UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q/A

(Amendment No. 2)

 

(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, 2017March 31, 2018

 

[  ]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

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

5503 Cahuenga Blvd, #2031427 S. Robertson Blvd.

Los Angeles, CA

 

9160190035

(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)

 

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 [  ][X]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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 17, 2017,June 20, 2019, there were 22,770,62831,350,683 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, 2017, filed on June 7, 2019, and this Report, which could cause our financial results, including our net income or loss or growth in net income or loss to differ materially from prior results, which in turn could, among other things, cause the price of our common stock to fluctuate substantially. These forward-looking statements speak only as of the date of this report. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law.

 

 

 

BLOW & DRIVE INTERLOCK CORPORATION

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION43
  
ITEM 1Financial Statements53
   
ITEM 2Management’s Discussion and Analysis of Financial Condition and Results of Operations2439
  
ITEM 3Quantitative and Qualitative Disclosures About Market Risk3346
   
ITEM 4Controls and Procedures3346
   
PART II – OTHER INFORMATION3547
  
ITEM 1Legal Proceedings3547
   
ITEM 1ARisk Factors3548
   
ITEM 2Unregistered Sales of Equity Securities and Use of Proceeds3548
   
ITEM 3Defaults Upon Senior Securities3648
   
ITEM 4Mine Safety Disclosures3648
   
ITEM 5Other Information3648
   
ITEM 6Exhibits3849

 

EXPLANATORY NOTE

We are filing this Amendment No. 2 on Form 10-Q/A (the “Amendment”) to our Quarterly Report on Form 10-Q for the period ended June 30, 2017 (the “Form 10-Q”), filed with the United States Securities and Exchange Commission on August 21, 2017 (the “Original Filing Date”), and as amended by Amendment No. 1 to the Form 10-Q filed August 31, 2017, solely to correct an error in our financial statements for this period. In our filings in 2016 we had mistakenly recognized the entire upfront fees from two of our independent distributors ($10,000 in Q2 2016 and $50,000 in Q3 2016) as revenue at the time we delivered the exclusive license to the distributor rather than over the term of the agreement (5 years including any automatic extension). To correct this error, in the financial statements included with this Amendment we show the portion of the upfront fees attributable to this period. In order to correct these errors we have included restated financial statements, notes to financial statements, and amended management disclosure and analysis related to the restated financial statements with this Amendment. The adjustments to the financial statements are indicated in our restated financial statements filed herewith.

No other changes have been made to the Form 10-Q. All other portions of this Amendment speaks as of the Original Filing Date and do not reflect events that may have occurred subsequent to the Original Filing Date, and does not modify or update in any way the disclosures made in the Form 10-Q.

2

 

PART I – FINANCIAL INFORMATION

This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider,” or similar expressions are used.

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties, and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.

ITEM 1 Financial Statements

Financial Statements

 

The consolidated balance sheets as of June 30, 2017March 31, 2018 (unaudited) and December 31, 2016,2017 (restated), the consolidated statements of operations for the three and six months ended June 30,March 31, 2018 and 2017 and 2016,(restated), the consolidated statement of stockholders equity (deficit) for the sixthree months ended June 30, 2017,March 31, 2018, and the consolidated statements of cash flows for the sixthree months ending June 30,March 31, 2018 and 2017 and 2016,(restated), 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.

 

5

Blow & Drive Interlock Corporation

Consolidated Balance SheetPART I – FINANCIAL INFORMATION

 

ITEM 1 - FINANCIAL STATEMENTS

  June 30, 2017
as filed
  Restatement adjustment  Restated
June 30, 2017
  Restated December 31, 2016 
  (unaudited)  (unaudited)  (unaudited)    
Assets                
Current Assets                
Cash $58,448      $58,448  $116,309 
Accounts receivable, net  66,561       66,561   51,241 
Prepaid Expenses  3,000       3,000   2,361 
Inventories  10,650       10,650   10,650 
Total Current Assets  138,659   -   138,659   180,561 
Other Assets                
Deposits  52,404       52,404   256,254 
Furniture and equipment  873,449       873,449   356,346 
Total Assets $1,064,512  $-  $1,064,512  $793,161 
                 
Liabilities and Stockholders’ Deficit                
Current Liabilities                
Accounts payable $80,253      $80,253  $28,250 
Accrued expenses  105,301       105,301   68,795 
Accrued interest  39,350       39,350   10,110 
Income taxes payable  7,300       7,300   5,700 
Deferred revenue  155,524   50,000   205,524   162,331 
Derivative liability  56,064       56,064   73,556 
Notes payable, net of debt discount of $36,638 and $15,018 at June 30, 2017 and December 31, 2016, respectively  114,902       114,902   125,351 
Notes payable - related party, current portion  -       -   49,396 
Convertible notes payable, net of debt discount of $9,394 and $23,724 at June 30, 2017 and December 31, 2016, respectively  48,106       48,106   33,775 
Royalty notes payable, net of debt discount of $48,608 and $87,036 at June 30, 2017 and December 31, 2016, respectively  1,376       1,376   29,742 
Total Current Liabilities  608,176   50,000   658,176   587,006 
Long term liabilities                
Notes payable, net of debt discount of $51,583 and $32,292 at June 30, 2017 and December 31, 2016, respectively  168,377       168,377   17,708 
Notes payable - related party  -       -   48,353 
Royalty notes payable, net of debt discount of $398,348 and $574,294 at June 30, 2017 and December 31, 2016, respectively  118,652       118,652   8,778 
Accrued royalties payable  122,982       122,982   121,967 
Total Liabilities  1,018,187   50,000   1,068,187   783,812 
                 
Stockholders’ Equity (Deficit)                
Preferred stock, $0.001 par value, 20,000,000 shares authorized, 1,000,000 and 0 shares issued or issuable at June 30, 2017 and December 31, 2016, respectively  1,000       1,000   - 
Common stock, $0.0001 par value, 100,000,000 shares authorized, 22,474,052 and 19,575,605 shares issued or issuable at June 30, 2017 and December 31, 2016, respectively.  2,247       2,247   1,958 
Additional paid-in capital  2,459,174       2,459,174   1,594,721 
Accumulated deficit  (2,416,096)  (50,000)  (2,466,096)  (1,587,330)
Total Stockholder’s Equity (Deficit)  46,325   (50,000)  (3,675)  9,349 
Total Liabilities and Stockholders’ Equity (Deficit) $1,064,512  $-  $1,064,512  $793,161 

BLOW & DRIVE INTERLOCK CORPORATION

CONSOLIDATED BALANCE SHEETS

  

March 31, 2018

  December 31, 2017 
  (unaudited)    
ASSETS        
         
Current Assets        
Cash $444,085  $31,874 
Accounts receivable, net of allowance for doubtful accounts of $0 and $26,541 at March 31, 2018 and December 31, 2017, respectively  -   28,916 
Prepaid expenses  3,380   2,655 
Total current assets  447,465   63,445 
         
Deposits  5,131   5,131 
         
Total assets $452,596  $68,576 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
         
Current Liabilities        
Accounts payable $20,843  $39,695 
Accrued expenses  24,262   15,685 
Accrued royalty payable  207,935   179,993 
Accrued interest  45,975   35,460 
Income taxes payable  5,930   5,930 
Deferred revenue  175,777   184,378 
Derivative liability  34,959   12,302 
Notes payable, net of debt discount of $8,590 and $18,729 at March 31, 2018 and December 31, 2017, respectively  75,803   60,006 
Notes payable – related party  280,000   45,328 
Convertible notes payable, net of debt discount of $5,652 and $0 at March 31, 2018 and December 31, 2017, respectively  1,848   1,848 
Total current liabilities  873,332   585,749 
         
Non-current Liabilities        
Notes payable, net of debt discount of $12,586 and $14,473 at March 31, 2018 and December 31, 2017, respectively  19,253   21,274 
Notes payable – related party  1,145,000   839,306 
Convertible notes payable, net of debt discount of $11,597 and $2,011 at March 31, 2018 and December 31, 2017, respectively  13,403   3,517 
Total non-current liabilities  1,177,656   864,097 
         
Total Liabilities  2,050,988   1,449,846 
         
Stockholders’ Deficit        
Preferred stock, par value $0.001, 20,000,000 shares authorized, 1,000,000 and 0 shares issued or issuable and outstanding as of March 31, 2018 and December 31, 2017, respectively  1,000   1,000 
Common stock, par value $0.0001, 100,000,000 shares authorized, 28,334,710 and 26,223,834 shares issued or issuable and outstanding as of March 31, 2018 and December 31, 2017, respectively  2,833   2,622 
Additional paid-in capital  3,173,042   2,911,753 
Accumulated deficit  (4,775,267)  (4,296,645)
Total stockholders’ deficit  (1,598,392)  (1,381,270)
         
Total liabilities and stockholders’ deficit $452,596  $68,576 

 

The accompanying notes are an integral part of thethese financial statements.

BLOW & DRIVE INTERLOCK CORPORATION

Blow & Drive Interlock Corporation

Consolidated Statements of Operations

(unaudited)CONSOLIDATED STATEMENTS OF OPERATIONS

 

  Three Months Ended June 30,  Six Months Ended June 30, 
  2017 as filed  Restatement adjustment  Restated 2017  Restated 2016  2017 as filed  Restatement adjustment  Restated 2017  Restated 2016 
Monitoring revenue $204,738      $204,738  $79,726  $280,058      $280,058  $119,205 
Distributorship revenue  106,719   3,000   109,719   5,950   195,453   6,000   201,453   5,950 
Total revenue  311,457   3,000   314,457   85,676   475,511   6,000   481,511   125,155 
Monitoring cost of revenue  46,085       46,085   11,163   54,067       54,067   17,718 
Distributorship cost of revenue  2,500       2,500   -   6,739       6,739   - 
Total cost of revenue  48,585   -   48,585   11,163   60,806   -   60,806   17,718 
Gross profit  262,872   3,000   265,872   74,513   414,705   6,000   420,705   107,437 
Operating expenses                                
Payroll  98,462       98,462   31,518   168,776       168,776   65,247 
Professional fees  35,771       35,771   36,985   76,902       76,902   61,621 
General and administrative expenses  (388,747)      (388,747)  125,402   327,345       327,345   191,959 
Depreciation  88,726       88,726   6,675   144,142       144,142   16,930 
Common stock issued for services  -       -   17,000   -       -   34,000 
Total operating expenses  (165,788)  -   (165,788)  217,580   717,165   -   717,165   369,757 
Loss from operations  428,660   3,000   431,660   (143,067)  (302,460)  6,000   (296,460)  (262,320)
                                 
Other income (expense)                                
Interest expense  (150,489)      (150,489)  (42,507)  (294,798)      (294,798)  (69,925)
Change in fair value of derivative liability  1,464       1,464   15,122   17,492       17,492   (19,612)
Loss on extinguishment of debt  (305,000)      (305,000)  -   (305,000)      (305,000)  - 
Total other income (expense)  (454,025)  -   (454,025)  (27,385)  (582,306)  -   (582,306)  (89,537)
                                 
Loss before provision for income taxes  (25,365)  3,000   (22,365)  (170,452)  (884,766)  6,000   (878,766)  (351,857)
                                 
Provision for income taxes  -       -   -           -   - 
                                 
Net loss $(25,365) $3,000  $(22,365) $(170,452) $(884,766) $6,000  $(878,766) $(351,857)
                                 
Basic and diluted loss per common share $-      $-  $(0.01) $(0.04)     $(0.04) $(0.02)
                                 
Weighted average number of common shares outstanding - basic and diluted  22,260,585       22,260,585   15,407,687   21,525,449       21,525,449   15,407,687 
  Three Months Ended March 31, 
  2018  2017 (restated) 
       
Monitoring revenues $178,486  $75,320 
Distributorship revenues  23,170   91,734 
Total revenues  201,656   167,054 
         
Monitoring cost of revenue  47,613   7,982 
Distributorship cost of revenue  -   4,239 
Total cost of revenue  47,613   12,221 
Gross profit  154,043   154,833 
         
Operating Expenses        
Payroll  236,412   70,314 
Professional fees  37,092   41,131 
General and administrative  249,554   716,092 
Depreciation  -   55,416 
Total operating expenses  523,058   882,953 
         
Loss from Operations  (369,015)  (728,120)
         
Other Income (Expense)        
Interest expense, net  (102,321)  (144,309)
Change in fair value of derivative liability  (7,286)  16,028 
Total other income (expenses)  (109,607)  (128,281)
         
Loss before provision for income taxes  (478,622)  (856,401)
         
Provision for income taxes  -   - 
Net loss $(478,622) $(856,401)
         
Basic and Diluted Loss Per Common Share $(0.02) $(0.04)
         
Basic and Diluted Weighted-Average Common Shares Outstanding  26,814,201   20,781,986 

 

The accompanying notes are an integral part of thethese financial statements.

BLOW & DRIVE INTERLOCK CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

  Preferred Stock - Series A  Common Stock  Additional Paid-In  Accumulated  Total Stockholders’ Equity 
  Shares  Amount  Shares  Amount  Capital  Deficit  (Deficit) 
Balance December 31, 2016 (restated)  -  $-   19,575,605  $1,958  $1,594,721  $(1,587,330) $9,349 
Shares issued for services          27,180   3   13,910   -   13,913 
Warrants issued for services                  278       278 
Shares issued for cash  -   -   5,686,656   569   848,468   -   849,037 
Shares issued related to debt  1,000,000   1,000   195,400   18   454,450       455,468 
Shares issued related to anti-dilution  -   -   739,253   74   (74)  -   - 
Other  -   -   (260)  -   -   -   - 
Net loss  -   -   -   -   -   (2,709,315)  (2,709,315)
Balance December 31, 2017  1,000,000   1,000   26,223,834   2,622   2,911,753   (4,296,645)  (1,381,270)
Shares issued for services  -   -   450,000   45   104,955   -   105,000 
Shares issued for cash  -   -   1,450,000   145   156,355   -   156,500 
Shares issued related to anti-dilution  -   -   210,876   21   (21)  -   - 
Net loss  -   -   -   -   -   (478,622)  (478,622)
Balance March 31, 2018  1,000,000  $1,000   28,334,710  $2,833  $3,173,042  $(4,775,267) $(1,598,392)

The accompanying notes are an integral part of these financial statements.

BLOW & DRIVE INTERLOCK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

  Three Months Ended March 31, 
  2018  2017 (restated) 
       
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss $(478,622) $(856,401)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation  -   55,416 
Shares issued for services  105,000   363,914 
Allowance for doubtful accounts  (26,541)  - 
Amortization of debt discount  18,447   92,676 
Increase in derivative liabilities  (15,370)  - 
Change in fair value of derivative liability  22,657   (16,028)
Changes in operating assets and liabilities:        
Accounts receivable, net  55,457   (37,165)
Prepaid expenses  (725)  (1,798)
Deposits  -   56,850 
Accounts payable  

(18,850

)  (4,065)
Accrued expenses  8,576   280,678 
Accrued interest  10,514   26,770 
Income taxes payable  -   1,600 
Deferred revenue  (8,601)  (3,673)
Accrued royalties payable  27,942  1,916 
Net cash used in operating activities  (300,116)  (39,310)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Purchase of property and equipment  -   (295,424)
Net cash used in investing activities  -   (295,424)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from issuance of common stock  156,500   247,374 
Proceeds from issuances of notes payable  21,600   195,400 
Principal payments of notes payable  (19,850)  (85,316)
Proceeds from issuance of convertible notes payable  20,000   - 
Proceeds from issuance of related party note payable  600,127   - 
Principal payments on notes payable related party  (66,050)  - 
Net cash provided by financing activities  712,327   357,458 
         
NET INCREASE (DECREASE) IN CASH  412,211   22,724 
         
CASH – beginning of period  31,874   116,309 
         
CASH – end of period $444,085  $139,033 
         
ADDITIONAL CASH FLOW INFORMATION        
Interest paid $73,359  $24,863 
Income taxes paid $-  $- 

The accompanying notes are an integral part of these financial statements.

