UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2020

 

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

 

For the transition period from _______________ to _______________.

 

Commission file number: 000-55053

 

Blow & Drive Interlock Corporation

(Exact name of registrant as specified in its charter)

 

Delaware		46-3590850
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

1427 S. Robertson Blvd.
Los Angeles, CA		90035
(Address of principal executive offices)		(Zip Code)

 

(877) 238-4492

Registrant’s telephone number, including area code

 

 

(Former address, if changed since last report)

 

 

(Former fiscal year, if changed since last report)

 

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

 

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

 

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

 

Common Stock Par value, $0.0001

 

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

Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	[  ]	Accelerated filer	[  ]
Non-accelerated filer	[  ]	Smaller reporting company	[X]
(Do not check if a smaller reporting company)
		Emerging growth company	[  ]

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X].

 

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

 

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

 

Applicable only to corporate issuers:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of October 22, 2020, there were 130,397,289 shares of common stock, $0.0001 par value, issued and outstanding.

 

 

 

CAUTIONARY STATEMENT

 

All statements included or incorporated by reference in this Quarterly Report on Form 10-Q (this “Form 10-Q”), other than statements or characterizations of historical fact, are “forward-looking statements” within the meaning of the Securities Exchange Act of 1934 as amended (the “Exchange Act”). Examples of forward-looking statements include, but are not limited to, statements concerning projected sales, costs, expenses and gross margins; our accounting estimates, assumptions and judgments; the prospective demand for our products; the projected growth in our industry; the competitive nature of and anticipated growth in our industry; and our prospective needs for, and the availability of, additional capital. These forward-looking statements are based on our current expectations, estimates, approximations and projections about our industry and business, management’s beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified by such words as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing,” similar expressions and variations or negatives of these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors, some of which are set forth in the “Risk Factors” section of our Report on Form 10-K for the year ended December 31, 2019, filed on March 30, 2020, and this Report, which could cause our financial results, including our net income or loss or growth in net income or loss to differ materially from prior results, which in turn could, among other things, cause the price of our common stock to fluctuate substantially. These forward-looking statements speak only as of the date of this report. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law.

 

 

BLOW & DRIVE INTERLOCK CORPORATION

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION		4
ITEM 1	Financial Statements	4
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	39
ITEM 4	Controls and Procedures	39
PART II – OTHER INFORMATION		41
ITEM 1	Legal Proceedings	41
ITEM 1A	Risk Factors	41
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	41
ITEM 3	Defaults Upon Senior Securities	41
ITEM 4	Mine Safety Disclosures	41
ITEM 5	Other Information	41
ITEM 6	Exhibits	41

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1 Financial Statements

 

The consolidated balance sheets as of September 30, 2020 (unaudited) and December 31, 2019, the consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019, the consolidated statement of stockholders equity (deficit) for the three and nine months ended September 30, 2020, and the consolidated statements of cash flows for the nine months ending September 30, 2020 and 2019, follow. The unaudited interim condensed financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. All such adjustments are of a normal and recurring nature.

 

 

BLOW & DRIVE INTERLOCK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

		(Unaudited)
		As of				As of
		September 30, 2020				December 31, 2019
ASSETS
Current Assets:
Cash		$	5,694			$	91,314
Accounts receivable, net of allowance for doubtful accounts $0			9,030				20,848
Prepaid expenses			-				1,199
Total current assets			14,724				113,361
Deposits			6,481				6,481
Total assets		$	21,205			$	119,842
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable		$	150			$	150
Accrued expenses			-				35,571
Accrued royalty payable - related party			-				71,465
Accrued interest			1,993				15,660
Accrued interest - related party			1,150,118				717,120
Income taxes payable			-				6,730
Notes payable			-				67,159
Notes payable - related party, current portion			260,800				384,200
Convertible notes payable, net of debt discount of $0 and $8,965, respectively			-				7,500
Derivative liability			-				29,907
Total current liabilities			1,413,061				1,335,462
Non-current Liabilities:
Notes payable, EIDL loan - net of current portion			150,000				-
Notes payable - related party, net of current portion			2,020,000				2,020,000
Convertible notes payable, net of debt discount, net of current portion			-				11,035
Total non-current liabilities			2,170,000				2,031,035
Total liabilities			3,583,061				3,366,497
Commitments and contingencies
Shareholders’ Deficit:
Preferred stock, par value $0.001, 20,000,000 shares authorized, 1,000,000 and 1,000,000 shares issued and outstanding, respectively			1,000				102,000
Common stock, par value $0.0001, 10,000,000,000 shares authorized, 131,350,683 and 131,350,683 shares issued and outstanding, respectively			13,135				3,135
Additional paid-in-capital			3,676,636				3,514,171
Accumulated deficit			(7,252,627	)			(6,865,961	)
Total shareholders’ deficit			(3,561,856	)			(3,246,655	)
Total liabilities and shareholders’ deficit		$	21,205			$	119,842

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

BLOW & DRIVE INTERLOCK CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Nine Months Ended September 30,								Three Months Ended September 30,
		2020				2019				2020				2019
Revenues:
Monitoring revenues		$	-			$	412,365			$	-			$	49,122
Distributorship revenues			103,035				64,901				27,020				28,220
Total revenues			103,035				477,266				27,020				77,342
Cost of revenues:
Monitoring cost of revenue			-				14,445				-				(10,788	)
Distribution cost of revenue			-				-				-				-
Total cost of revenues			-				14,445				-				(10,788	)
Gross profit			103,035				462,821				27,020				88,130
Operating expenses:
Payroll			43,125				243,516				25,620				32,798
Professional fees			66,116				180,964				22,816				33,667
General and administrative			45,376				192,439				12,377				60,947
Total operating expenses			154,617				616,919				60,813				127,412
Income (loss) from operations			(51,582	)			(154,098	)			(33,793	)			(39,282	)
Other income (expense):
Interest expense, net			(544,566	)			(498,871	)			(193,513	)			(160,063	)
Interest expense - amortization of debt discount			-				-				40,465				-
Derivative expense			(255,482	)			-				-				-
Change in fair value of derivative liability			-				(7,390	)			-				-
Gain (loss) on extinguishment of debt			462,964				54,764				179,768				-
Other income			2,000				-				-				-
Total other income (expense)			(335,084	)			(451,497	)			26,720				(160,063	)
Income (loss) before income taxes			(386,666	)			(605,595	)			(7,073	)			(199,345	)
Income tax			-				1,600				-				-
Net income (loss)		$	(386,666	)		$	(607,195	)		$	(7,073	)		$	(199,345	)
Earnings (loss) per share:
Basic and Diluted		$	(0.00	)		$	(0.02	)		$	(0.00	)		$	(0.01	)
Weighted average number of shares outstanding:
Basic and Diluted			85,871,231				30,527,566				85,871,231				29,453,446

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

BLOW & DRIVE INTERLOCK CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

 

																																		Total
		Preferred Stock - Series A								Preferred Stock - Series B								Common Stock								Additional Paid-In				Accumulated				Stockholders’ Equity
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Deficit				(Deficit)
Balance July 1, 2020			1,000,000			$	1,000				-			$	-				131,350,683			$	13,135			$	3,676,636			$	(7,245,554	)		$	(3,554,783	)
Net income			-				-				-				-				-				-				-				(7,073	)			(7,073	)
Balance September 30, 2020			1,000,000			$	1,000				-			$	-				131,350,683			$	13,135			$	3,676,636			$	(7,252,627	)		$	(3,561,856	)

 

