UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number, including area code (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered | ||||
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| The | ||||||
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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 | ☐ |
☐ | Smaller reporting company | ||
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| 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
Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:
Indicate by check mark whether the registrant filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 12, 2022, there were
SOBR SAFE, INC.
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Table of Contents |
PART I – FINANCIAL INFORMATION
Forward-Looking Statement Disclaimer
This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider,” or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties, and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.
Reverse Stock Split on April 28, 2022
At the open of market on April 28, 2022, our 1-for-3 reverse split of our common stock went effective with Financial Industry Regulatory Authority, Inc. (“FINRA”). As a result, all common stock share amounts, as well as share amounts and exercise and conversion prices in derivative security instruments have been adjusted to reflect the reverse stock split.
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| Table of Contents |
ITEM 1 Condensed Consolidated Financial Statements
The condensed consolidated balance sheets as of June 30, 2022, and December 31, 2021, the condensed consolidated statements of operations for the three and six-months ended June 30, 2022, and 2021, the condensed consolidated statements of changes in stockholders’ equity (deficit) for the three and six-months ended June 30, 2022, and 2021, and the condensed consolidated statements of cash flows for the six-months ended June 30, 2022 and 2021, follow. The unaudited condensed consolidated 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.
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| Table of Contents |
SOBR SAFE, Inc. | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS |
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ASSETS |
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Current assets |
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Cash |
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Accounts receivable |
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Inventory |
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Prepaid expenses |
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Total current assets |
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SOBR Safe Intellectual Technology, net of accumulated amortization of $ |
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Other assets |
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Total Assets |
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LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) |
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Current liabilities |
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Accounts payable |
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Accrued expenses |
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Accrued interest payable |
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Related party payables |
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Derivative liability |
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Convertible debenture payable |
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* Includes unamortized debt discount related to warrants, beneficial conversion feature and embedded conversion feature of none and $ |
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Current portion notes payable - related parties |
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* Includes unamortized debt discount related to warrants and beneficial conversion features of $ |
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Current portion notes payable - non-related parties |
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* Includes unamortized debt discount related to warrants and beneficial conversion features of $ |
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Total current liabilities |
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Notes payable -related parties-less current portion |
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* Includes unamortized debt discount related to warrants and beneficial conversion features of none and $ |
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Notes payable -non-related parties-less current portion |
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* Includes unamortized debt discount related to warrants and beneficial conversion features of none and $ |
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Total Liabilities |
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Stockholders' Equity (Deficit) |
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Preferred stock, $ |
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Series A Convertible Preferred stock, $ |
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Series A-1 Convertible Preferred stock, $ |
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Series B Convertible Preferred stock, |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total SOBR Safe, Inc. stockholders' equity (deficit) |
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Noncontrolling interest |
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Total Stockholders' Equity (Deficit) |
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Total Liabilities and Stockholders' Equity (Deficit) |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
| 5 |
| Table of Contents |
SOBR SAFE, Inc. | |||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
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| For The Three Months Ended June 30, |
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| For The Six Months Ended June 30, |
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Revenues |
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Cost of Goods Sold |
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Gross Profit |
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Operating expenses: |
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General and administrative |
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Stock-based compensation expense |
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Research and development |
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Total operating expenses |
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Loss from operations |
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Other income (expense): |
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Other income (expense), net |
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Gain on debt extinguishment, net |
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Gain on fair value adjustment – derivatives, net |
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Interest expense |
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Amortization of interest - beneficial conversion feature |
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Total other income (expense), net |
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Loss before provision for income taxes |
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Provision for income tax |
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Net loss |
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Net loss attributable to noncontrolling interest |
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Net loss attributable to SOBR Safe, Inc. |
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Basic and diluted loss per common share |
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Weighted average number of common shares outstanding |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
| 6 |
| Table of Contents |
SOBR SAFE, Inc. |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited) |
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| Common Stock |
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| Shares |
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| Amount ($0.00001 Par) |
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| Amount ($0.00001 Par) |
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| Additional Paid-in Capital |
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| Accumulated Deficit |
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| Stockholders' Equity (Deficit) SOBR Safe, Inc. |
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| Noncontrolling Interest |
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| Total Stockholders’ Equity (Deficit) |
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Balances at January 1, 2021 |
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Common stock issued to settle dividends - Series A-1 Convertible Preferred stock |
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Paid-in capital - fair value of stock options and restricted stock units vested |
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Paid-in capital - relative fair value of stock warrants granted |
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Paid-in capital - beneficial conversion feature |
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Net loss |
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Balances at March 31, 2021 |
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Common stock issued for facility lease |
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Paid-in capital - fair value of stock options and RSU vested |
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Paid-in capital - relative fair value of stock warrants granted |
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Paid-in capital - beneficial conversion feature |
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Net loss |
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Balances at June 30, 2021 |
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| Common Stock |
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| Amount ($0.00001 Par) |
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| Amount ($0.00001 Par) |
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| Additional Paid-in Capital |
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| Accumulated Deficit |
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| Stockholders' Equity (Deficit) SOBR Safe, Inc. |
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| Noncontrolling Interest |
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| Total Stockholders’ Equity (Deficit) |
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Balances at January 1, 2022 |
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| $ | ( | ) |
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Common stock issued for restricted stock units vested |
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Common stock issued for convertible debt |
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Common stock exchange for convertible preferred stock |