 

Blow & Drive Interlock Corporation

Consolidated Statement of Shareholders’ Equity (Deficit)

(unaudited)

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

 

  Preferred Stock  Common Stock  Additional Paid-in  Accumulated  Restatement  Restated Accumulated  Total Stockholders’ Equity 
  Shares  Amount  Shares  Amount  Capital  Deficit  adjustment  Deficit  (Deficit) 
Balance December 31, 2016  -  $-   19,575,605  $1,958  $1,594,721  $(1,531,330) $(56,000) $(1,587,330) $9,349 
                                     
Shares issued for services  -   -   27,180   3   13,910               13,913 
Shares issued related to debt  1,000,000   1,000   195,400   19   434,700               435,719 
Shares issued for cash  -   -   2,311,218   231   415,879               416,110 
Shares issued related to anti-dilution  -   -   364,649   36   (36)              - 
Net loss  -   -   -   -   -   (884,766)  6,000   (878,766)  (878,766)
Balance June 30, 2017  1,000,000  $1,000   22,474,052  $2,247  $2,459,174  $(2,416,096) $(50,000) $(2,466,096) $(3,675)
  Three Months Ended March 31, 
  2018  2017 (restated) 
       
Common stock and warrants issued for services $105,000  $363,914 
Preferred stock issued for debt reduction and services $-  $350,000 

 

The accompanying notes are an integral part of thethese financial statements.

Blow & Drive Interlock Corporation

Consolidated Statement of Cash Flows

(unaudited)

  Six Months Ended June 30, 
  2017 as filed  Restatement adjustment  Restated 2017  Restated 2016 
Cash flows from operating activities:                
Net loss $(884,766) $6,000  $(878,766) $(351,857)
Adjustments to reconcile from net loss to net cash used in operating activities:                
Depreciation and amortization  144,142       144,142   16,930 
Shares issued for services  13,913       13,913   117,362 
Loss on extinguishmentof debt  305,000       305,000   - 
Amortization of debt discount  186,477       186,477   52,963 
Change in fair value of derivative liability  (17,492)      (17,492)  19,612 
Changes in operating assets and liabilities                
Accounts receivable  (15,320)      (15,320)  (29,484)
Prepaid expenses  (639)      (639)  2,087 
Deposits  53,850       53,850   (14,600)
Accounts payable  52,003       52,003   23,456 
Accrued expenses  37,944       37,944   (2,662)
Accrued interest  29,240       29,240   (240)
Income taxes payable  1,600       1,600   - 
Deferred revenue  49,193   (6,000)  43,193   48,499 
Accrued royalties payable  1,015       1,015   - 
Net cash used in operating activities  (43,840)  -   (43,840)  (117,934)
                 
Cash flows from investing activities:                
Purchase of property and equipment  (661,245)      (661,245)  (138,932)
Deposits on units  150,000       150,000   - 
Net cash used in investing activities  (511,245)  -   (511,245)  (138,932)
                 
Cash flows from financing activities:                
Proceeds from notes payable  195,400       195,400   209,099 
Repayments of notes payable  (114,286)      (114,286)  (78,761)
Proceeds from issuance of common stock  416,110       416,110   157,500 
Net cash provided by financing activities  497,224   -   497,224   287,838 
                 
Net increase (decrease) in cash  (57,861)  -   (57,861)  30,972 
Cash, beginning of period  116,309       116,309   9,103 
Cash, end of period $58,448  $-  $58,448  $40,075 
                 
Supplemental disclosure of cash information:                
Cash paid during the period for:                
Interest $79,371      $79,371  $15,351 
Income taxes $-      $-  $- 
Supplemental disclosure of non-cash investing and financing activities                
Common stock issued for services $13,913      $13,913  $117,362 
Establishment of debt discount for royalty notes $-      $-  $120,000 
Preferred stock issued for debt reduction and services $350,000      $350,000  $- 

The accompanying notes are an integral part of the financial statements.

BLOW &AND DRIVE INTERLOCK CORPORATION

Notes to the Consolidated Financial StatementsNOTES 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: California, Colorado, Kansas, New York, Tennessee, Arizona, Oregon, Kentucky, Oklahoma, Pennsylvania, and Texas.

 

In 2015, Thethe 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.

On December 31, 2018, Laurence Wainer, CEO of the Company, and The Doheny Group, a major note holder of the Company, reached an agreement in which Laurence Wainer sold 8,924,000 shares of common stock and 1,000,000 shares of preferred stock for a total of $30,000. Upon completion of the sale, David Haridim, managing member of The Doheny Group, assumed the position of CEO of Blow and Drive.

 

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles in the United States of America, and pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company.

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.

 

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, 2017,March 31, 2018, the Company had an accumulated deficit of $2,466,096.$4,775,267. 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 itscurrent 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

BLOW & DRIVE INTERLOCK CORPORATION

Notes to the Consolidated Financial Statements

 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.

Restatements

The Company has restated its March 31, 2017 financial statements. The original March 31, 2017 financial statements erroneously recognized the entire upfront fees from two of its independent distributors in revenue at the time the Company delivered the exclusive license to the distributors rather than over the term of the agreements (5 years). To correct that error, the Company has shown the portion of the upfront fees attributable to that period only.

 

Reclassifications

 

Certain reclassifications have been made to amounts in prior periods to conform to the current period presentation. All reclassifications have been applied consistently to the periods presented.

 

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.

 

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.

 

Deferred revenue

Deferred revenue consists of customer orders paid in advance of the delivery of the order. Deferred revenue is classified as short-term as the typical order ships within approximately three weeks of placing the order. Deferred revenue is recognized as revenue when the product is shipped to the customer and all other revenue recognition criteria have been met.

Advertising and Marketing Costs

Advertising and marketing costs are recorded as general and administrative expenses when they are incurred. Advertising and marketing expenses were $16,861 and $14,231 for the three months ended March 31, 2018 and 2017, respectively

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, 2017March 31, 2018 and December 31, 20162017 is adequate, but actual write-offs could exceed the recorded allowance.

 

InventoriesRoyalty Accrual

 

Inventories are valuedThe Company entered into royalty agreement to be paid out in perpetuity based on number of units sold for specified product model in years 2018, 2017 and 2016 in connection with notes payable as discussed in Note 12. These estimates were performed at the first-in first-out method and at June 30, 2017 and December 31, 2016 consists of spare partsinception for the BDI 747 monitoring units.notes to reflect the associated debt discount. The Company accruals royalties and is reduced by payments.

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 Black Sholes Model. The Company revalues these derivatives each quarter using the Black Sholes Model. 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.

BLOW & DRIVE INTERLOCK CORPORATION

Notes to the Consolidated Financial Statements

The Company calculates the fair value of warrants issued with the convertible instruments using the Black-Scholes 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.

 

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:

 

  Fair Value Measurments Using: 
  Level 1  Level 2  Level 3 
Balance December 31, 2016 $-  $73,556  $- 
Valuation of preferred shares issuance  -   -   350,000 
Change in fair value of derivative liability  -   (17,492)  - 
Balance June 30, 2017 (unaudited) $-  $56,064  $350,000 
  Fair Value Measurements Using 
  Level 1  Level 2  Level 3 
Balance December 31, 2017 $         -  $12,302  $        - 
Additions to fair value of derivative liability  -   15,370   - 
Change in fair value of derivative liability  -   (7,287)  - 
Balance March 31, 2018 (unaudited) $-  $34,959  $- 

 

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.

 

Stock Based Compensation

 

The Company recognizes stock-based compensation in accordance with FASB ASC Topic 718Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to an employee stock purchase plan based on the estimated fair values.

 

For non-employee stock-based compensation, the Company applies FASB ASC Topic 505Equity-Based Payments to Non-Employees, which requires stock-based compensation related to non-employees to be accounted for based on the fair value of the related stock or options or the fair value of the services on the grant date, whichever is more readily determinable.determinable in accordance with FASB ASC Topic 718.

BLOW & DRIVE INTERLOCK CORPORATIONRelated Parties

Notes

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

 

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.

 

The Company has multiple distributors as of June 30, 2017, and is actively engaging more in new markets. However, forFor the three and six months ended June 30, 2017,March 31, 2018, one distributor, licensed in four states, makes up approximately 90%72% percent of all revenues from distributors and 67% of accounts receivable at June 30, 2017.March 31, 2018. The loss of this distributer would have a material impact on the Company’s revenues

revenues. Per an agreement dated January 21, 2018 that memorialized a September 30, 2017 oral agreement, the Company and its largest distributor cancelled their distributorship agreement dated September 5, 2015. See Note 18 below.

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, 2017,March 31, 2018, 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 standingfree-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.

 

Recently Issued Accounting Pronouncements

 

In March 2018 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-05,Income Taxes (Topic 740). The Tax Cut and Jobs Act of 2017 changes existing tax law and includes numerous provisions that will affect businesses. This guidance addresses the recognition of taxes payable or refundable for the current year and the recognition of deferred tax liabilities and deferred tax assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. The Company does not believe that this guidance will have an impact as the Company has been in a loss position and has not recognized federal taxes payable or refundable or deferred tax liabilities or deferred tax assets.

In November 2017, the FASB issued ASU No. 2017-14,Income Statement-Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606). The ASU modified Topic 220 such that an operating-differential subsidy must be set forth as a separate line item in the statement of comprehensive income either under a revenue caption presented separately from revenue from contracts with customers accounted for under ASC Topic 606 or as credit in the costs and expenses section. The ASU essentially deleted Topic 605 and noted that it was superseded by Topic 606. The ASU modified Topic 606 for vaccine manufacturers to recognize revenue when vaccines are placed into Federal Governmental stockpile programs because control of the enumerated vaccines will have been transferred to the customer and the criteria to recognize revenue in a bill-and-hold arrangement under ASC Topic 606 will have been met. The Company is currently evaluating the impact of adopting this guidance.

In September 2017, the FASB issued ASU No. 2017-13,Revenue Recognition, Revenue from Contracts with Customers, Leases. The ASU adds SEC paragraphs to the new revenue and leases sections of the Accounting Standards Codification (ASC or Codification) on the announcement the SEC Observer made at the 20 July 2017 EITF meeting. The SEC Observer said that the SEC staff would not object if entities that are considered public business entities only because their financial statements or financial information is required to be included in another entity’s SEC filing use the effective dates for private companies when they adopt ASC 606, Revenue from Contracts with Customers, and ASC 842, Leases. This would include entities whose financial statements are included in another entity’s SEC filing because they are significant acquirees under Rule 3-05 of Regulation S-X, significant equity method investees under Rule 3-09 of Regulation S-X and equity method investees whose summarized financial information is included in a registrant’s financial statement notes under Rule 4-08(g) of Regulation S-X. The Company is currently evaluating the impact of adopting this guidance.

In July 2017, the FASB issued ASU No. 2017-11,Earnings Per Share; Distinguishing Liabilities from Equity; Derivatives and Hedging; Accounting for Certain Financial Instruments with Down Round Features; Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. An entity will no longer have to consider “down round” features (i.e., a provision in an equity-linked financial instrument or an embedded feature that reduces the exercise price if the entity sells stock for a lower price or issues an equity-linked instrument with a lower exercise price) when determining whether certain equity-linked financial instruments or embedded features are indexed to its own stock. An entity that presents earnings per share (EPS) under ASC 260 will recognize the effect of a down round feature in a freestanding equity-classified financial instrument only when it is triggered. The effect of triggering such a feature will be recognized as a dividend and a reduction to income available to common shareholders in basic EPS. The new guidance will require new disclosures for financial instruments with down round features and other terms that change conversion or exercise prices. The ASU also replaces today’s indefinite deferral of the guidance in ASC 480-10 for certain mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests with a scope exception. This change does not require any transition guidance because it does not have an accounting effect. The Company is currently evaluating the impact of adopting this guidance.

In October 2016, the FASB issued ASU No. 2016-16,Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory. The ASU eliminates the deferral of the tax effects of intra-entity asset transfers other than inventory. As a result, the tax expense from the intercompany sale of assets, other than inventory, and associated changes to deferred taxes will be recognized when the sale occurs even though the pre-tax effects of the transaction have not been recognized. The effect of the adoption of the standard will depend on the nature and amount of any future transactions.

In August 2016, the FASB issued ASU No. 2016-15,Statement of Cash Flows; Classification of Certain Cash Receipts and Cash Payments.The new standard addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The eight issues are: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies, including bank-owned insurance policies; distribution received from equity method investees; beneficial interests in securitization transactions; separately identifiable cash flows and application of the predominance principle. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within fiscal periods beginning after December 15, 2019. The Company is currently evaluating the impact of adopting this guidance.

In March 2016, the FASB issued ASU No. 2016-08,Revenue from Contracts with Customers. The new standard clarifies the implementation guidance on principal versus agent considerations in Topic 606,Revenue from Contracts with Customers. Topic 606 addresses that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. When an entity is a principal (that is, if it controls the specific good or service before that good or service is transferred to a customer) and satisfies a performance obligation, the entity recognizes revenue in the gross amount of consideration to which it expects to be entitled in exchange for the specific good or service transferred to the customer. When an entity is an agent and satisfies a performance obligation, the entity recognizes revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specific good or service to be provided by the other party. The new standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the impact of adopting this guidance.

In February 2016, the FASB issued a new accounting standard on leasing.ASU No. 2016-2,Leases. The new standard will require companiesestablishes a right-of-use (ROU) model that requires a lessee to record most leased assetsan ROU asset and liabilitiesa lease liability on the balance sheet and also proposes a dual model for recognizing expense. This guidanceall leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. Similarly, lessors will be required to classify leases as sales-type, finance or operating, with classification affecting the pattern of income recognition. Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. The new standard is effective in the first quarter of 2019for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. A modified retrospective transition approach is required for leases for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact thatof adopting this guidance will haveguidance.on consolidated

3.Note 1 - Restatements

Below are the restated December 31, 2016 financial statements. The original December 31, 2016 financial statements erroneously recognized the entire upfront fees from two of its independent distributors in revenue at the time the Company delivered the exclusive license to the distributors rather than over the term of the agreements (5 years). To correct that error, the Company has shown the portion of the upfront fees attributable to that period only.