																										Total
		Preferred Stock - Series A								Common Stock								Additional Paid-In				Accumulated				Stockholders’ Equity
		Shares				Amount				Shares				Amount				Capital				Deficit				(Deficit)
Balance July 1, 2019			1,000,000			$	1,000				30,566,920			$	3,057			$	3,514,249			$	(6,504,172	)		$	(2,985,866	)
Net loss			-				-				-				-				-				(199,345	)			(199,345	)
Balance September 30, 2019			1,000,000			$	1,000				30,566,920			$	3,057			$	3,514,249			$	(6,703,517	)		$	(3,185,211	)

 

		Preferred Stock - Series A								Preferred Stock - Series B								Common Stock								Additional Paid-In				Accumulated				Total Stockholders’ Equity
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Deficit				(Deficit)
Balance January 1, 2020			1,000,000			$	1,000				10,000,000			$	101,000				31,350,683			$	3,135			$	3,514,171			$	(6,865,961	)		$	(3,246,655	)
Stockholder capital contribution			-				-				-				-				-				-				71,465				-				71,465
Conversion of preferred stock to Common Stock			-				-				(10,000,000	)			(101,000	)			100,000,000				10,000				91,000				-				-
Net loss			-				-				-				-				-				-				-				(386,666	)			(386,666	)
Balance September 30, 2020			1,000,000			$	1,000				-			$	-				131,350,683			$	13,135			$	3,676,636			$	(7,252,627	)		$	(3,561,856	)

 

		Preferred Stock - Series A								Common Stock								Additional Paid-In				Accumulated				Total Stockholders’ Equity
		Shares				Amount				Shares				Amount				Capital				Deficit				(Deficit)
Balance January 1, 2019			1,000,000			$	1,000				31,073,529			$	3,107			$	3,489,699			$	(6,096,322	)		$	(2,602,516	)
Shares issued for services			-				-				250,000				25				24,475				-				24,500
Shares returned related to anti-dilution			-				-				(756,609	)			(75	)			75				-				-
Net loss			-				-				-				-				-				(607,195	)			(607,195	)
Balance September 30, 2019			1,000,000			$	1,000				30,566,920			$	3,057			$	3,514,249			$	(6,703,517	)		$	(3,185,211	)

 

The accompanying notes are an integral part of these financial statements

 

 

BLOW & DRIVE INTERLOCK CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Nine Months Ended September 30,
		2020				2019
Cash flows from operating activities:
Net loss		$	(386,666	)		$	(607,195	)
Adjustments to reconcile net income (loss) to net cash used in operating activities
Stock or warrants issued for services			-				24,500
Amortization of debt discount			8,527				18,316
Derivative expense			255,482				-
Changes in fair value of derivative liability			-				7,390
Gain on extinguishment of debt			(462,964	)			(54,764	)
Changes in operating assets and liabilities
Accounts receivable			11,818				(11,976	)
Prepaid expenses			1,199				(16,667	)
Accounts payable			-				2,096
Accrued expenses			(25,425	)			(37,071	)
Accrued royalties payable – related party			-				29,750
Accrued interest			80,541				27,388
Accrued interest related party			432,998				454,500
Deferred revenue			-				(74,980	)
Income tax payable			(6,730	)			-
Net cash provided by (used in) operating activities			(91,220	)			(238,713	)
Cash flows from financing activities:
Proceeds of EIDL loan			150,000				-
Principal payments on notes payable			(123,400	)			(31,589	)
Principal payments on convertible notes payable			(258,750	)			-
Proceeds from issuance of convertible notes payable			237,750				-
Proceeds from issuance of notes payable related party			-				373,900
Net cash provided by (used in) financing activities			5,600				342,311
Net increase (decrease) in cash			(85,620	)			103,598
Cash at beginning of period			91,314				775
Cash at end of period		$	5,694			$	104,373
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest paid		$	-			$	160,063
Income taxes paid		$	800			$	800
Supplemental disclosure of non-cash investing and financing activities
Common stock and warrants issued for services		$	-			$	24,500

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

 

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

 

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

 

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

 

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

 

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

 

Principles of Consolidation and Basis of Presentation

 

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

 

Consolidation

 

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

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

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

 

Going Concern

 

The Company’s unaudited condensed consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and allow it to continue as a going concern. As of September 30, 2020, the Company had an accumulated deficit of $7,252,627 and net loss of $386,666 for the nine months ended September 30, 2020. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease or reduce its operations.

 

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

 

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

 

	1)	Continue to issue restricted stock for compensation due to consultants and for its legacy accounts payable in lieu of cash payments; and
	2)	Seek additional capital to continue its operations as it rolls out its current products. The Company is currently evaluating additional debt or equity financing opportunities and may execute them when appropriate. However, there can be no assurances that the Company can consummate such a transaction or consummate a transaction at favorable pricing.

 

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

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

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

 

Revenue Recognition

 

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

 

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

 

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

 

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

 

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

 

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

 

Advertising and Marketing Costs

 

Advertising and marketing costs are recorded as general and administrative expenses when they are incurred. Advertising and marketing expenses were $0 and $0 for the three months ended September 30, 2020 and 2019, respectively, and $25,000 and $267 for the nine months ended September 30, 2020 and 2019, respectively.

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

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

 

Accounts Receivable and Allowance for Doubtful Accounts

 

The Company’s accounts receivable primarily consist of trade receivables. The Company records an allowance for doubtful accounts that is based on historical trends, customer knowledge, any known disputes, and the aging of the accounts receivable balances combined with management’s estimate of future potential recoverability. Receivables are written off against the allowance after all attempts to collect a receivable have failed. The Company believes its allowance for doubtful accounts as of September 30, 2020 and December 31, 2019 is adequate, but actual write-offs could exceed the recorded allowance.

 

Royalty Accrual

 

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

 

Derivative Liability

 

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

 

Convertible Debt and Warrants Issued with Convertible Debt

 

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

 

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

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

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

 

Convertible Debt and Warrants Issued with Convertible Debt (continued)

 

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:

 

Description		Level 1				Level 2				Level 3
Derivative liability – December 31, 2019		$	-			$	-			$	29,907
Derivative liability – September 30, 2020			-				-				-

 

Net Income (Loss) Per Share

 

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

 

Related Parties

 

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

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

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

 

Concentrations

 

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

 

For the nine months ended September 30, 2020, one distributor, licensed in four states, makes up approximately 100% percent of all revenues from distributors at September 30, 2020. The loss of this distributer would have a material impact on the Company’s revenues. Per an agreement dated August 1, 2019, the Company and its largest distributor, BDI interlock collects the revenue directly from the clients and pays majority of the expenses and in return pays BDIC a leasing fee per on road unit on a monthly basis. This agreement is still in place for the future.

 

Income Taxes

 

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

 

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

 

Derivative Liabilities

 

The Company assessed the classification of its derivative financial instruments as of September 30, 2020, which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.

 

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

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

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

 

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

 

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

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes. This guidance will be effective for entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 on a prospective basis, with early adoption permitted. We will adopt ASU 2019-12 effective March 1, 2021 and do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

 

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

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 3 – SEGMENT REPORTING

 

The Company has one reportable segment: Distributorships.

