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, 2019

[  ] 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 (State or other jurisdiction of incorporation or organization)	46-3590850 (I.R.S. Employer Identification No.)
1427 S. Robertson Blvd. Los Angeles, CA (Address of principal executive offices)	90035 (Zip Code)

(877) 238-4492

Registrant’s telephone number, including area code

(Former address, if changed since last report)

(Former fiscal year, if changed since last report)

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

Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ].

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X].

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

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

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 November 19, 2019, there were 31,350,683 shares of common stock, $0.0001 par value, issued and outstanding.

CAUTIONARY STATEMENT

All statements included or incorporated by reference in this Quarterly Report on Form 10-Q (this “Form 10-Q”), other than statements or characterizations of historical fact, are “forward-looking statements” within the meaning of the Securities Exchange Act of 1934 as amended (the “Exchange Act”). Examples of forward-looking statements include, but are not limited to, statements concerning projected sales, costs, expenses and gross margins; our accounting estimates, assumptions and judgments; the prospective demand for our products; the projected growth in our industry; the competitive nature of and anticipated growth in our industry; and our prospective needs for, and the availability of, additional capital. These forward-looking statements are based on our current expectations, estimates, approximations and projections about our industry and business, management’s beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified by such words as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing,” similar expressions and variations or negatives of these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors, some of which are set forth in the “Risk Factors” section of our Report on Form 10-K for the year ended December 31, 2018, filed on July 19, 2019, and this Report, which could cause our financial results, including our net income or loss or growth in net income or loss to differ materially from prior results, which in turn could, among other things, cause the price of our common stock to fluctuate substantially. These forward-looking statements speak only as of the date of this report. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law.

BLOW & DRIVE INTERLOCK CORPORATION

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION		3
ITEM 1	Financial Statements	3
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	32
ITEM 4	Controls and Procedures	32
PART II – OTHER INFORMATION		34
ITEM 1	Legal Proceedings	34
ITEM 1A	Risk Factors	34
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	34
ITEM 3	Defaults Upon Senior Securities	34
ITEM 4	Mine Safety Disclosures	34
ITEM 5	Other Information	34
ITEM 6	Exhibits	35

2

PART I – FINANCIAL INFORMATION

ITEM 1 Financial Statements

The consolidated balance sheets as of September 30, 2019 (unaudited) and December 31, 2018, the consolidated statements of operations for the three months and nine months ended September 30, 2019 and 2018, the consolidated statement of stockholders equity (deficit) for the six months ended September 30, 2019, and the consolidated statements of cash flows for the nine months ending September 30, 2019 and 2018, 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.

3

PART I – FINANCIAL INFORMATION

BLOW & DRIVE INTERLOCK CORPORATION

CONSOLIDATED BALANCE SHEETS

	September 30, 2019			December 31, 2018
	Unaudited)
ASSETS
Current Assets:
Cash	$	104,373		$	775
Accounts receivable		17,331			5,355
Prepaid expenses		17,683			1,016
Total current assets		139,387			7,146
Deposits		6,481			6,481
Total assets	$	145,868		$	13,627
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable	$	2,096		$	-
Accrued expenses		28,917			65,988
Accrued royalty payable		56,635			26,885
Accrued interest		41,349			17,155
Accrued interest – related parties		645,118			190,618
Deferred revenue		17,182			92,162
Derivative liability		29,907			22,517
Notes payable, net of debt discount of $0 and $7,549 at September 30, 2019 and December 31, 2018, respectively		67,159			117,776
Notes payable to related parties		29,000			29,000
Convertible notes payable, net of $5,124 and $5,124 at September 30, 2019 and December 31, 2018, respectively		2,376			2,376
Total current liabilities		919,739			564,477
Non-current Liabilities:
Notes payable, less current portion and net of debt discount of $0 and $6,925 at September 30, 2019 and December 31, 2018, respectively		-			18,069
Notes payable to related parties, less current portion		2,393,900			2,020,000
Convertible notes, less current portion and net of $3,841 and $5,122 at September 30, 2019 and December 31, 2018, respectively		17,440			13,597
Total non-current liabilities		2,411,340			2,051,666
Total Liabilities		3,331,079			2,616,143
Commitments and Contingencies
Stockholders’ Deficit
Preferred stock, par value $0.001, 20,000,000 shares authorized, 1,000,000 and 1,000,000 shares issued or issuable and outstanding as of September 30, 2019 and December 31, 2018, respectively		1,000			1,000
Common stock, par value $0.0001, 100,000,000 shares authorized, 30,566,920 and 31,073,529 shares issued or issuable and outstanding as of September 30, 2019 and December 31, 2018, respectively		3,057			3,107
Additional paid-in capital		3,514,249			3,489,699
Accumulated deficit		(6,703,517	)		(6,096,322	)
Total stockholders’ deficit		(3,185,211	)		(2,602,516	)
Total liabilities and stockholders’ deficit	$	145,868		$	13,627

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

4

BLOW & DRIVE INTERLOCK CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Monitoring revenues	$	49,122		$	221,419		$	412,365		$	664,650
Distributorship revenues		28,220			20,240			64,901			59,505
Total revenues		77,342			241,659			477,266			724,155
Monitoring cost of revenue		260			18,724			14,445			95,405
Distributorship cost of revenue		-			-			-			-
Total cost of revenue		260			18,724			14,445			95,405
Gross profit		77,082			222,934			462,821			628,749
Operating expenses
Payroll		32,798			240,499			243,516			706,648
Professional fees		33,667			26,176			180,964			114,230
General and administrative		49,899			170,504			192,439			639,598
Depreciation		-			-			-			-
Total operating expenses		116,364			437,178			616,919			1,460,476
Loss from operations		(39,282	)		(214,244	)		(154,098	)		(831,727	)
Other income (expense)
Interest expense, net		(168,626	)		(119,208	)		(498,871	)		(329,586	)
Change in fair value of derivative liability		-			5,093			(7,390	)		9,385
Gain (loss) on extinguishment of debt		-			-			54,764			-
Total other income (expenses)		(168,626	)		(113,935	)		(451,497	)		(320,201	)
Loss before provision for income taxes		(207,908	)		(328,179	)		(605,595	)		(1,151,928	)
Provision for income taxes		-			-			1,600			(800	)
Net loss	$	(207,908	)	$	(328,179	)	$	(607,195	)	$	(1,152,728	)
Basic and Diluted Loss Per Common Share	$	(0.01	)	$	(0.01	)		$ (0.0 2)		$	(0.04	)
Basic and Diluted Weighted-Average Common Shares Outstanding		29,453,446			31,205,429			30,527,566			29,772,036

