June 30, 2020 and 2019, respectively.

 

May 2020 - $150,000

 

On May 22, 2020, the Company provided an agreement to a third party to obtain a $150,000 promissory note in exchange for $152,000 in cash ($2,000 was for a grant and will be not repaid, and $100 in administrative fee was deducted from cash). The promissory note had a maturity date of May 21, 2050 and bears interest at 3.75% per annum. The note required total payments of $731.00 per month until paid in full.

 

Total interest expense was $586 for the six months ended June 30, 2020.

 

 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 
   June 30, 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 
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 
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 
September 27, 2019 ($101,700) - Principal only due September 27, 2020. No interest   63,800    101,700 
December 31, 2019 ($83,000) - Principal only due December 31, 2020. No interest   83,000    83,000 
May 19, 2020 ($100,000) - Principal only due May 19, 2021. No interest   100,000    - 
           
Total notes payable to related parties   2,266,800    2,404,200 
           
Less: current portion   (246,800)   (384,200)
           
Notes payable to related parties, non-current portion  $2,020,000   $2,020,000 

 

 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 June 30, 2020 and 2019, respectively, and $303,000 and $303,000 for the six months ended June 30, 2020 and 2019, respectively.

 

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.

 

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.

 

 19 
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 5 – NOTES PAYABLE TO RELATED PARTIES (continued)

 

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.

 

May 2020 - $100,000

 

On May 19, 2020, the Company entered into an agreement with a related party, Doheny Group, to obtain a $100,000 loan. The note bears no interest and is due in full on May 19, 2021.

 

 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 
   June 30, 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 
           
Total convertible notes payable    27,500    27,500 
           
Less: debt discount    (6,403)   (8,965)
           
Total notes payable, net of debt discount    21,097    18,535 
           
Less: current portion    (21,097)   (7,500)
           
Convertible notes payable, non-current portion, net of debt discount   $-   $11,035 

 

 21 
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 6 – CONVERTIBLE NOTES PAYABLE (continued)

 

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 June 30, 2020 and 2019, respectively, and $282 and $282 for the six months ended June 30, 2020 and 2019, respectively.

 

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 June 30, 2020, this note has not been converted.

 

Total interest expense was $500 and $500 for the three months ended June 30, 2020 and 2019, respectively, and $1,000 and $1,000 for the six months ended June 30, 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 June 30, 2020, this note has been paid in full.

 

Total interest expense was $1,816 for the three months ended June 30, 2020, and $3,169 for the six months ended June 30, 2020.

 

 22 
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 6 – CONVERTIBLE NOTES PAYABLE (continued)

 

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 June 30, 2020, this note has been paid in full.

 

Total interest expense was $986 for the three months ended June 30, 2020, and $1,736 for the six months ended June 30, 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 June 30, 2020, this note has been paid in full.

 

Total interest expense was $658 for the three months ended June 30, 2020, and $1,141 for the six months ended June 30, 2020.

 

 23 
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 7 – DERIVATIVE LIABILITIES

 

Derivative liabilities consisted of the following:

 

   As of   As of 
   June 30, 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   -    - 
February 2020 – $75,000 convertible debt   -    - 
February 2020 – $50,000 convertible debt   -    - 
           
Total derivative liabilities  $29,907   $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”).

 

BDIC paid off in full of convertible promissory note to Auctus Fund on May 19, 2020, and to EMA Financial and Crown Bridge Partners on May 18, 2020.

 

 24 
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 7 – DERIVATIVE LIABILITIES (continued)

 

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.

 

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%.

 

 25 
 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 7 – DERIVATIVE LIABILITIES (continued)

 

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%

 

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 June 30, 2020.

 

   As of           Debt   As of 
   December 31, 2019   Additions   Changes   Extinguishment   June 30, 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   $(458,982)  $29,907 

 

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.

 

 26 
 

 

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 
   June 30, 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 were $0 and $14,450 for the three months ended June 30, 2020 and 2019, respectively, and $0 and $29,750 for the six months ended June 30, 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. As of June 30, 2020, the total number of preferred shares issued or issuable was 1,000,000.