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Paid-in capital - fair value of stock options and restricted stock units vested |
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Paid-in capital - relative fair value of stock warrants granted |
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Net loss |
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Balances at March 31, 2022 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) |
| $ | ( | )) |
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Common stock and warrants issued in equity offering, net of issuance costs |
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Additional common stock issued upon reverse stock split |
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| - |
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Common stock issued for professional services |
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| - |
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Common Stock issued for restricted stock units vested |
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| - |
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Paid-in capital - fair value of stock options and restricted stock units vested |
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| - |
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| - |
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| - |
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| - |
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| - |
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Net loss |
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| - |
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| - |
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| - |
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| - |
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| - |
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Balances at June 30, 2022 |
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| $ |
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| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| |||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| 7 |
| Table of Contents |
SOBR SAFE, Inc. | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
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| For The Six Months Ended |
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| June 30, |
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| 2022 |
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| 2021 |
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| (Unaudited) |
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| (Unaudited) |
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Operating Activities: |
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|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Amortization |
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| ||
Amortization of interest - conversion features |
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Amortization of interest |
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| ||
Gain on extinguishment of debt |
|
| ( | ) |
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|
| |
Change in fair value of derivative liability |
|
| ( | ) |
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|
| |
Stock warrants expense |
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| ||
Stock options expense |
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Stock-based compensation expense |
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Changes in assets and liabilities: |
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|
Accounts Receivable |
|
| ( | ) |
|
|
| |
Inventory |
|
| ( | ) |
|
|
| |
Prepaid expenses |
|
| ( | ) |
|
|
| |
Other assets |
|
| ( | ) |
|
|
| |
Accounts payable |
|
| ( | ) |
|
|
| |
Accrued expenses |
|
|
|
|
| ( | ) | |
Accrued interest payable |
|
|
|
|
| ( | ) | |
Related party payables |
|
| ( | ) |
|
| ( | ) |
Stock subscriptions payable |
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| ||
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Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
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Financing Activities: |
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Proceeds from public equity offering |
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| ||
Cost of public equity offering |
|
| ( | ) |
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| |
Repayments of convertible debenture payable |
|
| ( | ) |
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| |
Proceeds from notes payable - related parties |
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| ||
Repayments of notes payable - related parties |
|
|
|
|
| ( | ) | |
Proceeds from notes payable - non-related parties |
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| ||
Repayments of notes payable - non-related parties |
|
| ( | ) |
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| |
Net cash provided by financing activities |
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| ||
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Net Change In Cash |
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| ||
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Cash At The Beginning Of The Period |
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| ||
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|
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Cash At The End Of The Period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Schedule Of Non-Cash Investing And Financing Activities: |
|
|
|
|
|
|
|
|
Derecognition of convertible debenture |
| $ |
|
| $ |
| ||
Reacquisition value of convertible debenture |
| $ | ( | ) |
| $ |
| |
Fair value of shares issued for services |
| $ | ( | ) |
| $ |
| |
Financing of insurance |
| $ | ( | ) |
| $ |
| |
Non-related party debt converted to capital |
| $ |
|
| $ |
| ||
Reclassification of common shares from reverse stock split |
| $ |
|
| $ |
| ||
Reclassification of elective shareholder conversion of common shares to preferred shares |
| $ |
|
| $ |
| ||
Relative fair value of stock warrants granted |
| $ |
|
| $ |
| ||
Intrinsic value-beneficial conversion feature |
| $ |
|
| $ |
| ||
Issuance of common stock for prior year accrued dividends |
| $ |
|
| $ |
| ||
Issuance of common stock for rent |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
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Supplemental Disclosure: |
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|
|
|
|
|
|
Cash paid for interest |
| $ |
|
| $ |
| ||
Cash paid for income taxes |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| 8 |
| Table of Contents |
SOBR SAFE, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SOBR Safe, Inc. (“SOBR Safe”), formerly TransBiotec, Inc., was incorporated as Imagine Media LTD. in August 2007 in the State of Delaware. A corporation also named TransBiotec, Inc. (“TransBiotec – CA”) was formed in the state of California July 4, 2004. Effective September 19, 2011, TransBiotec was acquired by TransBiotec - CA in a transaction classified as a reverse acquisition as the shareholders of TransBiotec - CA retained the majority of the outstanding common stock of TransBiotec after the share exchange. The consolidated financial statements represent the activity of TransBiotec - CA from July 4, 2004 forward, and the consolidated activity of SOBR Safe and TransBiotec - CA from September 19, 2011 forward. SOBR Safe and TransBiotec - CA are hereinafter referred to collectively as the “Company” or “We”. The Company has developed and began selling a non-invasive alcohol sensing device in 2022.
On January 7, 2022, our stockholders approved an amendment to our Articles of Incorporation to effect a reverse stock split of our outstanding common stock at a ratio between of 1-for-2 and 1-for-3 in connection with our planned listing on Nasdaq. On March 4, 2022 the Board of Directors approved the reverse split ratio of 1-for-3 with the anticipated effective date of the reverse split on or about March 28, 2022. The 1-for-3 reverse stock split went effective with the State of Delaware, FINRA and OTC Markets on April 28, 2022. All share and per share amounts have been adjusted in these condensed consolidated financial statements to reflect the effect of the reverse stock split.
Also on January 7, 2022, our stockholders also approved an amendment to our 2019 Equity Incentive Plan to increase the shares authorized to be issued under the Plan from 1,282,823 shares to 1,733,333 shares.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles (“GAAP”) as promulgated in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated financial statements and the notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 11, 2022.
In management’s opinion, the unaudited condensed consolidated financial statements reflect all adjustments (including reclassifications and normal recurring adjustments) necessary to present fairly the financial position as of June 30, 2022 and December 31, 2021, the results of operations for the three and six-month periods ended June 30, 2022 and 2021, and statement of cash flows for the six-month period ended June 30, 2022 and 2021.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiary, TransBiotec-CA. We have eliminated all intercompany transactions and balances between entities consolidated in these unaudited condensed financial statements.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect 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 revenues and expenses during the reporting period. Specifically, such estimates were made by the Company for the recoverability and useful lives of long-lived assets, the intellectual technology, the valuation of the derivative liabilities, beneficial conversion feature expenses, stock-based compensation and the valuation allowance related to deferred tax assets. Actual results could differ from those estimates.
| 9 |
| Table of Contents |
Financial Instruments
Pursuant to Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, and ASC 825, Financial Instruments, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 and 825 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 and 825 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets: quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist primarily of cash, accounts receivable, accounts payable, accrued expenses, accrued interest payable, related party payables, notes payable, convertible debentures, and other liabilities. Pursuant to ASC 820 and 825, the fair value of our derivative liabilities is determined based on “Level 3” inputs. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
The following table presents assets and liabilities that are measured on a recurring basis and recognized at fair value as of June 30, 2022 and December 31, 2021:
June 30, 2022 |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||
Derivative liabilities |
| $ |
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||
Derivative liabilities |
| $ |
|
| $ |
|
| $ |
| |||
Cash
The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents. The Company does not have any cash equivalents as of June 30, 2022 and December 31, 2021.