Blow & Drive Interlock Corporation

Consolidated Balance Sheet

  March 31, 2017
as filed
  Restatement adjustment  Restated
March 31, 2017
 
          
Assets            
Current Assets            
Cash $139,033      $139,033 
Accounts receivable, net  88,406       88,406 
Prepaid Expenses  4,159       4,159 
Inventories  10,650       10,650 
Total Current Assets  242,248   -   242,248 
Other Assets            
Deposits  199,404       199,404 
Furniture and equipment  596,354       596,354 
Total Assets $1,038,006  $-  $1,038,006 
             
Liabilities and Stockholders’ Deficit            
Current Liabilities            
Accounts payable $24,185      $24,185 
Accrued expenses  349,473       349,473 
Accrued interest  36,880       36,880 
Income taxes payable  7,300       7,300 
Deferred revenue  105,658   53,000   158,658 
Derivative liability  575,652       575,652 
Notes payable, net of debt discount of $54,772 and $15,018  97,380       97,380 
Notes payable - related party, current portion  35,662       35,662 
Convertible notes payable, net of debt discount of $16,559  40,941       40,941 
Royalty notes payable, net of debt discount of $67,821  1,862       1,862 
Total Current Liabilities  756,869   53,000   809,869 
Long term liabilities            
Notes payable, net of debt discount of $56,416 and $32,292 at March 31, 2017 and December 31, 2016, respectively  163,544       163,544 
Notes payable - related party  16,558       16,558 
Convertible notes payable  -       - 
Royalty notes payable, net of debt discount of $442,803  74,197       74,197 
Accrued royalties payable  123,883       123,883 
Total Liabilities  1,135,051   53,000   1,188,051 
             
Stockholders’ Equity (Deficit)            
Preferred stock, $0.001 par value, 20,000,000 shares authorized, none outstanding  -       - 
Common stock, $0.001 par value, 100,000,000 shares authorized, 22,014,754 and 19,575,605 shares issued or issuable at March 31, 2017 and December 31, 2016, respectively.  2,201       2,201 
Additional paid-in capital  2,290,485       2,290,485 
Accumulated deficit  (2,390,731)  (53,000)  (2,443,731)
Total Stockholder’s Equity (Deficit)  (97,045)  (53,000)  (150,045)
 $1,038,006  $-  $1,038,006 

 

1319
 

 

Blow & Drive Interlock Corporation

BLOWConsolidated Statements of Operations

  Three Months ended March 31, 2017 
  2017 as filed  Restatement adjustment  Restated 2017 
Monitoring revenue $75,320      $75,320 
Distributorship revenue  88,734   3,000   91,734 
Total revenue  164,054   3,000   167,054 
Monitoring cost of revenue  7,982       7,982 
Distributorship cost of revenue  4,239       4,239 
Total cost of revenue  12,221   -   12,221 
Gross profit  151,833   3,000   154,833 
Operating expenses            
Payroll  70,314       70,314 
Professional fees  41,131       41,131 
General and administrative expenses  716,092       716,092 
Depreciation  55,416       55,416 
Total operating expenses  882,953   -   882,953 
Loss from operations  (731,120)  3,000   (728,120)
             
Other income (expense)            
Interest expense  (144,309)      (144,309)
Change in fair value of derivative liability  16,028       (16,028)
Total other income (expense)  (128,281)  -   (128,281)
             
Loss before provision for income taxes  (859,401)  3,000   (856,401)
             
Provision for income taxes  -       - 
Net loss $(859,401) $3,000  $(856,401)
             
Basic and diluted loss per common share $(0.04) $-  $(0.04)
             
Weighted average number of common shares outstanding - basic and diluted  20,781,986       20,781,986 

Blow & DRIVE INTERLOCK CORPORATIONDrive Interlock Corporation

Notes to the Consolidated Financial StatementsStatement of Cash Flows

  Three months ended March 31, 2017 
  2017 as filed  Restatement adjustment  Restated 2017 
Cash flows from operating activities:            
Net loss $(859,401) $3,000  $(856,401)
Adjustments to reconcile from net loss to net cash used in operating activities:            
Depreciation and amortization  55,416       55,416 
Shares issued for services  363,914       363,914 
Amortization of debt discount  92,676       92,676 
Change in fair value of derivative liability  (16,028)      (16,028)
Changes in operating assets and liabilities            
Accounts receivable  (37,165)      (37,165)
Prepaid expenses  (1,798)      (1,798)
Deposits  58,850       58,850 
Accounts payable  (4,065)      (4,065)
Accrued expenses  280,678       280,678 
Accrued interest  26,770       26,770 
Income taxes payable  1,600       1,600 
Deferred revenue  (673)  (3,000)  (3,673)
Accrued royalties payable  1,916       1,916 
Net cash used in operating activities  (39,310)  -   (39,310)
             
Cash flows from investing activities:            
Purchase of property and equipment  (295,424)      (295,424)
Net cash used in investing activities  (295,424)  -   (295,424)
             
Cash flows from financing activities:            
Proceeds from notes payable  195,400       195,400 
Repayments of notes payable  (85,316)      (83,316)
Proceeds from issuance of common stock  247,374       247,374 
Net cash provided by financing activities  357,458   -   357,458 
             
Net increase (decrease) in cash  22,724   -   22,724 
Cash, beginning of period  116,309       116,309 
Cash, end of period $139,033  $-  $139,033 
             
Supplemental disclosure of cash information:            
Cash paid during the period for:            
Interest $24,863      $24,863 
Income taxes $-      $- 
Supplemental disclosure of non-cash investing and financing activities            
Common stock issued for services $363,914      $363,914 
Preferred stock issued for debt reduction and services $350,000      $350,000 

Blow & Drive Interlock Corporation

Consolidated Statement of Shareholders’ Equity (Deficit)

(unaudited)

  Preferred Stock  Common Stock  Additional Paid-in   Accumulated   Restatement  Revise Accumulated  

Total

Stockholders’ Equity

 
  Shares  Amount  Shares  Amount  Capital  Deficit  adjustment  Deficit (Deficit) 
Balance December 31, 2016  -  $-   19,575,605  $1,958  $1,594,721  $(1,531,330) $(56,000) $(1,587,330) $9,349 
                                     
Shares issued for services  -   -   27,180   3   13,911               13,914 
Shares issued related to debt  1,000,000   1,000   195,400   19   434,700               435,719 
Shares issued for cash  -   -   1,898,076   189   247,185               247,374 
Shares issued related to anti-dilution  -   -   318,493   32   (32)              - 
Net loss  -   -   -   -   -   (859,401)  3,000   (856,401)  (856,401)
Balance March 31, 2017  1,000,000  $1,000   22,014,754  $2,201  $2,290,485  $(2,390,731) $(53,000) $(2,443,731) $(150,045)

 

Note 34 – Segment Reporting

 

The Company has two reportable segments: (1) Monitoring and (2) Distributorships.

 

Monitoring fees on Company installed units

 

The Company rents units directly to customers and installs the units in the customer’s vehicles. The rental periods range from a few months to 2 years and include a combination of down payments made by the customer and monthly payments paid under the agreements with the Company. Revenue is recognized from these companies on the straight linestraight-line basis over the term of the agreement. Amounts collected in excess of those earned are classified as deferred revenue in the balance sheet, and amounts earned in excess of amounts collected are reflected in accounts receivable in the balance sheet at June 30, 2017March 31, 2018 and December 31, 2016.2017.

 

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.

BLOW & DRIVE INTERLOCK CORPORATION

Notes to the Consolidated Financial Statements

Thefollowing table summarizes net sales and identifiable operating income by segment:

 

  Three Months Ended June 30,  Six Months Ended June 30, 
  2017  2016  2017  2016 
Segment gross profit (a):                
Monitoring $158,653  $68,563  $225,991  $101,487 
Distributorships  107,219   5,950   194,714   5,950 
Gross Profit  265,872   74,513   420,705   107,437 
                 
Identifiable segment operating expenses (b):                
Monitoring  51,580   6,356   57,412   15,557 
Distributorships  37,560   -   86,090   - 
   89,140   6,356   143,502   15,557 
Identifiable segment operating income (c):                
Monitoring  107,073   62,207   168,579   85,930 
Distributorships  69,659   5,950   108,624   5,950 
   176,732   68,157   277,203   91,880 
Reconcilliation of identifiable segment income to corporate income (d):                
Payroll  98,462   31,518   168,776   65,247 
Professional fees  35,771   36,985   76,902   61,621 
General and administrative expenses  (388,747)  125,402   327,345   191,959 
Depreciation  (414)  319   640   1,373 
Interest expense  150,489   42,507   294,798   69,925 
Change in fair value of derivative liability  (1,464)  (15,122)  (17,492)  19,612 
Loss on extinguishment of debt  305,000   -   305,000   - 
Common stock issued for services  -   17,000   -   34,000 
Income (loss) before provision for income taxes  (22,365)  (170,452)  (878,766)  (351,857)
                 
Provision for income taxes  -   -   -   - 
Net Income (loss) $(22,365) $(170,452) $(878,766) $(351,857)
                 
Total net property, plant, and equipment assets                
Monitoring          348,792   164,445 
Distributorships          523,018   - 
Corporate          1,639   2,919 
           873,449   167,364 

  Three Months Ended March 31, 
  2018  2017 
Segment gross profit (a):        
Monitoring $130,873  $67,338 
Distributorships  23,170   87,495 
Gross profit  154,043   154,833 
         
Identifiable segment operating expenses (b):        
Monitoring  -   5,832 
Distributorships  -   48,530 
   -   54,362 
         
Identifiable segment operating income (c):        
Monitoring  130,873   61,506 
Distributorships  23,170   38,965 
   154,043   100,471 
         
Reconciliation of identifiable segment income to corporate income (d):        
Payroll  236,412   70,314 
Professional fees  37,092   41,131 
General and administrative expenses  249,554   716,092 
Depreciation  -   1,054 
Interest expense  102,321   144,309 
Change in fair value of derivative liability  7,286   (16,028)
Loss before provision for income taxes  (478,622)  (856,401)
         
Provision for income taxes  -   - 
Net loss $(478,622) $(856,401)
         
Total net property, plant, and equipment assets        
Monitoring $-  $63,764 
Distributorships  -   530,631 
Corporate  -   1,959 
  $-  $596,354 

 

(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 income consists of segment gross profit, less identifiable operating expense
(d)

(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

BLOW & DRIVE INTERLOCK CORPORATION

Notes to the Consolidated Financial Statements

Note 4 – Furniture and Equipment

Furniture and equipment consist of the following:

  June 30, 2017  December 31, 2016 
Monitoring Units $1,081,143  $419,898 
Furniture, Fixtures, and Equipment  4,798   4,798 
Total Assets  1,085,941   424,696 
Less: accumulated depreciation  (212,492)  (68,350)
Furniture and Equipment, net  873,449   356,346 

Depreciation expense for the three and six months ended June 30, 2017 and 2016 were $88,725 and $144,142, and $6,676 and $16,930, respectively.

   

Note 5 – Deposits

 

Deposits consist of the following:

 

  June 30, 2017  December 31, 2016 
Deposit for BDI-747 units $50,000  $250,000 
Other  2,404   6,254 
Total $52,404  $256,254 
  March 31, 2018  December 31, 2017 
Lease Deposits $5,131  $5,131 

 

Note 6 – Accrued Expenses

 

Accrued ExpenseExpenses consist of the following:

 

  June 30, 2017  December 31, 2016 
Accrued expenses $5,233  $3,503 
Accrued wages  32,371   32,700 
Accrued payroll taxes  67,697   32,592 
Total $105,301  $68,795 
  March 31, 2018  December 31, 2017 
Accrued payroll and payroll taxes $6,141  $6,140 
Deferred rent  4,820   4,545 
Other accrued expenses  13,301   5,000 
Total $24,262  $15,685 

 

Note 7 - Deferred revenueRevenue

 

The Company classifies income as deferred until the terms of the contract or time frame have been met within the Company’s revenue recognition policy. As of June 30, 2017March 31, 2018 and December 31, 20162017, deferred revenue consistconsists of the following:

 

  June 30, 2017  December 31, 2016 
Monitoring deferred revenues $150,524  $103,831 
Distributorshipdeferred revenues  55,000   58,500 
Total $205,524  $162,331 

BLOW & DRIVE INTERLOCK CORPORATION

Notes to the Consolidated Financial Statements

  March 31, 2018  December 31, 2017 
Monitoring deferred revenues $175,777  $177,878 
Distributorship deferred revenues  -   6,500 
Total $175,777  $184,378 

Note 8 – Notes Payable

 

Notes payable consist of the following:

 

  June 30, 2017  December 31, 2016 
  Principal  Accrued Interest  Principal  Accrued Interest 
Convertible notes                
Convertible note #1  7,500   117   7,500   31 
Debt Discount  (444)  -   (3,104)  - 
Convertible note #2  50,000   2,033   50,000   1,617 
Debt Discount  (8,950)  -   (20,620)  - 
Subtotal convertible notes net  48,106   2,150   33,776   1,648 
Promissory notes                
Promissory note #1  -   -   990   - 
Promissory note #2  -   -   13,278   - 
Debt Discount  -   -   (3,510)  - 
Promissory note #3  50,000   750   50,000   - 
Debt Discount  (19,792)  -   (32,292)  - 
Promissory note #4  10,000   1,600   10,000   400 
Debt Discount  (2,692)  -   (7,308)  - 
Promissory note #5  36,100   1,504   36,100   3,581 
Promissory note #6  5,040   -   5,040   106 
Debt Discount  (1,680)  -   (4,200)  - 
Promissory note #7  24,960   2,629   24,960   - 
Promissory note #8  50,000   2,083   50,000   - 
Promissory note #9  50,400   1,050   -   - 
Debt Discount  (12,474)  -   -   - 
Promissory note #10  70,000   2,917   -   - 
Debt Discount  (24,500)  -   -   - 
Promissory note #11  75,000   3,125   -   - 
Debt Discount  (27,083)  -   -   - 
Subtotal promissory notes  283,279   15,658   143,058   4,087 
Royalty notes                
Royalty note #1  25,731   -   46,876   - 
Debt Discount  (25,209)  -   (45,903)  - 
Royalty note #2  24,253   -   48,938   - 
Debt Discount  (23,399)  -   (41,133)  - 
Royalty note #3  192,000   8,000   192,000   - 
Debt Discount  (144,000)  -   (176,000)  - 
Royalty note #4  325,000   13,542   325,000   4,375 
Debt Discount  (254,348)  -   (311,258)  - 
Subtotal royalty notes  120,028   21,542   38,520   4,375 
Related party promissory note                
Related party promissory note  -   -   97,749   - 
Total  451,413   39,350   313,103   10,110 
Current portion  164,387   39,350   238,264   10,110 
Long-term portion $287,029  $-  $74,839  $- 

BLOW & DRIVE INTERLOCK CORPORATION

Notes to the Consolidated Financial Statements

  As of March 31, 2018  As of December 31, 2017 
  Amount  Discount  Net Balance  Amount  Discount  Net Balance 
                   
January 2016 ($65,000)-0% interest with payment of $937 per month for 4 months, $1,250 per month for 8 months, and $3,531 per month until fully paid. $941  $-  $941  $4,482  $(3,889) $593 
April 2016 ($50,000)-18% interest at payment of $750 per month with unpaid balance due at March 31, 2018 including issuance of 50,000 common shares.  50,000   (1,042)  48,958   50,000   (7,292)  42,708 
September 2016 ($10,000)-24% interest with outstanding balance with accrued interest due at October 31, 2018 with an option of accrued interest to be converted to common stock with 25% discount of trading price  10,000   -   10,000   10,000   -   10,000 
December 2017 ($50,000)-15% interest due in December 2020 including issuance of 100,000 shares of common stock with exercise price at $0.25 per share.  46,633   (20,134)  26,499   50,000   (22,021)  27,979 
January 2018 ($9,100)-$2,184 fees, monthly principal and fee payments, principal completely paid July 2018  6,158   -   6,158   -   -   - 
January 2018 ($12,500)-$1,027 fees, weekly principal and fee payments, principal completely paid April 2018  2,500   -   2,500   -   -   - 
Total notes payable  116,232   (21,176)  95,056   114,482   (33,202)  81,280 
                         
Less: non-current portion  (31,839)  12,586   (19,253)  (35,747)  14,473   (21,274)
                         
Notes payable, current portion $84,393  $(8,590) $75,803  $78,735  $(18,729) $60,006 

 

Convertible note #1:January 2016 - $65,000

 

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 8). On May 6, 2016 the note holder elected to convert $7,500 in principal into 30,000 shares of common stock.

