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BLOW & DRIVE INTERLOCK : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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08/21/2017 | 11:35pm CEST

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 value="LS/us.de" idsrc="xmltag.org">State of Delaware in July 2013. In the year ending December 31, 2016, we generated total revenues of $359,765, compared to $30,569 in the year ending December 31, 2015. From July 2, 2013 (inception) to December 31, 2016, we experienced a net loss and accumulated deficit of $1,531,330 and total liabilities of $727,812 including $97,749 in notes payable to our president, Laurence Wainer. For the three months ended June 30, 2017, we had total revenues of $311,457 and a net loss of $25,365.

We are in the business of renting a breath alcohol ignition interlock device called the BDI-747/1, which is a mechanism that is installed on the steering column of an automobile and into which a driver exhales. The device in turn provides a blood-alcohol concentration analysis. If the driver's blood-alcohol content is higher than a certain pre-programmed limit, the device prevents the ignition from engaging and the automobile from starting. We also have the option of in-car camera technology, which some states require for state approval. The in-car camera feature is just one of several anti-circumvention features found on the BDI-747. These devices are often required for use by DUI or DWI ("driving under the influence" or "driving while intoxicated") offenders as part of a mandatory court or motor vehicle department program.

On June 17, 2015, our BDI-747 Breath Alcohol Ignition Interlock Device, together with our patent pending BDI Model #1 power line filter, were certified by the value="ACORN:1405410192" idsrc="xmltag.org">National Highway Traffic Safety Administration (NHTSA) as meeting or exceeding the 2013 NHSTA guidelines. As a result, on July 27, 2015 we began production of our BDI-747 Breath Alcohol Ignition Interlock Device with the attached BDI Model #1 power line filter.



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Since receiving our NHSTA Certification we have submitted applications to a number of states to be considered as a state-certified breath alcohol ignition interlock manufacturer and provider for all Ignition Interlock Mandated DUI/DWI offenders throughout each state. The process to get the device approved varies greatly state-to-state. As of June 30, 2017, the BDI-747/1 was approved for use in eleven states, namely value="LS/us.ca" idsrc="xmltag.org">California, value="LS/us.co" idsrc="xmltag.org">Colorado, value="LS/us.or" idsrc="xmltag.org">Oregon, value="LS/us.tx" idsrc="xmltag.org">Texas, value="LS/us.az" idsrc="xmltag.org">Arizona, value="LS/us.ky" idsrc="xmltag.org">Kentucky, value="LS/us.ok" idsrc="xmltag.org">Oklahoma, value="LS/us.tn" idsrc="xmltag.org">Tennessee, value="LS/us.pa" idsrc="xmltag.org">Pennsylvania, value="LU/us.ny.nyc" idsrc="xmltag.org">New York, and value="LS/us.ks" idsrc="xmltag.org">Kansas. Our plan for the remainder of 2017 is to build our infrastructure in the states where we have approval to ensure we can service all areas of those states, as well as to gain approval in an additional 3-5 states.

In states where the BDI-747/1 is approved as a BAIID, we rent the BDI-747/1 devices to offenders, typically for twelve months, but the time could differ on a case-by-case basis depending on the sentence received by the offender. In some states we market, lease, install and support the devices directly and in other states we sell distributorships to authorized distributors allowing them to lease, install, service, remove and support the BDI-747/1 devices. Currently, we lease the devices directly in eight states and areas - value="LS/us.ca" idsrc="xmltag.org">California, value="LS/us.or" idsrc="xmltag.org">Oregon, value="LS/us.co" idsrc="xmltag.org">Colorado, value="LS/us.ok" idsrc="xmltag.org">Oklahoma, value="LS/us.tn" idsrc="xmltag.org">Tennessee, value="LU/us.ny.nyc" idsrc="xmltag.org">New York, value="LS/us.ks" idsrc="xmltag.org">Kansas and parts of value="LS/us.tx" idsrc="xmltag.org">Texas - and license the device to distributors in four different areas - two counties in value="LS/us.tx" idsrc="xmltag.org">Texas and in the states of value="LS/us.az" idsrc="xmltag.org">Arizona, value="LS/us.ky" idsrc="xmltag.org">Kentucky and value="LS/us.pa" idsrc="xmltag.org">Pennsylvania.