 

Series A Preferred Stock

 

As of December 31, 2019, there were 11,000,000 shares of our preferred stock outstanding, with 1,000,000 shares being Series A Preferred Stock to an officer and director of the Company with a preliminary estimated value of $350,000. Our Series A Preferred has One Million (1,000,000) shares authorized and the following rights: no dividend rights; no liquidation preference over our common stock; no conversion rights; no redemption rights; no call rights; each share of Series A Convertible Preferred stock will have one hundred (100) votes on all matters validly brought to our common stockholders. As of June 30, 2020, all 1,000,000 shares of Series A Preferred Stock were held by The Doheny Group, LLC, an entity controlled by David Haridim, our sole officer and director.

 

Series B Preferred Stock

 

The other shares of our preferred stock outstanding were Series B Convertible Preferred Stock. Our Series B Preferred has Ten Million (10,000,000) shares authorized and the following rights: (i) dividend rights in pari passu with our common stock on an “as converted” basis; (ii) liquidation preference over our common stock; (iii) conversion rights of ten (10) shares of common stock for each share of Series B Convertible Preferred Stock converted; (iv) no redemption rights; (v) no call rights; (vi) each share of Series B Convertible Preferred stock will have one thousand (1,000) votes on all matters validly brought to our common stockholders. As of June 30, 2020, all 10,000,000 shares of Series B Convertible Preferred Stock held by The Doheny Group, LLC, an entity controlled by David Haridim, our sole officer and director, were converted into 100,000,000 shares BDIC of common stocks.

 

Common Stock

 

The Company has authorized 10,000,000,000 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 six months ended June 30, 2020, the Company issued 100,000,000 additional shares of its common stock. The total number of shares issued or issuable as of June 30, 2020 was 131,350,683.

 

 27 
 

 

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   (1,544,166)   (0.07)   (0.08)   - 
Outstanding as of June 30, 2020   5,677,586   $0.60    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:

 

   Six Months Ended June 30, 
   2020   2019 
Preferred shares  -   - 
Convertible notes   -    408,375 
Warrants   5,677,586    6,537,586 
Options   -    - 
Total anti-dilutive weighted average shares   5,677,586    6,945,961 

 

If all dilutive securities had been exercised at June 30, 2020, the total number of common shares outstanding would be as follows:

 

Common Shares   131,350,683 
Preferred Shares   - 
Convertible notes   - 
Warrants   5,677,586 
Options   - 
      
Total potential shares   137,028,269 

 

 28 
 

 

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.

 

 29 
 

 

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 June 30, 2020 and 2019, we had total revenues of $37,030 and $168,546, respectively, and a net income (loss) of $85,016 and ($292,441), respectively. For the six months ended June 30, 2020 and 2019, we had total revenues of $76,015 and $399,924, respectively, and a net income (loss) of ($379,593) and ($407,850), 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 June 30, 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 June 30, 2020, we had approximately 316 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 June 30, 2020 are classified as leased through a distributor with no units leased directly from us.

 

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 for the Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

 

   Three Months Ended June 30,         
   2020   2019   Changes 
   Amount   % of Revenue   Amount   % of Revenue   Amount   % 
Revenues:                              
Monitoring revenues  $-    0.0%  $149,556    88.7%  $(149,556)   -100.0%
Distributorship revenues   37,030    100.0%   18,990    11.3%   18,040    95.0%
Total revnues   37,030    100.0%   168,546    100.0%   (131,516)   -78.0%
                               
Cost of revenues:                              
Monitoring cost of revenue   -    0.0%   3,598    2.1%   (3,598)   -100.0%
Distribution cost of revenue   -    0.0%   -    0.0%   -    n/a 
Total cost of revenues   -    0.0%   3,598    2.1%   (3,598)   n/a 
                               
Gross profit   37,030    100.0%   164,948    97.9%   (127,918)   -77.6%
                               
Operating expenses:                              
Payroll   8,406    22.7%   112,678    66.9%   (104,272)   -92.5%
Professional fees   21,270    57.4%   105,751    62.7%   (84,481)   -79.9%
General and administrative   2,687    7.3%   71,418    42.4%   (68,731)   -96.2%
Total operating expenses   32,363    87.4%   289,847    172.0%   (257,484)   -88.8%
                               
Income (loss) from operations   4,667    12.6%   (124,899)   -74.1%   129,566    -103.7%
                               