 

Distributorships

 

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

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 3 – SEGMENT REPORTING (continued)

 

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

 

 

		Nine Months Ended September 30,								Three Months Ended September 30,
		2020				2019				2020				2019
Segment gross profit (a):
Monitoring		$	-			$	397,920			$	-			$	59,910
Distributorships			103,035				64,901				27,020				28,220
Gross profit			103,035				462,821				27,020				88,130
Identifiable segment operating expenses (b):
Monitoring			-				-				-				-
Distributorships			-				-				-				-
Total operating expenses			-				-				-				-
Identifiable segment operating income (c):
Monitoring			-				397,920				-				59,910
Distributorships			103,035				64,901				27,020				28,220
			103,035				462,821				27,020				88,130
Reconciliation of identifiable segment income to corporate income (d):
Payroll			43,125				243,516				25,620				32,798
Professional fees			66,116				180,964				22,816				33,667
General and administrative			45,376				192,439				12,377				60,947
Interest expense, net			544,566				498,871				193,513				160,063
Interest expense - amortization of debt discount			-				-				(40,465	)			-
Derivative expense			255,482				-				-				-
Change in fair value of derivative liability			-				7,390				-				-
Gain on extinguishment of debt			(462,964	)			(54,764	)			(179,768	)			-
Other income			(2,000	)			-				-				-
			489,701				1,068,416				34,093				287,475
Income (loss) before provision for income taxes			(386,666	)			(605,595	)			(7,073	)			(199,345	)
Provision for income taxes			-				1,600				-				-
Net income (loss)		$	(386,666	)		$	(607,195	)		$	(7,073	)		$	(199,345	)
Total net property, plant, and equipment assets
Monitoring		$	-			$	-			$	-			$	-
Distributorships			-				-				-				-
Corporate			-				-				-				-
		$	-			$	-			$	-			$	-

 

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

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

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

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

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 4 – NOTES PAYABLE

 

Notes payable consist of the following:

 

		As of				As of
		September 30, 2020				December 31, 2019
October 2018 ($72,800) - $11,527 monthly principal and interest for first six months, $9,975 monthly principal and interest last six months		$	-			$	67,159
May 2020 ($150,000) - $731 monthly principal and interest until paid in full.			150,000				-
Total notes payable			150,000				67,159
Less: current portion			-				(67,159	)
Notes payable, non-current portion, net of debt discount		$	150,000			$	-

 

October 2018 - $72,800

 

On October 4, 2018, the Company provided an agreement to a third party to obtain a $72,800 promissory note in exchange for $72,800 in cash. The promissory note had a maturity date of October 4, 2019 and bears interest at 51% per annum. The note required total payments of $11,526.67 per month for the first nine months and $6,794.67 per month for the last nine months. The note payable was extinguished. The Company recognizes $114,871 as gain on extinguishment of debt and accrued interest.

 

Total interest expense was $0 and $8,563 for the three months ended September 30, 2020 and 2019, respectively, and $17,126 and $17,126 for the nine months ended September 30, 2020 and 2019, respectively.

 

May 2020 - $150,000

 

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

 

Total interest expense was $1,406 and $0 for the three months ended September 30, 2020 and 2019, respectively, and $1,992 and $0 for the nine months ended September 30, 2020 and 2019, respectively.

 

On October 8, 2020, the Company paid $152,080.48 in full satisfaction of a U.S. Small Business Association Loan it received on May 22, 2020 in the principal amount of $150,000. As a result of paying off the loan no further amounts are due to the SBA lender.

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 5 – NOTES PAYABLE TO RELATED PARTIES

 

Notes payable to related parties consist of the following:

 

		As of				As of
		September 30, 2020				December 31, 2019
August 2018 ($1,365,000) – Replaced August 2018 note ($1,365,000) that replaced November 2017 note ($765,000 balance at August 1, 2018), February 2018 note ($100,000) and March 2018 note ($500,000). Includes $635,000 penalty on default of August 2018 ($1,365,000) note and $20,000 for missed payment on August 2018 note. Interest only monthly payment of $50,500 for life of note. Entire principal due December 1, 2023.		$	2,020,000			$	2,020,000
January 2019 ($14,500) – No interest with principal due on January 15, 2020.			-				14,500
February 2019 ($15,000) – No interest with principal due on February 1, 2020.			-				15,000
February 2019 ($5,000) – No interest with principal due on February 19, 2020.			-				5,000
March 2019 ($10,000) – No interest with principal due on March 4, 2020.			-				10,000
May 1, 2019 ($20,000) - Principal only due May 1, 2020. No interest			-				20,000
June 3, 2019 ($89,000) - Principal only due June 3, 2020. No interest			-				89,000
July 10, 2019 ($13,000) - Principal only due July 10, 2020. No interest			-				13,000
July 18, 2019 ($8,000) - Principal only due July 18, 2020. No interest			-				8,000
July 25, 2019 ($25,000) - Principal only due July 25, 2020. No interest			-				25,000
September 27, 2019 ($101,700) - Principal only due September 27, 2020. No interest			63,800				101,700
December 31, 2019 ($83,000) - Principal only due December 31, 2020. No interest			83,000				83,000
May 19, 2020 ($100,000) - Principal only due May 19, 2021. No interest			100,000				-
August 28, 2020 ($14,000) - Principal only due August 28, 2021. No interest			14,000				-
Total notes payable to related parties			2,280,800				2,404,200
Less: current portion			(260,800	)			(384,200	)
Notes payable to related parties, non-current portion		$	2,020,000			$	2,020,000

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 5 – NOTES PAYABLE TO RELATED PARTIES (continued)

 

December 2018 - $2,222,000

 

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

 

Total interest expense was $151,500 and $151,500 for the three months ended September 30, 2020 and 2019, respectively, and $454,500 and $454,500 for the nine months ended September 30, 2020 and 2019, respectively.

 

January 2019 - $14,500

 

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

 

February 2019 - $15,000

 

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

 

February 2019 - $5,000

 

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

 

March 2019 - $10,000

 

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

 

May 2019 - $20,000

 

On May 1, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $20,000 loan. The note bears no interest and is due in full on May 1, 2020.

 

June 2019 - $89,000

 

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

 

July 2019 - $13,000

 

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

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 5 – NOTES PAYABLE TO RELATED PARTIES (continued)

 

July 2019 - $8,000

 

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

 

July 2019 - $25,000

 

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

 

September 2019 - $101,700

 

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

 

December 2019 - $83,000

 

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

 

May 2020 - $100,000

 

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

 

August 2020 - $14,000

 

On August 28, 2020, the Company entered into an agreement with a related party, Doheny Group, to obtain a $14,000 loan. The note bears no interest and is due in full on August 28, 2021.

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 6 – CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable consists of the following:

 

		As of				As of
		September 30, 2020				December 31, 2019
August 2015 ($15,000) - 7.5% interest bearing convertible debenture due on August 7, 2017 with interest only payments and due upon maturity.		$	-			$	7,500
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
Total convertible notes payable			-				27,500
Less: debt discount			-				(8,965	)
Total notes payable, net of debt discount			-				18,535
Less: current portion			-				(7,500	)
Convertible notes payable, non-current portion, net of debt discount		$	-			$	11,035

 

August 2015 - $15,000

 

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

 

In connection with the issuance of the August Convertible Note Payable, the Company issued a warrant on August 7, 2015 to purchase 30,000 shares of the Company’s common stock at a purchase price of $0.50 per share. The Black Scholes model was used in valuing the warrants in determining the relative fair value of the warrants issued in connection with the convertible note payable using the following inputs: Expected Term – 3 years, Expected Dividend Rate – 0%, Volatility – 100%, Risk Free Interest Rate -1.08%. The Company recorded an additional $4,873 discount on debt, related to the relative fair value of the warrants issued associated with the note to be amortized over the life of the note. As of September 18, 2020, any liability related to this note has been forgiven from LGL. The Company recognizes $8,254 as gain on extinguishment of debt.

 

Total interest expense was $141 and $141 for the three months ended September 30, 2020 and 2019, respectively, and $422 and $7,500 for the nine months ended September 30, 2020 and 2019, respectively.