Accounts Receivable
Accounts receivable is derived from sales to a limited number of customers at June 30, 2022. Customer accounts are monitored for potential credit losses based upon management’s assessment of expected collectability and the allowance for doubtful accounts is reviewed periodically to assess the adequacy of the allowance. In making this assessment, management takes into consideration any circumstances of which the Company is aware regarding a customer’s inability to meet its financial obligations to the Company, and any potential prevailing economic conditions and their impact on the Company’s customers. The Company had no allowance for doubtful accounts at June 30, 2022 and December 31, 2021.
Inventory
Inventory is valued at the lower of cost or net realizable value. The cost of the Company’s inventory is determined by the FIFO cost method. Inventory is comprised primarily of finished products intended for sale to customers. The Company evaluates the need for reserves for excess or obsolete inventory determined primarily based upon estimates of future demand for the Company’s products. At June 30, 2022 and December 31, 2021 the Company had no reserves for obsolescence.
| 10 |
| Table of Contents |
Prepaid Expenses
Amounts incurred in advance of contractual performance or coverage periods are recorded as prepaid assets and recognized as expense in the period service or coverage is provided.
Beneficial Conversion Features
From time to time, the Company may issue convertible notes that may contain a beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid-in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.
Derivative Instruments
The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instruments are initially recorded at their fair values and are then re-valued at each reporting date, with changes in the fair value reported in the unaudited condensed consolidated statements of operations under other income (expense). The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option at its fair value as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors. For stock-based derivative financial instruments, the Company uses a Monte Carlo Simulation model to value the derivative instruments at inception and on subsequent valuation dates.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Debt Issuance Costs
Debt issuance costs incurred in connection with the issuance of debt are capitalized and amortized to interest expense over the term of the debt using the effective interest method. The unamortized amount is presented as a reduction of debt on the balance sheet.
Preferred Stock
We apply the guidance enumerated in ASC 480 “Distinguishing Liabilities from Equity” when determining the classification and measurement of preferred stock. Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. We classify conditionally redeemable preferred shares (if any), which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control, as temporary equity. At all other times, we classified our preferred shares in stockholders’ equity.
Noncontrolling Interest
A subsidiary of the Company has minority members representing ownership interests of
| 11 |
| Table of Contents |
Impairment of Long-Lived Assets
Long-lived assets and identifiable intangibles held for use are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of undiscounted expected future cash flows is less than the carrying amount of the asset or if changes in facts and circumstances indicate, an impairment loss is recognized and measured using the asset’s fair value. No impairment loss was recognized during the six-month periods end June 30, 2022 and 2021.
Revenue Recognition
The Company enters contracts with customers and generates revenue through various combinations of software products and services which include the sale of cloud-based software solutions, detection and data collection hardware devices, and cloud-based data reporting and analysis services. Depending on the combination of products and services detailed in the respective customer contract, the identifiable components may be highly interdependent and interrelated with each other such that each is required to provide the substance of the value of SOBR’s offering and accounted for as a combined performance obligation, or the specific components may be generally distinct and accounted for as separate performance obligations. Revenue is recognized when control of these software products and/or services are transferred to the customer in an amount that reflects the consideration the Company expects to be entitled in exchange for these respective services and devices.
Revenue is recognized in conjunction with guidance provided by Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”) issued by the Financial Accounting Standards Board. The company determines revenue recognition through five steps outlined in ASC 606 which include (1) the identification of the contract or contracts with a customer, (2) identification of individual or combined performance obligations contained in the contract, (3) determination of the transaction price detailed within the contract, (4) allocation of the transaction price to the specific performance obligations, and (5) finally, recognition of revenue as the Company’s performance obligations are satisfied according to the terms of the contract.
Contracts with a Single License/Service Performance Obligation
For contracts with a single performance obligation consisting of a license and/or data services, the entire transaction price is allocated to the single performance obligation. Where the Company provides a performance obligation as licensed software or data services, revenue is recognized upon delivery of the software or services ratably over the respective term of the contract.
Contracts for Purchase of Hardware Devices Only
Where hardware devices are sold separately by the Company, the entire transaction price is allocated to the device as an individual performance obligation and revenue recognized at a point in time when either legal title or physical possession have transferred to the customer. Generally, these requirements are satisfied at the point in time the Company ships the product, as this is when the customer obtains control of the asset under SOBR’s standard terms and conditions of the purchase.
Contracts with Multiple Performance Obligations
Where a Company’s contract with a respective customer contains multiple performance obligations and due to the interdependent and interrelated nature of the licensed software, hardware devices and data reporting services, the Company accounts for the individual performance obligations if they are distinct in nature and the transaction price is allocated to each distinct performance obligations on a directly observable standalone sales price basis. Determining whether products and services are distinct performance obligations that should be accounted for separately or combined as one unit of accounting may require significant judgment. Standalone selling prices are primarily based upon the price at which the performance obligation is sold separately. The Company may be able to establish a standalone sales price based upon observable products or services sold or priced separately in comparable circumstances, competitor pricing or similar customers. Where the performance obligations are either not distinct or directly observable, the Company estimates the standalone sales price of the performance obligations based upon the overall pricing objectives taking into consideration the value of the contract arrangement, number of licenses, number and types of hardware devices and the length of term of the contract. Professional judgement may be required to determine the standalone sales price for each performance obligation where not directly observable. Revenue for Contracts with multiple performance obligations are recognized on a ratable basis for each respective performance obligation as allocated under the prescribed Transaction Price identification model applied.
| 12 |
| Table of Contents |
The Company requires customers to make payments related to subscribed software licenses and data services on a monthly basis via authorized bank account ACH withdrawal or an automatic credit card charge during the approved term of the respective agreement. The collectability of future cash flows are reasonably assured with any potential non-payment easily identified with future services being discontinued or suspended due to non-payment.
