BLOW
AND DRIVE INTERLOCK CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE
5 – NOTES PAYABLE TO RELATED PARTIES
Notes
payable to related parties consist of the following:
|
|
As of
|
|
|
As of
|
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
August
2018 ($1,365,000) –
Replaced August 2018 note ($1,365,000) that replaced November 2017 note ($765,000 balance at August 1, 2018), February 2018
note ($100,000) and March 2018 note ($500,000). Includes $635,000 penalty on default of August 2018 ($1,365,000) note and
$20,000 for missed payment on August 2018 note. Interest only monthly payment of $50,500 for life of note. Entire principal
due December 1, 2023.
|
|
$
|
2,020,000
|
|
|
$
|
2,020,000
|
|
December
2018 ($6,000) –
No interest with principal due on December 17, 2019.
|
|
|
-
|
|
|
|
-
|
|
December
2018 ($23,000) –
No interest with principal due on December 13, 2019.
|
|
|
-
|
|
|
|
-
|
|
January
2019 ($32,700) –
No interest with principal due on January 3, 2020.
|
|
|
-
|
|
|
|
-
|
|
January
2019 ($40,000) –
No interest with principal due on January 11, 2020.
|
|
|
-
|
|
|
|
-
|
|
January
2019 ($14,500) –
No interest with principal due on January 15, 2020.
|
|
|
-
|
|
|
|
14,500
|
|
February
2019 ($15,000) –
No interest with principal due on February 1, 2020.
|
|
|
-
|
|
|
|
15,000
|
|
February
2019 ($5,000) –
No interest with principal due on February 19, 2020.
|
|
|
-
|
|
|
|
5,000
|
|
March
2019 ($10,000) –
No interest with principal due on March 4, 2020.
|
|
|
-
|
|
|
|
10,000
|
|
May
1, 2019 ($20,000) -
Principal only due May 1, 2020. No interest
|
|
|
-
|
|
|
|
20,000
|
|
June
3, 2019 ($89,000) -
Principal only due June 3, 2020. No interest
|
|
|
89,000
|
|
|
|
89,000
|
|
July
10, 2019 ($13,000) -
Principal only due July 10, 2020. No interest
|
|
|
-
|
|
|
|
13,000
|
|
July
18, 2019 ($8,000) -
Principal only due July 18, 2020. No interest
|
|
|
|
|
|
|
8,000
|
|
July
25, 2019 ($25,000) -
Principal only due July 25, 2020. No interest
|
|
|
25,000
|
|
|
|
25,000
|
|
September
27, 2019 ($101,700) -
Principal only due September 27, 2020. No interest
|
|
|
101,700
|
|
|
|
101,700
|
|
December
31, 2019 ($83,000) -
Principal only due December 31, 2020. No interest
|
|
|
83,000
|
|
|
|
83,000
|
|
|
|
|
|
|
|
|
|
|
Total notes payable to related parties
|
|
|
2,318,700
|
|
|
|
2,404,200
|
|
|
|
|
|
|
|
|
|
|
Less: non-current portion
|
|
|
(2,020,000
|
)
|
|
|
(2,020,000
|
)
|
|
|
|
|
|
|
|
|
|
Notes payable to related parties, current portion
|
|
$
|
298,700
|
|
|
$
|
384,200
|
|
BLOW
AND DRIVE INTERLOCK CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 5 – NOTES PAYABLE TO RELATED
PARTIES (continued)
December
2018 - $2,222,000
On
December 1, 2018, the Company entered into an agreement with a related third party to replace the August 2018 note of $1,365,000
with a new note for $2,020,000. The new note also includes a default penalty of $635,000 on the August 2018 note and $20,000 for
a missed payment on the August 2018 note. The note calls for interest only payments of $50,500 per month for the life of the note.
The entire principal is due on December 1, 2023. Accrued interest payments totaling $202,000 were not made by the Company. Per
the note agreement, this amount was added to the principal, thus increasing the principal amount to $2,222,000.
Total
interest expense was $151,500 and $151,500 for the three months ended March 31, 2020 and 2019, respectively.