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 6 – CONVERTIBLE NOTES PAYABLE (continued)

 

March 2018 - $20,000

 

On March 9, 2018, the Company entered into an agreement with a non-affiliated shareholder and issued a 10% interest bearing convertible debenture for $20,000 due on March 9, 2021. Payments of interest is in cash for the first nine months, thereafter, interest may be paid either in cash or common stock of the Company. The loan is convertible at 61% of the average of the closing prices for the common stock during the five trading days prior to the conversion date but may not be converted if such conversion would cause the holder to own more than 4.9% of outstanding common stock after giving effect to the conversion. In connection with this Convertible Note Payable, the Company recorded a $20,000 discount on debt (the total discount was $47,768, of which $27,768 was expensed), related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note is converted or repaid. This note was bifurcated with the embedded conversion option recorded as a derivative liability at fair value. As of September 15, 2020, any liability related to this note has been forgiven from Donald Thompson. The Company recognizes $14,048 as gain on extinguishment of debt.

 

Total interest expense was $0 and $500 for the three months ended September 30, 2020 and 2019, respectively, and $1,000 and $20,000 for the nine months ended September 30, 2020 and 2019, respectively.

 

February 2020 - $112,750

 

On February 24, 2020, the Company entered into an agreement with a non-affiliated shareholder and issued a 12% interest bearing convertible debenture for $112,750 due on December 24, 2020. Payments of interest is in lawful money of the Unites States of America. The loan is convertible at the lesser of (i) the lowest trading price during the previous twenty-five trading day periods ending on the latest complete trading day prior to the date of this note, and (ii) the variable conversion price. The “Variable Conversion Price” shall mean 50% multiplied by the market price. In connection with this Convertible Note Payable, the Company recorded a $12,750 discount on debt, related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note is converted or repaid. This note was bifurcated with the embedded conversion option recorded as a derivative liability at fair value. As of September 30, 2020, this note has been paid in full. The Company recognizes $131,236 as gain on extinguishment of debt and accrued interest.

 

Total interest expense was $0 for the three months ended September 30, 2020, and $3,169 for the nine months ended September 30, 2020.

 

February 2020 - $75,000

 

On February 24, 2020, the Company entered into an agreement with a non-affiliated shareholder and issued a 10% interest bearing convertible debenture for $75,000 due on November 24, 2020. Payments of interest is in lawful money of the Unites States of America. The loan is convertible at the lesser of (i) the lowest trading price during the previous twenty-five trading day periods ending on the latest complete trading day prior to the date of this note, (ii) 50% of the lowest traded price for the common stock on the principal market during the twenty-five consecutive trading days on which at least 100 shares of common stock were traded including and immediately preceding the conversion date. In connection with this Convertible Note Payable, the Company recorded a $15,000 discount on debt, related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note is converted or repaid. This note was bifurcated with the embedded conversion option recorded as a derivative liability at fair value. As of September 30, 2020, this note has been paid in full. The Company recognizes $61,086 as gain on extinguishment of debt and accrued interest.

 

Total interest expense was $0 for the three months ended September 30, 2020, and $1,736 for the nine months ended September 30, 2020.

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 6 – CONVERTIBLE NOTES PAYABLE (continued)

 

February 2020 - $50,000

 

On February 25, 2020, the Company entered into an agreement with a non-affiliated shareholder and issued a 10% interest bearing convertible debenture for $50,000 due on February 24, 2021. Payments of interest is in lawful money of the Unites States of America. The loan is convertible at the lesser of (i) 55% multiplied by the lowest trading price during the previous twenty-five trading day period ending on the latest complete trading prior to the date of this note or (ii) the variable conversion price. The “Variable Conversion Price” shall mean 55% multiplied by the market price. In connection with this Convertible Note Payable, the Company recorded a $6,750 discount on debt, related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note is converted or repaid. This note was bifurcated with the embedded conversion option recorded as a derivative liability at fair value. As of September 30, 2020, this note has been paid in full. The Company recognizes $112,634 as gain on extinguishment of debt and accrued interest.

 

Total interest expense was $0 for the three months ended September 30, 2020, and $1,141 for the nine months ended September 30, 2020.

 

NOTE 7 – DERIVATIVE LIABILITIES

 

Derivative liabilities consisted of the following: 

 

		As of				As of
		September 30, 2020				December 31, 2019
August 2015 - $15,000 convertible debt		$	-			$	6,358
March 2018 - $20,000 convertible debt			-				23,549
February 2020 – $112,750 convertible debt			-				-
February 2020 – $75,000 convertible debt			-				-
February 2020 – $50,000 convertible debt			-				-
Total derivative liabilities		$	-			$	29,907

 

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

 

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

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 7 – DERIVATIVE LIABILITIES (continued)

 

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

 

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

 

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

 

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

 

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

 

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

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 7 – DERIVATIVE LIABILITIES (continued)

 

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

 

August 2015 Convertible Debt - $15,000

 

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

 

As of September 18, 2020, any liability related to this note has been settled from LGL.

 

March 2018 Convertible Debt - $20,000

 

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

 

As of September 15, 2020, any liability related to this note has been settled from Donald Thompson.

 

February 2020 - $112,750

 

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

 

February 2020 - $75,000

 

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

 

February 2020 - $50,000

 

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

 

The Company revalues these derivatives each quarter using the Monte-Carlo method. The change in valuation is accounted for as a gain or loss in derivative liability. The following table describes the derivative liability as of December 31, 2019 and September 30, 2020.

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 7 – DERIVATIVE LIABILITIES (continued)

 

		As of																As of
		December 31, 2019				Additions				Changes				Debt Extinguishment				September 30, 2020
August 2015 - $15,000 convertible debt		$	6,358			$	-			$	207			$	(6,565	)		$	-
March 2018 - $20,000 convertible debt			23,549				-				-				(23,549	)			-
February 2020 – $112,750 convertible debt			-				112,750				92,271				(205,021	)			-
February 2020 – $75,000 convertible debt			-				75,000				31,248				(106,248	)			-
February 2020 – $50,000 convertible debt			-				50,000				97,713				(147,713	)			-
Total derivative liabilities		$	29,907			$	237,750			$	221,439			$	(489,096	)		$	-

 

NOTE 8 – ACCRUED ROYALTY PAYABLE

 

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

 

	●	November 2017 Royalty Agreement – The Company entered into a royalty agreement with a related party on November 1, 2017 in relation to a note payable of $900,000. This note replaced the September and November 2016 Royalty Agreements. Under the royalty agreement, the Company is required to pay a royalty fee of from $1.50 to $3.00 per month for every ignition interlock devise that the Company has on the road in customers’ vehicles, the amount depending on how many devices are installed.
	●	August 2018 Royalty Agreement – the Company entered into a royalty agreement with a related party on August 1, 2018 in relation to a note payable of $1,365,000. This note replaced the November 2017 Royalty Agreement as well as other, non-royalty notes payable. Under the royalty agreement, the Company is required to pay $1.50 and accrue an additional $3.50 for every ignition interlock devise for the first nine months of the note payable. After the first nine months, the Company is required to pay $1.50 per devise and the amount accrued during the first nine months will be paid monthly through the next twelve months. After the note payable is paid in full, the Company is required to pay $3.00 per devise in perpetuity.
	●	December 2018 royalty Agreement – the Company entered into a royalty agreement with a related party on December 1, 2018 in relation to a note payable of $2,020,000. This note replaced the August 2018 Royalty Agreement. Under the royalty agreement, the Company is required to pay a royalty fee of $5.00 per month for every ignition interlock device that the Company has on the road in customers’ vehicles.
	●	January 2020 addendum Agreement – the Company entered into an addendum to loan security agreement with a related party on January 1, 2020 in relation to all past, present and future monies owed for royalties. Under the addendum, The Doheny Group waives the royalties effective January 1, 2020.