The Company’s contracts are generally twelve to thirty-six months in duration, are billed monthly in advance and are non-cancelable. The timing of revenue recognition may differ from the timing of invoicing to customers. The Company generally has an unconditional right to consideration when customers are invoiced and a receivable is recorded. A contract asset (unbilled revenue) is recognized when revenue is recognized prior to invoicing, or a contract liability (deferred revenue) when revenue will be recognized subsequent to invoicing.
The Company has elected to charge shipping, freight and delivery to customers as a source of revenue to offset respective costs when control has transferred to the customer. We report revenue net of sales and other taxes collected from customers to be remitted to government authorities.
Estimated costs for the Company’s standard one-year warranty are charged to cost of products sold when revenue is recorded for the related product. Royalties are also charged to cost of products sold.
Stock-based Compensation
The Company follows the guidance of the accounting provisions of ASC 718, Share-based Compensation, which requires the use of the fair-value based method to determine compensation for all arrangements under which employees and others receive shares of stock or equity instruments (warrants, options, and restricted stock units). The fair value of each warrant and option is estimated on the date of grant using either the Monte Carlo simulation model or the Black-Scholes options pricing model, which ever is applicable and uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. The Company has not paid dividends historically and does not expect to pay them in the future. Expected volatilities are based on weighted averages of the historical volatility of the Company’s common stock estimated over the expected term of the awards. The expected term of options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus the contract term as historically the Company had limited activity surrounding its awards. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term. The grant date fair value of a restricted stock unit equals the closing price of our common stock on the trading day of the grant date.
Research and Development
The Company accounts for its research and development costs pursuant to ASC 730, whereby it requires the Company to disclose the amounts of costs for company and customer-sponsored research and development activities, if material. Research and development costs are expensed as incurred. The Company incurred research and development costs as it acquired new knowledge to bring about significant improvements in the functionality and design of its SOBR product. Research and development costs were $
Advertising and Marketing Costs
Advertising and marketing costs are charged to operations as incurred and are included in general and administrative expenses in the consolidated statements of operations. Advertising and marketing costs were $
Income Tax
The Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company has not recorded any deferred tax assets or liabilities at June 30, 2022 and December 31, 2021 as these have been offset by a
| 13 |
| Table of Contents |
Net Loss Per Share
Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share gives the effect to all dilutive potential common shares outstanding during the period, including stock options, warrants and convertible instruments. Diluted net loss per share excludes all potentially issuable shares if their effect is anti-dilutive. Because the effect of the Company’s dilutive securities is anti-dilutive, diluted net loss per share is the same as basic loss per share for the periods presented.
Concentration of Credit Risk
Credit Risk – Financial instruments that potentially subject the Company to concentration of credit risk consisted primarily of cash. The Company maintains its cash at one domestic financial institution. The Company is exposed to credit risk in the event of a default by the financial institution to the extent that cash is in excess of the amount insured by the Federal Deposit Insurance Corporation. The Company places its cash with high-credit quality financial institutions and are managed within established guidelines to mitigate risk. To date, the Company has not experienced any loss on its cash.
Concentration of Customers – The Company has conducted limited sales during the six-months ending June 30, 2022 to two customers. Should the Company continue to conduct sales to a limited number of customers and remain highly concentrated, revenue may experience significant period to period shifts and may decline if the Company were to lose one or more of its customers, or if the Company were unable to obtain new customers upon the completion of sales agreements.
Concentration of Suppliers – The Company relies on a limited number of components and contract suppliers to assemble its product. If supplier shortages occur, or quality problems arise, production schedules could be significantly delayed or costs significantly increased, which could in turn have a material adverse effect on the Company’s financial condition, results of operations and cash flow.
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.
Recently Issued Accounting Guidance
The Company has reviewed recently issued, but not yet effective, accounting pronouncements and does not believe the future adoptions of any such pronouncements will be expected to cause a material impact on its financial condition or the results of operations.
NOTE 2. GOING CONCERN
The Company has incurred recurring losses from operations and has limited cash liquidity and capital resources. Future capital requirements will depend on many factors, including the Company’s ability to sell and develop products, cash flow from operations, and competing market developments. The Company will need additional capital in the near future. Sources of debt financing may result in high interest expense. Any financing, if available, may be on unfavorable terms.
As of June 30, 2022, the Company has an accumulated deficit of approximately ($
| 14 |
| Table of Contents |
The Company has identified factors that mitigate the probable conditions that have raised substantial doubt about the entity’s ability to continue as a going concern.
Underwritten Public Offering
On May 13, 2022, the Company entered into an Underwriting Agreement in which the Company agreed to complete an underwritten public offering to sell
On May 18, 2022, the Underwriter to the public offering was granted a 45-day option, exercisable in one or more times in whole or in part, to purchase up to an additional
Further on May 18, 2022, pursuant to the Underwriting Agreement, the Company issued Representative’s Warrants to purchase up to an aggregate of
On May 18, 2022, the Company received approximately $
On May 19, 2022, pursuant to an arrangement with the Debenture holder, the principal balance of the Armistice Capital Master Fund, Ltd
Management believes that the net offering proceeds of approximately $
| 15 |
| Table of Contents |
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak and related variants continues to evolve as of the date of this report. Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak, its variants and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2022. However, if the pandemic continues, it may have an adverse effect on the Company’s results of future operations, financial position, and liquidity in fiscal year 2022.