December
2018 - $6,000
On
December 17, 2018, the Company entered into an agreement with a related party, Doheny Group, to obtain a $6,000 loan. The note
bears no interest and is due in full on December 17, 2019.
December
2018 - $23,000
On
December 31, 2018, the Company entered into an agreement with a related party, Doheny Group, to obtain a $23,000 loan. The note
bears no interest and is due in full on December 31, 2019.
January
2019 - $32,700
On
January 3, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $32,700 loan. The note
bears no interest and is due in full on January 3, 2020.
January
2019 - $40,000
On
January 11, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $40,000 loan. The note
bears no interest and is due in full on January 11, 2020.
January
2019 - $14,500
On
January 15, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $14,500 loan. The note
bears no interest and is due in full on January 15, 2020.
February
2019 - $15,000
On
February 1, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $15,000 loan. The note
bears no interest and is due in full on February 1, 2020.
February
2019 - $5,000
On
February 19, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $5,000 loan. The note
bears no interest and is due in full on February 19, 2020.
March
2019 - $10,000
On
March 4, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $10,000 loan. The note bears
no interest and is due in full on March 4, 2020.
BLOW
AND DRIVE INTERLOCK CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 5 – NOTES PAYABLE TO RELATED
PARTIES (continued)
May
2019 - $20,000
On
May 1, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $10,000 loan. The note bears
no interest and is due in full on May 1, 2020.
June
2019 - $89,000
On
June 3, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $89,000 loan. The note bears
no interest and is due in full on June 3, 2020.
July
2019 - $13,000
On
July 10, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $13,000 loan. The note bears
no interest and is due in full on July 10, 2020.
July
2019 - $8,000
On
July 18, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $8,000 loan. The note bears
no interest and is due in full on July 18, 2020.
July
2019 - $25,000
On
July 25, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $25,000 loan. The note bears
no interest and is due in full on July 25, 2020.
September
2019 - $101,700
On
September 27, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $101,700 loan. The note
bears no interest and is due in full on September 27, 2020.
December
2019 - $83,000
On
December 31, 2019, the Company entered into an agreement with a related party, Doheny Group, to obtain a $83,000 loan. The note
bears no interest and is due in full on December 31, 2020.
BLOW
AND DRIVE INTERLOCK CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE
6 – CONVERTIBLE NOTES PAYABLE
Convertible
notes payable consists of the following:
|
|
As of
|
|
|
As of
|
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
August
2015 ($15,000) -
7.5% interest bearing convertible debenture due on August 7, 2017 with interest only payments and due upon maturity.
|
|
$
|
7,500
|
|
|
$
|
7,500
|
|
March
2018 ($20,000) –
10% interest bearing convertible debenture due on March 9, 2021, with interest paid in cash for the first six months, and
either in cash or shares of common stock thereafter. Principal is due March 9, 2021, paid either in cash or common stock,
at the Company’s discretion
|
|
|
20,000
|
|
|
|
20,000
|
|
February
2020 ($112,750) -
12% interest bearing convertible debenture due on December 24, 2020 with interest only payments and due upon maturity.
|
|
|
112,750
|
|
|
|
-
|
|
February
2020 ($75,000) -
10% interest bearing convertible debenture due on November 24, 2020 with interest only payments and due upon maturity.
|
|
|
75,000
|
|
|
|
-
|
|
February
2020 ($50,000) -
10% interest bearing convertible debenture due on February 24, 2021 with interest only payments and due upon maturity.
|
|
|
50,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total convertible notes payable
|
|
|
265,250
|
|
|
|
27,500
|
|
|
|
|
|
|
|
|
|
|
Less: debt discount
|
|
|
(223,215
|
)
|
|
|
(8,965
|
)
|
|
|
|
|
|
|
|
|
|
Total notes payable, net of debt discount
|
|
|
42,035
|
|
|
|
18,535
|
|
|
|
|
|
|
|
|
|
|
Less: non-current portion
|
|
|
-
|
|
|
|
(11,035
|
)
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, current portion, net
of debt discount
|
|
$
|
42,035
|
|
|
$
|
7,500
|
|
August
2015 - $15,000
On
August 7, 2015, the Company entered into an agreement with a third party non-affiliate and issued a 7.5% interest bearing convertible
debenture for $15,000 due on August 7, 2017, with conversion features commencing after 180 days following the date of the note.