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 8 – ACCRUED ROYALTY PAYABLE (continued)

 

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

 

		As of				As of
		September 30, 2020				December 31, 2019
November 2017 royalty agreement		$	-			$	3,326
August 2018 royalty agreement			-				18,058
December 2018 royalty agreement			-				50,081
Total accrued royalties		$	-			$	71,465

 

Royalty expense were $0 and $8,100 for the three months ended September 30, 2020 and 2019, respectively, and $0 and $29,751 for the nine months ended September 30, 2020 and 2019, respectively.

 

NOTE 9 – STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

The Company’s articles of incorporation authorize the Company to issue up to 20,000,000 preferred shares of $0.001 par value. As of September 30, 2020, the total number of preferred shares issued or issuable was 1,000,000.

 

Series A Preferred Stock

 

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

 

Series B Preferred Stock

 

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

 

Common Stock

 

The Company has authorized 10,000,000,000 shares of $0.0001. 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 nine months ended September 30, 2020, the Company issued 100,000,000 additional shares of its common stock. The total number of shares issued or issuable as of September 30, 2020 was 131,350,683.

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 10 – STOCK WARRANTS

 

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

 

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

 

						Weighted Average
		Warrants for				Weighted				Remaining				Aggregate
		Common Shares				Average Exercise Price				Contractual Term				Intrinsic Value
Outstanding as of December 31, 2018			5,677,586			$	0.60				2.40			$	621,497
Granted			-				-				-				-
Exercised			-				-				-				-
Forfeited, cancelled, expired			-				-				-				-
Outstanding as of December 31, 2019			5,677,586				0.60				2.40				621,497
Granted			1,544,166				0.07				0.80				-
Exercised			-				-				-				-
Forfeited, cancelled, expired			(3,091,592	)			(0.07	)			(0.08	)			-
Outstanding as of September 30, 2020			4,130,160			$	0.60				2.06			$	621,497

 

NOTE 11 – INCOME (LOSS) PER SHARE

 

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

 

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

 

		Nine Months Ended September 30,
		2020				2019
Preferred shares			-				-
Convertible notes			-				408,375
Warrants			4,130,160				6,537,586
Options			-				-
Total anti-dilutive weighted average shares			4,130,160				6,945,961

  

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

 

Common Shares			131,350,683
Preferred Shares			-
Convertible notes			-
Warrants			4,130,160
Options			-
Total potential shares			135,480,843

 

 

BLOW AND DRIVE INTERLOCK CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NOTE 12 – COMMITMENTS AND CONTINGENCIES

 

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

 

Legal Proceedings

 

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

 

NOTE 13 – RELATED PARTY TRANSACTIONS

 

The Company had the following related party transactions:

 

●

Refer to related party notes payable.

 

NOTE 14 – SUBSEQUENT EVENTS

 

On October 2, 2020, The Doheny Group, LLC, an entity controlled by the Company’s sole officer and director, agreed to sell all of its shares of the Company’s common stock and Series A Preferred Stock pursuant to the terms of a Stock Purchase Agreement (the “Agreement”). Under the terms of the Agreement, if the parties meet certain pre-closing conditions, then the Doheny Group, LLC will sell 110,617,521 shares of the Company’s common stock and 1,000,000 shares of the Company’s Series A Preferred Stock to Song Dai. The shares represent approximately 84.83% of the issued and outstanding shares of the Company’s common stock, 100% of the Company’s Series A Preferred Stock, and 91.41% of the voting power of all securities of the Company, which would result in a change in control. In addition, if the pre-closing conditions are satisfied under the Agreement, then at Closing, the Company’s sole officer and director will resign, and the Company will appoint new officers and directors, and the Company will sell its current assets and operations to a private company in exchange for the private company assuming all of the Company’s liabilities at Closing. The Company was a party to the Agreement for the purpose of acknowledging certain representations and warranties about the Company in the Agreement. The Company is not issuing any additional securities, or receiving any money, as a result of the closing of the transactions contemplated by the Agreement.

 

On October 8, 2020, the Company paid $152,080.48 in full satisfaction of a U.S. Small Business Association Loan it received on May 22, 2020 in the principal amount of $150,000. As a result of paying off the loan no further amounts are due to the SBA lender.

 

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.

 

 

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

 

Disclaimer Regarding Forward Looking Statements

 

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

 

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

 

Overview

 

We are a previous development stage company that was incorporated in the State of Delaware in July 2013. In the year ending December 31, 2019, we generated total revenues of $534,827, compared to $942,160 in the year ending December 31, 2018. For the three months ended September 30, 2020 and 2019, we had total revenues of $27,020 and $77,342, respectively, and a net loss of ($7,073) and ($199,345), respectively. For the nine months ended September 30, 2020 and 2019, we had total revenues of $103,035 and $477,266, respectively, and a net loss of ($386,666) and ($607,195), respectively.

 

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

 

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

 

As of December 31, 2017, the BDI-747/1 was approved for use in five states, namely Oregon, Texas, Arizona, Kentucky, and Tennessee. As of December 31, 2018, the BDI-747/1 device was approved in Oregon, Texas, Arizona, and Kentucky. As of September 30, 2020, the BDI-747/1 device was only approved in Arizona and Texas. The states where our BDI-747/1 device is approved has decreased primarily as a result of new state certification rules that require increased capital investment that we are not able to afford.

 

As of December 31, 2019, we had approximately 513 units on the road, with all devices leased through our distributors, compared to December 31, 2018, when we had approximately 1,100 units on the road, with approximately 885 devices being leased directly from us and approximately 215 devices leased through our distributors. The decrease in the total number of devices we have on the road is primarily due to the fact the BDI-747/1 device was approved in fewer states in 2019 compared to 2018. As of September 30, 2020, we had approximately 258 units on the road, with all the units leased through our distributors.

 

 

On August 1, 2019, we shifted our business model such that we will only be responsible for manufacturing new units and leasing our new and existing units to distributors. The distributors will be responsible for leasing the units to end users, as well as marketing, installing and servicing the units at the distributors’ cost. The distributors are currently paying us between $25 and $35 per unit per month for all units the distributor has on the road with an end user. As a result of this shift, in future periods we anticipate all of our units being classified as leased through a distributor and all of our revenue, cost of sales and expenses will be related to distributorship operations and not related to direct monitoring revenue. This shift is the reason all units as of September 30, 2020 are classified as leased through a distributor with no units leased directly from us.

 

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

 

Our website is www.blowanddrive.com.

 

COVID-19

 

As discussed in more detail throughout this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2020 (this “Quarterly Report”), we have experienced business disruptions resulting from efforts to contain the rapid spread of the novel coronavirus (“COVID-19”), including the vast mandated self-quarantines of customers and closures of non-essential business throughout the United States and internationally. Our distributor has been impacted by self-quarantines taken in response to COVID-19, and is experiencing reduced sales. As a result, fewer people are ordering our devices. This trend has negatively impacted, and is expected to continue to negatively impact, among other things, distributor sales.

 

In these challenging and unprecedented times, management is taking all necessary and appropriate action to maximize liquidity as the Company navigates the current landscape. These actions include significantly reducing operating expenses and the elimination of all non-essential spending and capital expenditures.