Other income (expense):                              
Interest expense, net   (188,132)   -508.1%   (161,984)   -96.1%   (26,148)   16.1%
Interest expense - amortization of debt discount   (16,715)   -45.1%   -    0.0%   (16,715)   n/a 
Change in fair value of derivative liability   -    0.0%   (5,558)   -3.3%   5,558    -100.0%
Gain (loss) on extinguishment of debt   283,196    764.8%   -    0.0%   283,196    n/a 
Other income   2,000    5.4%   -    0.0%   2,000    n/a 
Total other income (expense)   80,349    217.0%   (167,542)   -99.4%   247,891    -148.0%
                               
Income (loss) before income taxes   85,016    229.6%   (292,441)   -173.5%   377,457    -129.1%
                               
Income taxes   -    0.0%   -    0.0%   -    n/a 
                               
Net income (loss)  $85,016    229.6%  $(292,441)   -173.5%   377,457    -129.1%

 

Operating Loss; Net Loss

 

Our net income increased by $377,457, from ($292,441) for the three months ended June 30, 2019 to $85,016 for the three months ended June 30, 2020. Our operating income (loss) increased by $129,566, from ($124,899) to $4,667 for the same periods. The increase in our net profit for the three months ended June 30, 2020, compared to the three months ended June 30, 2019, is primarily the result of us shifting our business model such that we are only leasing our devices through distributors and directly to customers, which was a leading factor leading to lower payroll expense, lower professional fees, lower general and administrative expense, and we also benefitted from a gain on extinguishment of debt. These changes are detailed below.

 

Revenue

 

Monitoring Revenues. Monitoring revenues decreased by $149,556, or 100.0%, to $0 in the second quarter of fiscal year 2020 from $149,556 in the second 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.

 

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Distributorship Revenues. Distributorship revenues increased by $18,040, or 95.0%, to $37,030 in the second quarter of fiscal year 2020 from $18,990 in the second 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.

 

Cost of Revenue

 

Our cost of revenue for the three months ended June 30, 2020 was $0, compared to $3,598 for the three months ended June 30, 2019. Our cost of revenue for the three months ended June 30, 2020 and June 30, 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 change in our business model where distributors lease devices directly to end users.

 

Payroll

 

Payroll expense decreased by $104,272, or -92.5%, to $8,406 in the second quarter of fiscal year 2020 from $112,678 in the second quarter last year. The decrease in payroll is due to decreasing personnel in the second quarter of fiscal year 2020 compared to second 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 $84,481, or 79.9%, to $21,270 in the second quarter of fiscal year 2020 from $105,751 in the second 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 $68,731, or -96.2%, to $2,687 in the second quarter of fiscal year 2020 from $71,418 in the second quarter last year. The decrease is due to the following:

 

 

Decrease of approximately $15,000 in royalty expense in the second quarter of fiscal year 2020 compared to second quarter last year, due to Doheny Group waiving its right to royalties on January 1, 2020.

 

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

 

Decrease of approximately $10,000 in license and fees expense in the second quarter of fiscal year 2020 compared to second quarter last year.

 

Decrease of approximately $21,000 in rent expense in the second quarter of fiscal year 2020 compared to second quarter last year.

 

Interest Expense

 

Interest expense increased by $26,148, or 16.1%, to $188,132 in the second quarter of fiscal year 2020 from $161,984 in the second quarter last year. Our interest expense is related to the interest we own on short term note payables. The increase is due to increase in loans from long term note payable

 

Interest Expense – amortization of debt discount

 

Interest expense increased by $16,715, to $16,715 in the second quarter of fiscal year 2020 from $0 in the second quarter last year. The increase is due to increase in loans from convertible note payable.

 

Change in Fair Value of Derivative Liability

 

During the three months ended June 30, 2020, we had a change in fair value of derivative liability of $0 compared to ($5,558) for the three months ended June 30, 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.

 

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Gain on Extinguishment of Debt

 

Our gain on extinguishment of debt increased by $283,196, or 100.0%, to $283,196 in the second quarter of fiscal year 2020 from $0 in the second quarter last year. The increase is due to forgiveness and settlement of debt in the second quarter of fiscal 2020.

 

Other Income

 

Our other income increased by $2,000, or 100.0%, to $2,000 in the second quarter of fiscal year 2020 from $0 in the second quarter last year. The increase is due to grant from SBA loan in the second quarter of fiscal 2020.