In states where we rent the devices directly to consumers, we typically charge between $159-$198 in upfront fees for the user (which covers two months of the lease payment), and then between $59-$99/month for the remainder of the lease, which differs depending on the state and the individual consumer. After the upfront payments the leases and payments are month-to-month. The payments cover the installation of the device in the consumer's vehicle, the rental of the device, recalibration of the device as required by each state (typically every 30 to 60 days) and the monitoring services for the device, which are then reported to the state in accordance with each state's requirements. In states and areas where we do not have a direct presence, which we only have in value="LU/us.ca.losang" idsrc="xmltag.org">Los Angeles, California, we contract with independent service centers, such as car alarm installation companies or other auto services companies, to perform the installations of our BDI-747/1 device, which centers must be approved by the states in which the perform the installations. Because our devices are installed in consumers' vehicles are part of a judicially-mandated program, and since the use of the device controls the individual's driving privileges, collection rates of the monthly leasing fees is close to 100%. The failure to make the payment could be a violation of the consumer's sentence or probation and could cause them to lose the device and their driving privileges.

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

As of June 30, 2017, we had approximately 2,500 units on the road, with approximately 1,000 devices being rented directly from us and approximately 1,500 devices rented through our distributors. As of August 15, 2017, we had approximately 2,700 units on the road, with approximately 1,325 devices being rented directly from us and approximately 1,375 devices rented through our distributors. We plan to refine our manufacturing processes and increase our marketing of the device, and more aggressively pursue sales and distributors once we have funds to manufacture additional units.

Our website is www.blowanddrive.com.



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

Summary of Results of Operations



                                                         Three Months Ended
                                                              June 30,
                                                         2017           2016
       Revenue:                                       $              $        -

       Monitoring revenue                                204,738         95,176
       Distributorship revenue                           106,719              -
       Total revenues                                    311,457         95,176

       Cost of revenue:

       Monitoring cost of revenue                         46,085         11,163
       Distributorship cost of revenue                     2,500              -
       Total cost of revenue                              48,585         11,163

       Gross profit                                      262,872         84,013

       Operating expenses:

       Payroll                                            98,462         31,518
       Professional fees                                  35,771         36,985
       General and administrative expenses              (388,747 )      142,402
       Depreciation                                       88,726          6,675
       Total operating expenses                         (165,788 )     (217,580 )

       Income (loss) from operations                     428,660       (133,567 )

       Other income (expense):

       Interest expense                                 (150,780 )      (42,507 )
       Change in fair value of derivative liability        1,464         15,122
       Loss on extinguishment of debt                   (305,000 )      (19,612 )
       Total other income (expense)                     (454,025 )      (27,385 )

       Net income (loss)                              $  (25,365 )   $ (160,952 )



Operating Loss; Net Income (Loss)

Our net loss decreased by $135,587, from ($160,952) to ($25,365), from the three months ended June 30, 2016 compared to June 30, 2017. Our operating income (loss) increased by $562,227, from ($133,567) to $428,660 for the same periods. The decrease in our net loss for the three months ended June 30, 2017, compared to the prior year period, is primarily a result of a significant decrease in our general and administrative expenses and an increase in our gross profit of $178,859 for the period, offset by increases in our payroll and depreciation. These changes are detailed below.



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Revenue


During the three months ended June 30, 2017 we had $311,457 in revenues, with $204,738 coming from revenue from the monthly recurring payments we received from our customers that rent our BDI-747/1 breathalyzer device for the ongoing monitoring services related to the devices, and $106,719 coming from revenues received from our distributors, compared to $95,176 and $0 from these revenue sources for the same period one year ago. We expect the revenue we receive from monitoring our devices on the road will continue to increase as we have more units on the road.



Cost of Revenue


Our cost of revenue for the three months ended June 30, 2017 was $48,585, compared to $11,163 for the three months ended June 30, 2016. Our cost of revenue for the three months ended June 30, 2017 was attributed as $46,085 to monitoring cost of revenue and $2,500 to distributorship cost of revenue. For the three months ended June 30, 2016, our cost of revenue was completely related to our monthly monitoring services we provide to our customers.



Payroll


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



Professional Fees


Our professional fees increased during the three months ended June 30, 2017 compared to the three months ended June 30, 2016. Our professional fees were $35,771 for the three months ended June 30, 2017 and $36,985 for the three months ended June 30, 2016. These fees are largely related to fees paid for legal, accounting and audit services. We expect these fees to continue grow steadily as our business expands. In the event we undertake an unusual transaction, such as an acquisition, securities offering, or file a registration statement, we would expect these fees to substantially increase during that period.