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.

Convertible note #2

On November 24, 2015, the Company entered into an agreement with an existing non-affiliated shareholder, and issued a 10% interest bearing convertible debenture for $50,000 due on November 19, 2017. Payments of interest only are due monthly beginning December 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, but may not be converted if such conversion would cause the holder to own more than 9.9% of outstanding common stock after giving effect to the conversion (which limitation may be removed by the holder upon 61 days advanced notice to the company). In connection with this Convertible Note Payable, the Company recorded a $32,897 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 December 30, 2016 this note has not been converted.

In connection with the issuance of the November convertible note payable, the Company issued a warrant to purchase 80,000 shares of common stock at an exercise price of $0.80 per share. The warrant has an exercise period of two years from the date of issuance. 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 – 2 years, Expected Dividend Rate – 0%, Volatility – 100%, Risk Free Interest Rate -.61%. The Company recorded an additional $13,783 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.

Promissory note #1:

On December 18, 2015, the Company entered into a borrowing facility with a third party. The initial note value was for a principal balance of $10,200. The Company is allowed to draw limited additional funds at any time. During 2016 the Company drew an additional $13,100 in connection with this borrowing facility. The interest due is dependent on a cost schedule that is tied to the date of repayment of the principle. This borrowing facility was paid back in January 2017.

Promissory note #2:

On January 29, 2016, the Company entered into a note payable agreement with a third party. The note was for a principal balance of $44,850 in exchange for $29,505 in cash. The initial borrowing was paid back in August 2016. Subsequent to this initial repayment, the Company borrowed an additional $28,600 in September of 2016. The subsequent borrowing was paid back in April 2017.

Promissory note #3:

On March 30, 2016, the Company provided an agreement to a third party to obtain a $50,000 promissory note in exchange for 50,000 restricted common shares and $50,000 in cash. The promissory note has a maturity date of June 30, 2018, and bears interest at 18% per annum. The purchaser did not sign the agreement nor deliver the proper consideration prior to March 31, 2016. The exchange of the $50,000 in cash consideration by the purchaser and the issuance of the 50,000 restricted common shares by the Company was made in conjunction with delivery of the signed purchase agreement and promissory note on April 5, 2016. The Company recorded a debt discount of $50,000 related to the relative fair value of the issued shares associated with the note to be amortized over the life of the note.

BLOW & DRIVE INTERLOCK CORPORATION

Notes to the Consolidated Financial Statements

Promissory note #4:

On September 23, 2016, the Company provided an agreement to a third party to obtain a $10,000 promissory note in exchange for 100,000 restricted common shares and $10,000 in cash. The promissory note has a maturity date of October 31, 2017 and bears interest at 24% per annum. The Company recorded a debt discount of $10,000 related to the relative fair value of the issued shares associated with the note to be amortized over the life of the note.

Promissory note #5:

On September 30, 2016, the Company provided an agreement to a third party to obtain a $36,100 promissory note in exchange for $36,100 in cash. The promissory note has a maturity date of October 1, 2017 and bears interest at 25% per annum. The note requires interest only payments of $752 per month and a balloon payment of $36,100 for principle upon maturity.

Promissory note #6:

On November 1, 2016, the Company provided an agreement to a third party to obtain a $5,040 promissory note in exchange for $5,040 in cash. The promissory note has a maturity date of November 1, 2017 and bears interest at 25% per annum. The note requires interest only payments of $105 per month. In connection with the issuance of the note payable, the Company issued a warrant to purchase 50,000 shares of common stock at an exercise price of $0.10 per share. The warrant has an exercise period of four years from the date of issuance. The Black Scholes model was used in valuing the warrants in determining the relative fair value of the warrant using the following inputs: Expected Term – 4 years, Expected Dividend Rate – 0%, Volatility – 329%, Risk Free Interest Rate -1.56%. The Company recorded a discount of $5,040, related to the relative fair value of the warrants issued associated with the note to be amortized over the life of the note.

Promissory note #7:

On November 1, 2016, the Company provided an agreement to a third party to obtain a $24,960 promissory note in exchange for $24,960 in cash. The promissory note has a maturity date of November 1, 2017 and bears interest at 25% per annum. The note requires total payments of $520 per month and a balloon payment of $24,960 for principle upon maturity.

Promissory note #8:

On November 1, 2016, the Company provided an agreement to a third party to obtain a $50,000 promissory note in exchange for $50,000 in cash. The promissory note has a maturity date of November 1, 2019 and bears interest at 25% per annum. The note requires total payments of $1,042 per month and a balloon payment of $50,000 for principle upon maturity.

Promissory note #9:

On January 15, 2017, the Company provided an agreement to a third party to obtain a $50,400 promissory note in exchange for $50,400 in cash. The promissory note has a maturity date of January 15, 2018 and bears interest at 25% per annum. The note requires total payments of $1,042 per month and a balloon payment of $50,000 for principle upon maturity. The Company recorded a debt discount of $27,720 related to the value of the issued shares associated with the process of obtaining the note to be amortized over the life of the note.

Promissory note #10:

On February 27, 2017, the Company provided an agreement to a third party to obtain a $70,000 promissory note in exchange for $70,000 in cash. The promissory note has a maturity date of February 27, 2020 and bears interest at 25% per annum. The note requires total payments of $1,458 per month and a balloon payment of $70,000 for principle upon maturity. The Company recorded a debt discount of $28,000 related to the value of the issued shares associated with the process of obtaining the note to be amortized over the life of the note.

Promissory note #11:

On March 16, 2017, the Company provided an agreement to a third party to obtain a $75,000 promissory note in exchange for $75,000 in cash. The promissory note has a maturity date of March 16, 2020 and bears interest at 25% per annum. The note requires total payments of $1,563 per month and a balloon payment of $75,000 for principle upon maturity. The Company recorded a debt discount of $30,000 related to the value of the issued shares associated with the process of obtaining the note to be amortized over the life of the note.

Royalty note #1:

On January 20, 2016, the companyCompany entered into a non-interest bearing note payable and royalty agreement with a third party. Under the note, the Company borrowed $65,000 and began to repay the principal amount at a rate of approximately $937 per month with escalations to approximately $3,531 per month as of February 2017 until the note is paid in full. In addition, starting in February 2018, the Company will pay the lender a royalty fee of five ($5) dollars per month for every ignition interlock devise that the Company has on the road in customers’ vehicles up to eight hundred (800) in perpetuity, and for every unit over 800, the Company will owe the lender $1 per month per device in perpetuity. In connection with this note, the Company recorded a debt discount of $65,000 relating to the future royalty payments, to be amortized over the life of the note.

BLOW & DRIVE INTERLOCK CORPORATION

Notes to the Consolidated Financial Statements

On September 30, 2016, the Company entered into Amendment No. 1 to Royalty note #1 in order to remove a security interest in the Company’s assets to secure repayment of the original note and amend the royalty provisions of the original note to be $1 for each Device on the road beginning in the 25th25th month after the date of the original note. In connection with this amendment, the Company issued 425,000 shares of restricted common stock. Pursuant to ASC 470 this amendment is a deemed extinguishment of the debt and the resulting revised debt is set up as a new note. In connection therewith, the Company recorded a loss on extinguishment of $116,541 during the year ended December 31, 2016.

Total interest expense was $0 and $0 for the three months ended March 31, 2018 and 2017, respectively.

April 2016 - $50,000

 

RoyaltyOn March 30, 2016, the Company entered into a borrowing agreement with a third party. The note #2:was for a principal balance of $50,000 and included 50,000 restricted common shares. The promissory note has a maturity date of June 30, 2018 and bears interest at 18% per annum. The purchaser did not sign the agreement nor deliver the proper consideration prior to March 31, 2016. The exchange of the $50,000 in cash consideration by the purchaser and the issuance of the 50,000 restricted common shares by the Company was made in conjunction with delivery of the signed purchase agreement and promissory note on April 5, 2016. The Company recorded a debt discount of $50,000 related to the relative fair value of the issued shares associated with the note to be amortized over the life of the note.

Total interest expense was $2,250 and $2,250 for the three months ended March 31, 2018 and 2017, respectively.

September 2016 - $10,000

 

On September 23, 2016, the Company provided an agreement to a third party to obtain a $10,000 promissory note in exchange for 100,000 restricted common shares and $10,000 in cash. The promissory note had a maturity date of October 31, 2017 and bears interest at 24% per annum. On October 31, 2017, the note was amended to extend the maturity date to October 31, 2018. There are no other changes to the note. The Company recorded a debt discount of $10,000 related to the relative fair value of the issued shares associated with the note to be amortized over the life of the note.

Total interest expense was $600 and $600 for the three months ended March 31, 2018 and 2017, respectively.

December 2017 - $50,000

On December 1, 2017, the Company provided an agreement to a third party to obtain a $50,000 promissory note in exchange for $50,000 in cash. The promissory note had a maturity date of December 1, 2020 and bears interest at 15% per annum. The note required total payments of $1,733 per month. The Company recorded a debt discount of $22,650 related to the value of the issued shares associated with the process of obtaining the note to be amortized over the life of the note.

Total interest expense was $1,833 and $0 for the three months ended March 31, 2018 and 2017, respectively.

January 2018 - $9,100

On January 4, 2018, the Company provided an agreement to a third party to obtain a $9,100 promissory note in exchange for $9,100 cash. The promissory note had a maturity date of July 17, 2018 and includes fees of $2,184. The note required payments of $2,427 for each of the first two months and $1,608 for each of the next five months.

Total fees were $1,161 and $0 for the three months ended March 31, 2018 and 2017, respectively.

January 2018 - $12,500

On January 1, 2018, the Company provided an agreement to a third party to obtain a $12,500 promissory note in exchange for $12,500 cash. The promissory note had a maturity date of April 18, 2018 and includes fees of $1,027. The note required payments of $1,127 per week until paid in full.

Total fees were $819 and $0 for the three months ended March 31, 2018 and 2017, respectively.

Note 9 – Notes Payable – Related Parties

Notes payable to related parties consist of the following:

  As of March 31, 2018             
  Amount  Discount  Amount  Discount  Net Balance 
                   
January 2016 ($55,000) –Payment of $937 per month for 4 months, $1,250 per month 5 months, and $3,531 per month until fully paid $-  $           -  $-  $5,923  $(6,289) $(366)
November 2017 ($900,000) -60 months of payments of $25,000 per month with $15,000 in principal payment and $10,000 in interest payment, first payment due on December 1, 2017 and the final payment on November 1, 2022.  825,000   -   825,000   885,000   -   885,000 
February 2018 ($100,000) –Fee payment of $2,500 per month, principal due February 1, 2019  100,000   -   100,000   -   -   - 
March 2018 ($500,000) –Fee payment of $12,500 per month first year, $12,000 per month second year, $11,500 per month third year, $11,000 per month fourth year, $105,00 per month fifth year, principal due March 1, 2023  500,000   -   500,000   -   -   - 
                         
Total notes payable  1,425,000   -   1,425,000   890,923   (6,289)  884,634 
                         
Less: non-current portion  (1,145,000)  -   (1,145,000)  (705,000)  -   (705,000)
                         
Notes payable, current portion $280,000  $-  $280,000  $185,923  $(6,289) $179,634 

January 2016 - $55,000

On March 29, 2016, the companyCompany consummated a non-interest bearing note payable and royalty agreement with a relative of the CEO with terms almost identical to the note referenced above. Under the note, the Company borrowed $55,000 and began to repay the principal amount at a rate of approximately $937 per month with escalations to approximately $3,531 per month as of April 2017 until the note is paid in full. In addition, starting in February 2018, the Company will pay the lender a royalty fee of five ($5) dollars per month for every ignition interlock devise that the Company has on the road in customers’ vehicles up to eight hundred (800) in perpetuity, and for every unit over 800, the Company will owe the lender $1 per month per device in perpetuity. In connection with this note, the Company recorded a debt discount of $55,000 relating to the future royalty payments, to be amortized over the life of the note.

On September 30, 2016, the Company entered into Amendment No. 1 to Royalty note #2 to amend the royalty provisions of the original note to be $1 for each Device on the road beginning in the 25th25th month after the date of the Royalty note #2. In connection with this amendment, the Company issued 50,000 shares of restricted common stock and recorded an additional debt discount of $8,959. This amendment was accounted for as a debt modification pursuant to ASC 470.

Total interest expense was $0 and $0 for the three months ended March 31, 2018 and 2017, respectively.

November 2017 - $900,000

 

Royalty note #3:

On September 30, 2016,November 1, 2017, the Company entered into an agreement with a Loanrelated third party to exchange the September 2016 $36,100 note, the September 2016 $192,000 note, the October 2016 $24,960 note, the November 2016 $5,040 note, the November 2016 $50,000 note, the November 2016 $325,000 note, the January 2017 $50,400 note, the February 2017 $70,000 note, and Security Agreement (the “LSA”) with Doheny Group, LLC,the March 2017 $75,000 note for a Delaware limited liability company (“Doheny”), under which Doheny agreed tonew promissory note for $900,000. The new promissory note also included accrued interest payable and payment of Company expenses. The term of the loan up to $542,400 in two phases,is sixty months and payments are to be used$25,000 per month with $15,000 in principal payment and $10,000 in interest payment. The first payment is to acquire additional partsbe on December 1, 2017 and suppliesthe final payment on November 1, 2022.

Total interest expense was $56,066 and $0 for the three months ended March 31, 2018 and 2017, respectively.

February 2018 - $100,000

On February 1, 2018, the Company entered into an agreement with a related third party to manufactureobtain a $100,000 promissory note in exchange for $100,000 cash. The note calls for a monthly fee of $2,500 and the Company’s proprietary breath alcohol ignition interlock devices. Underprincipal is due February 1, 2019.

Total interest expense was $5,000 and $0 for the termsthree months ended March 31, 2018 and 2017, respectively.

March 2018 - $500,000

On March 1, 2018, the Company entered into an agreement with a related third party to obtain a $500,000 promissory note in exchange for $500,000 cash. The note calls for a monthly fee of $12,500 per month for the first year, $12,000 per month for the second year, $11,500 for the third year, $11,000 for the fourth year, and $10,500 for the fifth year, and the principal is due March 1, 2023.

Total interest expense was $11,695 and $0 for the three months ended March 31, 2018 and 2017, respectively.

Note 10 – Convertible Notes Payable

Convertible notes payable consists of the LSA, the first phase will be a loan of up to $192,000 to acquire parts and supplies to manufacture 600 Devices; and the second phase will be a loan of up to $350,400 to acquire parts and supplies to manufacture 1,000 Devices.following:

  As of March 31, 2018  As of December 31, 2017 
  Amount  Discount  Net Balance  Amount  Discount  Net Balance 
                   
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  $7,500  $-  $7,500 
November 2017 ($5,000) - 10% interest bearing convertible debenture due on October 27, 2020 with interest only payments and due upon maturity.  5,000   (1,879)  3,121   5,000   (2,011)  2,989 
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   (15,370  4,630   -   -   - 
                         
Total notes payable  32,500   (17,249)  15,251   12,500   (2,011)  10,489 
                         
Less: non-current portion  (25,000)  11,597   (13,403)  (5,000)  1,483   (3,517)
                         
Notes payable, current portion $7,500  $(5,652) $1,848  $7,500  $(5,652) $1,848 

August 2015 - $15,000

 

The Phase 1 Loan was funded in the amount of $192,000 by Doheny on September 30, 2016, upon whichOn August 7, 2015, the Company forwarded the funds to its supplierentered into an agreement with a third party non-affiliate and issued a 7.5% interest bearing convertible debenture for $15,000 due on or about October 5, 2016, in order to acquire parts and supplies to manufacture 600 Devices. Both the Phase 1 Loan and the Phase 2 Loan mature three years fromAugust 7, 2017, with conversion features commencing after 180 days following the date of funding, and are at an interest ratethe note. Payments of 25% per annum. The note requires interest only paymentswere due monthly beginning September 2015. The loan is convertible at 70% of $4,000 per month. The Company can prepay the Phase 1 Loan andaverage of the Phase 2 Loan (if applicable) at any time without penalty.closing prices for the common stock during the five trading days prior to the conversion date. In exchange for Doheny funding the Phase 1 Loan,connection with this Convertible note payable, the Company issued Dohenyrecorded a promissory note for $192,000 and also issued Doheny shares of common stock equal$5,770 discount on debt, related to 4.99%the beneficial conversion feature of the then-outstanding common stock, pursuantnote to be amortized over the termslife of the note or until the note is converted or repaid. This note was bifurcated with the embedded conversion option recorded as a stock purchase agreement. As a result, on or about October 7,derivative liability at fair value (See Note 9). On May 6, 2016 the Company issued Doheny 845,913note holder elected to convert $7,500 in principal into 30,000 shares of common stock. The note is currently in default.