 

Results of Operations for the Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

 

   Six Months Ended June 30,     
   2020   2019   Changes 
   Amount   % of Revenue   Amount   % of Revenue   Amount   % 
Revenues:                              
Monitoring revenues  $-    0.0%  $363,243    90.8%  $(363,243)   -100.0%
Distributorship revenues   76,015    100.0%   36,681    9.2%   39,334    107.2%
Total revnues   76,015    100.0%   399,924    100.0%   (323,909)   -81.0%
                               
Cost of revenues:                              
Monitoring cost of revenue   -    0.0%   25,233    6.3%   (25,233)   -100.0%
Distribution cost of revenue   -    0.0%   -    0.0%   -    0.0%
Total cost of revenues   -    0.0%   25,233    6.3%   (25,233)   -100.0%
                               
Gross profit   76,015    100.0%   374,691    93.7%   (298,676)   -79.7%
                               
Operating expenses:                              
Payroll   17,505    23.0%   210,718    52.7%   (193,213)   -91.7%
Professional fees   43,300    57.0%   147,297    36.8%   (103,997)   -70.6%
General and administrative   32,999    43.4%   131,492    32.9%   (98,493)   -74.9%
Total operating expenses   93,804    123.4%   489,507    122.4%   (395,703)   -80.8%
                               
Income (loss) from operations   (17,789)   -23.4%   (114,816)   -28.7%   97,027    -84.5%
                               
Other income (expense):                              
Interest expense, net   (351,053)   -461.8%   (338,808)   -84.7%   (12,245)   3.6%
Interest expense - amortization of debt discount   (40,465)   -53.2%   -    0.0%   (40,465)   n/a 
Derivative expense   (255,482)   -336.1%   -    0.0%   (255,482)   n/a 
Change in fair value of derivative liability   -    0.0%   (7,390)   -1.8%   7,390    n/a 
Gain (loss) on extinguishment of debt   283,196    372.6%   54,764    13.7%   228,432    417.1%
Other income   2,000    2.6%   -    0.0%   2,000    n/a 
Total other income (expense)   (361,804)   -476.0%   (291,434)   -72.9%   (70,370)   24.1%
                               
Income (loss) before income taxes   (379,593)   -499.4%   (406,250)   -101.6%   26,657    -6.6%
                               
Income tax   -    0.0%   1,600    0.4%   (1,600)   -100.0%
                               
Net income (loss)  $(379,593)   -499.4%  $(407,850)   -102.0%  $28,257    -6.9%

 

Operating Loss; Net Loss

 

Our net loss decreased by $28,257, from ($407,850) for the six months ended June 30, 2019 to ($379,593) for the six months ended June 30, 2020. Our operating loss decreased by $97,027, from ($114,816) to ($17,789) for the same periods. The decrease in our net loss for the six months ended June 30, 2020, compared to the six months ended June 30, 2019, is primarily the result of us shifting our business model such that we are only leasing our devices through distributors and directly to customers, which was a leading factor leading to lower payroll expense, lower professional fees, lower general and administrative expense, and we also benefitted from a gain on extinguishment of debt. These changes are detailed below.

 

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Revenue

 

Monitoring Revenues. Monitoring revenues decreased by $363,243, or 100.0%, to $0 in the six months ended June 30, 2020 compared to $363,243 in the six months ended June 30, 2019. 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 $39,334, or 107.2%, to $76,015 in the six months ended June 30, 2020 from $36,681 in the six months ended June 30, 2019. 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.

 

Cost of Revenue

 

Our cost of revenue for the six months ended June 30, 2020 was $0, compared to $25,233 for the six months ended June 30, 2019. Our cost of revenue for the six months ended June 30, 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 change in our business model where distributors lease devices directly to end users.

 

Payroll

 

Payroll expense decreased by $193,213, or 91.7%, to $17,505 in the six months ended June 30, 2020 from $210,718 in the six months ended June 30, 2019. The decrease in payroll is due to decreasing personnel in the six-month period in 2020 compared to the same period 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 $103,997, or 70.6%, to $43,300 in the six months ended June 30, 2020 from $147,297 in the six months ended June 30, 2019. 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 $98,493, or 74.9%, to $32,999 in the six months ended June 30, 2020 from $131,492 in the six months ended June 30, 2019. The decrease is due to the following:

 

 

Decrease of approximately $45,000 in royalty expense in the first and second quarter of fiscal year 2020 compared to the first and second quarter last year, due to Doheny Group waiving its right to royalties on January 1, 2020.