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

5

BLOW & DRIVE INTERLOCK CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

	Preferred Stock -										Additional					Total
	Series A				Common Stock						Paid-in		Accumulated			Stockholders’
	Shares		Amount		Shares			Amount			Capital		Deficit			Deficit
Balance at December 31, 2018		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 at 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.

6

BLOW & DRIVE INTERLOCK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(607,195	)	$	(1,152,728	)
Adjustments to reconcile net loss to net cash used in operating activities
Stock or warrants issued for services		24,500			110,200
Allowance for doubtful accounts		-			(26,541	)
Amortization of debt discount		18,316			27,704
Change in fair value of derivative liability		7,390			(9,385	)
Debt converted to common shares		-			5,083
(Gain)/loss on extinguishment of debt		(54,764	)		-
Changes in operating assets and liabilities
Accounts receivable		(11,976	)		50,102
Prepaid expenses		(16,667	)		6
Accounts payable		2,096			(39,695	)
Accrued expenses		(37,071	)		4,863
Accrued royalties payable		29,750			74,718
Accrued interest		27,388			99,773
Accrued interest related party		454,500			-
Deferred revenue		(74,980	)		(68,827	)
Net cash used in operating activities		(238,713	)		(924,727	)
Cash flows from financing activities:
Proceeds from issuance of common stock		-			458,705
Proceeds from issuance of notes payable		-			21,600
Principal payments on notes payable		(31,589	)		(34,405	)
Proceeds from issuance of convertible notes payable		-			20,000
Principal payments on convertible notes payable		-			(5,000	)
Proceeds from issuance of notes payable related party		373,900			600,127
Payments on note payable related party		-			(126,050	)
Net cash provided by financing activities		342,311			934,977
Net increase in cash		103,598			10,250
Cash at beginning of period		775			31,874
Cash at end of period	$	104,373		$	42,124
Supplemental discolsures of cash flow information
Cash paid during the period for:
Interest paid	$	160,063		$	91,634
Income taxes paid	$	800		$	-
Supplemental disclosure of non-cash investing and financing activities
Common stock and warrants issued for services	$	24,500		$	110,200

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

7

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 distributors who lease the 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 two 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 on the road beginning thirty (30) days after the distributor receives the unit.

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

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

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.

The consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such rules and regulations. These consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The unaudited information contained herein has been prepared on the same basis as the Company’s audited consolidated financial statements, and, in the opinion of the Company’s management, includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the information for the periods presented. The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2019 or any future period.

8

Use of Estimates in the Preparation of Financial Statements

The preparation of the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. These estimates and assumptions may affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. As a result, actual results could differ from these estimates.

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, 2019, the Company had an accumulated deficit of $6,703,517. 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.

9

Reclassifications

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

Use of Estimates

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

Revenue Recognition

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

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.

10

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.

Deferred revenue

Deferred revenue consists of customer orders paid in advance of the delivery of the order. Deferred revenue is classified as short-term as the typical order ships within approximately three weeks of placing the order. Deferred revenue is recognized as revenue when the product is shipped to the customer and all other revenue recognition criteria have been met. Due to high overhead cost, the Company has changed it distribution model to contract distributers to supply the equipment to customers and perform the installation.

Advertising and Marketing Costs

Advertising and marketing costs are recorded as general and administrative expenses when they are incurred. Advertising and marketing expenses were $267and $81,652 for the nine months ended September 30, 2019 and 2018, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

The Company’s accounts receivable primarily consist of trade receivables. The Company records an allowance for doubtful accounts that is based on historical trends, customer knowledge, any known disputes, and the aging of the accounts receivable balances combined with management’s estimate of future potential recoverability. Receivables are written off against the allowance after all attempts to collect a receivable have failed. The Company believes its allowance for doubtful accounts as of September 30, 2019 and December 31, 2018 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 12. These estimates were performed at the inception for the notes to reflect the associated debt discount. The Company accruals royalties and is reduced by payments.

Derivative Liability

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

11

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

For modifications of convertible debt, the Company records a modification that changes the fair value of an embedded conversion feature, including a BCF, as a debt discount which is then amortized to interest expense over the remaining life of the debt. If modification is considered substantial (i.e. greater than 10% of the carrying value of the debt), an extinguishment of debt is deemed to have occurred, resulting in the recognition of an extinguishment gain or loss.

Fair Value of Financial Instruments

The Company utilizes ASC 820-10, Fair Value Measurement and Disclosure, for valuing financial assets and liabilities measured on a recurring basis. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

Level 1. Observable inputs such as quoted prices in active markets;

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

12

The table below describes the Company’s valuation of financial instruments using guidance from ASC 820-10:

	Fair Value Measurements Using
	Level 1		Level 2		Level 3
Balance December 31, 2018	$	-	$	22,517	$	-
Change in fair value of derivative liability		-		7,390		-
Balance September 30, 2019 (unaudited)	$	-	$	29,907	$	-

Net Income (Loss) Per Share

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

Related Parties

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

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, 2019, one distributor, licensed in four states, makes up approximately 89% percent of all revenues from distributors at September 30, 2019. 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.

13

Derivative Liabilities

The Company assessed the classification of its derivative financial instruments as of September 30, 2019, which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.

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

Convertible Instruments

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities”.

ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control or could require net cash settlement, then the contract shall be classified as an asset or a liability.