General and Administrative Expenses

General and administrative expenses decreased significantly for the periods presented, from $142,402 for the three months ended June 30, 2016 to ($388,747) for the three months ended June 30, 2017. This significant decrease was related to the fact we paid a settlement of $50,000 to an ex-employee and removed the higher amount we had accrued for that employee, and we amended our preferred stock purchase agreement with Mr. Laurence Wainer such that his payment for the shares was full satisfaction of approximately $45,000 of debt owed to him rather than $25,500 of accrued salary, which was the original payment. In quarters that we do not have similar one-time transactions we expect our general and administrative expenses to be around $125,000 to $150,000 per quarter for the foreseeable future.



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Depreciation


We had depreciation of $88,726 for the three months ended June 30, 2017, compared to $6,675 for the same period one year ago. Our depreciation and amortization expenses in 2016 were primarily related to the depreciation of the BDI-747/1 device. We anticipate our depreciation expense will continue to increase as we manufacture more devices.



Interest Expense


Interest expense increased by $108,273 from $42,507 for the three months ended June 30, 2016 to $150,780 for the three months ended June 30, 2017. For both periods these amounts are largely due to the interest we owe on outstanding debt including amortization of debt discount costs. The interest expense significantly increased for the period ended June 30, 2017, compared to the same period one year ago, due to our increase in outstanding debt compared to one year ago, primarily related to the loans we received from Doheny Group, LLC.

Change in Fair Value of Derivative Liability

During the three months ended June 30, 2017, we had a change in fair value of derivative liability of $1,464 compared to $15,122 for the same period in 2016. The change in fair value of derivative liability in the three months ended June 30, 2017, relates to the conversion feature of a promissory note we had outstanding during this period. Since the conversion price on the promissory note is calculated based on a discount to the closing price of our common stock, as our closing price fluctuates it changes the fair value of the derivative liability.

Loss on Extinguishment of Debt

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



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

Summary of Results of Operations



                                                          Six Months Ended
                                                              June 30,
                                                         2017           2016
       Revenue:                                       $              $        -

       Monitoring revenue                                280,058        134,655
       Distributorship revenue                           195,453              -
       Total revenues                                    475,511        134,655

       Cost of revenue:

       Monitoring cost of revenue                         54,067         17,718
       Distributorship cost of revenue                     6,739              -
       Total cost of revenue                              60,806         17,718

       Gross profit                                      414,705        116,937

       Operating expenses:

       Payroll                                           168,776         65,247
       Professional fees                                  76,902         61,621
       General and administrative expenses               327,345        225,959
       Depreciation                                      144,142         16,930
       Total operating expenses                          717,165        369,757

       Loss from operations                             (302,560 )     (252,820 )

       Other income (expense):

       Interest expense                                 (295,089 )      (69,925 )
       Change in fair value of derivative liability       17,492        (19,612 )
       Loss on extinguishment of debt                   (305,000 )      (19,612 )
       Total other income (expense)                     (277,597 )      (89,537 )

       Net income (loss)                              $ (884,766 )   $ (342,357 )



Operating Loss; Net Income (Loss)

Our net loss increased by $542,409, from ($342,357) to ($884,766), from the six months ended June 30, 2016 compared to June 30, 2017. Our operating loss increased by $49,740, from ($252,820) to ($302,560) for the same periods. The increase in our net loss for the six months ended June 30, 2017, compared to the prior year period, is primarily a result of a increase in our general and administrative expenses, as well as increases in our payroll, professional fees and depreciation, partially offset by an increase in our gross profit of $297,768 for the period. These changes are detailed below.



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Revenue


During the six months ended June 30, 2017 we had $475,511 in revenues, with $280,058 coming from revenue from the monthly recurring payments we received from our customers that rent our BDI-747/1 breathalyzer device for the ongoing monitoring services related to the devices, and $195,453 coming from revenues paid to us from our distributors, compared to $134,655 and $0 from these revenue sources for the same period one year ago. We expect the revenue we receive from monitoring our devices on the road will continue to increase as we have more units on the road.



Cost of Revenue


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



Payroll


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



Professional Fees


Our professional fees increased during the six months ended June 30, 2017 compared to the six months ended June 30, 2016. Our professional fees were $76,902 for the six months ended June 30, 2017 and $61,621 for the six months ended June 30, 2016. These fees are largely related to fees paid for legal, accounting and audit services. We expect these fees to continue grow steadily as our business expands. In the event we undertake an unusual transaction, such as an acquisition, securities offering, or file a registration statement, we would expect these fees to substantially increase during that period.