 

 

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

 

Results of Operations for the Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019

 

 

		Three Months Ended September 30,
		2020								2019								Changes
		Amount				% of Revenue				Amount				% of Revenue				Amount				%
Revenues:
Monitoring revenues		$	-				0.0	%		$	49,122				63.5	%		$	(49,122	)			-100.0	%
Distributorship revenues			27,020				100.0	%			28,220				36.5	%			(1,200	)			-4.3	%
Total revenues			27,020				100.0	%			77,342				100.0	%			(50,322	)			-65.1	%
Cost of revenues:
Monitoring cost of revenue			-				0.0	%			(10,788	)			-13.9	%			10,788				-100.0	%
Distribution cost of revenue			-				0.0	%			-				0.0	%			-				n/a
Total cost of revenues			-				0.0	%			(10,788	)			-13.9	%			10,788				-100.0	%
Gross profit			27,020				100.0	%			88,130				113.9	%			(61,110	)			-69.3	%
Operating expenses:
Payroll			25,620				94.8	%			32,798				42.4	%			(7,178	)			-21.9	%
Professional fees			22,816				84.4	%			33,667				43.5	%			(10,851	)			-32.2	%
General and administrative			12,377				45.8	%			60,947				78.8	%			(48,570	)			-79.7	%
Total operating expenses			60,813				225.1	%			127,412				164.7	%			(66,599	)			-52.3	%
Income (loss) from operations			(33,793	)			-125.1	%			(39,282	)			-50.8	%			5,489				-14.0	%
Other income (expense):
Interest expense, net			(193,513	)			-716.2	%			(160,063	)			-207.0	%			(33,450	)			20.9	%
Interest income - amortization of debt discount			40,465				149.8	%			-				0.0	%			40,465				n/a
Derivative expense			-				0.0	%			-				0.0	%			-				n/a
Change in fair value of derivative liability			-				0.0	%			-				0.0	%			-				-100.0	%
Gain (loss) on extinguishment of debt			179,768				655.3	%			-				0.0	%			179,768				n/a
Other income			-				0.0	%			-				0.0	%			-				n/a
Total other income (expense)			26,720				98.9	%			(160,063	)			-207.0	%			186,783				-116.7	%
Income (loss) before income taxes			(7,073	)			-26.2	%			(199,345	)			-257.7	%			192,272				-96.5	%
Income taxes			-				0.0	%			-				0.0	%			-				n/a
Net income (loss)		$	(7,073	)			-26.2	%		$	(199,345	)			-257.7	%			192,272				-96.5	%

 

Operating Loss; Net Loss

 

Our net loss decreased by $192,272, from ($199,345) for the three months ended September 30, 2019 to ($7,073) for the three months ended September 30, 2020. Our operating loss decreased by $5,489, from ($39,282) to ($33,793) for the same periods. The decrease in our net loss for the three months ended September 30, 2020, compared to the three months ended September 30, 2019, is primarily the result of us shifting our business model such that we are only leasing our devices through distributors and directly to customers, which was a leading factor leading to lower payroll expense, lower professional fees, lower general and administrative expense, and we also benefitted from a gain on extinguishment of debt. These changes are detailed below.

 

 

Revenue

 

Monitoring Revenues. Monitoring revenues decreased by $49,122, or 100.0%, to $0 in the third quarter of fiscal year 2020 from $49,122 in the third quarter last year. The decrease is due to change in our business model where all of clients come from distributors and we no longer lease devices directly to end users.

 

Distributorship Revenues. Distributorship revenues decreased by $1,200, or -4.3%, to $27,020 in the third quarter of fiscal year 2020 from $28,220 in the third quarter last year.

 

Cost of Revenue

 

Our cost of revenue for the three months ended September 30, 2020 was $0, compared to ($10,788) for the three months ended September 30, 2019. Our cost of revenue for the three months ended September 30, 2019 was completely related to our monthly monitoring services we provided directly to our end-user customers. The decrease in our cost of revenue was due to change in our business model where all of our revenue is from distributors that lease devices directly to the end users.

 

Payroll

 

Payroll expense decreased by $7,178, or -21.9%, to $25,620 in the third quarter of fiscal year 2020 from $32,798 in the third quarter last year. The decrease in payroll is due to decreasing personnel in the third quarter of fiscal year 2020 compared to third quarter of last year. Our decrease in personnel is related to the shift in our business model, where our distributors now lease the devices to end-users and handle the maintenance, monitoring, etc. for the devices.

 

Professional Fees

 

Professional fees decreased by $10,851, or -32.2%, to $22,816 in the third quarter of fiscal year 2020 from $33,667 in the third quarter last year. These fees are largely related to fees paid for legal, accounting and audit services. We expect these fees to grow if our business expands. In the event we undertake an unusual transaction, such as an acquisition, securities offering, or file a registration statement, we would expect these fees to substantially increase during that period.

 

General and Administrative Expenses

 

General and administrative expenses decreased by $48,570, or -79.7%, to $12,377 in the third quarter of fiscal year 2020 from $60,947 in the third quarter last year. The decrease is due to the following:

 

	●	Decrease of approximately $15,000 in royalty expense in the third quarter of fiscal year 2020 compared to third quarter last year, due to Doheny Group waiving its right to royalties on January 1, 2020.
	●	Decrease of approximately $8,000 in insurance expense as we did not have any special part purchases in the third quarter of fiscal year 2020 compared to third quarter of last year.
	●	Decrease of approximately $18,000 in rent expense in the third quarter of fiscal year 2020 compared to third quarter last year.

 

Interest Expense, Net

 

Interest expense, net increased by $33,450, or 20.9%, to $193,513 in the third quarter of fiscal year 2020 from $160,063 in the third quarter last year. Our interest expense is related to the interest we own on short term note payables. The increase is due to increase in loans from long term note payables.

 

Interest Expense – Amortization of Debt Discount

 

Interest expense – amortization of debt discount increased by $40,465, to $40,465 in the third quarter of fiscal year 2020 from $0 in the third quarter last year. The increase is due to the extinguishment of convertible note payables during the three months ended September 30, 2020.

 

 

Gain on Extinguishment of Debt

 

Our gain on extinguishment of debt increased by $179,768, or 100.0%, to $179,768 in the third quarter of fiscal year 2020 from $0 in the third quarter last year. The increase is due to forgiveness and settlement of debt in the third quarter of fiscal 2020.

 

Results of Operations for the Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019

 

		Nine Months Ended September 30,
		2020								2019								Changes
		Amount				% of Revenue				Amount				% of Revenue				Amount				%
Revenues:
Monitoring revenues		$	-				0.0	%		$	412,365				86.4	%		$	(412,365	)			-100.0	%
Distributorship revenues			103,035				100.0	%			64,901				13.6	%			38,134				58.8	%
Total revenues			103,035				100.0	%			477,266				100.0	%			(374,231	)			-78.4	%
Cost of revenues:
Monitoring cost of revenue			-				0.0	%			14,445				3.0	%			(14,445	)			-100.0	%
Distribution cost of revenue			-				0.0	%			-				0.0	%			-				n/a
Total cost of revenues			-				0.0	%			14,445				3.0	%			(14,445	)			-100.0	%
Gross profit			103,035				100.0	%			462,821				97.0	%			(359,786	)			-77.7	%
Operating expenses:
Payroll			43,125				41.9	%			243,516				51.0	%			(200,391	)			-82.3	%
Professional fees			66,116				64.2	%			180,964				37.9	%			(114,848	)			-63.5	%
General and administrative			45,376				44.0	%			192,439				40.3	%			(147,063	)			-76.4	%
Total operating expenses			154,617				150.1	%			616,919				129.3	%			(462,302	)			-74.9	%
Income (loss) from operations			(51,582	)			-50.1	%			(154,098	)			-32.3	%			102,516				-66.5	%
Other income (expense):
Interest expense, net			(544,566	)			-528.5	%			(498,871	)			-104.5	%			(45,695	)			9.2	%
Interest expense - amortization of debt discount			-				0.0	%			-				0.0	%			-				n/a
Derivative expense			(255,482	)			-248.0	%			-				0.0	%			(255,482	)			n/a
Change in fair value of derivative liability			-				0.0	%			(7,390	)			-1.5	%			7,390				-100.0	%
Gain (loss) on extinguishment of debt			462,964				449.3	%			54,764				11.5	%			408,200				745.4	%
Other income			2,000				1.9	%			-				0.0	%			2,000				n/a
Total other income (expense)			(335,084	)			-325.2	%			(451,497	)			-94.6	%			116,413				-25.8	%
Income (loss) before income taxes			(386,666	)			-375.3	%			(605,595	)			-126.9	%			218,929				-36.2	%
Income tax			-				0.0	%			1,600				0.3	%			(1,600	)			-100.0	%
Net income (loss)		$	(386,666	)			-375.3	%		$	(607,195	)			-127.2	%			220,529				-36.3	%