Recently Issued Accounting Pronouncements

Note 3 – Segment Reporting

The Company had two reportable segments during the three and nine months ended September 30, 2019: (1) Monitoring and (2) Distributorships.

Monitoring fees on Company installed units

The Company rents units directly to customers and installs the units in the customer’s vehicles. The rental periods range from a few months to 2 years and include a combination of down payments made by the customer and monthly payments paid under the agreements with the Company. Revenue is recognized from these companies on the straight-line basis over the term of the agreement. Amounts collected in excess of those earned are classified as deferred revenue in the balance sheet, and amounts earned in excess of amounts collected are reflected in accounts receivable in the balance sheet at September 30, 2019 and December 31, 2018.

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.

14

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Segment gross profit (a):
Monitoring	$	48,862		$	202,694		$	397,920		$	569,244
Distributorships		28,220			20,240			64,901			59,505
Gross profit		77,082			222,934			462,821			628,749
Identifiable segment operating expenses (b):
Monitoring
Distributorships
		-						-
Identifiable segment operating income (c):
Monitoring		48,862			202,694			397,920			569,244
Distributorships		28,220			20,240			64,901			59,505
		77,082			222,934			462,821			628,749
Reconciliation of identifiable segment income to corporate income (d):
Payroll		32,798			240,499			243,516			706,648
Professional fees		33,667			26,175			180,964			114,230
General and administrative expenses		49,899			170,504			192,439			639,598
Interest expense		168,626			119,028			498,871			329,586
Change in fair value of derivative liability		-			(5,093	)		7,390			(9,385	)
Gain on extinguishment of debt		-			-			(54,764	)		-
		284,990			551,113			1,068,416			1,780,677
Loss before provision for income taxes		(207,908	)		(328,179	)		(605,595	)		(1,151,928	)
Provision for income taxes		-			-			1,600			800
Net loss	$	(207,908	)	$	(328,179	)	$	(607,195	)	$	(1,152,728	)
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

On August 1, 2019, the Company shifted its business model such that the Company will only be responsible for manufacturing new units and leasing its 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 distribtors’ cost. The distributors are currently paying the Company 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 the Company anticipates all of its revenue, cost of sales and expenses will be related to distributorship operations and not related to direct monitoring revenue.

Note 4 – Accrued Expenses

Accrued Expenses consist of the following:

	September 30, 2019		December 31, 2018
Accrued payroll and payroll taxes	$	20,004	$	17,616
Deferred rent		-		5,317
Income Tax Payable		6,730		5,930
Other accrued expenses		2,183		37,125
Total	$	28,917	$	65,988

15

Note 5 - Deferred Revenue

The Company classifies income as deferred until the terms of the contract or time frame have been met within the Company’s revenue recognition policy. As of September 30, 2019 and December 31, 2018, deferred revenue consists of the following:

	September 30, 2019		December 31, 2018
Monitoring deferred revenues	$	17,182	$	92,162
Distributorship deferred revenues		-		-
Total	$	17,182	$	92,162

The Company expects deferred revenue to decrease in the fourth quarter of 2019 as the revenue is been recognized. The company requires a deposit for the equipment from the customer in order to install equipment. The installation is performed by the Company. Due to rising over head cost, the company decided to change its distribution model and contracted an distributor to perform the installation of the machine. The company expects deferred revenue to be zero by the year-end.

Note 6 – Notes Payable

Notes payable consist of the following:

	As of September 30, 2019						As of December 31, 2018
Terms	Amount		Discount		Net Balance		Amount			Discount			Net Balance
December 2017 ($50,000) - 15% interest due in December 2020 including issuance of 100,000 shares of common stock with exercise price at $0.25 per share.	$	-	$	-	$	-	$	40,736		$	(14,474	)	$	26,262
October 2018 ($60,000) - $561 daily principal and interest until paid in full		-		-		-		42,424			-			42,424
October 2018 ($72,800) - $11,527 monthly principal and interest for first six months, $9,975 monthly principal and interest last six months		67,159		-		67,159		67,159			-			67,159
Total notes payable		67,159		-		67,159		150,319			(14,474	)		135,845
Less: non-current portion		-		-		-		(24,994	)		6,925			(18,069	)
Notes payable, current portion	$	67,159	$	-	$	67,159	$	125,325		$	(7,549	)	$	117,776

December 2017 - $50,000

On December 1, 2017, the Company provided an agreement to a third party to obtain a $50,000 promissory note in exchange for $50,000 in cash. The promissory note had a maturity date of December 1, 2020 and bears interest at 15% per annum. The note required total payments of $1,733 per month. The Company recorded a debt discount of $22,650 related to the value of the issued shares associated with the process of obtaining the note to be amortized over the life of the note. In January 2019, the note was settled with no additional payment and $43,930 was recognized as a gain on settlement.

Total interest expense was $0 and $1,706 for the three months ended September 30, 2019 and 2018, respectively, and $0 and $3,539 for the nine months ended September 30, 2019 and 2018, respectively.

16

October 2018 - $60,000

On October 11, 2018, the Company provided an agreement to a third party to obtain a $60,000 promissory note in exchange for $59,105 in cash ($895 in processing fee was deducted from cash). The promissory note had a maturity date of May 5, 2019 and bears interest at 55% per annum. The note required total payments of $561.43 each business day. The note was settled on January 16, 2019 for $30,806, and a gain on settlement was recorded for $10,834.

Total interest expense was $0 and $0 for the three months ended September 30, 2019 and 2018, respectively, and $0 and $0 for the nine months ended September 30, 2019 and 2018, respectively.

October 2018 - $72,800

On October 4, 2018, the Company provided an agreement to a third party to obtain a $72,800 promissory note in exchange for $72,800 in cash. The promissory note had a maturity date of October 4, 2019 and bears interest at 51% per annum. The note required total payments of $11,526.67 per month for the first six months and $6,794.67 per month for the last six months. The note was settled on January 16, 2019 for $30,806, and a gain on settlement was recorded for $10,834.