In addition, upon funding of any portionconnection with the issuance of the Phase 2 loan (RoyaltyAugust Convertible Note #4 below) thenPayable, the Company is obligatedissued a warrant on August 7, 2015 to issue Doheny that number of additionalpurchase 30,000 shares of the Company’s common stock that equals 5%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 then-outstanding common stock. Untilwarrants issued in connection with the Company repaysconvertible note payable using the Phase 1 Loan and the Phase 2 Loan, as applicable, Doheny has anti-dilution rights for the percentage of stock Doheny owns in the event the Company issues additional shares of common stock during that period. The Company also entered into a Royalty Agreement with Doheny, under which Doheny was granted perpetual royalty rights on all Devices when the Company has 500 or more Devices in service whether leased to end users or distributors. The royalty amounts vary between $1 and $2 per Device depending on a variety of factors.following inputs: Expected Term – 3 years, Expected Dividend Rate – 0%, Volatility – 100%, Risk Free Interest Rate -1.08%. The Company recorded aan additional $4,873 discount on debt, discount of $192,000 related to the relative fair value of the warrants issued shares associated with the Phase 1 note to be amortized over the life of the note.

 

Total interest expense was $141 and $141 for the three months ended March 31, 2018 and 2017, respectively.

Royalty note #4:November 2017 - $5,000

 

On November 4, 2016, the Company agreed to fund an initial portion of the Phase 2 loan as described in “Royalty note #3” above. In connection with this funding the common stock ownership percentage of Doheny Group was increased to 9.95%. As also described in “Royalty note #3” above Doheny has anti-dilution privileges to maintain 9.95% of common stock ownership at no additional cost until both Royalty note #3 and Royalty note #4 are paid in full. As of June 30, 2017 the Company has drawn $325,000 out of the maximum allowance of $350,400 in connection with Royalty note #4.

BLOW & DRIVE INTERLOCK CORPORATION

Notes to the Consolidated Financial Statements

Related party promissory note

On February 16, 2014, the Company entered into a note payable agreement with Laurence Wainer, the director, President and sole officer of the Company. The note was for a principal balance of $160,000 and bears interest at 7.75% per annum. Principal and interest payments are due in 60 equal monthly installments beginning in March 2014 of $3,205. The Company and Laurence Wainer entered into an additional agreement effective April 2014 suspending loan repayments until January 2015. As of January 2015, the payments have resumed. On March 31,1, 2017, the Company entered into an agreement with Mr. Wainera non-affiliated shareholder and issued a 10% interest bearing convertible debenture for $5,000 due on October 27, 2020. Payments of interest only are due monthly beginning December 2017. The loan is convertible at 61% of the average of the closing prices for the common stock during the five trading days prior to issuethe conversion date but may not be converted if such conversion would cause the holder to him 1,000,000 Series A Preferred Shares in exchange $25,537 in accrued salary. On May 19,2017,own more than 4.9% of outstanding common stock after giving effect to the conversion. In connection with this Convertible Note Payable, the Company amendedrecorded a $5,000 discount on debt (the total discount was $6,825, of which $1,825 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 December 31, 2017, this note has not been converted.

In connection with the issuance of the November convertible note payable, the Company issued a warrant to purchase 10,000 shares of common stock at an exercise price of $1.00 per share. The warrant has an exercise period of four years from the date of issuance. 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 – 4 years, Expected Dividend Rate – 0%, Volatility – 373%, Risk Free Interest Rate – 2.37%. The Company recorded an additional $2,099 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 $125 and $0 for the three months ended March 31, 2018 and 2017, respectively.

30

March 2018 - $20,000

On March 9, 2018, the Company entered into an agreement to forgive $45,000with 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 debt owed by Company to Mr. Wainer insteadcash for the first six months, thereafter, interest may be paid either in cash or common stock of the forgivenessCompany. The loan is convertible at 61% of $25,537 in accrued salary. Thethe 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 paid backrecorded a $15,370 discount on debt related to the remaining amounts due underbeneficial conversion feature of the note to be amortized over the life of the note or until the note is converted or repaid. This note was bifurcated with the embedded conversion option recorded as a derivative liability at fair value. As of March 31, 2018, this note in June 2017.has not been converted.

Total interest expense was $126 and $0 for the three months ended March 31, 2018 and 2017, respectively.

 

Note 911 – Derivative Financial InstrumentsLiabilities

Derivative liabilities consisted of the following:

  March 31, 2018  December 31, 2017 
       
August 2015 - $15,000 convertible debt $10,955  $7,310 
November 2017 - $5,000 convertible debt  8,634   4,992 
March 2018 - $20,000 convertible debt  15,370   - 
         
Total derivative liabilities $34,959  $12,302 

 

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 Black Sholes Model.

August 2015 Convertible Debt - $15,000

The

In August 2015, the Company hasentered into a $7,500 and a $50,000$15,000 convertible note with variable conversion pricing outstanding at June 30, 2017.pricing. The following inputs were used in within the Black Sholes Model to determine the initial relative fair value: Expected Term – .85values of the $15,000 convertible note with expected term of 1.58 years, expected dividend rate of 0%, volatility of 100% and 1.11risk free interest rate 0.61%.

November 2017 Convertible Debt - $5,000

In November 2017, the Company entered into a $5,000 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 $5,000 convertible note with expected term of 3.00 years, Expected Dividend Rate –expected dividend rate of 0%, Volatility –volatility of 312% and risk free interest rate 2.37%.

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%, Risk Free Interest Rate - 0.55%volatility of 413% and risk free interest rate 2.90%.

 

The Company revalues these derivatives each quarter using the Black Sholes Model. The change in valuation is accounted for as a gain or loss in derivative liability. The following table describes the Derivative liability as of June 30,December 31, 2017 and DecemberMarch 31, 2016.2018.

 

Balance December 31, 2016 $73,556 
Change in fair market value of derivative  17,492 
Balance June 30, 2017 (unaudited) $56,064 
  Balance        Balance 
  at 12/31/17  Additions  Changes  at 03/31/18 
             
August 2015 - $15,000 convertible debt $7,310  $-  $3,644  $10,954 
November 2017 - $5,000 convertible debt  4,992       3,643   8,634 
March 2018 - $20,000 convertible debt  -   15,370   -   15,370 
                 
Total $12,302  $15,370  $7,286 $34,959 

 

Note 1012 – Accrued Royalties Payable

 

In connection with the Royalty Notes number 1-4 as discussed in Note 8 above theThe Company has estimated the royalties to be paid out in perpetuity. These estimates were performed atperpetuity under royalty agreements. The Company entered into royalty agreement as follows:

January 2016 Royalty Agreement – Under the note payable and royalty agreements of $65,000, the Company is required to pay the lender a royalty fee of five ($5) dollars per month for every ignition interlock devise that the Company has on the road in customers’ vehicles up to eight hundred (800) in perpetuity, and for every unit over 800, the Company will owe the lender $1 per month per device in perpetuity.
● March 2016 Royalty Agreement – On March 29, 2016, the Company entered into a royalty agreement with a relative of the CEO together with note payable of $55,000. Under the royalty agreement and starting February 2018, the Company is required to pay the lender a royalty fee of five ($5) dollars per month for every ignition interlock devise that the Company has on the road in customers’ vehicles up to eight hundred (800) in perpetuity, and for every unit over 800, the Company will owe the lender $1 per month per device in perpetuity.
September and November 2016 Royalty Agreements – The Company entered into royalty agreements on September 30, 2016 and November 4, 2016 with a related party in relation to notes payable of $192,000 and $325,000, respectively. Under the royalty agreements, the Company is required to pay a royalty fee of from $1 to $2 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.
● 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.

Based on the inception for the notes to reflect the associated debt discount. Payments on such royalty notes became due in October 2016 uponagreement, the Company hitting certain sales milestones as set forth inhad the following royalty agreements.accruals:

  March 31, 2018  December 31, 2017 
       
January 2016 royalty agreement $100,111  $86,230 
March 2016 royalty agreement  102,018   88,010 
September and November 2016 royalty agreements  0  5,753 
November 2017 royalty agreement  5,806   - 
         
Total accrued royalties $207,935  $179,993 

Note 1113 – Stockholders’ Equity

 

Preferred Stock

 

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

 

Series A Preferred Stock

 

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

 

During the three months ended March 31, 2017, the Company entered into a material definitive agreement to issue 1,000,000 shares of series A preferred stock to an officer and director of the Company with a preliminary estimated value of $350,000. As of June 30, 2017March 31, 2018, the total number of preferred shares issued or issuable was 1,000,000.

 

Common Stock

 

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

 

During the sixthree months ended June 30, 2017,March 31, 2018, theCompany issued 27,180450,000 shares of $0.001 par valueits common stock for services with a value of $13,910. The Company also issued 195,400 shares, valued at $85,720, to a related party in connection with obtaining debt financing.Additionally,$105,000. In addition , the Company issued and sold 2,311,2181,500,000 shares of its common stock to several investors for an aggregate purchase price of $360,879.$162,500. In addition, the Company issued 364,649216,425 common shares in accordance with the anti-dilution provisions of Royalty notes #3 and #4 (see Note 8).#4. The total number of shares issued or issuable as of June 30, 2017March 31, 2018 was 22,474,052.

BLOW & DRIVE INTERLOCK CORPORATION

Notes to the Consolidated Financial Statements28,334,710.

 

Note 1214 – Warrants

 

The Company also soldissued warrants in individual sales and in connection with common stock purchase agreements. The warrants have expiration dates ranging from three to purchase 750,000 common sharesfour years from the date of grant and exercise prices ranging from $0.10 to $1.00.

A summary of warrant activity for an aggregate purchase price of $55,000.the periods presented is as follows:

 

The following table reflects warrant activity:

   Weighted Average      Weighted Average   
 Warrants for Weighted Average Remaining Aggregate  Warrants for Weighted Average Remaining Aggregate 
 Common Shares Exercise Price Contractual Term Intrinsic Value  Common Shares Exercise Price Contractual Term Intrinsic Value 
Outstanding and exercisable as of December 31, 2014  -  $-  $-  $- 
Granted  110,000   0.72   2.27   - 
Exercised  -   -   -   - 
Forfeited, cancelled, expired  -   -   -   - 
Outstanding as of December 31, 2015  110,000  $0.72  $2.10   - 
Granted  50,000   0.10   4.00     
Exercised  -   -   -   - 
Forfeited, cancelled, expired  -   -   -   - 
Outstanding as of December 31, 2016  160,000  $0.53  $1.97   5,250   160,000  $0.53   2.10   5,250 
Granted  1,944,426   0.21   4.00   195,700    4,697,176   0.51   4.00   407,614 
Exercised  -   -   -       -   -   -   - 
Forfeited, cancelled, expired  -   -   -       -   -   -   - 
Outstanding as of June 30, 2017  2,104,426  $0.23  $3.15   200,950 
Outstanding as of December 31, 2017  4,857,176  $0.53   1.97   - 
Granted  325,000   0.84   4.00   - 
Exercised  -   -   -     
Forfeited, cancelled, expired  -   -   -     
Outstanding as of March 31, 2018  5,182,176  $0.59   2.96   - 

 

Note 1315 – Income (Loss) Per Share

 

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

 

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

 

 Three Months Ended June 30, Six Months Ended June 30,  Three Months Ended March 31, 
 2017 2016 2017 2016  2018 2017 
Preferred shares  -   -   -       -   - 
Convertible notes  409,159   19,038   409,159   19,751   57,296   166,295 
Warrants  2,104,426   110,000   2,104,426   110,000   5,182,176   160,000 
Options  -   -   -   -   -   - 
Total anti-dilutive weighted average shares  2,513,585   129,038   2,513,585   129,751   5,239,472   326,295 

 

If all dilutive securities had been exercised at June 30, 2017March 31, 2018, the total number of common shares outstanding would be as follows:

 

June 30, 2017
Common Shares  22,474,05228,334,710 
Preferred Shares  - 
Convertible notes  409,15957,296 
Warrants  2,104,4265,182,176 
Options  - 
Total potential shares  24,987,63733,574,182 

BLOW & DRIVE INTERLOCK CORPORATION

Notes to the Consolidated Financial Statements

 

Note 1416 – Commitments and Contingencies

 

On December 1, 2016, the Company entered into a four-year lease with Cahuenga Management LLC for a storefront location at 15503 Cahuenga Blvd., North Hollywood, California 91601. Base rent under the lease is $2,200 per month, with an escalating provision up to $2,404 throughout the lease term. The rental agreement includes operating expenses such as common area maintenance, property taxes and insurance.

On August 28, 2017, the Company entered into a one-year lease with B3 Investments, LLC for a storefront location at Suites D104 and D105, 2406 24th Street, South Phoenix, Arizona. Base rent under the lease is $1,350 per month plus 2% ($27) rental tax. The rental agreement includes operating expenses such as common area maintenance, property taxes and insurance.

 

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 17 – Related Party Transactions

The Company had the following related party transactions:

Notes payable of $1,425,000 to the Doheny Group.

2,880,637 shares of common stock, of which 1,863,152 were granted to the Doheny Group in relation to notes payable and 967,485 were granted to the Doheny Group as anti-dilution shares.

50,000 warrants were granted to David Haridim.

Note 18 – Settlement with Distributor

On January 21, 2018, the Company and its major distributor memorialized a September 30, 2017 oral agreement that terminated their September 5, 2015 distributorship agreement. The distributor had failed to timely make required monthly payments. The Company agreed to not pursue amounts due it from the distributor. The Company has sent letters to all customers of the distributor and believes that it will retain most, if not all, customers. If customers are not retained, the customers will need to have the interlock device removed and returned to the Company. The Company had approximately 900 interlock units rented to the distributor. As of December 31, 2017, $35,979 in distributor revenue and accounts receivable were reversed out. As of October 1, 2017, the distributor became an employee of the Company and was to service the area that he had been a distributor of.

Note 1519 – 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.

 

Subsequent to June 30, 2017,March 31, 2018, and through the date of this filing, the Company has issued a total of 296,5762,990,883 common shares for an aggregate cash purchase price of $51,500.21.$314,205. In connection with these sales of common shares the Company has also issued warrants for 547,338659,410 common shares. Also, 26,000 common shares were issued for services valued at $26,000, 32,812 common shares were issued for the conversion of a note payable of $5,000 principal and $250 accrued interest, and 447,914 shares were issued to a note holder in regards to anti-dilution provisions in the notes payable.