Payments of interest only were due monthly beginning September 2015. The loan is convertible at 70% of the average of the closing
prices for the common stock during the five trading days prior to the conversion date. In connection with this Convertible note
payable, the Company recorded a $5,770 discount on debt, related to the beneficial conversion feature of the note to be amortized
over the life of the note or until the note is converted or repaid. This note was bifurcated with the embedded conversion option
recorded as a derivative liability at fair value (See Note 9). On May 6, 2016 the note holder elected to convert $7,500 in principal
into 30,000 shares of common stock. The note is currently in default.
In
connection with the issuance of the August Convertible Note Payable, the Company issued a warrant on August 7, 2015 to purchase
30,000 shares of the Company’s common stock at a purchase price of $0.50 per share. The Black Scholes model was used in
valuing the warrants in determining the relative fair value of the warrants issued in connection with the convertible note payable
using the following inputs: Expected Term – 3 years, Expected Dividend Rate – 0%, Volatility – 100%, Risk Free
Interest Rate -1.08%. The Company recorded an additional $4,873 discount on debt, related to the relative fair value of the warrants
issued associated with the note to be amortized over the life of the note.
Total
interest expense was $141 and $141 for the three months ended March 31, 2020 and 2019, respectively.
BLOW
AND DRIVE INTERLOCK CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE
6 – CONVERTIBLE NOTES PAYABLE (continued)
March
2018 - $20,000
On
March 9, 2018, the Company entered into an agreement with a non-affiliated shareholder and issued a 10% interest bearing convertible
debenture for $20,000 due on March 9, 2021. Payments of interest is in cash for the first six months, thereafter, interest may
be paid either in cash or common stock of the Company. The loan is convertible at 61% of the average of the closing prices for
the common stock during the five trading days prior to the conversion date but may not be converted if such conversion would cause
the holder to own more than 4.9% of outstanding common stock after giving effect to the conversion. In connection with this Convertible
Note Payable, the Company recorded a $20,000 discount on debt (the total discount was $47,768, of which $27,768 was expensed),
related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note is converted
or repaid. This note was bifurcated with the embedded conversion option recorded as a derivative liability at fair value. As of
March 31, 2018, this note has not been converted.
Total
interest expense was $500 and $500 for the three months ended March 31, 2020 and 2019, respectively.
February
2020 - $112,750
On
February 24, 2020, the Company entered into an agreement with a non-affiliated shareholder and issued a 12% interest bearing convertible
debenture for $112,750 due on December 24, 2020. Payments of interest is in lawful money of the Unites States of America. The
loan is convertible at the lesser of (i) the lowest trading price during the previous twenty-five trading day periods ending on
the latest complete trading day prior to the date of this note, and (ii) the variable conversion price. The “Variable Conversion
Price” shall mean 50% multiplied by the market price. In connection with this Convertible Note Payable, the Company recorded
a $12,750 discount on debt, related to the beneficial conversion feature of the note to be amortized over the life of the note
or until the note is converted or repaid. This note was bifurcated with the embedded conversion option recorded as a derivative
liability at fair value. As of March 31, 2020, this note has not been converted.
Total
interest expense was $1,200 for the three months ended March 31, 2020.
February
2020 - $75,000
On
February 24, 2020, the Company entered into an agreement with a non-affiliated shareholder and issued a 10% interest bearing convertible
debenture for $75,000 due on November 24, 2020. Payments of interest is in lawful money of the Unites States of America. The loan
is convertible at the lesser of (i) the lowest trading price during the previous twenty-five trading day periods ending on the
latest complete trading day prior to the date of this note, (ii) 50% of the lowest traded price for the common stock on the principal
market during the twenty-five consecutive trading days on which at least 100 shares of common stock were traded including and
immediately preceding the conversion date. In connection with this Convertible Note Payable, the Company recorded a $15,000 discount
on debt, related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note
is converted or repaid. This note was bifurcated with the embedded conversion option recorded as a derivative liability at fair
value. As of March 31, 2020, this note has not been converted.