Total interest expense was $8,536 and $0 for the three months ended September 30, 2019 and 2018, respectively, and $17,126 and $0 for the nine months ended September 30, 2019 and 2018, respectively.

Note 7 – Notes Payable – Related Parties

Notes payable to related parties consist of the following:

Terms	September 30, 2019			December 31, 2018
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.		6,000			6,000
December 2018 ($23,000) – No interest with principal due on December 13, 2019.		23,000			23,000
January 2019 ($32,700) – No interest with principal due on January 3, 2020.		32,700			-
January 2019 ($40,000) – No interest with principal due on January 11, 2020.		40,000			-
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 2019 ($20,000) – No interest with principal due on May 1, 2020		20,000			-
June 2019 ($89,000) – No interest with principal due on June 3, 2020		89,000			-
July 2019 ($13,000) – No interest with principal due on July 10, 2020		13,000			-
July 2019 ($8,000) – No interest with principal due on July 18, 2020		8,000			-
July 2019 ($25,000) – No interest with principal due on July 25, 2020		25,000			-
September 2019 ($101,700) – No interest with principal due on September 27, 2020		101,700			-
August 2019 ($2,183) – No interest with principal due on availability		2,183			-
Total notes payable to related parties		2,425,083			2,049,000
Less: non-current portion		(2,396,083	)		(2,020,000	)
Notes payable to related parties, current portion	$	29,000		$	29,000

17

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 $303,000 and $0 for the nine months ended September 30, 2019 and 2018, respectively. Total interest expense was $151,500 and $0 for the three months ended September 30, 2019 and 2018, 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.

18

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

Promissory Note of $13,000 payable to the Doheny Group at July 10, 2019. Interest is 0% simple interest, balloon payment of $13,000 due July 10, 2020.

July 2019 - $8,000

Promissory Note of $8,000 payable to the Doheny Group at July 18, 2019. Interest is 0% simple interest, balloon payment of $8,000 due July 18, 2020.

July 2019 - $25,000

Promissory Note of $25,000 payable to the Doheny Group at July 25, 2019. Interest is 0% simple interest, balloon payment of $25,000 due July 25, 2020.

September 2019 - $101,700

Promissory Note of $101,700 payable to the Doheny Group at September 27, 2019. Interest is 0% simple interest, balloon payment of $101,700 due September 27, 2020.

Note 8 – Convertible Notes Payable

Convertible notes payable consists of the following:

	As of September 30, 2019									As of December 31, 2018
Terms	Amount			Discount			Net Balance			Amount			Discount			Net Balance
August 2015 ($15,000) - 7.5% interest bearing convertible debenture due on August 7, 2017 with interest only payments and due upon maturity.		7,500			-			7,500			7,500			-			7,500
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			(7,684	)		12,316			20,000			(11,527	)		8,473
Total convertible notes payable		27,500			(7,684	)		19,816			27,500			(11,527	)		15,973
Less: non-current portion		(20,000	)		2,560			(17,440	)		(20,000	)		6,403			(13,597	)
Convertible notes payable, current portion	$	7,500		$	(5,124	)	$	2,376		$	7,500		$	(5,124	)	$	2,376

19

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 $7,500 and $0 for the nine months ended September 30, 2019 and 2018, respectively.

March 2018 - $20,000

On March 9, 2018, the Company entered into an agreement with a non-affiliated shareholder and issued a 10% interest bearing convertible debenture for $20,000 due on March 9, 2021. Payments of interest is in cash for the first six months, thereafter, interest may be paid either in cash or common stock of the Company. The loan is convertible at 61% of the average of the closing prices for the common stock during the five trading days prior to the conversion date but may not be converted if such conversion would cause the holder to own more than 4.9% of outstanding common stock after giving effect to the conversion. In connection with this Convertible Note Payable, the Company recorded a $20,000 discount on debt (the total discount was $47,768, of which $27,768 was expensed), related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note is converted or repaid. This note was bifurcated with the embedded conversion option recorded as a derivative liability at fair value. As of September 30, 2018, this note has not been converted.

Total interest expense was $20,000 and $0 for the nine months ended September 30, 2019 and 2018, respectively.

Note 9 – Derivative Liabilities

Derivative liabilities consisted of the following:

	September 30, 2019		December 31, 2018
August 2015 - $15,000 convertible debt	$	6,359	$	6,523
March 2018 - $20,000 convertible debt		23,549		15,994
Total derivative liabilities	$	29,907	$	22,517

20

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

August 2015 Convertible Debt - $15,000

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 a binomial model to determine the initial relative fair values of the $20,000 convertible note with expected term of 2.44 years, expected dividend rate of 0%, volatility of 160% and risk free interest rate 2.49%.

The Company revalues these derivatives each quarter using the Black Sholes Model. The change in valuation is accounted for as a gain or loss in derivative liability. The following table describes the Derivative liability as of December 31, 2017 and September 30, 2018.

	Balance at 12/31/18		Additions		Changes			Balance at 09/30/19
August 2015 - $15,000 convertible debt	$	6,523	$	-	$	(165	)	$	6,359
March 2018 - $20,000 convertible debt		15,994		-		7,555			23,549
Total	$	22,517	$	-	$	7,390		$	29,907

Note 10 – Accrued Royalties 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.

21

● 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.

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

	September 30, 2019		December 31, 2018
November 2017 royalty agreement	$	3,327	$	3,327
August 2018 royalty agreement		18,058		18,058
December 2018 royalty agreement		35,250		5,500
Total accrued royalties	$	56,635	$	26,885

Royalty expense was $8,100 and $25,650 for the three months ended September 30, 2019 and 2018, respectively, and $29,751 and $115,595 for the nine months ended September 30, 2019 and 2018, respectively.

Note 11 – 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 nine months ended September 30, 2019, 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 September 30, 2019, the total number of preferred shares issued or issuable was 1,000,000.