 

Decrease of approximately $20,000 in special part and gases expense as we did not have any special part/gases purchase in the first and second quarter of fiscal year 2020 compared to first and second quarter of last year.

 

Decrease of approximately $25,000 in license and fees expense in the first and second quarter of fiscal year 2020 compared to first and second quarter last year.

 

Decrease of approximately $40,000 in rent expense in the first and second quarter of fiscal year 2020 compared to the first and second quarter last year.

 

Interest Expense

 

Interest expense increased by $12,245, or 3.6%, to $351,053 in the six months ended June 30, 2020 from $338,808 in the six months ended June 30, 2019. Our interest expense is related to the interest we own on short term note payables. The increase is due to increase in loans from long term note payable

 

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Interest Expense – amortization of debt discount

 

Interest expense increased by $40,465, to $40,465 in the six months ended June 30, 2020 from $0 in the six months ended June 30, 2019. The increase is due to increase in loans from convertible note payable.

 

Derivative Expense

 

During the six months ended June 30, 2020, we had a derivative expense of $255,482 compared to $0 for the six months ended June 30, 2019. The derivative expense in the period in 2020 resulted from conversion feature on certain convertible promissory note.

 

Change in Fair Value of Derivative Liability

 

During the six months ended June 30, 2020, we had a change in fair value of derivative liability of $0 compared to ($7,390) for the six months ended June 30, 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.

 

Gain on Extinguishment of Debt

 

Our gain on extinguishment of debt increased by $228,432, or 417.1%, to $283,196 in the six months ended June 30, 2020 from $54,764 in the six months ended June 30, 2019. The increase is due to forgiveness and settlement of debt in the second quarter of fiscal 2020.

 

Other Income

 

Our other income increased by $2,000, to $2,000 in the six months ended June 30, 2020 from $0 in the six months ended June 30, 2019. The increase is due to grant from SBA loan in the second quarter of fiscal 2020.

 

Liquidity and Capital Resources for the Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

 

Introduction

 

Our cash on hand as of June 30, 2020 was $1,593, compared to $91,314 at December 31, 2019. During the six months ended June 30, 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 June 30, 2020 and as of December 31, 2019, respectively, are as follows:

 

   June 30, 2020   December 31, 2019   Changes 
             
Cash  $1,593   $91,314   $(89,721)
Total current assets  $38,623   $113,361   $(74,738)
Total assets  $45,104   $119,842   $(74,738)
Total current liabilities  $1,429,887   $1,335,462   $94,425 
Total liabilities  $3,599,887   $3,366,497   $233,390 

 

Our current assets decreased as of June 30, 2020 as compared to December 31, 2019, primarily due to us having less cash on hand at June 30, 2020. The decrease in our total assets between the two periods was also primarily related to us having less cash on hand and at June 30, 2020.

 

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Our current liabilities increased as of June 30, 2020 as compared to December 31, 2019. This increase was primarily due to increases in accrued interest and accrued interest-related party, 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:

 

   Six months ended June 30,     
   2020   2019   Changes 
             
Net cash provided by (used in):               
Operating activities  $135,429   $(182,960)  $318,389 
Financing activities   (225,150)   194,611    (419,761)
Net increase (decrease) in cash  $(89,721)  $11,651   $(101,372)

 

Operations

 

We had net cash provided by (used in) operating activities of $135,429 for the six months ended June 30, 2020, as compared to ($182,960) for the six months ended June 30, 2019. For the period in 2020, the net cash used in operating activities consisted primarily of our net loss of $379,593, adjusted primarily by gain on extinguishment of debt of $238,060, amortization of debt discount of $2,311, as well as changes in, accrued expenses of ($25,425), accounts receivable ($16,182), prepaid expenses of $1,199, accrued interest-related party of $281,498, accrued interest of $40,185, and income tax payable of ($6,730). For the period in 2019, the net cash used in operating activities consisted primarily of our net income (loss) of ($407,850), adjusted primarily by stock or warrants issued for services of $24,500, amortization of debt discount of $17,035, loss on extinguishment of debt of ($54,764), as well as changes in, accrued expenses of ($39,254), accounts receivable of ($6,430), prepaid expenses of ($182), deferred revenue of ($74,980), accrued royalties payable of $29,750, accrued interest- related party of $151,500, and accrued interest of $170,325.

 

Investments

 

We did not have any cash provided by/used in investing activities in the six months ended June 30, 2020 or June 30, 2019.

 

Financing