Management believes the net proceeds received from the underwritten public offering and actions presently being taken to generate product and services revenues provide the opportunity for the Company to continue as a going concern; however, these plans are contingent upon actions to be performed by the Company and these conditions have not been met on or before June 30, 2022. Additionally, the COVID-19 outbreak could have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown, which could impair the Company’s ability to raise needed funds to continue as a going concern. As such, substantial doubt about the entity’s ability to continue as a going concern was not alleviated as of June 30, 2022.
NOTE 3. INVENTORY
Inventory at June 30, 2022 and December 31, 2021 consisted of the following:
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Raw materials |
| $ |
|
| $ |
| ||
Work in process |
|
|
|
|
|
| ||
Finished goods |
|
|
|
|
|
| ||
Inventory, net |
| $ |
|
| $ |
| ||
NOTE 4. PREPAID EXPENSES
Prepaid expenses at June 30, 2022 and December 31, 2021 consist of the following:
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Insurance |
| $ |
|
| $ |
| ||
Deposits |
|
|
|
|
|
| ||
Rent |
|
|
|
|
|
| ||
Consulting services |
|
|
|
|
|
| ||
Prepaid expenses |
| $ |
|
| $ |
| ||
On February 26, 2021, the Company entered into a lease agreement for use of an office facility for a 12-month term beginning March 1, 2021 through February 28, 2022. In addition to monthly base rent of $
On May 31, 2022, the Company entered into a new office facility lease agreement for a 12-month term beginning July 1, 2022 through June 30, 2023 with a monthly base rent of $
On May 25, 2022, the Company purchased Directors & Officers insurance prepaying annual premiums of $
| 16 |
| Table of Contents |
On April 1, 2022, the Company made a payment of $
On May 16, 2022, the Company made a payment of $
NOTE 5. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 2021:
|
| Gross Carrying |
|
| Accumulated |
|
| Net Intangible |
|
| Amortization Period |
| ||||
|
| Amount |
|
| Amortization |
|
| Asset |
|
| (in years) |
| ||||
SOBR Safe |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Intellectual Technology |
| $ |
|
| $ |
|
| $ |
|
|
|
| ||||
Intangible assets consist of the following at June 30, 2022:
|
| Gross Carrying |
|
| Accumulated |
|
| Net Intangible |
|
| Amortization Period |
| ||||
|
| Amount |
|
| Amortization |
|
| Asset |
|
| (in years) |
| ||||
SOBR Safe |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Intellectual Technology |
| $ |
|
| $ |
|
| $ |
|
|
|
| ||||
Amortization expense for the six-month period ended June 30, 2022 and 2021 was $
Estimated future amortization expense for device technology intangible assets is as follows:
2023 |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| 2027 |
|
| Thereafter |
| ||||||
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
NOTE 6. RELATED PARTY TRANSACTIONS
On February 12, 2021, the Company entered into a note payable agreement with David Gandini, an officer and shareholder, under which Mr. Gandini advanced the Company $
On March 30, 2021, the Company received notification from IDTEC that it was exercising a portion of the
| 17 |
| Table of Contents |
On March 3 and 31, 2021, the Company issued convertible notes payable (see Note 9) totaling $
On May 31, 2021, the Company issued convertible notes payable (see Note 9) totaling $
On March 1, 2022 the Board of Directors approved the designation of
NOTE 7. ACCRUED EXPENSES
Accrued expenses at June 30, 2022 and December 31, 2021 consist of the following:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Registration rights and default damages and penalties (see Note 8) |
| $ |
|
| $ |
| ||
Consulting services |
|
|
|
|
|
| ||
Taxes and other |
|
|
|
|
|
| ||
Accrued expenses |
| $ |
|
| $ |
| ||
NOTE 8. CONVERTIBLE DEBENTURE PAYABLE
Convertible debenture payable at June 30, 2022 and December 31, 2021 consist of the following:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
|
|
|
|
|
|
| ||
Convertible Debenture Payable with Detached Free-standing Warrant |
| $ |
|
| $ |
| ||
Unamortized Debt Discount |
|
|
|
|
| ( | ) | |
Net Convertible Debenture Payable |
| $ |
|
| $ |
| ||
| 18 |
| Table of Contents |
On September 28, 2021, (the “Closing Date”) the Company completed a financing transaction under a Securities Purchase Agreement (the “SPA”) and corresponding
The Debenture matured on March 27, 2022 and the Company did not make the required principal payment putting the Company in default under the terms of the Debenture. On March 30, 2022, we entered into a Waiver Agreement with the Purchaser, under which the Purchaser granted the Company a waiver of the default penalties under the Debenture such that any default penalties will not be charged and/or due until April 17, 2022 (the “Waiver”). Default penalties at the Purchaser’s election are due and payable at the Mandatory Default Amount defined as the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, plus all accrued and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii)
In exchange for the Waiver of the default penalties the Company agreed to: (i) amend that certain Common Stock Warrant (the “Original Warrant”) issued by the Company to the Purchaser dated September 27, 2021 to extend the Termination Date (as defined in the Original Warrant) from September 28, 2026 to September 28, 2028; and (ii) issue the Purchaser a second Common Stock Purchase Warrant (the “New Warrant”) entitling the Purchaser to subscribe for and purchase up to an additional
The Company evaluated the Debenture for derivative embedded and beneficial conversion features and determined that its embedded conversion feature carried a debt discount. The total conversion feature debt discount of $
As of June 30, 2022, the debenture carries outstanding warrants of
| 19 |
| Table of Contents |
The Company incurred $
On May 19, 2022, pursuant to an arrangement with the Debenture holder, the principal balance of the Debenture in default of $3,048,781, was paid in full satisfying all amounts due and accrued under the default, including penalty, damages and interest provisions of the agreement. Where the Company was not required to pay the penalty, damages and interest provision of the agreement, which were recorded as interest expense, a gain on extinguishment of debt of $
NOTE 9. NOTES PAYABLE
RELATED PARTIES
Related party notes payable at June 30, 2022 and December 31, 2021 consist of the following:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Convertible Notes Payable with Detached Free-standing Warrants |
| $ |
|
| $ |
| ||
Conventional Non-Convertible Notes Payable |
|
|
|
|
|
| ||
Unamortized Debt Discount |
|
| ( | ) |
|
| ( | ) |
Net Related Party Notes Payable |