General and Administrative Expenses

General and administrative expenses increased for the periods presented, from $225,959 for the six months ended June 30, 2016 to $327,345 for the six months ended June 30, 2017. This increase would have been larger except for we paid a settlement of $50,000 to an ex-employee and removed the higher amount we had accrued for that employee, and we amended our preferred stock purchase agreement with Mr. Laurence Wainer such that his payment for the shares was full satisfaction of approximately $45,000 of debt owed to him rather than $25,500 of accrued salary, which was the original payment. In quarters that we do not have similar one-time transactions we expect our general and administrative expenses to be around $125,000 to $150,000 per quarter for the foreseeable future.



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Depreciation


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



Interest Expense


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

Change in Fair Value of Derivative Liability

During the six months ended June 30, 2017, we had a change in fair value of derivative liability of $17,492 compared to ($19,612) for the same period in 2016. The change in fair value of derivative liability in the six months ended June 30, 2017, relates to the conversion feature of a promissory note we had outstanding during this period. Since the conversion price on the promissory note is calculated based on a discount to the closing price of our common stock, as our closing price fluctuates it changes the fair value of the derivative liability.

Loss on Extinguishment of Debt

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



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Liquidity and Capital Resources for Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016



Introduction


During the six months ended June 30, 2017 and 2016, because of our operating losses, we did not generate positive operating cash flows. Our cash on hand as of June 30, 2017 was $58,448 and our cash used in operations is approximately $13,000 per month. As a result, we have short term cash needs. These needs are being satisfied through proceeds from the sales of our securities and loans from both related parties and third parties. We currently do not believe we will be able to satisfy our cash needs from our revenues for some time.




Our cash, current assets, total assets, current liabilities, and total
liabilities as of June 30, 2017 and as of December 31, 2016, respectively, are
as follows:



                                 June 30, 2017       December 31, 2016       Change

    Cash                        $        58,448     $           116,309     $  57,861
    Total Current Assets                138,659                 180,561       (41,902 )
    Total Assets                      1,064,512                 793,161       271,351
    Total Current Liabilities           608,176                 531,006        77,170
    Total Liabilities           $     1,018,187     $           727,812     $ 290,375



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

Our current liabilities increased by $77,170, as of June 30, 2017 as compared to December 31, 2016. This decrease was primarily due to increases in our accrued expenses and accrued interest, offset by slight decreases in our accounts payable, derivative liability, and royalty notes payable, net of debt discount.

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



Sources and Uses of Cash



Operations


We had net cash used in operating activities of $43,480 for the six months ended June 30, 2017, as compared to ($116,892) for the six months ended June 30, 2016. For the period in 2017, the net cash used in operating activities consisted primarily of our net income (loss) of ($884,766), adjusted primarily by change in fair value of derivative liability of ($17,492), shares issued for services of $13,913, amortization of debt discount of $186,477, and depreciation of $144,142, as well as changes in, accrued expenses of $37,944, accounts receivable, net of ($15,320), prepaid expenses of ($639), deposits of $53,850, deferred revenue of $49,193, accounts payable of $52,003, income taxes payable of $1,600, accrued royalties payable of $1,015, and accrued interest of $29,240. For the period in 2016, the net cash used in operating activities consisted primarily of our net income (loss) of ($342,357), adjusted primarily by change in fair value of derivative liability of $19,612, shares issued for services of $117,362, amortization of debt discount of $54,005, and depreciation and amortization of $16,930, as well as changes in, accrued expenses of ($2,662), deferred revenue of $38,999, deposits of ($14,600), accounts payable of $23,456, and accounts receivable of ($29,484).



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Investments


We had cash used in investing activities in the six months ended June 30, 2017 of $511,245, compared to $138,932 for June 30, 2016. For the period ended June 30, 2017, the cash used in investing activities related to purchases of furniture and equipment of ($661,245) partially offset by deposits on units of $150,000. For the period ended June 30, 2016, the cash used in investing activities related to purchases of furniture and equipment.



Financing


Our net cash provided by financing activities for the six months ended June 30, 2017 was $497,224, compared to $287,838 for the six months ended June 30, 2016. For the six months ended June 30, 2017, our net cash from financing activities consisted of proceeds from notes payable of $195,400 and proceeds from issuance of common stock of $416,110, partially offset by repayments of notes payable of ($114,286). For the six months ended June 30, 2016, our net cash from financing activities consisted of proceeds from notes payable of $209,099 and proceeds from issuance of common stock of $157,500, partially offset by repayments of notes payable of ($78,761).

Off Balance Sheet Arrangements

We have no off balance sheet arrangements.

Commitments and Contingent Liabilities

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

© Edgar Online, source Glimpses

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