22

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 nine months ended September 30, 2019, the Company issued 250,000 shares of its common stock for services valued at $25. In addition, the Company issued 756,609 common shares in accordance with the anti-dilution provisions of Royalty notes #3 and #4. In addition, the Company issued 32,812 common shares in the conversion of $5,083 of notes payable. The total number of shares issued or issuable as of September 30, 2019 was 31,073,529.

Note 12 – 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, 2017		5,607,176	$	0.51	$	3.19		412,864
Granted		930,410		1.29		4.00		(412,864	)
Exercised		-		-		-		-
Forfeited, cancelled, expired		-		-		-		-
Outstanding as of December 31, 2018		6,537,586	$	0.51	$	3.19		-
Granted		-		1.29		4.00		-
Exercised		-		-		-
Forfeited, cancelled, expired		-		-		-
Outstanding as of September 30, 2019		6,537,586	$	0.55	$	1.85		-

Note 13 – 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,				Nine Months Ended September 30,
	2019		2018		2019		2018
Preferred shares		-		-		-
Convertible notes		434,058		58,299		434,058		58,299
Warrants		6,537,586		5,597,586		6,537,586		5,597,586
Options		-		-		-		-
Total anti-dilutive weighted average shares		6,971,644		5,655,885		6,971,644		5,655,885

23

If all dilutive securities had been exercised at September 30, 2019, the total number of common shares outstanding would be as follows:

Common Shares	30,566,920
Preferred Shares	-
Convertible notes	434,058
Warrants	6,537,586
Options	-
Total potential shares	37,538,564

Note 14 – Commitments and Contingencies

On December 1, 2016, the Company entered into a four-year lease with Cahuenga Management LLC for a storefront location at 15503 Cahuenga Blvd., North Hollywood, California 91601. Base rent under the lease is $2,200 per month, with an escalating provision up to $2,404 throughout the lease term. The rental agreement includes operating expenses such as common area maintenance, property taxes and insurance. The Company moved into the offices of David Haridim effective January 1, 2019. David Haridim is not charging the Company rent.

On August 28, 2017, the Company entered into a one-year lease with B3 Investments, LLC for a storefront location at Suites D104 and D105, 2406 24^th Street, South Phoenix, Arizona. Base rent under the lease is $1,350 per month plus 2% ($27) rental tax. The rental agreement includes operating expenses such as common area maintenance, property taxes and insurance. During the three months ended September 30, 2019, the Company turned the lease of this property over to one of its distributors and is no longer responsible for the rent due under the lease.

Total rent expense was $50,556 and $(5,306) for the three months ended September 30, 2019 and 2018, respectively, and $94,688 and $95,082 for the nine months ended September 30, 2019 and 2018, respectively.

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 15 – Related Party Transactions

The Company had the following related party transactions:

● Promissory Note of $101,700 payable to the Doheny Group at September 27, 2019. Interest is 0% simple interest, balloon payment of $101,700 due September 27, 2020.

● Promissory Note of $13,000 payable to the Doheny Group at July 10, 2019. Interest is 0% simple interest, balloon payment of $13,000 due July 10, 2020.

● Promissory Note of $8,000 payable to the Doheny Group at July 18, 2019. Interest is 0% simple interest, balloon payment of $8,000 due July 18, 2020.

● Promissory Note of $25,000 payable to the Doheny Group at July 25, 2019. Interest is 0% simple interest, balloon payment of $25,000 due July 25, 2020.

● Notes payable of $1,365,000 to the Doheny Group.

● 3,208,017 shares of common stock, of which 1,863,152 were granted to the Doheny Group in relation to notes payable and 1,294,865 were granted to the Doheny Group as anti-dilution shares.

● 50,000 warrants were granted to David Haridim.

● Notes payable of $2,275,200 to the Doheny Group at June 30, 2019 (refer to notes payable related party section)

Note 16 – 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. Accordingly, the Company did not have any subsequent events that require disclosure.

24

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. We market distributorships and lease a breath alcohol ignition interlock device called the BDI-747/1, which is a mechanism that is installed on the steering column of an automobile and into which a driver exhales, to distributors who, in turn, lease them to end users. 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.

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, 2019, 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, 2017, we had approximately 1,558 units on the road, with approximately 1,451 devices being leased directly from us and approximately 107 devices leased through our distributors. As of December 31, 2018, we had approximately 1,100 units on the road, with approximately 885 devices being leased directly from us and approximately 215 devices leased through our distributors. The decrease in the total number of devices we have on the road is primarily due to the fact the BDI-747/1 devices was approved in fewer states in 2018 compared to 2017. As of September 30, 2019, we had approximately 623 units on the road, 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 distribtors’ 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, 2019 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.

25

Results of Operations

Three Months Ended September 30, 2019 (Unaudited) Compared to Three Months Ended September 30, 2018 (Unaudited)

	Three Months Ended
	September 30, 2019						September 30, 2018						Changes
				% of						% of
	Amount			Revenue			Amount			Revenue			Amount			%
Revenues:
Monitoring revenues	$	49,122			64	%	$	221,418			92	%	$	(172,296	)		-78	%
Distributorship revenues		28,220			36	%		20,240			8	%		7,980			39	%
Total revenues		77,342			100	%		241,658			100	%		(164,316	)		-68	%
Cost of revenues:
Monitoring cost of revenue		260			0	%		18,724			8	%		(18,464	)		-99	%
Distributorship cost of revenue		-			0	%		-			0	%		-			0	%
Total cost of revenues		260			0	%		18,724			8	%		(18,464	)		-99	%
Gross profit		77,082			100	%		222,934			92	%		(145,852	)		-65	%
Operating expenses:
Payroll		32,798			42	%		240,499			100	%		(207,701	)		-86	%
Professional fees		33,667			44	%		26,175			11	%		7,492			29	%
General and administrative		49,899			65	%		170,504			71	%		(120,605	)		-71	%
Total operating expenses		116,364			150	%		437,178			181	%		(320,814	)		-73	%
Loss from operations		(39,282	)		-51	%		(214,244	)		-89	%		174,962			-82	%
Other Income (Expense):
Interest expense, net		(168,626	)		-218	%		(119,028	)		-49	%		(49,598	)		42	%
Change in fair value of derivative liability		-			0	%		5,093			2	%		(5,093	)		-100	%
Gain (loss) on extinguishment of debt		-			0	%		-			0	%		-			0	%
Total other income (expense)		(168,626	)		-218	%		(113,935	)		-47	%		(54,691	)		48	%
Loss before provision for income taxes		(207,908	)		-269	%		(328,179	)		-136	%		120,271			-37	%
Provision for income taxes		-			0	%		-			0	%		-			0	%
Net loss	$	(207,908	)		-269	%	$	(328,179	)		-136	%	$	120,271			-37	%