| $ |
|
| $ |
| ||
Current Portion |
|
| ( | ) |
|
| ( | ) |
Net Long-Term Portion |
| $ |
|
| $ |
| ||
Total interest expense for related party notes was $
Convertible Notes Payable with Detached Free-standing Warrants
The Company has thirteen convertible notes payable to related parties, each with detached free-standing warrants to purchase the Company’s common stock at $
| 20 |
| Table of Contents |
The debt discount amortization expense recorded as amortization of interest – beneficial conversion feature in the Condensed Consolidated Statements of Operations was $
Conventional Non-Convertible Notes Payable
The Company has one non-convertible note payable to a related party that has a principal balance of $
NON-RELATED PARTIES
Non-related party notes payable at June 30, 2022 and December 31, 2021 consist of the following:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Convertible Notes Payable with Detached Free-Standing Warrants |
| $ |
|
| $ |
| ||
Convertible Notes Payable |
|
|
|
|
|
| ||
Non-Convertible Notes Payable |
|
|
|
|
|
| ||
Unamortized Debt Discount |
|
| ( | ) |
|
| ( | ) |
Net Non-Related Party Notes Payable |
| $ |
|
| $ |
| ||
Current Portion |
|
| ( | ) |
|
| ( | ) |
Net Long-Term Portion |
| $ |
|
| $ |
| ||
Total interest expense for non-related party notes was $
Convertible Notes Payable with Detached Free-Standing Warrants
The Company has sixteen convertible notes payable to non-related parties, each with detached free-standing warrants to purchase the Company’s common stock at $
| 21 |
| Table of Contents |
The debt discount recorded as amortization of interest – beneficial conversion feature in the consolidated statements of operations was $
Convertible Notes Payable
The Company has two, unsecured convertible notes payable to non-related parties that have a principal balance of $
Non-Convertible Notes Payable
The Company has two non-convertible notes payable to non-related parties that have a principal balance of $
On May 25, 2022, the Company entered into a financing agreement for payment of annual Directors & Officers insurance premiums for coverage from
The Company has one note payable to a non-related party that has a principal balance of $
NOTE 10. DERIVATIVE LIABILITY
Warrants Issued with Convertible Debenture
In September 2021, the Company completed a financing transition and received $
The embedded derivative is carried on the Company’s balance sheet at fair value. The derivative liability is marked to market each measurement period and any unrealized change in fair value is recorded as a component of the consolidated statement of operations and the associated fair value carrying amount on the balance sheet was adjusted by the change. The Company fair valued the embedded derivative using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of
| 22 |
| Table of Contents |
Upon completing a cash payment of the principal balance of the Convertible Debenture on May 19, 2022, the voluntary and automatic conversion feature associated with the derivative liability no longer existed. Utilizing level 3 inputs, the Company recorded a fair market value net gain of $
A summary of the activity of the derivative liability is shown below:
Balance at December 31, 2021 |
| $ |
| |
Fair value of derivatives issued |
|
|
| |
Fair value adjustments, net |
|
| ( | ) |
Balance at June 30, 2022 |
| $ |
|
NOTE 11. COMMON STOCK
The Company’s common stock transactions for the six-months ended June 30, 2021, consist of the following:
The Company issued
The Company issued
The Company’s common stock transactions for the six-months ended June 30, 2022, consist of the following:
The Company issued
The Company issued
On March 1, 2022, the Company exchanged
On May 18, 2022, the Company issued
The Company issued
The Company issued
| 23 |
| Table of Contents |
NOTE 12. PREFERRED STOCK
On March 1, 2022 the Board of Directors approved the designation of 3,000,000 shares of the Company’s Preferred Stock as “Series B Convertible Preferred Stock”. The
NOTE 13. STOCK WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS
The Company accounts for share-based compensation stock options and restricted stock units, and non-employee stock warrants under ASC 718, whereby costs are recorded based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable, utilizing the Black-Scholes pricing model for stock options and warrants, and the closing price of our common stock on the grant date for restricted stock units. Unless otherwise provided for, the Company covers equity instrument exercises by issuing new shares.
Stock Warrants
During March, April and May 2021, the Company issued through the Offering convertible notes payable with warrants, (see Note 9), to purchase up to
On September 28, 2021 and March 30, 2022 the Company issued through the sale of the Debenture Original Warrants and New Warrants, (see Note 8), to purchase up to
On May 18, 2022, the Company issued through an underwritten public offering
The total outstanding balance of all stock warrants in the Company is 6,209,267 and
|
| June 30, 2022 |
|
| June 30, 2021 |
| ||
Exercise Price |
| $ |
|
| $ |
| ||
Dividend Yield |
|
| % |
|
| % | ||
Volatility |
| % |
|
| % | |||
Risk-free Interest Rate |
|
| % |
|
| % | ||
Life of Warrants |
|
|
|
| ||||
| 24 |
| Table of Contents |
The following table summarizes the changes in the Company’s outstanding warrants during the six-month periods ended June 30, 2022 and 2021:
|
| Warrants Outstanding Number of Shares |
|
| Exercise Price Per Share |
|
| Weighted Average Remaining Contractual Life |
| Weighted Average Exercise Price Per Share |
|
| Aggregate Intrinsic Value |
| ||||
Balance at December 31, 2020 |
|
|
|
| $ |
|
|
| $ |
|
| $ |
| |||||
Warrants Granted |
|
|
|
| $ |
|
|
| $ | 9.00 |
|
| $ |
| ||||
Warrants Exercised |
|
| ( | ) |
| $ | 1.50 |
|
|
|
| $ | 1.50 |
|
|
|
|
|
Warrants Expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance at June 30, 2021 |
|
|
|
| $ |
|
|
| $ |
|
| $ |
| |||||
|
| Warrants Outstanding Number of Shares |
|
| Exercise Price Per Share |
|
| Weighted Average Remaining Contractual Life |
| Weighted Average Exercise Price Per Share |
|
| Aggregate Intrinsic Value |
| ||||
Balance at December 31, 2021 |
|
|
|
| $ |
|
|
| $ |
|
| $ |
| |||||
Warrants Granted |
|
|
|
| $ |
|
|
| $ |
|
| $ |
| |||||
Warrants Exercised |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Expired/Forfeited |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2022 |
|
|
|
| $ |
|
|
| $ |
|
| $ |
| |||||
Share-Based Compensation
On October 24, 2019, the Company’s 2019 Equity Incentive Plan (the “Plan”) went effective authorizing
The Company generally recognizes share-based compensation expense on the grant date and over the period of vesting or period that services will be provided.