Total
interest expense was $600 for the three months ended March 31, 2020.
February
2020 - $50,000
On
February 25, 2020, the Company entered into an agreement with a non-affiliated shareholder and issued a 10% interest bearing convertible
debenture for $50,000 due on February 24, 2021. Payments of interest is in lawful money of the Unites States of America. The loan
is convertible at the lesser of (i) 55% multiplied by the lowest trading price during the previous twenty-five trading day period
ending on the latest complete trading prior to the date of this note or (ii) the variable conversion price. The “Variable
Conversion Price” shall mean 55% multiplied by the market price. In connection with this Convertible Note Payable, the Company
recorded a $6,750 discount on debt, related to the beneficial conversion feature of the note to be amortized over the life of
the note or until the note is converted or repaid. This note was bifurcated with the embedded conversion option recorded as a
derivative liability at fair value. As of March 31, 2020, this note has not been converted.
Total
interest expense was $418 for the three months ended March 31, 2020.
BLOW
AND DRIVE INTERLOCK CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE
7 – DERIVATIVE LIABILITIES
Derivative
liabilities consisted of the following:
|
|
As
of
|
|
|
As
of
|
|
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
|
|
|
|
|
|
|
August
2015 - $15,000 convertible debt
|
|
$
|
6,358
|
|
|
$
|
6,358
|
|
March
2018 - $20,000 convertible debt
|
|
|
23,549
|
|
|
|
23,549
|
|
February
2020 – $112,750 convertible debt
|
|
|
205,021
|
|
|
|
-
|
|
February
2020 – $75,000 convertible debt
|
|
|
106,248
|
|
|
|
-
|
|
February
2020 – $50,000 convertible debt
|
|
|
147,713
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
derivative liabilities
|
|
$
|
488,889
|
|
|
$
|
29,907
|
|
The
Company applies the provisions of ASC Topic 815-40, Contracts in Entity’s Own Equity (“ASC Topic 815-40”), under
which convertible instruments, which contain terms that protect holders from declines in the stock price, may not be exempt from
derivative accounting treatment. As a result, embedded conversion options (whose exercise price is not fixed and determinable)
in convertible debt (which is not conventionally convertible due to the exercise price not being fixed and determinable) are initially
recorded as a liability and are revalued at fair value at each reporting date using the Monte-Carlo method.
On
February 24, 2020, BDIC issued a convertible promissory note for $112,750 to Auctus Fund (“Auctus”) (the “Auctus
Note”), due December 24, 2020 (the “Maturity Date”). The Auctus Note incurred a onetime interest charge of 12%,
which was recorded at issuance, and was due upon payback of the Auctus Note. The Auctus Note included an original issue discount
of $12,750, netting the balance received by BDIC from Auctus at $100,000. The Auctus transaction included commitment fees, which
took the form of an obligation by BDIC a ten-month warrant to purchase 1,127,500 shares (the “Commitment Shares”)
which are only provided in the event of default. Upon the occurrence of an event of default, as defined in the Auctus Note, the
conversion price shall become equal to a 50% of the lowest traded price for the Company’s common stock in the 25 consecutive
trading days preceding the notice of conversion and the balance due shall be multiplied by 50% (the “Default Provision”).
On
February 24, 2020, BDIC issued a convertible promissory note for $75,000 to EMA Financial (“EMA”) (the “EMA
Note”), due November 24, 2020 (the “Maturity Date”). The EMA Note incurred a onetime interest charge of 10%,
which was recorded at issuance, and was due upon payback of the EMA Note. The EMA Note included an original issue discount of
$15,000, netting the balance received by BDIC from EMA at $60,000. Upon the occurrence of an event of default, as defined in the
EMA Note, the conversion price shall become equal to a 50% of the lowest traded price for the Company’s common stock in
the 25 consecutive trading days preceding the notice of conversion and the balance due shall be multiplied by 50% (the “Default
Provision”).