On August 1, 2018, an addendum (addendum #3) was made to the November 1, 2016 loan agreement with The Doheny Group. The Company owed The Doheny Group $1,365,000. Beginning September 1, 2018, the Company agreed to pay $20,000 monthly in interest only. This payment was to be for nine months. Beginning August 1, 2018, royalty became $5.00 per unit with $1.50 paid monthly and $3.50 accrued. Anti-dilution was extended ten more years until August 1, 2028. Any judgements won be the Company would be used to pay the loan. After a ninth payment of $20,000 is made on May 1, 2019, monthly payments on the $1,365,000 loan will become $53,500, including principal and interest. The $1,365,000 loan will be paid in full after 48 consecutive monthly payments of $53,500. Under the new four year term of the loan, the royalty will become $1.50 per unit and the royalty accrual of $3.50 per unit for the prior nine months shall be paid over twelve months. After the $1,365,000 loan is paid in full, the royalty per unit shall be $3.00. If there is a default on any payments starting August 1, 2018, the royalty will become $5.00 per unit in perpetuity and there will be a $635,000 penalty added to the loan balance.

On October 4, 2018, Michael Wainer entered into a personal loan agreement with Kabbage for $72.800. Michael Wainer then lent $72,800 to the Company. The loan was for twelve months and loan fees and interest were $37,128. Payments were $11,527 per month for the first six months and $6,795 per month for the final six months. Payments were to be paid by the Company to Kabbage. An initial payment of $11,527 was made in December 2018. On December 31, 2018, Michael Wainer released the Company from payment of the loan.

On October 11, 2018, the Company entered into a loan agreement with Forward Financing for $60,000. Total interest and fees on the loan were $18,600. Payments of $561.43 were automatically paid each business day starting October 15, 2018 and were to be for 140 days business days. On January 11, 2019, Forward Financing agreed to settle an outstanding balance of $49,580.64 for $30,805.64,

On December 1, 2018, an addendum (addendum #4) was made to the November 1, 2016 loan agreement with The Doheny Group. A December 1, 2018 payment by the Company was not made and thus the Company was in default to the Doheny Group. Therefore, the royalty will become $5.00 per unit on all units in perpetuity, the loan amount has increased to $2,000,000, as of December 1, 2018 payment of $20,000 was not made and the loan amount became $2,020,000, a new monthly payment of $50,500 interest only will be due as of January 1, 2019, if the full $50,500 cannot be paid, then a partial payment will be made with the unpaid amount added to the principal, and a balloon payment of the balance of principal owed shall be made on December 1, 2023.

On December 17, 2018, the Company entered into a loan agreement with The Doheny Group for $6,000. The loan has no interest (0%), no monthly payments, and a balloon payment of $6,000 on December 17, 2019.

On December 31, 2018, the Company entered into a loan agreement with The Doheny Group for $23,000. The loan has no interest (0%), no monthly payments, and a balloon payment of $23,000 on December 31, 2019.

On December 31, 2018, the Company reached a settlement with note holder Rafael Mavashev in which a $10,000 promissory note and accrued interest were settled for payment of $1,000.

On December 31, 2018, the Company reached a settlement with note holder Edris Consulting in which a $65,000 royalty note and royalties owed were settled for payment of $3,000.

On December 31, 2018, the Company reached a settlement with note holder Oren Azulay in which a $50,000 promissory note and accrued interest payable were settled for payment of $13,000.

On December 31, 2018, Laurence Wainer, CEO of the Company, and The Doheny Group, a major note holder of the Company, reached an agreement in which Laurence Wainer sold 8,924,000 shares of common stock and 1,000,000 shares of preferred stock for a total of $30,000. Upon completion of the sale, David Haridim, managing member of The Doheny Group, assumed the position of CEO of Blow and Drive.

On January 3, 2019, the Company entered into a loan agreement with the Doheny Group for $32,700. The note has no interest (0%), no monthly payments, and a balloon payment of $32,700 on January 3, 2020.

On January 11, 2019, the Company entered into a loan agreement with the Doheny Group for $40,000. The note has no interest (0%), no monthly payments, and a balloon payment of $40,000 on January 11, 2020.

On January 15, 2019, the Company entered into a loan agreement with the Doheny Group for $14,500. The note has no interest (0%), no monthly payments, and a balloon payment of $14,500 on January 15, 2020.

On January 30, 2019, the Company reached a release of all claims with note holder Lucky Draw, LLC. The Company owed Lucky Draw a promissory note payable of $50,000 and accrued interest.

On February 1, 2019, the Company entered into a loan agreement with the Doheny Group for $15,000. The note has no interest (0%), no monthly payments, and a balloon payment of $15,000 on February 1, 2020.

On February 19, 2019, the Company entered into a loan agreement with The Doheny Group for $5,000. The loan has no interest (0%), no monthly payments, and a balloon payment of $5,000 on February 19, 2020.

On March 4, 2019, the Company entered into a loan agreement with The Doheny Group for $10,000. The loan has no interest (0%), no monthly payments, and a balloon payment of $10,000 on March 4, 2020.

On May 1, 2019, the Company entered into a loan agreement with The Doheny Group for $20,000. The loan has no interest (0%), no monthly payments, and a balloon payment of $20,000 on May 1, 2020.

On May 1, 2019, the Company entered into a loan agreement with The Doheny Group for $20,000. The loan has no interest (0%), no monthly payments, and a balloon payment of $20,000 on May 1, 2020.

On June 3, 2019, the Company entered into a loan agreement with The Doheny Group for $89,000. The loan has no interest (0%), no monthly payments, and a balloon payment of $89,000 on June 3, 2020.

 

2338
 

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

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, 2016,2017, we generated total revenues of $303,765 (restated),$1,235,433, compared to $30,569$303,765 in the year ending December 31, 2015. From July 2, 2013 (inception) to December 31, 2016, we experienced a net loss and accumulated deficit of $1,587,330 (restated) and total liabilities of $783,812 (restated) including $97,749 in notes payable to our president, Laurence Wainer.2016. For the three months ended June 30,March 31, 2018 and 2017, we had total revenues of $314,457 (restated)$201,656 and $167,054, respectively, and a net loss of $22,365 (restated).$478,622 and $856,401, respectively.

 

We are in the business of rentingmarket distributorships and lease a 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. 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. We also have the option of in-car camera technology, which some states require for state approval. The in-car camera feature is just one of several anti-circumvention features found on the BDI-747. 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.

 

On June 17,We paid Well Electric, a company located in China with experience in design and manufacture of ignition interlock devices, $30,000 to design and manufacture the prototype ignition interlock device for us. Well Electric produced six prototype devices for us which we received in November 2014.

At July 27, 2015 our BDI-747 Breath Alcohol Ignition Interlock Device, together withwe began production of our patent pending BDI Model #1 power line filter were certified by the National Highway Traffic Safety Administration (NHTSA) as meeting or exceeding the 2013 NHSTA guidelines. As a result, on July 27, 2015 we began production ofto attach to our BDI-747 Breath Alcohol Ignition Interlock Device with the attached BDI Model #1 power line filter.which together were certified by NHSTA on June 17, 2015 to work to together to meet or exceed 2013 NHSTA guidelines.

Since receiving our NHSTA Certification we have submitted applications to a number of states to be considered as a state-certified breath alcohol ignition interlock manufacturer and provider for all Ignition Interlock Mandated DUI/DWI offenders throughout each state. The process to get the device approved varies greatly state-to-state. As of June 30,December 31, 2017, the BDI-747/1 was approved for use in elevenfive states, namely California, Colorado, Oregon, Texas, Arizona, Kentucky, Oklahoma, Tennessee, Pennsylvania, New York, and Kansas. Our plan for the remainderTennessee. As of 2017 is to build our infrastructure in the states where we have approval to ensure we can service all areas of those states, as well as to gain approval in an additional 3-5 states.

In states whereDecember 31, 2018, the BDI-747/1 isdevice was approved as a BAIID, we rentin Oregon, Texas, Arizona, and Kentucky. As of March 31, 2019, the BDI-747/1 devices to offenders, typically for twelve months, but the time could differ on a case-by-case basis depending on the sentence received by the offender. In somedevice was only approved in Arizona and Texas. The states we market, lease, install and support the devices directly and in other states we sell distributorships to authorized distributors allowing them to lease, install, service, remove and support the BDI-747/1 devices. Currently, we lease the devices directly in eight states and areas – California, Oregon, Colorado, Oklahoma, Tennessee, New York, Kansas and parts of Texas - and license the device to distributors in four different areas – two counties in Texas and in the states of Arizona, Kentucky and Pennsylvania.

In states where we rent the devices directly to consumers, we typically charge between $159-$198 in upfront fees for the user (which covers two months of the lease payment), and then between $59-$99/month for the remainder of the lease, which differs depending on the state and the individual consumer. After the upfront payments the leases and payments are month-to-month. The payments cover the installation of the device in the consumer’s vehicle, the rental of the device, recalibration of the device as required by each state (typically every 30 to 60 days) and the monitoring services for the device, which are then reported to the state in accordance with each state’s requirements. In states and areas where we do not have a direct presence, which we only have in Los Angeles, California, we contract with independent service centers, such as car alarm installation companies or other auto services companies, to perform the installations of our BDI-747/1 device which centers must beis approved byhas decreased primarily as a result of new state certification rules that require increased capital investment that we are not able to afford.

We have a storefront location in Phoenix, Arizona and contract with four qualified contractors to install, calibrate, remove and monitor the states in which the perform the installations. Because our devices are installed in consumers’ vehicles are part of a judicially-mandated program, and since the usedevices. Our business plan includes growth of the device controls the individual’s driving privileges, collection rates of the monthly leasing fees is closecompany by continuing to 100%. The failurecomplete and submit more state applications and to make the payment could be a violation of the consumer’s sentence or probationbuild up our service infrastructure by utilizing our own retail infrastructure, distributors and could cause them to lose the device and their driving privileges.

In areas where we have a distributor, in our typical distributorship arrangement, we charge the distributor a flat fee distributorship territory fee up front (which fee varies based on the size and location of the distributorship), a $150 per unit registration fee, and then a $35 monthly fee for each device the distributor has in its inventory. These fees may vary on a case-by-case basis. The relationship with our distributors may either be on an exclusive or non-exclusive basis depending upon the location of the distributorship and the fees charged.franchisees.

 

As of June 30,December 31, 2017, we had approximately 2,5001,558 units on the road, with approximately 1,0001,451 devices being rentedleased directly from us and approximately 1,500107 devices rentedleased through our distributors. As of August 15, 2017,March 31, 2018, we had approximately 2,7001,341 units on the road, with approximately 1,3251,147 devices being rentedleased directly from us and approximately 1,375194 devices rentedleased through our distributors. We plan to refineAs of December 31, 2018, 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 manufacturing processes and increase our marketingdistributors. The decrease in the total number of the device, and more aggressively pursue sales and distributors oncedevices we have fundson the road is primarily due to manufacture additional units.the fact the BDI-747/1 devices was approved in fewer states in 2018 compared to 2017.

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 is currently 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 iswww.blowanddrive.com.

40

Results of Operations for

Three Months Ended June 30, 2017March 31, 2018 (Unaudited) Compared to Three Months Ended June 30, 2016March 31, 2017 (Unaudited)

 

  For the three months ended March 31, 
  2018  2017 
     (restated) 
Revenue        
Monitoring revenue $178,486  $75,320 
Distributorship revenue  23,170   91,734 
Total revenue  201,656   167,054 
         
Monitoring cost of revenue  47,613   7,982 
Distributorship cost of revenue  -   4,239 
Total cost of revenue  47,613   12,221 
Gross profit $154,043  $154,833 
         
Operating expenses        
Payroll  236,412   70,314 
Professional fees  37,092   41,131 
General and administrative expenses  249,554   716,092 
Depreciation  -   55,416 
Total operating expenses  523,058   885,953 
         
Loss from operations  (369,015)  (728,120)
         
Other income (expense)        
Interest expense, net  (102,321)  (144,309)
Change in fair value of derivative liability  (7,286)  16,028 
Total other income (expense)  (109,607)  (128,281)
         
Net loss $(478,622) $(856,401)

Summary of Results of Operations

  Three Months Ended
June 30,
 
  

2017

(restated)

  

2016

(restated)

 
Revenue: $   $-
         
Monitoring revenue  204,738   79,726 
Distributorship revenue  109,719   5,950 
Total revenues  314,457   85,676 
         
Cost of revenue:        
         
Monitoring cost of revenue  46,085   11,163 
Distributorship cost of revenue  2,500   - 
Total cost of revenue  48,585   11,163 
         
Gross profit  265,872   74,513 
         
Operating expenses:        
         
Payroll  98,462   31,518 
Professional fees  35,771   36,985 
General and administrative expenses  (388,747)  125,402 
Depreciation  88,726   6,675 
Common stock issued for services  -   17,000 
Total operating expenses  (165,788)  (217,580)
         
Income (loss) from operations  431,660   (143,067)
         
Other income (expense):        
         
Interest expense  (150,780)  (42,507)
Change in fair value of derivative liability  1,464   15,122 
Loss on extinguishment of debt  (305,000)  - 
Total other income (expense)  (454,025)  (27,385)
         
Net income (loss) $(22,365) $(170,452)

Operating Loss; Net Income (Loss)Loss

 

Our net loss decreased by $148,087,$377,779, from ($170,452) (restated) to ($22,365) (restated), from856,401) for the three months ended June 30, 2016 comparedMarch 31, 2017 to June 30, 2017.($478,622) for the three months ended March 31, 2018. Our operating income (loss) increasedloss decreased by $574,727,$359,105, from ($143,067) (restated)728,120) to $431,660 (restated)($369,015) for the same periods. The decrease in our net loss for the three months ended June 30, 2017,March 31, 2018, compared to the prior year period,three months ended March 31, 2017, is primarily athe result of aincreased revenues, partially offset by higher cost of revenue; as well as significant decreasedecreases in our general and administrative expenses and depreciation, partially offset by an increase in our gross profit of $191,359 for the period, offset by increases in our payroll and depreciation.payroll. These changes are detailed below.

Revenue

 

During the three months ended June 30, 2017March 31, 2018 we had $314,457 (restated)$201,656 in revenues, with $204,738$178,486 coming from revenue from the monthly recurring payments we received from our customers that rent our BDI-747/1 breathalyzer device for the ongoing monitoring services related to the devices, and $109,719 (restated)$23,170 coming from revenues received from our distributors, compared to $79,726 (restated)$75,320 and $5,950 (restated)$91,734 from these revenue sources for the same period one year ago. We expectago, respectively. Notably, the source of the majority of our revenue shifted from revenue received our distributors in the period ended March 31, 2017, to the revenue we receive from the monthly recurring payments we received from our customers that rent our BDI-747/1 breathalyzer device for the ongoing monitoring services related to the devices in the period ended March 31, 2018. We expect the majority of our revenue in the future to come from the monthly recurring payments we receive from our customers that rent our BDI-747/1 breathalyzer device for the ongoing monitoring services related to the devices on the road will continue to increaseand not from distributors as we haveshift away from using distributors and more units on the road.towards direct retail of our devices.

 

Cost of Revenue

 

Our cost of revenue for the three months ended June 30, 2017March 31, 2018 was $48,585,$47,613, compared to $11,163$12,221 for the three months ended June 30, 2016.March 31, 2017. Our cost of revenue for the three months ended June 30, 2017 was attributed as $46,085 to monitoring cost of revenue and $2,500 to distributorship cost of revenue. For the three months ended June 30, 2016,March 31, 2018, our cost of revenue was completely related to our monthly monitoring services we provide to our customers. For the three months ended March 31, 2017, was attributed as $7,982 to monitoring cost of revenue and $4,239 to distributorship cost of revenue. Again, we expect this shift in our cost of revenue to continue as we move away from using distributors and more towards direct retail of our devices.