Stock Options
As of June 30, 2022 and December 31, 2021, the Company has granted stock options to acquire
In total for the six-months ended June 30, 2022 and 2021, the Company recorded in general and administrative expense $
| 25 |
| Table of Contents |
In applying the Black-Scholes options pricing model, assumptions used to compute the fair value of the stock options granted during the six-month periods ended June 30, 2022 and 2021 were as follows:
|
| June 30, 2022 |
|
| June 30, 2021 |
| ||
Exercise Price |
| $ |
|
| $ |
| ||
Dividend Yield |
|
| % |
|
| % | ||
Volatility |
|
| % |
| % | |||
Risk-free Interest Rate |
|
| | % |
| % | ||
Life of Options |
| |
|
| |
| ||
The following table summarizes the changes in the Company’s outstanding stock options during the six-month periods ended June 30, 2022 and 2021:
|
| Options Outstanding Number of Shares |
|
| Exercise Price Per Share |
|
| Weighted Average Remaining Contractual Life |
| Weighted Average Exercise Price Per Share |
|
| Aggregate Intrinsic Value |
| ||||
Balance at December 31, 2020 |
|
|
|
| $ |
|
|
| $ |
|
| $ |
| |||||
Options Granted |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Options Exercised |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Cancelled |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Expired/Forfeited |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021 |
|
|
|
| $ |
|
|
| $ |
|
| $ |
| |||||
|
| Options Outstanding Number of Shares |
|
| Exercise Price Per Share |
|
| Weighted Average Remaining Contractual Life |
| Weighted Average Exercise Price Per Share |
|
| Aggregate Intrinsic Value |
| ||||
Balance at December 31, 2021 |
|
|
|
| $ |
|
|
| $ |
|
| $ |
| |||||
Options Granted |
|
|
|
| $ |
|
|
| $ |
|
| $ |
| |||||
Options Exercised |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Cancelled |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Expired/Forfeited |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2022 |
|
|
|
| $ |
|
|
| $ |
|
| $ |
| |||||
| 26 |
| Table of Contents |
|
| Options Outstanding Number of Shares |
|
| Exercise Price Per Share |
|
| Weighted Average Remaining Contractual Life |
| Weighted Average Exercise Price Per Share |
|
| Aggregate Intrinsic Value |
| ||||
Exercisable at December 31, 2021 |
|
|
|
| $ |
|
|
| $ |
|
| $ |
| |||||
Exercisable at June 30, 2022 |
|
|
|
| $ |
|
|
| $ |
|
| $ |
| |||||
Restricted Stock Units
The Plan provides for the grant of RSUs. RSUs are settled in shares of the Company’s common stock as the RSUs become vested. In January and February 2022, the Company granted
The following table summarizes RSU activity under the Plan for the six-month periods ended June 30, 2022 and 2021:
|
| RSUs |
|
| Weighted Average Grant Date Fair Value Per Share |
|
| Weighted Average Vesting Period | |||
Unvested at December 31, 2020 |
|
|
|
| $ |
|
| ||||
Granted |
|
|
|
|
|
|
| ||||
Vested |
|
| - |
|
|
|
|
|
|
| |
Unvested at June 30, 2021 |
|
|
|
| $ |
|
| ||||
|
| RSUs |
|
| Weighted Average Grant Date Fair Value Per Share |
|
| Weighted Average Vesting Period | |||
Unvested at December 31, 2021 |
|
|
|
| $ |
|
| ||||
Granted |
|
|
|
|
|
|
| ||||
Vested |
|
| ( | ) |
|
|
|
|
| ||
Unvested at June 30, 2022 |
|
|
|
| $ |
|
| ||||
In total for the six-months ended June 30, 2022 and 2021, the Company recorded in general and administrative expense $
| 27 |
| Table of Contents |
Executive Officers Stock Options and RSUs
The Company has
NOTE 14. COMMITMENTS AND CONTINGENCIES
Operating Leases
On February 26, 2021 the Company executed an office lease, effective for a 12-month term beginning March 1, 2021. The lease required monthly base rent payments of $
Legal Proceedings
On December 6, 2006, Orange County Valet and Security Patrol, Inc. filed a lawsuit against the Company in Orange County California State Superior Court for Breach of Contract in the amount of $
NOTE 15. SUBSEQUENT EVENTS
The Company has evaluated subsequent events for recognition and disclosure through August 15, 2022, which is the date the condensed consolidated financial statements were available to be issued, and has determined the following are material subsequent events that require recognition or disclosure in the accompanying condensed consolidated financial statements.
On July 25, 2022, the Company entered into a Consulting Agreement with a Consultant for professional services primarily focused on business development opportunities to enhance exposure to the Company’s devices and detection systems. The Consultant is operated by a beneficial owner of the Company. The Consulting Agreement commenced on the effective date and will continue through March 31, 2023. The Company is committed to pay
On August 3, 2022, the Company entered into a Settlement Agreement with a former employee to resolve certain claims requiring the Company to pay $
| 28 |
| Table of Contents |
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 (“SEC”).