On
February 25, 2020, BDIC issued a convertible promissory note for $50,000 to Crown Bridge Partners (“Crown”) (the “Crown
Note”), due February 24, 2021 (the “Maturity Date”). The Crown Note incurred a onetime interest charge of 10%,
which was recorded at issuance, and was due upon payback of the Crown Note. The Crown Note included an original issue discount
of $6,750, netting the balance received by BDIC from Crown at $43,250. The Crown transaction included commitment fees, which took
the form of an obligation by a nine-month warrant to purchase 416,666 shares (the “Commitment Shares”) which are only
provided in the event of default. Upon the occurrence of an event of default, as defined in the Crown Note, the conversion price
shall become equal to a 55% of the lowest traded price for the Company’s common stock in the 25 consecutive trading days
preceding the notice of conversion and the balance due shall be multiplied by 55% (the “Default Provision”).
Derivative
financial instruments, as defined in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”,
consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate,
security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments
may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and
subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.
BLOW
AND DRIVE INTERLOCK CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 7 – DERIVATIVE LIABILITIES
(continued)
The
accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants
at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any
change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet
date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the
event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained
a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 whereby
all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation
issued to employees or directors.
Based
on ASC 815, the Company determined that the convertible debt contained embedded derivatives and valued the derivative using the
Monte-Carlo method. Estimating fair values of derivative financial instruments requires the development of significant
and subjective estimates (such as volatility, estimated life and interest rates) that may, and are likely to, change over the
duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques
are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical volatility.
Since derivative financial instruments are initially and subsequently carried at fair values, the Company’s operating results
will reflect the volatility in these estimate and assumption changes.
The
Company performs valuation of derivative instruments at the end of each reporting period. The fair value of derivative instruments
is recorded and shown separately under current liabilities as these instruments can be converted anytime. Changes in fair value
are recorded in the consolidated statement of income under other income (expenses).
August
2015 Convertible Debt - $15,000
In
August 2015, the Company entered into a $15,000 convertible note with variable conversion pricing. The following inputs were used
within the Black Sholes Model to determine the initial relative fair values of the $15,000 convertible note with expected term
of 1.58 years, expected dividend rate of 0%, volatility of 100% and risk-free interest rate 0.61%.
March
2018 Convertible Debt - $20,000
In
March 2018, the Company entered into a $20,000 convertible note with variable conversion pricing. The following inputs were used
within the Black Sholes Model to determine the initial relative fair values of the $20,000 convertible note with expected term
of 3.35 years, expected dividend rate of 0%, volatility of 413% and risk free interest rate 2.90%.
February
2020 - $112,750
In
February 2020, the Company entered into a $112,750 convertible note with variable conversion pricing. The following inputs were
used within the Monte-Carlo method to determine the initial related fair values of the $112,750 convertible note with expected
term of 0.83 years, expected dividend rate of 0%, volatility of 325% and risk-free interest rate 2%.
February
2020 - $75,000
In
February 2020, the Company entered into a $75,000 convertible note with variable conversion pricing. The following inputs were
used within the Monte-Carlo method to determine the initial related fair values of the $75,000 convertible note with expected
term of 1 years, expected dividend rate of 0%, volatility of 325% and risk-free interest rate 2%.
February
2020 - $50,000
In
February 2020, the Company entered into a $50,000 convertible note with variable conversion pricing. The following inputs were
used within the Monte-Carlo method to determine the initial related fair values of the $50,000 convertible note with expected
term of 0.75 years, expected dividend rate of 0%, volatility of 325% and risk-free interest rate 2%
BLOW
AND DRIVE INTERLOCK CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 7 – DERIVATIVE LIABILITIES
(continued)
The
Company revalues these derivatives each quarter using the Monte-Carlo method. The change in valuation is accounted for
as a gain or loss in derivative liability. The following table describes the derivative liability as of December 31, 2019 and
March 31, 2020.