 

Payroll

 

Our payroll increased by $66,944,$166,097 from $31,518 to $98,462, from$70,314 for the three months ended June 30, 2016 comparedMarch 31, 2017 to June 30, 2017.$236,412 for the three months ended March 31, 2018. This increase was largely related to hiring additional personnel as we put more units on the road. We expect ourroad and to a large increase in estimated payroll in future quarterly periods will be approximately $50,000 to $55,000 per quarter until we are able to expand our operations.taxes. If we expand our operations, especially by renting units to individuals directly from us (as opposed to through distributors), we expect our payroll will continue to increase as we put additional units on the road.

 

Professional Fees

 

Our professional fees increased during the three months ended June 30, 2017 compared to the three months ended June 30, 2016. Our professional fees were $35,771decreased by $4,039 from $41,131 for the three months ended June 30,March 31, 2017 and $36,985to $37,092 for the three months ended June 30, 2016.March 31, 2018. These fees are largely related to fees paid for legal, accounting and audit services. We expect these fees to continue grow steadily asif 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 significantly for the periods presented,by $466,538 from $142,402$716,092 for the three months ended June 30, 2016March 31, 2017 to ($388,747)$249,554 for the three months ended June 30, 2017. ThisMarch 31, 2018. The significant decrease was relatedlargely due to the fact we paidissued shares for certain services in the period in 2017, with the value of those shares showing as expenses in 2017, compared to 2018 when we didn’t have the same share issuances. This decrease was partially offset by an increase in software expenses in the period in 2018, when we also issued shares to a settlement of $50,000 to an ex-employeesoftware company for certain product and removed the higher amount we had accrued for that employee, and we amended our preferred stock purchase agreement with Mr. Laurence Wainer such that his payment for the shares was full satisfaction of approximately $45,000 of debt owed to him rather than $25,500 of accrued salary, which was the original payment. In quarters that we do not have similar one-time transactions we expect our general and administrative expenses to be around $125,000 to $150,000 per quarter for the foreseeable future.services.

Depreciation

 

We hadOur depreciation of $88,726decreased from $55,416 for the three months ended June 30,March 31, 2017 compared to $6,675$0 for the same period one year ago.three months ended March 31, 2018. Our depreciation and amortization expensesexpense in 2016 werethe period ended March 31, 2017 was primarily related to the depreciation of the BDI-747/1 device. We anticipateSince we fully impaired our remaining BDI-747/1 devices for the period ended March 31, 2018, due to the uncertainty with the direction of our business going forward, we did not have a depreciation expense will continuefor the three months ended March 31, 2018.

Impairment of Fixed Assets

During the three months ended March 31, 2018, we had impairment of fixed assets of $18,850, compared to increase as$0 during the same period in 2017. The impairment of our fixed assets is a result of our management currently trying to determine whether our current business model and operations are viable. Until this determination has been made, we manufacture more devices.have elected to impair our assets.

 

Interest Expense

 

Interest expense increaseddecreased by $108,273$41,988 from $42,507$144,309 for the three months ended June 30, 2016March 31, 2017 to $150,780$102,321 for the three months ended June 30, 2017. For both periods these amounts are largely due to the interest we owe on outstanding debt including amortization of debt discount costs.March 31, 2018. The interest expense significantly increaseddecreased slightly for the period ended June 30, 2017,March 31, 2018, compared to the same period one year ago, due to a slight decrease in our increase in outstanding debt compared to one year ago, which primarily relatedrelate to the loans we received from Doheny Group, LLC.

 

Change in Fair Value of Derivative Liability

 

During the three months ended June 30, 2017,March 31, 2018, we had a change in fair value of derivative liability of $1,464$(7,286) compared to $15,122$16,028 for the same period in 2016.three months ended March 31, 2017. The change in fair value of derivative liability in the three months ended June 30, 2017,March 31, 2018, relates to the conversion feature of a promissory note we had outstanding during this 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.

Loss on Extinguishment of Debt

During the three months ended June 30, 2017, we had loss on extinguishment of ($305,000) compared to ($19,612) for the same period in 2016. The loss on extinguishment of debt in the three months ended June 30, 2017, relates to debt we retired through the issuance of preferred stock to Laurence Wainer.

Results of Operations for Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016

Summary of Results of Operations

  

Six Months Ended

June 30,

 
  

2017

(restated)

  

2016

(restated)

 
Revenue: $   $- 
         
Monitoring revenue  280,058   119,205 
Distributorship revenue  201,453   5,950 
Total revenues  481,511   125,155 
         
Cost of revenue:        
         
Monitoring cost of revenue  54,067   17,718 
Distributorship cost of revenue  6,739   - 
Total cost of revenue  60,806   17,718 
         
Gross profit  420,705   107,437 
         
Operating expenses:        
         
Payroll  168,776   65,247 
Professional fees  76,902   61,621 
General and administrative expenses  327,345   191,959 
Depreciation  144,142   16,930 
Common stock issued for services  -   34,000 
Total operating expenses  717,165   369,757 
         
Loss from operations  (296,460)  (262,320)
         
Other income (expense):        
         
Interest expense  (295,089)  (69,925)
Change in fair value of derivative liability  17,492   (19,612)
Loss on extinguishment of debt  (305,000)  - 
Total other income (expense)  (582,306)  (89,537)
         
Net income (loss) $(878,766) $351,857)

Operating Loss; Net Income (Loss)

Our net loss increased by $526,909, from ($351,857) (restated) to ($878,766) (restated), from the six months ended June 30, 2016 compared to June 30, 2017. Our operating loss increased by $34,140, from ($262,320) (restated) to ($296,460) (restated) for the same periods. The increase in our net loss for the six months ended June 30, 2017, compared to the prior year period, is primarily a result of a increase in our general and administrative expenses, as well as increases in our payroll, professional fees and depreciation, partially offset by an increase in our gross profit of $313,268 for the period. These changes are detailed below.

Revenue

During the six months ended June 30, 2017 we had $481,511 (restated) in revenues, with $280,058 coming from revenue from the monthly recurring payments we received from our customers that rent our BDI-747/1 breathalyzer device for the ongoing monitoring services related to the devices, and $201,453 (restated) coming from revenues paid to us from our distributors, compared to $119,205 (restated) and $5,950 (restated) from these revenue sources for the same period one year ago. We expect the revenue we receive from monitoring our devices on the road will continue to increase as we have more units on the road.

Cost of Revenue

Our cost of revenue for the six months ended June 30, 2017 was $60,806, compared to $17,718 for the six months ended June 30, 2016. Our cost of revenue for the six months ended June 30, 2017 was attributed as $54,067 to monitoring cost of revenue and $6,739 to distributorship cost of revenue. For the six months ended June 30, 2016, our cost of revenue was completely related to our monthly monitoring services we provide to our customers.

Payroll

Our payroll increased by $103,529, from $65,247 to $168,776, from the six months ended June 30, 2016 compared to June 30, 2017. This increase was largely related to hiring additional personnel as we put more units on the road. We expect our payroll in future quarterly periods will be approximately $50,000 to $55,000 per quarter until we are able to expand our operations. If we expand our operations, especially by renting units to individuals directly from us (as opposed to through distributors), we expect our payroll will continue to increase as we put additional units on the road.

Professional Fees

Our professional fees increased during the six months ended June 30, 2017 compared to the six months ended June 30, 2016. Our professional fees were $76,902 for the six months ended June 30, 2017 and $61,621 for the six months ended June 30, 2016. These fees are largely related to fees paid for legal, accounting and audit services. We expect these fees to continue grow steadily as 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 increased for the periods presented, from $191,959 (restated) for the six months ended June 30, 2016 to $327,345 for the six months ended June 30, 2017. This increase would have been larger except for we paid a settlement of $50,000 to an ex-employee and removed the higher amount we had accrued for that employee, and we amended our preferred stock purchase agreement with Mr. Laurence Wainer such that his payment for the shares was full satisfaction of approximately $45,000 of debt owed to him rather than $25,500 of accrued salary, which was the original payment. In quarters that we do not have similar one-time transactions we expect our general and administrative expenses to be around $125,000 to $150,000 per quarter for the foreseeable future.

Depreciation

We had depreciation of $144,142 for the six months ended June 30, 2017, compared to $16,930 for the same period one year ago. Our depreciation and amortization expenses in 2016 were primarily related to the depreciation of the BDI-747/1 device. We anticipate our depreciation expense will continue to increase as we manufacture more devices.

Interest Expense

Interest expense increased by $225,164 from $69,925 for the six months ended June 30, 2016 to $295,089 for the six months ended June 30, 2017. For both periods these amounts are largely due to the interest we owe on outstanding debt including amortization of debt discount costs. The interest expense significantly increased for the period ended June 30, 2017, compared to the same period one year ago, due to our increase in outstanding debt compared to one year ago, primarily related to the loans we received from Doheny Group, LLC.

Change in Fair Value of Derivative Liability

During the six months ended June 30, 2017, we had a change in fair value of derivative liability of $17,492 compared to ($19,612) for the same period in 2016. The change in fair value of derivative liability in the six months ended June 30, 2017, relates to the conversion feature of a promissory note we had outstanding during this 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.

Loss on Extinguishment of Debt

During the six months ended June 30, 2017, we had loss on extinguishment of ($305,000) compared to ($19,612) for the same period in 2016. The loss on extinguishment of debt in the six months ended June 30, 2017, relates to debt we retired through the issuance of preferred stock to Laurence Wainer.

Liquidity and Capital Resources for Sixthe Three Months Ended June 30, 2017March 31, 2018 Compared to SixThree Months Ended June 30, 2016March 31, 2017

 

Introduction

 

Our cash on hand as of March 31, 2018 was $444,085, compared to $31,874 at December 31, 2017. During the sixthree months ended June 30,March 31, 2018 and 2017, and 2016, because of our operating losses, we did not generate positive operating cash flows. Our cash on hand as of June 30, 2017 was $58,448 and our cash used in operations is approximately $13,000 per month. 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, 2017March 31, 2018 and as of December 31, 2016, respectively, are as follows:

 

  

June 30, 2017

(restated)

  

December 31, 2016

(restated)

  Change 
          
Cash $58,448  $116,309  $57,861 
Total Current Assets  138,659   180,561   (41,902)
Total Assets  1,064,512   793,161   271,351 
Total Current Liabilities  658,176   587,006   71,170 
Total Liabilities $1,068,187  $783,812  $284,375 
  March 31, 2018  December 31, 2017  Change 
          
Cash $444,085  $31,874  $412,211 
Total current assets $447,465  $63,445  $384,020 
Total assets $452,596  $68,576  $384,020 
Total current liabilities $873,332  $585,749  $287,583 
Total liabilities $2,050,988  $1,449,846  $601,142 

 

Our current assets decreasedincreased as of June 30, 2017March 31, 2018 as compared to December 31, 2016,2017, primarily due to us having lessmore cash on hand, offset slightly by higherless accounts receivable, net as of June 30, 2017.receivable. The increase in our total assets between the two periods was also primarily related to the increase in cash, slightly offset by less accounts receivable, net, as well as an increase in furniture and equipment as of June 30, 2017.receivable.

 

Our current liabilities increased by $71,170 (restated), as of June 30, 2017March 31, 2018 as compared to December 31, 2016.2017. This decreaseincrease was primarily due to increases in our accrued expensesroyalty payable, accrued interest, derivative liability, notes payable, and notes payable, related party, offset by decreases in accounts payable and accrued interest, offset by slight decreases in our accounts payable, derivative liability, and royalty notes payable, net of debt discount.expenses.

 

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

 

Operations

 

We had net cash used in operating activities of $43,480$300,116 for the sixthree months ended June 30, 2017,March 31, 2018, as compared to ($116,892)$39,310 for the sixthree months ended June 30, 2016.March 31, 2017. For the period in 2018, the net cash used in operating activities consisted primarily of our net income (loss) of ($478,622), an allowance for doubtful accounts of ($26,541), increase in derivative liabilities of ($15,370), adjusted primarily by a non-cash change in fair value of derivative liability of $22,657, shares issued for services of $105,000, and amortization of debt discount of $18,447, as well as changes in, accounts payable of ($18,850), accrued expenses of ($8,577), accounts receivable, net $55,457, prepaid expenses of ($725), deferred revenue of ($8,601), accrued royalties payable of ($27,942), and accrued interest of $10,514. For the period in 2017, the net cash used in operating activities consisted primarily of our net income (loss) of ($878,766) (restated)856,401), adjusted primarily by change in fair value of derivative liability of ($17,492)16,028), shares issued for services of $13,913,$363,914, amortization of debt discount of $186,477,$92,676, and depreciation of $144,142,$55,416, as well as changes in, accrued expenses of $37,944,$280,678, accounts receivable, net of ($15,320)37,165), prepaid expenses of ($639)1,798), deposits of $53,850,$56,850, deferred revenue of $43,193($3,673) (restated), accounts payable of $52,003,($4,065), income taxes payable of $1,600, accrued royalties payable of $1,015,$1,916, and accrued interest of $29,240. For the period in 2016, the net cash used in operating activities consisted primarily of our net income (loss) of ($351,357) (restated), adjusted primarily by change in fair value of derivative liability of $19,612, shares issued for services of $117,362, amortization of debt discount of $54,005, and depreciation and amortization of $16,930, as well as changes in, accrued expenses of ($2,662), deferred revenue of $48,499 (restated), deposits of ($14,600), accounts payable of $23,456, and accounts receivable of ($29,484).$26,770.

Investments

 

We haddid not have any cash provided by/used in investing activities in the sixthree months ended June 30, 2017 of $511,245,March 31, 2018, compared to $138,932cash used in investing activities of $295,424 for June 30, 2016.the three months ended March 31, 2017. For the periodthree months ended June 30,March 31, 2017, the cash used in investing activities related to purchases of furniture and equipment of ($661,245) partially offset by deposits on units of $150,000. For the period ended June 30, 2016, the cash used in investing activitieswas related to purchases of furniture and equipment.

 

Financing

 

OurWe had net cash provided by financing activities for the sixthree months ended June 30, 2017 was $497,224,March 31, 2018 of $712,327, compared to $287,838$357,458 for the sixthree months ended June 30, 2016.March 31, 2017. For the sixthree months ended June 30,March 31, 2018, our net cash from financing activities consisted of proceeds from convertible notes payable of $20,000, proceeds from related party notes payable of $600,127, proceeds of notes payable of $21,600, and proceeds from issuance of common stock of $156,500, partially offset by repayments of notes payable of $19,850, and repayments of related party notes payable of $66,050. For the three months ended March 31, 2017, our net cash from financing activities consisted of proceeds from notes payable of $195,400 and proceeds from issuance of common stock of $416,110,$247,374, partially offset by repayments of notes payable of ($114,286). For the six months ended June 30, 2016, our net cash from financing activities consisted of proceeds from notes payable of $209,099 and proceeds from issuance of common stock of $157,500, partially offset by repayments of notes payable of ($78,761)85,316).

 

Off Balance Sheet Arrangements

 

We have no off balance sheet arrangements.

 

Commitments and Contingent Liabilities

 

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. As of June 30, 2017,March 31, 2018, we have no contingent liability that is required to be recorded nor disclosed.