Operating Loss; Net Loss

Our net loss decreased by $120,271, from ($328,179) for the three months ended September 30, 2018 to ($207,908) for the three months ended September 30, 2019, even though our revenues also decreased in 2019 compared to 2018. Our operating loss decreased by $173,536, from ($214,244) to ($39,282) for the same periods. The decrease in our net loss for the three months ended September 30, 2019, compared to the three months ended September 30, 2018, is primarily the result of decrease in our general and administrative expenses, payroll, partially offset by a slight increase in our professional fees.

26

Revenues: Revenues increased due to the following:

● Monitoring Revenues: Monitoring revenues decreased by $172,297, or 78%, to $49,122 in the third quarter of fiscal 2019 from $221,419 in the third quarter last year. The decrease is due to decrease in number of monthly recurring payments we received from our customers that rent our BDI-747/1 breathalyzer device for the ongoing monitoring services related to the devices in the third quarter of fiscal 2019 compared to third quarter of last year. As a result of the shift in our business model reference above, we expect all of our revenue in the future to come from the monthly recurring payments we receive from our distributors and not from direct retail of our devices.

● Distributorship Revenues: Distributorship revenues increased by $7,980, or 39.0%, to $28,220 in the third quarter of fiscal 2019 from $20,240 in the third quarter last year. The increase is due to increase in number of units with customers through distributors, a trend we expect to continue due to the shift in our business model.

Cost of Revenue

Our cost of revenue for the three months ended September 30, 2019 was $240 compared to $18,724 for the three months ended September 30, 2018. Our cost of revenue for both three-month periods was completely related to our monthly monitoring services we provide to our customers. Again, we expect this shift in our cost of revenue to continue as we move away from using direct retail of our devices and towards distributors.

Payroll

Payroll expense decreased by $207,701, or 86.0%, to $32,798 in the third quarter of fiscal 2019 from $240,499 in the third quarter last year. The decrease in payroll is due to controlling overhead expenses and decreasing personnel in the third quarter of fiscal 2019 compared to the third quarter of last year.

Professional Fees

Professional fees increased by $7,491, or 29.0%, to $33,667 in the third quarter of fiscal 2019 from $26,176 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 continue grow steadily 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 $120,605, or 68.0 %, to $49,899 in the third quarter of fiscal 2019 from $151,912 in the third quarter last year. The decrease is due to the following:

● Decrease of approximately $85,000 in royalty expense in the third quarter of fiscal 2019 compared to third quarter last year.

● Decrease of approximately $167,267 in software expense as we did not have any software services in the third quarter of fiscal 2019 compared to third quarter of last year.

● Decrease of approximately $85,212 in investor relations.

Interest Expense

Interest expense increased by $49,598 from $119,028 for the three months ended September 30, 2018 to $168,626 for the three months ended September 30, 2019. The interest expense increased for the period ended September 30, 2019, compared to the same period one year ago, due to a increase in our outstanding debt compared to one year ago, which primarily relate to the loans we received from Doheny Group, LLC.

27

Change in Fair Value of Derivative Liability

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.

Nine Months Ended September 30, 2019 (Unaudited) Compared to Nine Months Ended September 30, 2018 (Unaudited)

	Nine Months Ended
	September 30, 2019						September 30, 2018						Changes
				% of						% of
	Amount			Revenue			Amount			Revenue			Amount			%
Revenues:
Monitoring revenues	$	412,365			86	%	$	664,649			92	%	$	(252,284	)		-38	%
Distributorship revenues		64,901			14	%		59,505			8	%		5,396			9	%
Total revenues		477,266			100	%		724,154			100	%		(246,888	)		-34	%
Cost of revenues:
Monitoring cost of revenue		14,445			3	%		95,405			13	%		(80,960	)		-85	%
Distributorship cost of revenue		-			0	%		-			0	%		-			0	%
Total cost of revenues		14,445			3	%		95,405			13	%		(80,960	)		-85	%
Gross profit		462,821			97	%		628,749			87	%		(165,928	)		-26	%
Operating expenses:
Payroll		243,516			51	%		706,648			98	%		(463,132	)		-66	%
Professional fees		180,964			38	%		114,230			16	%		66,734			58	%
General and administrative		192,439			40	%		639,598			88	%		(447,159	)		-70	%
Total operating expenses		616,919			129	%		1,460,476			202	%		(843,557	)		-58	%
Loss from operations		(154,098	)		-32	%		(831,727	)		-115	%		677,629			-81	%
Other Income (Expense):
Interest expense, net		(498,871	)		-105	%		(329,586	)		-46	%		(169,285	)		51	%
Change in fair value of derivative liability		(7,390	)		-2	%		9,385			1	%		(16,775	)		-179	%
Gain (loss) on extinguishment of debt		54,764			11	%		-			0	%		54,764			100	%
Total other income (expense)		(451,497	)		-95	%		(320,201	)		-44	%		(131,296	)		41	%
Loss before provision for income taxes		(605,595	)		-127	%		(1,151,928	)		-159	%		546,333			-47	%
Provision for income taxes		1,600			0	%		800			0	%		800			100	%
Net loss	$	(607,195	)		-127	%	$	(1,152,728	)		-159	%	$	545,533			-47	%

Operating Loss; Net Loss

Our net loss decreased by $545,533, from ($1,152,728) for the nine months ended September 30, 2018 to ($607,195) for the nine months ended September 30, 2019. Our operating loss decreased by $667,677 from ($830,302) to ($154,098) for the same periods. We had a decrease in our net loss for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, despite the fact we had less revenue, primarily due to the fact we lowered our operating expenses. These changes are detailed below.