|
|
As of
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
December 31, 2019
|
|
|
Additions
|
|
|
Changes
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2015 - $15,000 convertible debt
|
|
$
|
6,358
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,358
|
|
March 2018 - $20,000 convertible debt
|
|
|
23,549
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,549
|
|
February 2020 – $112,750 convertible debt
|
|
|
-
|
|
|
|
112,750
|
|
|
|
92,271
|
|
|
|
205,021
|
|
February 2020 – $75,000 convertible debt
|
|
|
-
|
|
|
|
75,000
|
|
|
|
31,248
|
|
|
|
106,248
|
|
February 2020 – $50,000 convertible debt
|
|
|
-
|
|
|
|
50,000
|
|
|
|
97,713
|
|
|
|
147,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
$
|
29,907
|
|
|
$
|
237,750
|
|
|
$
|
221,232
|
|
|
$
|
488,889
|
|
NOTE
8 – ACCRUED ROYALTY PAYABLE
The
Company has estimated the royalties to be paid out in perpetuity under royalty agreements. The Company entered into royalty agreement
as follows:
|
●
|
November
2017 Royalty Agreement – The Company entered into a royalty agreement with a related party on November 1, 2017
in relation to a note payable of $900,000. This note replaced the September and November 2016 Royalty Agreements. Under the
royalty agreement, the Company is required to pay a royalty fee of from $1.50 to $3.00 per month for every ignition interlock
devise that the Company has on the road in customers’ vehicles, the amount depending on how many devices are installed.
|
|
|
|
|
●
|
August
2018 Royalty Agreement – the Company entered into a royalty agreement with a related party on August 1, 2018
in relation to a note payable of $1,365,000. This note replaced the November 2017 Royalty Agreement as well as other, non-royalty
notes payable. Under the royalty agreement, the Company is required to pay $1.50 and accrue an additional $3.50 for every
ignition interlock devise for the first nine months of the note payable. After the first nine months, the Company is required
to pay $1.50 per devise and the amount accrued during the first nine months will be paid monthly through the next twelve months.
After the note payable is paid in full, the Company is required to pay $3.00 per devise in perpetuity.
|
|
|
|
|
●
|
December
2018 royalty Agreement – the Company entered into a royalty agreement with a related party on December 1, 2018
in relation to a note payable of $2,020,000. This note replaced the August 2018 Royalty Agreement. Under the royalty agreement,
the Company is required to pay a royalty fee of $5.00 per month for every ignition interlock device that the Company has on
the road in customers’ vehicles.
|
|
|
|
|
●
|
January
2020 addendum Agreement – the Company entered into an addendum to loan security agreement with a related
party on January 1, 2020 in relation to all past, present and future monies owed for royalties. Under the addendum, The
Doheny Group waives the royalties effective January 1, 2020.
|
BLOW
AND DRIVE INTERLOCK CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 8 – ACCRUED ROYALTY PAYABLE
(continued)
Based
on the royalty agreement, the Company had the following royalty accruals:
|
|
As
of
|
|
|
As
of
|
|
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
|
|
|
|
|
|
|
November
2017 royalty agreement
|
|
$
|
-
|
|
|
$
|
3,326
|
|
August
2018 royalty agreement
|
|
|
-
|
|
|
|
18,058
|
|
December
2018 royalty agreement
|
|
|
-
|
|
|
|
50,081
|
|
|
|
|
|
|
|
|
|
|
Total
accrued royalties
|
|
$
|
-
|
|
|
$
|
71,465
|
|
Royalty
expense was $0 and $15,300 for the three months ended March 31, 2020 and 2019, respectively.
NOTE
9 – STOCKHOLDERS’ EQUITY
Preferred
Stock
The
Company’s articles of incorporation authorize the Company to issue up to 20,000,000 preferred shares of $0.001 par value.
Series
A Preferred Stock
The
Company has been authorized to issue 1,000,000 shares of Series A Preferred Stock. The Series A shares have the following preferences:
no dividend rights; no liquidation preference over the Company’s common stock; no conversion rights; no redemption rights;
no call rights by the Company; each share of Series A Preferred stock will have one hundred (100) votes on all matters validly
brought to the Company’s common stockholders.
During
the three months ended March 31, 2017, the Company entered into a material definitive agreement to issue 1,000,000 shares of series
A preferred stock to an officer and director of the Company with a preliminary estimated value of $350,000. As of March 31, 2020,
the total number of preferred shares issued or issuable was 1,000,000.