 

 

Operating Loss; Net Loss

 

Our net loss decreased by $220,529, from ($607,195) for the nine months ended September 30, 2019 to ($386,666) for the nine months ended September 30, 2020. Our operating loss decreased by $102,516, from ($154,098) to ($51,582) for the same periods. The decrease in our net loss for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, is primarily the result of us shifting our business model such that we are only leasing our devices through distributors and directly to customers, which was a leading factor leading to lower payroll expense, lower professional fees, lower general and administrative expense, and we also benefitted from a gain on extinguishment of debt. These changes are detailed below.

 

Revenue

 

Monitoring Revenues. Monitoring revenues decreased by $412,365, or 100.0%, to $0 in the nine months ended September 30, 2020 compared to $412,365 in the nine months ended September 30, 2019. The decrease is due to change in our business model where all of clients come from distributors and we no longer lease devices directly to end users.

 

Distributorship Revenues. Distributorship revenues increased by $38,134, or 58.8%, to $103,035 in the nine months ended September 30, 2020 from $64,901 in the nine months ended September 30, 2019. The increase is due to change in our business model where all of clients come from distributors and we no longer lease devices directly to end users.

 

Cost of Revenue

 

Our cost of revenue for the nine months ended September 30, 2020 was $0, compared to $14,445 for the nine months ended September 30, 2019. Our cost of revenue for the nine months ended September 30, 2019, was completely related to our monthly monitoring services we provided directly to our end-user customers. The decrease in our cost of revenue was due to change in our business model where distributors lease devices directly to end users.

 

Payroll

 

Payroll expense decreased by $200,391, or 82.3%, to $43,125 in the nine months ended September 30, 2020 from $243,516 in the nine months ended September 30, 2019. The decrease in payroll is due to decreasing personnel in the nine-month period in 2020 compared to the same period last year. Our decrease in personnel is related to the shift in our business model, where our distributors now lease the devices to end-users and handle the maintenance, monitoring, etc. for the devices.

 

Professional Fees

 

Professional fees decreased by $114,848, or 63.5%, to $66,116 in the nine months ended September 30, 2020 from $180,964 in the nine months ended September 30, 2019. These fees are largely related to fees paid for legal, accounting and audit services. We expect these fees to grow if our business expands. In the event we undertake an unusual transaction, such as an acquisition, securities offering, or file a registration statement, we would expect these fees to substantially increase during that period.

 

General and Administrative Expenses

 

General and administrative expenses decreased by $147,063, or 76.4%, to $45,376 in the nine months ended September 30, 2020 from $192,439 in the nine months ended September 30, 2019. The decrease is due to the following:

 

	●	Decrease of approximately $30,000 in royalty expense in the first, second, and third quarter of fiscal year 2020 compared to the first, second, and third quarter last year, due to Doheny Group waiving its right to royalties on January 1, 2020.
	●	Decrease of approximately $12,000 in special part purchase expense as we did not have any special part purchases in the first, second, and third quarter of fiscal year 2020 compared to first, second and third quarter of last year.
	●	Decrease of approximately $20,000 in license and fees expense in the first, second, and third quarter of fiscal year 2020 compared to first, second, and third quarter last year.
	●	Decrease of approximately $12,000 in license and fees expense in the first, second, and third quarter of fiscal year 2020 compared to first, second, and third quarter last year.
	●	Decrease of approximately $50,000 in rent expense in the first, second, and third quarter of fiscal year 2020 compared to the first, second, and third quarter last year.
	●	Decrease of approximately $12,000 in merchant fee in the first, second, and third quarter of fiscal year 2020 compared to the first, second, and third quarter last year.

 

 

Interest Expense

 

Interest expense increased by $45,695, or 9.2%, to $544,566 in the nine months ended September 30, 2020 from $498,871 in the nine months ended September 30, 2019. Our interest expense is related to the interest we own on short term note payables. The increase is due to increase in loans from long term note payable

 

Derivative Expense

 

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

 

Change in Fair Value of Derivative Liability

 

During the nine months ended September 30, 2020, we had a change in fair value of derivative liability of $0 compared to ($7,390) for the nine months ended September 30, 2019. Change in fair value of derivative liability results from changes in valuation at end of the reporting period. Since the conversion price on the promissory note is calculated based on a discount to the closing price of our common stock, as our closing price fluctuates it changes the fair value of the derivative liability.

 

Gain on Extinguishment of Debt

 

Our gain on extinguishment of debt increased by $408,200, or 745.4%, to $462,964 in the nine months ended September 30, 2020 from $54,764 in the nine months ended September 30, 2019. The increase is due to forgiveness and settlement of debt in the second and third quarters of fiscal 2020.

 

Other Income

 

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

 

Liquidity and Capital Resources for the Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

 

Introduction

 

Our cash on hand as of September 30, 2020 was $5,694, compared to $91,314 at December 31, 2019. During the nine months ended September 30, 2020 and 2019, because of our operating losses, we did not generate positive operating cash flows. As a result, we have short term cash needs. These needs are being satisfied through proceeds from the sales of our securities and loans from both related parties and third parties. We currently do not believe we will be able to satisfy our cash needs from our revenues for some time.

 

 

Our cash, current assets, total assets, current liabilities, and total liabilities as of September 30, 2020 and as of December 31, 2019, respectively, are as follows:

 

		September 30, 2020				December 31, 2019				Changes
Cash		$	5,694			$	91,314			$	(85,620	)
Total current assets		$	14,724			$	113,361			$	(98,637	)
Total assets		$	21,205			$	119,842			$	(98,637	)
Total current liabilities		$	1,413,061			$	1,335,462			$	77,599
Total liabilities		$	3,583,061			$	3,366,497			$	216,564

 

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

 

Our current liabilities increased as of September 30, 2020 as compared to December 31, 2019. This increase was primarily due to increases in accrued interest and accrued interest-related party, partially offset by decreases in accrued expenses, income taxes payable, and notes payable-related party.