45

 

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk

 

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

 

ITEM 4 Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

Pursuant to rules adopted by the Securities and Exchange Commission we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to rules promulgated under the Securities Exchange Act of 1934. This evaluation was done as of the end of June 30, 2017March 31, 2018 under the supervision and with the participation of our principal executive officer and our principal financial officer.

Based upon our evaluation, our principal executive and financial officer concluded that, as of June 30, 2017,March 31, 2018, our existing disclosure controls and procedures were not effective. Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, including the principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. With only two officers in charge of such reporting controls, there is no backup to the oversight of such individual and thus such disclosure controls and procedures may not be considered effective.

 

We have engaged outside accounting and finance advisors to assist us in better implementing effective disclosure controls and procedures.

Changes in Internal Control over Financial Reporting

 

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

 

Internal Control over Financial Reporting

 

We are responsible for establishing and maintaining adequate internal control over financial reporting in accordance with Rule 13a-15 of the Securities Exchange Act of 1934. Our president conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2017,March 31, 2018, based on the criteria establish in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was ineffective as of June 30, 2017,March 31, 2018, based on those criteria. A control system can provide only reasonably, not absolute, assurance that the objectives of the control system are met and no evaluation of controls can provide absolute assurance that all control issues have been detected.

Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2017March 31, 2018 and identified the following material weaknesses, which are outlined further in our Annual Report on Form 10-K for the year ended December 31, 2016:2017:

 

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

 

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

 

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

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

 

PART II – OTHER INFORMATION

 

ITEM 1 Legal Proceedings

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

 

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

ITEM 1A Risk Factors

 

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

 

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds

 

During the three months ended June 30, 2017,March 31, 2018, we issued the following unregistered securities:

 

During the quarter ended June 30, 2017,March 31, 2018, we issued an aggregate of 450,5001,450,000 shares of our common stock to five17 non-affiliated investors in exchange for $102,825.$156,500. These shares were issued pursuant to stock purchase agreements and were issued with a standard restrictive legend. In connection with these share issuances we also issued warrants to acquire an aggregate of 325,000 shares of our common stock, with exercise prices ranging from $0.10 to $1.00 per share and that expire either three or four years from the date of grant. The issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, due to the fact the investors are sophisticated investors, known to our management and familiar with our operations.

 

During the three monthsquarter ended June 30, 2017,March 31, 2018, we issued a warrant to purchase 750,000450,000 shares of our common stock to two people for services rendered to the company. The shares were valued at $105,000. The issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, due to the fact the investors are sophisticated investors, known to our management and familiar with our operations.

On March 9, 2018, we issued a convertible promissory note to a non-affiliated investor in exchange for $55,000.shareholder. The warrantprincipal amount of the promissory note is exercisable at $0.10 per share$20,000, with a 10% annual interest rate and expires on June 19,a maturity date of March 9, 2021. The note is convertible at 61% of the average of the closing prices for our common stock during the five trading days prior to the conversion date but may not be converted if it would cause the holder to own more than 4.9% of our outstanding common stock after giving effect to the conversion. The issuance of the note was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, due to the fact the investor is a sophisticated investor, known to our management and familiar with our operations.

 

During the three monthsquarter ended June 30, 2017,March 31, 2018, we issued two warrants to purchase an aggregate of 261,000447,914 shares of our common stock to two non-affiliated investors as partThe Doheny Group, LLC, under the anti-dilution provisions of the investors purchasecertain royalty agreements we have with The Doheny Group, LLC. These shares were issued with a standard restrictive legend. As of our common stock.. The warrant is exercisable at $0.23 per share and expire four years after date of issuance. The issuance was exempt from registration pursuantMarch 31, 2018, we were obligated to Section 4(a)(2) of the Securities Act of 1933, due to the fact the investor is a sophisticated investor, known to our management and familiar with our operations.

During the three months ended June 30, 2017, we issuedissue an aggregate of 799,801additional 183,722 shares of our common stock to Doheny Group, LLC, and to Gnosiis International, LLC, pursuant to the anti-dilution rights they have under separate agreements with us.us, but have not yet issued the shares. These shares will be issued with a standard restrictive legend. The issuances of the shares to The Doheny Group, LLC, were and will be exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, due to the fact the purchasers arepurchaser is a sophisticated investors,investor, known to our management and familiar with our operations. Pursuant to a Termination of Services Agreement we entered into with Mr. Abraham Summers and Gnosiis International, LLC, an entity controlled by Mr. Summers on June 19, 2017, Gnosiis International no longer has anti-dilution rights for future stock issuances.

As of June 30, 2017, we were obligated to issue an aggregate of 45,050 shares of our common stock to Doheny Group, LLC, pursuant to the anti-dilution rights they have under separate agreements with us, but have not yet issued the shares. These shares will be issued with a standard restrictive legend. The issuances will be exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, due to the fact the purchasers are sophisticated investors, known to our management and familiar with our operations.

 

ITEM 3 Defaults Upon Senior Securities

 

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

 

ITEM 4 Mine Safety Disclosures

 

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

 

ITEM 5 Other Information

 

Series A Preferred Stock

On March 7, 2017, we entered into an Debt Conversion and Series A Preferred Stock PurchaseTermination of Distributorship Agreement (the “SPA”) with Laurence Wainer, one of our officers and directors, under which we agreed to create a new series of non-convertible preferred stock entitled “Series A Preferred Stock,” with One Million (1,000,000) shares authorized and the following rights: (i) no dividend rights; (ii) no liquidation preference over the Company’s common stock; (iii) no conversion rights; (iv) no redemption rights; (v) no call rights by the Company; (vi) each share of Series A Convertible Preferred stock will have one hundred (100) votes on all matters validly brought to the Company’s common stockholders; and Mr. Wainer agreed to acquire 1,000,000 shares of our Series A Preferred Stock, once created, in exchange for Mr. Wainer forgiving $25,537 in accrued salary we owed to him as of December 31, 2016. When issued, the issuance will be exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, due to the fact Wainer is one of our officers and directors, is a sophisticated investor and familiar with our operations. On May 19th, 2017, we entered into an amendment No. 1 to the SPA under which we agreed to accept $45,000 in extinguished debt owed to Mr. Wainer as the purchase price for the Series A Preferred shares rather than the $25,527 in accrued salary.

Abraham Summers

 

On May 10,September 30, 2017, Abraham Summers informedwe orally agreed with J C Lopez/BDI Interlock, LLC, our Chief Executive Officerprimary distributor, to settle a dispute regarding Lopez’s failure to pay the required monthly payments owed by Lopez to us under that hecertain Exclusive Distribution Agreement entered into between the parties on September 5, 2015 (the “Distributorship Agreement”), with such settlement being that the parties agreed to cancel Lopez’s distributor territory and the Distributorship Agreement, and that we would no longer be performing his job responsibilities asgranted the rights to pursue directly any amounts owed to Lopez by either sub-distributors of Lopez or users of our Chief Financial Officer. On May 18, 2017,products from Lopez, in exchange for our Boardagreement not to pursue Lopez directly for any amounts Lopez owed us under the Distributorship Agreement up through termination of Directors appointed Laurence Wainer, our current Chief Executive Officer,the Distributorship Agreement. However, in the settlement agreement, the parties agreed Lopez would pay us the amounts we would have been entitled to under the Distributorship Agreement if Lopez is paid any amounts from customers or sub-distributors for periods prior to the positiontermination of Interim Chief Financial Officer (our Principal Accounting Officer). Mr. Wainer will serve in this capacity untilthe Distributorship Agreement. On January 21, 2018, we entered into a replacement Chief Financial Officer can be hired.written Settlement Agreement with Lopez to memorialize our oral agreement from September 30, 2017.

 

3648
 

On June 19, 2017, we entered into a Termination of Services Agreement with Mr. Summers and Gnosiis International, LLC, an entity controlled by Mr. Summers. Under the terms of the agreement: (i) we agreed with Mr. Summers that his Employment Agreement dated November 15, 2016, his employment with us, and Gnosiis’ independent contractor relationship with us, were all terminated effective May 10, 2017, (ii) we agreed to pay Mr. Summers $50,000 and issue him 294,321 shares of our common stock, restricted in accordance with Rule 144, (iii) Mr. Summers relinquished any rights he had to serve on our Board of Directors, (iv) Mr. Summers and Gnosiis agreed to relinquish any anti-dilution rights that would entitle Mr. Summers or Gnosiis additional shares of our common stock, including under the Employment Agreement or otherwise, (v) we agreed to reimburse Mr. Summers $5,000 for his attorney’s fees related to the agreement, and (vi) we entered into a mutual general release with Mr. Summers and Gnosiis with all parties releasing any and all claims they may have against another party, whether those claims are currently known or not.

Doheny Group Transaction

As previously reported, on September 30, 2016, we entered into an Loan and Security Agreement (the “LSA”) with Doheny Group, LLC, a Delaware limited liability company (“Doheny”), under which Doheny agreed to loan us up to $542,400 in two phases, to be used by us to acquire additional parts and supplies to allow us to manufacture our proprietary breath alcohol ignition interlock devices (the “Devices”). At that time we also entered into a Royalty Agreement with Doheny, under which we granted Doheny perpetual royalty rights on all Devices that we receive money from customers or distributors after we have 500 Devices leased to end users or distributors. The royalty amounts vary between $1 and $2 per Device depending on a variety of factors.

On June 3, 2017, we entered into Amendment No. 1s to the LSA and the Royalty Agreement with Doheny, under we amended the LSA and the Royalty Agreement to change the royalty amounts from variable amount between $1 and $2 per Device per month, to a flat royalty rate of $1.30 per Unit per month without regard as to whether the Device is a retail Device or a Wholesale Device with such rate being paid on all Devices that we collect money from the client for that month.

ITEM 6 Exhibits

 

Item No. Description
   
3.1 (1) Certificate of Incorporation of Jam Run Acquisition Corporation dated June 28, 2013
   
3.2 Articles of Amendment to Articles of Incorporation to Jam Run Acquisition Corporation dated February 6, 2014 (changing corporate name to Blow & Drive Interlock Corporation)
   
3.3 (1) Bylaws of Jam Run Acquisition Corporation (now Blow & Drive Interlock Corporation) dated June 2013
   
10.1 (2) Agreement between Tiber Creek Corporation and Laurence Wainer dated January 25, 2014
   
10.2 (2) Promissory Note between the Company and Laurence Wainer dated February 16, 2014
   
10.3 (3) Lease Agreement by and between Marsel Plaza LLC and Laurence Wainer and Blow and Drive Interlock Corporation dated January 21, 2015
   
10.4 (4) Exclusive Distributorship Agreement with Theenk Inc. dated August 21, 2015
   
10.5 (4) Exclusive Distributorship Agreement with Jay Lopez dated July 24, 2015
   
10.6 (4) Independent Contractor Agreement with Laurence Wainer dated September 11, 2015
   
10.7 (5) Exclusive Distributorship Agreement with Stephen Ferraro dated November 9, 2015
   
10.4 (6) Supply Agreement by and between BDI Manufacturing, Inc., an Arizona corporation, and C4 Development Ltd. dated June 29, 2015
   
10.5 (7) Securities Purchase Agreement with David Stuart Petlak entered into on November 19, 2015
   
10.6 (7) Convertible Promissory Note issued to David Stuart Petlak dated November 19, 2015
   
10.7 (7) Common Stock Warrant issued to David Stuart Petlak dated November 19, 2015
   
10.8 (8) Exclusive Distributorship Agreement with dba Blow & Drive Houston dated January 11, 2016
   
10.9 (9) Secured Promissory Note and Agreement with Ira Silver dated January 20, 2016
   
10.10 (9) Secured Promissory Note and Agreement with Chaim K. Wainer dated October 29, 2015
   
10.11 (10) Securities Purchase Agreement with Dr. Oren Azulay dated March 30, 2016
   
10.12 (10) Common Stock Purchase Agreement with Gustavo Arceo dated April 2016
   
10.13 (10) Common Stock Purchase Agreement with LGL LLC dated May 6, 2016
   
10.14 (11) Loan and Security Agreement with Doheny Group, LLC dated JuneSeptember 30, 20172016
   
10.15 (11) Phase 1 Loan Agreement with Doheny Group, LLC dated JuneSeptember 30, 20172016
   
10.16 (11) Royalty Agreement with Doheny Group, LLC dated JuneSeptember 30, 20172016
   
10.17 (11) Common Stock Purchase Agreement with Doheny Group, LLC dated JuneSeptember 30, 20172016
10.18 (11) Agreement with Abraham Summers and Gnossis International, LLC dated November 15, 2016
   
10.19 (12) Termination of Services Agreement by and between Blow & Drive Interlock Corporation, Abraham Summers and Gnosiis International, LLC dated June 19, 2017
   
10.20 (13) Amendment No. 1 to Debt Conversion and Series A Preferred Stock Purchase Agreement dated May 17, 2017
   
10.21 (13) Amendment No. 1 to Loan and Security Agreement with Doheny Group, LLC dated June 3, 2017
   
10.22 (13) Amendment No. 1 to Royalty Agreement with Doheny Group, LLC dated June 3, 2017
10.23 (14)Form of Securities Purchase Agreement
10.24 (14)Settlement Agreement by and between Blow & Drive Interlock Corporation and J C Lopez/BDI Interlock, LLC dated January 21, 2018 (memorializing oral agreement between the parties dated March 31, 2018)
10.25 (15)Agreement to Purchase Common and Preferred Stock dated December 31, 2018
10.26 (16)Debt Conversion and Series A Preferred Stock Purchase Agreement by and between Blow & Drive Interlock Corporation and Laurence Wainer dated March 7, 2017
   
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith).
   
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Accounting Officer (filed herewith).
   
32.1 Section 1350 Certification of Chief Executive Officer (filed herewith).
   
32.2 Section 1350 Certification of Chief Accounting Officer (filed herewith).

 

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

 

* Filed herewith

 

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 (1)Incorporated by reference from our Registration Statement on Form 10, filed with the Commission on September 30, 2013.
   
 (2)Incorporated by reference from our Registration Statement on Form S-1, filed with the Commission on July 24, 2014.
   
 (3)Incorporated by reference from our Annual Report on Form 10-K, filed with the Commission on March 30, 2015.
 (4)Incorporated by reference from our Current Report on Form 8-K filed with the Commission on September 11, 2015.
   
 (5)Incorporated by reference from our Current Report on Form 8-K filed with the Commission on November 12, 2015.

 (6)Incorporated by reference from our Quarterly Report on Form 10-Q, filed with the Commission on August 13, 2015.
   
 (7)Incorporated by reference from our Current Report on Form 8-K filed with the Commission on September 11,December 2, 2015.
   
 (8)Incorporated by reference from our Current Report on Form 8-K filed with the Commission on February 22, 2016.
   
 (9)Incorporated by reference from our Current Report on Form 8-K filed with the Commission on March 17, 2016.
   
 (10)Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on August 22, 2016.
   
 (11)Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on AugustNovember 21, 2017.2016.
   
 (12)Incorporated by reference from our Current Report on Form 10-Q filed with the Commission on July 3, 2017.
   
 (13)Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on August 21, 2017.
(14)Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on February 9, 2018.
(15)Incorporated by reference from our Current Report on Form 8-K filed with the Commission on January 11, 2019.
(16)Incorporated by reference from our Current Report on Form 8-K filed with the Commission on March 15, 2017

SIGNATURES

 

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

 

 Blow & Drive Interlock Corporation
   
Dated: May 30, 2018June 27, 2019By:/s/ Laurence WainerDavid Haridim
 By:Laurence WainerDavid Haridim
  ChiefPresident (Principal Executive OfficerOfficer)

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