Common
Stock
The
Company has authorized 100,000,000 shares of $.0001. Holders of common stock are entitled to one vote for each share held. There
are no restrictions that limit the Company’s ability to pay dividends on its common stock, subject to the requirements of
the Delaware Revised Statutes. The Company has not declared any dividends since incorporation.
During
the three months ended March 31, 2020, the Company issued 0 additional shares of its common stock. The total number of shares
issued or issuable as of March 31, 2020 was 31,350,683.
BLOW
AND DRIVE INTERLOCK CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE
10 – STOCK WARRANTS
The
Company issued warrants in individual sales and in connection with common stock purchase agreements. The warrants have expiration
dates ranging from three to four years from the date of grant and exercise prices ranging from $0.10 to $1.00.
A
summary of warrant activity for the periods presented is as follows:
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
Warrants
for
|
|
|
Weighted
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Common
Shares
|
|
|
Exercise
Price
|
|
|
Contractual
Term
|
|
|
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
as of December 31, 2018
|
|
|
5,677,586
|
|
|
$
|
0.60
|
|
|
|
2.40
|
|
|
$
|
621,497
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited,
cancelled, expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
as of December 31, 2019
|
|
|
5,677,586
|
|
|
|
0.60
|
|
|
|
2.40
|
|
|
|
621,497
|
|
Granted
|
|
|
1,544,166
|
|
|
|
0.07
|
|
|
|
0.80
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited,
cancelled, expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
as of March 31, 2020
|
|
|
7,221,752
|
|
|
$
|
0.49
|
|
|
|
2.06
|
|
|
$
|
621,497
|
|
NOTE
11 – INCOME (LOSS) PER SHARE
Net
income (loss) per share is provided in accordance with FASB ASC 260-10, “Earnings per Share”. Basic net income
(loss) per common share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed by dividing
net income (loss) by the weighted average shares outstanding, assuming all dilutive potential common shares were issued, unless
doing so is anti-dilutive.
The
following shares are not included in the computation of diluted income (loss) per share, because their inclusion would be anti-dilutive:
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Preferred shares
|
|
|
-
|
|
|
|
-
|
|
Convertible notes
|
|
|
-
|
|
|
|
408,375
|
|
Warrants
|
|
|
7,221,752
|
|
|
|
6,537,586
|
|
Options
|
|
|
-
|
|
|
|
-
|
|
Total anti-dilutive weighted average shares
|
|
|
7,221,752
|
|
|
|
6,945,961
|
|
If
all dilutive securities had been exercised at March 31, 2020, the total number of common shares outstanding would be as follows:
Common Shares
|
|
|
31,350,683
|
|
Preferred Shares
|
|
|
-
|
|
Convertible notes
|
|
|
-
|
|
Warrants
|
|
|
7,221,752
|
|
Options
|
|
|
-
|
|
|
|
|
|
|
Total potential shares
|
|
|
38,572,435
|
|
BLOW
AND DRIVE INTERLOCK CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE
12 – COMMITMENTS AND CONTINGENCIES
The Company currently does not have any
facility lease commitments or lease obligations.
Legal
Proceedings
In
the ordinary course of business, the Company from time to time is involved in various pending or threatened legal actions. The
litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse
effect upon the Company’s financial condition and/or results of operations. However, in the opinion of management, other
than as set forth herein, matters currently pending or threatened against the Company are not expected to have a material adverse
effect on the Company’s financial position or results of operations.
NOTE
13 – RELATED PARTY TRANSACTIONS
The
Company had the following related party transactions:
|
●
|
Refer to related party notes payable.
|
NOTE
14 – SUBSEQUENT EVENTS
The
Company follows the guidance in FASB ASC Topic 855, Subsequent Events (“ASC 855”), which provides guidance
to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before
the consolidated financial statements are issued or are available to be issued. ASC 855 sets forth (i) the period after the balance
sheet date during which management of a reporting entity evaluates events or transactions that may occur for potential recognition
or disclosure in the consolidated financial statements, (ii) the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its consolidated financial statements, and (iii) the disclosures that an
entity should make about events or transactions that occurred after the balance sheet date.