 

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

 

Sources and Uses of Cash

 

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

 

		Nine Months Ended September 30,
		2020				2019				Changes
Net cash provided by (used in):
Operating activities		$	(91,220	)		$	(238,713	)		$	147,493
Financing activities			5,600				342,311				(336,711	)
Net increase (decrease) in cash		$	(85,620	)		$	103,598			$	(189,218	)

 

Operations

 

We had net cash used in operating activities of $91,220 for the nine months ended September 30, 2020, as compared to $238,713 for the nine months ended September 30, 2019. For the period in 2020, the net cash used in operating activities consisted primarily of our net loss of $386,666, adjusted primarily by gain on extinguishment of debt of $462,964, amortization of debt discount of $8,527, as well as changes in, accrued expenses of ($25,425), accounts receivable $11,818, prepaid expenses of $1,199, accrued interest-related party of $432,998, accrued interest of $80,541, and income tax payable of ($6,730). For the period in 2019, the net cash used in operating activities consisted primarily of our net income (loss) of ($607,195), adjusted primarily by stock or warrants issued for services of $24,500, amortization of debt discount of $18,316, loss on extinguishment of debt of ($54,764), as well as changes in, accrued expenses of ($37,071), accounts receivable of ($11,976), prepaid expenses of ($16,667), deferred revenue of ($74,980), accrued royalties payable of $29,750, accrued interest- related party of $454,500, and accrued interest of $27,388.

 

Investments

 

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

 

 

Financing

 

We had net cash provided by financing activities for the nine months ended September 30, 2020 of $5,600, compared to $342,311 for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, our net cash from financing activities consisted of proceeds from issuance of an EIDL loan of $150,000, partially offset by repayments of notes payable of $123,400, proceeds from issuance of convertible note payable of $237,750, and principal payments on convertible notes payable of $258,750. For the nine months ended September 30, 2019, our net cash from financing activities consisted of proceeds from related party notes payable of $373,900, partially offset by repayments of notes payable of $31,589.

 

Critical Accounting Estimates

 

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

 

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

 

Recently Issued Accounting Updates

 

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

 

Off Balance Sheet Arrangements

 

We have no off balance sheet arrangements.

 

Commitments and Contingent Liabilities

 

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. As of September 30, 2020, we have no contingent liability that is required to be recorded nor disclosed.

 

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 September 30, 2020 under the supervision and with the participation of our principal executive officer and our principal financial officer.

 

Based upon our evaluation, our principal executive and financial officer concluded that, as of September 30, 2020, our existing disclosure controls and procedures were not effective. Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, including the principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. With only two officers in charge of such reporting controls, there is no backup to the oversight of such individual and thus such disclosure controls and procedures may not be considered effective.

 

 

Changes in Internal Control over Financial Reporting

 

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

 

Internal Control over Financial Reporting

 

We are responsible for establishing and maintaining adequate internal control over financial reporting in accordance with Rule 13a-15 of the Securities Exchange Act of 1934. Our president conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2020, based on the criteria establish in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was ineffective as of September 30, 2020, based on those criteria. A control system can provide only reasonably, not absolute, assurance that the objectives of the control system are met and no evaluation of controls can provide absolute assurance that all control issues have been detected.

 

Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2020 and identified the following material weaknesses, which are outlined further in our Annual Report on Form 10-K for the year ended December 31, 2018:

 

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

 

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

 

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

 

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

 

 

PART II – OTHER INFORMATION

 

ITEM 1 Legal Proceedings

 

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 September 30, 2020, we did not issue any unregistered securities:

 

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

 

Stock Purchase Agreement

 

On October 2, 2020, The Doheny Group, LLC, an entity controlled by our sole officer and director, agreed to sell all of its common stock and Series A Preferred Stock pursuant to the terms of a Stock Purchase Agreement (the “Agreement”). Under the terms of the Agreement, if the parties meet certain pre-closing conditions, then the Doheny Group, LLC will sell 110,617,521 shares of our common stock and 1,000,000 shares of our Series A Preferred Stock to Song Dai. The shares represent approximately 84.83% of the issued and outstanding shares of our common stock, 100% of our Series A Preferred Stock, and 91.41% of the voting power of all securities of our company, which would result in a change in control. In addition, if the pre-closing conditions are satisfied under the Agreement, then at Closing, our sole officer and director will resign, we will appoint new officers and directors, and we will sell our current assets and operations to a private company in exchange for the private company assuming all of our liabilities at closing. We were a party to the Agreement for the purpose of acknowledging certain representations and warranties about the company in the Agreement. We are not issuing any additional securities, or receiving any money, as a result of the closing of the transactions contemplated by the Agreement. The description of the Agreement set forth in this report is qualified in its entirety by reference to the full text of that document, which is attached hereto as Exhibit 10.26.

 

ITEM 6 Exhibits

 

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

 

10.3 (5)

Secured Promissory Note and Agreement with Chaim K. Wainer dated October 29, 2015

 

 

10.4 (6)		Loan and Security Agreement with Doheny Group, LLC dated September 30, 2016
10.5 (6)		Phase 1 Loan Agreement with D1oheny Group, LLC dated September 30, 2016
10.6 (6)		Royalty Agreement with Doheny Group, LLC dated September 30, 2016
10.7 (6)		Common Stock Purchase Agreement with Doheny Group, LLC dated September 30, 2016
10.8 (7)		Amendment No. 1 to Loan and Security Agreement with Doheny Group, LLC dated June 3, 2017
10.9 (7)		Amendment No. 1 to Royalty Agreement with Doheny Group, LLC dated June 3, 2017
10.10 (8)		Form of Securities Purchase Agreement
10.11 (8)		Settlement Agreement by and between Blow & Drive Interlock Corporation and J C Lopez/BDI Interlock LLC dated January 21, 2018 (memorializes oral agreement between the parties dated September 30, 2017)
10.12 (9)		Agreement to Purchase Common Stock and Preferred Stock dated December 31, 2018
10.13 (10)		Debt Conversion and Series A Preferred Stock Purchase Agreement by and between Blow & Drive Interlock Corporation and Laurence Wainer dated March 7, 2017
10.14 (12)		Debt Conversion and Series B Preferred Stock Purchase Agreement by and between Blow & Drive Interlock Corporation and The Doheny Group dated September 6, 2019
10.15 (11)		Securities Purchase Agreement between Blow & Drive Interlock Corporation and Crown Bridge Partners, LLC dated February 25, 2020
10.16 (11)		Convertible Promissory Note issued to Crown Bridge Partners, LLC dated February 25, 2020
10.17 (11)		Common Stock Purchase Warrant issued to Crown Bridge Partners, LLC dated February 25, 2020
10.18 (11)		Securities Purchase Agreement between Blow & Drive Interlock Corporation and Auctus Fund, LLC dated February 24, 2020
10.19 (11)		Convertible Promissory Note issued to Auctus Fund, LLC dated February 24, 2020
10.20 (11)		Common Stock Purchase Warrant issued to Auctus Fund, LLC dated February 24, 2020
10.21 (11)		Securities Purchase Agreement between Blow & Drive Interlock Corporation and EMA Financial, LLC dated February 24, 2020
10.22 (11)		Convertible Promissory Note issued to EMA Financial, LLC dated February 24, 2020
10.23 (13)		Settlement Agreement between Blow & Drive Interlock Corporation and Crown Bridge Partners, LLC dated May 15, 2020
10.24 (13)		Settlement Agreement between Blow & Drive Interlock Corporation and Auctus Fund, LLC dated May 18, 2020
10.25 (13)		Settlement Agreement between Blow & Drive Interlock Corporation and EMA Financial, LLC dated May 15, 2020
10.26 (14)		Stock Purchase Agreement dated October 2, 2020 by and between Blow & Drive Interlock Corporation, The Doheny Group, LLC and Song Dai.

 

 

31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith).
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Accounting Officer (filed herewith).
32.1		Section 1350 Certification of Chief Executive Officer (filed herewith).
32.2		Section 1350 Certification of Chief Accounting Officer (filed herewith).

 

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

 

* Filed herewith

 

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

 

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

 

 

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: October 23, 2020		/s/ David Haridim
	By:	David Haridim
		President (Principal Executive Officer)