Revenue: Revenues decreased due to the following:

● Monitoring Revenues: Monitoring revenues decreased by $252,284, or 38.0%, to $412,365 in the nine months ended September 30, 2019 from $664,650 in the nine months ended September 30, 2018. The decrease is due to decrease in number of monthly recurring payments we received from our customers that rent our BDI-747/1 breathalyzer device for the ongoing monitoring services related to the devices in the first nine months of fiscal 2019 compared to first nine months of last year. As a result of the shift in our business model reference above, we expect all of our revenue in the future to come from the monthly recurring payments we receive from our distributors and not from direct retail of our devices.

● Distributorship Revenues: Distributorship revenues did not have significant changes, but in future periods we expect the percentage of our revenue of revenue from distributors to increase due to the shift in our business model.

28

Cost of Revenue

Our cost of revenue for the nine months ended September 30, 2019 was $14,445, compared to $95,405 for the nine months ended September 30, 2018. Our cost of revenue for the nine months ended September 30, 2019 and 2018 was completely related to our monthly monitoring services we provide to our customers. We expect our cost of revenue in future periods to trend away from direct retail of our devices and towards distributors.

Payroll

Our payroll decreased by $463,132 from $706,648 for the nine months ended September 30, 2018 to $243,516 for the nine months ended September 30, 2019. The decrease in payroll is due to controlling overhead expenses and decreasing personnel.

Professional Fees

Professional fees increased by $66,733, or 58.0%, to $180,964 in the first nine months of fiscal 2019 from $114,230 in the first nine months of last year. These fees are largely related to fees paid for legal, accounting and audit services. We expect these fees to continue grow steadily 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 $447,159, or 71.0%, to $192,439 in the first nine months of fiscal 2019 from $621,007 in the first nine months of last year. The decrease is due to the following:

● Decrease of approximately $85,845 in royalty expense in the third quarter of fiscal 2019 compared to third quarter last year.

● Decrease of approximately $167,267 in software expense as the Company did not have any software services in the first nine months of fiscal 2019 compared to first nine months of last year.

● Decrease of approximately $81,385 in marketing and advertising expenses due to reduction in working capital.

● Decrease of approximately $85,212 in investor relations expenses.

Interest Expense

Interest expense increased by $169,285, or 51.0%, to $498,871 in the first nine months of fiscal 2019 from $329,586 the first nine months of last year. The increase is due to increase in loans from related parties.

Change in Fair Value of Derivative Liability

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 (Loss) on Extinguishment of Debt

Gain on extinguishment of debt of $54,764 resulted from forgiveness and settlement of debt in the first quarter of fiscal 2019.

29

Liquidity and Capital Resources for the Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Introduction

Our cash on hand as of September 30, 2019 was $104,373, compared to $775 at December 31, 2018. During the three months ended September 30, 2019 and 2018, 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, 2019 and as of December 31, 2018, respectively, are as follows:

	September 30, 2019		December 31, 2018		Change
Cash	$	104,373	$	775	$	103,598
Total current assets	$	139,387	$	7,146	$	132,241
Total assets	$	145,868	$	13,627	$	132,241
Total current liabilities	$	919,739	$	564,477	$	355,262
Total liabilities	$	3,331,079	$	2,616,143	$	714,936

Our current assets increased as of September 30, 2019 as compared to December 31, 2018, primarily due to us having more cash on hand, accounts receivable, and prepaid expenses at September 30, 2019. The increase in our total assets between the two periods was also primarily related to us having more cash on hand, accounts receivable, and prepaid expenses at September 30, 2019.

Our current liabilities increased as of September 30, 2019 as compared to December 31, 2018. This increase was primarily due to increases in our accrued royalty payable, accrued interest, accrued interest-related party, and derivative liability, offset by decreases in accrued expenses and deferred revenue.

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.

30

Sources and Uses of Cash

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

	Nine Months Ended September 30,
	2019			2018
Net cash provided by (used in):
Operating activities	$	(238,713	)	$	(620,304	)
Financing activities		342,311			869,794
Net increase in cash	$	103,598		$	249,490

Operations

We had net cash used in operating activities of $238,713 for the nine months ended September 30, 2019, as compared to $924,727 for the nine months ended September 30, 2018. 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 a non-cash change in fair value of derivative liability of $7,390, shares issued for services of $24,500, gain on extinguishment of debt of ($54,764), and amortization of debt discount of $18,316, as well as changes in, accrued expenses of ($37,071), accounts receivable ($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. For the period in 2018, the net cash used in operating activities consisted primarily of our net income (loss) of ($1,152,728), an allowance for doubtful accounts of ($26,541), adjusted primarily by non-cash change in fair value of derivative liability of $9,385, shares issued for services of $110,200, debt converted to common shares of $5,083 and amortization of debt discount of $27,704, as well as changes in, accrued expenses of $4,863, accounts receivable of $50,102, prepaid expenses of $7, deferred revenue of ($68,827), accounts payable of ($36,695), accrued royalties payable of $74,718, and accrued interest of $99,773.

Investments

We did not have any cash provided by/used in investing activities in the nine months ended September 30, 2019 or September 30, 2018.

Financing

We had net cash provided by financing activities for the nine months ended September 30, 2019 of $342,311, compared to $934,977 for the nine months ended September 30, 2018. For the nine months ended September 30, 2019, proceeds from related party notes payable of $373,900, partially offset by repayments of notes payable of $31,589. For the nine months ended September 30, 2018, our net cash from financing activities consisted of proceeds from convertible notes payable of $20,000, proceeds from related party notes payable of $600,127, proceeds of notes payable of $21,600, and proceeds from issuance of common stock of $458,705, partially offset by repayments of notes payable of $34,405, repayments of convertible notes payable of $5,000, and repayments of related party notes payable of $126,050.

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, 2018, 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 six months ended September 30, 2019.

31

Our adoption of ASC 606, Revenue Recognition, did not change the way the Company recognized revenue for the first six months of fiscal year 2019 compared to same period 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, 2019, 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, 2019 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, 2019, 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.

32

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, 2019, 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, 2019, 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, 2019 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.

33

PART II – OTHER INFORMATION

ITEM 1 Legal Proceedings

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

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

ITEM 1A Risk Factors

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

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended September 30, 2019, 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

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

34

ITEM 6 Exhibits

Item No.	Description
3.1 (1)	Certificate of Incorporation of Jam Run Acquisition Corporation dated June 28, 2013
3.2 (17)	Articles of Amendment to Articles of Incorporation to Jam Run Acquisition Corporation dated February 6, 2014 (changing corporate name to Blow & Drive Interlock Corporation)
3.3 (1)	Bylaws of Jam Run Acquisition Corporation (now Blow & Drive Interlock Corporation) dated June 2013
10.1 (2)	Agreement between Tiber Creek Corporation and Laurence Wainer dated January 25, 2014
10.2 (2)	Promissory Note between the Company and Laurence Wainer dated February 16, 2014
10.3 (3)	Lease Agreement by and between Marsel Plaza LLC and Laurence Wainer and Blow and Drive Interlock Corporation dated January 21, 2015
10.4 (4)	Exclusive Distributorship Agreement with Theenk Inc. dated August 21, 2015
10.5 (4)	Exclusive Distributorship Agreement with Jay Lopez dated July 24, 2015
10.6 (4)	Independent Contractor Agreement with Laurence Wainer dated September 11, 2015
10.7 (5)	Exclusive Distributorship Agreement with Stephen Ferraro dated November 9, 2015
10.4 (6)	Supply Agreement by and between BDI Manufacturing, Inc., an Arizona corporation, and C4 Development Ltd. dated June 29, 2015
10.5 (7)	Securities Purchase Agreement with David Stuart Petlak entered into on November 19, 2015
10.6 (7)	Convertible Promissory Note issued to David Stuart Petlak dated November 19, 2015
10.7 (7)	Common Stock Warrant issued to David Stuart Petlak dated November 19, 2015
10.8 (8)	Exclusive Distributorship Agreement with dba Blow & Drive Houston dated January 11, 2016
10.9 (9)	Secured Promissory Note and Agreement with Ira Silver dated January 20, 2016
10.10 (9)	Secured Promissory Note and Agreement with Chaim K. Wainer dated October 29, 2015
10.11 (10)	Securities Purchase Agreement with Dr. Oren Azulay dated March 30, 2016
10.12 (10)	Common Stock Purchase Agreement with Gustavo Arceo dated April 2016
10.13 (10)	Common Stock Purchase Agreement with LGL LLC dated May 6, 2016
10.14 (11)	Loan and Security Agreement with Doheny Group, LLC dated September 30, 2016
10.15 (11)	Phase 1 Loan Agreement with Doheny Group, LLC dated September 30,
10.16 (11)	Royalty Agreement with Doheny Group, LLC dated September 30, 2016
10.17 (11)	Common Stock Purchase Agreement with Doheny Group, LLC dated September 30, 2016September 30, 2019

35

10.18 (11)	Agreement with Abraham Summers and Gnossis International, LLC
10.19 (12)	Termination of Services Agreement by and between Blow & Drive Interlock Corporation, Abraham Summers and Gnosiis International, LLC dated June 19, 2017
10.20 (13)	Amendment No. 1 to Debt Conversion and Series A Preferred Stock Purchase Agreement dated May 17, 2017
10.21 (13)	Amendment No. 1 to Loan and Security Agreement with Doheny Group, LLC dated June 3, 2017
10.22 (13)	Amendment No. 1 to Royalty Agreement with Doheny Group, LLC dated June 3, 2017
10.23 (14)	Form of Securities Purchase Agreement
10.24 (14)	Settlement Agreement by and between Blow & Drive Interlock Corporation and J C Lopez/BDI Interlock, LLC dated January 21, 2018 (memorializing oral agreement between the parties dated June 30, 2019)
10.25 (15)	Agreement to Purchase Common Stock and Preferred Stock dated December 31, 2018
10.26 (16)	Debt Conversion and Series A Preferred Stock Purchase Agreement by and between Blow & Drive Interlock Corporation and Laurence Wainer dated March 7, 2017
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith).
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Accounting Officer (filed herewith).
32.1	Section 1350 Certification of Chief Executive Officer (filed herewith).
32.2	Section 1350 Certification of Chief Accounting Officer (filed herewith).

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

* Filed herewith

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

36

(1)	Incorporated by reference from our Registration Statement on Form 10, filed with the Commission on September 30, 2013.
(2)	Incorporated by reference from our Registration Statement on Form S-1, filed with the Commission on July 24, 2014.
(3)	Incorporated by reference from our Annual Report on Form 10-K, filed with the Commission on March 30, 2015.
(4)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on September 11, 2015.
(5)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on November 12, 2015.
(6)	Incorporated by reference from our Quarterly Report on Form 10-Q, filed with the Commission on August 13, 2015.
(7)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on September 11, 2015.
(8)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on February 22, 2016.
(9) (10)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on March 17, 2016. Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on August 22, 2016.
(11)	Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on November 21, 2016.
(12)	Incorporated by reference from our Current Report on Form 10-Q filed with the Commission on July 3, 2017.
(13)	Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on August 21, 2017.
(14)	Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on February 9, 2018.
(15)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on January 11, 2019.
(16)	Incorporated by reference from our Current Report on Form 8-K filed with the Commission on March 15, 2017.
(17)	Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on June 27, 2019.

37

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: November 19, 2019		/s/ David Haridim
	By:	David Haridim
		President (Principal Executive Officer)

38