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.
Reverse Stock Split
On March 4, 2022, our Board of Directors approved a reverse split ratio of 1-for-3 in connection with our listing on Nasdaq.
On April 28, 2022, the 1-for-3 reverse stock split went effective with the State of Delaware, Financial Industry Regulatory Authority (“FINRA”) and OTC Markets. As a result of the 1-for-3 reverse stock split, every three shares of our outstanding common stock prior to the effect of that amendment were combined and reclassified into one share of our common stock, and the number of outstanding shares of our common stock at the time was reduced from 23,409,415 (pre-split) to 7,803,139 (post-split). No fractional shares were issued in connection with the reverse stock split, and any of our stockholders that would have been entitled to receive a fractional share as a result of the reverse stock split instead received one additional share of our common stock in lieu of the fractional share. The reverse stock split did not in itself affect any stockholder’s ownership percentage of our common stock, except to the extent that any fractional share was rounded up to the nearest whole share.
Corporate Overview
We were incorporated under the name Imagine Media, Ltd. in August 2007 to publish and distribute Image Magazine, a monthly guide and entertainment source for the Denver, Colorado area. We generated only limited revenue and essentially abandoned the business plan in January 2009.
On September 19, 2011, we, Imagine Media, Ltd., a Delaware corporation, acquired approximately 52% of the outstanding shares of TransBiotec, Inc. (“TBT”), a California corporation, from TBT’s directors in exchange for 124,439 shares of our common stock. In January 2012, our Board of Directors amended our Certificate of Incorporation changing our name from Imagine Media, Ltd. to TransBiotec, Inc., and we acquired approximately 45% of the remaining outstanding shares of TBT in exchange for 109,979 shares of our common stock. With the acquisitions in September 2011 and January 2012 of TBT common stock, we own approximately 99% of the outstanding shares of TBT. As a result of the acquisitions, TBT’s business is our business, and, unless otherwise indicated, any references to “we” or “us” include the business and operations of TBT.
| 29 |
| Table of Contents |
On March 9, 2020, in connection with our transaction with IDTEC, LLC our Board of Directors approved the amendment to our Certificate of Incorporation on March 9, 2020 and stockholders holding 52.24% of our then outstanding voting stock approved an amendment to our Articles of Incorporation. The Certificate of Amendment to our Certificate of Incorporation was for the purpose of, among other things, (i) changing our name from “TransBiotec, Inc.” to “SOBR Safe, Inc.”, (ii) effecting a 1-for-33.26 reverse stock split of our common stock, and (iii) decreasing our authorized common stock from 800,000,000 shares to 100,000,000 shares. The Certificate of Amendment to our Certificate of Incorporation became effective with the State of Delaware on April 24, 2020.
As a result of the reverse stock split the number of outstanding shares of our common stock at the time was reduced from 266,097,657 (pre-split) to approximately 8,000,000 (post-split).
At the open of market on April 28, 2022, our 1-for-3 reverse split of our common stock went effective with the Stat of Delaware, FINRA and OTC Markets. As a result, all common stock share amounts, as well as share amounts and exercise and conversion prices in derivative security instruments have been adjusted to reflect the reverse stock split.
Pursuant to approval of an application with Nasdaq to uplist our common stock to their exchange under the ticker symbol “SOBR,” our common stock began trading and quoted on the Nasdaq exchange on May 16, 2022. Prior to this uplist to the Nasdaq exchange, our common stock was quoted on the “OTCQB” tier of the OTC Markets under the ticker symbol “SOBR.”
Our corporate offices are located at 6400 South Fiddlers Green Circle, Suite 1400, Greenwood Village, Colorado 80111, telephone number (844) 762-7723.
The following discussion:
| o | summarizes our plan of operation; and |
| o | analyzes our financial condition and the results of our operations for the three and six-months ended June 30, 2022. |
This discussion and analysis should be read in conjunction with our financial statements included as part of this Quarterly Report on Form 10-Q, as well as our financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Business Operations and Outlook
We develop and provide companies with non-invasive technology to quickly and safely identify potential alcohol issues with their employees or contractors, that if left undetected could cause injury or death. These technologies are integrated within our robust and scalable data platform, producing statistical and measurable user and business data. Our mission is to save lives, increase productivity, create significant economic benefit for our customers and positively impact behavior. To that end, we developed the scalable, patent-pending SOBRSafe™ hardware/software platform for non-invasive alcohol detection and identity verification, a solution that has anticipated applications in commercial vehicle fleets, manufacturing and warehousing, construction, DUI probation, third-party alcohol testing, outpatient alcohol rehabilitation and youth drivers. We believe that uniform daily use of our device could result in insurance savings across workers’ compensation, general liability, umbrella and fleet policies.
We have successfully completed several pilot testing programs involving our SOBRcheck™ device, which is our first device that has our scalable, patent-pending SOBRSafe™ software platform for non-invasive alcohol detection and identity verification. These pilot programs have provided validation of both our SOBRSafe™ software platform and our SOBRcheck™ device. In addition, during the pilot testing of our SOBRcheck™ device we discovered that alcohol-based hand sanitizer caused false readings by the device. In response to this discovery, we have made adjustments to the analytics in our SOBRSafe™ technology and added a required protocol of not utilizing alcohol-based sanitizers to our protocols for using the SOBRcheck™ device.
As a result, we have now progressed to commercial production, launch and sale of our first SOBRcheck™ devices and software solution to initial customers with an initial focus on last mile delivery fleets. At the end of 2021, we had several customers in the sales cycle, but our SOBRcheck™ devices had not been delivered to them. Since then, we have executed customer agreements, invoiced these customers and are in revenue as of first quarter 2022.
| 30 |
| Table of Contents |
Our second device, a wearable wristband (SOBRsure™), utilizes the same SOBRSafe™ sensor technology and software platform, which validated during the SOBRcheck™ pilot tests. The primary intended application for this band is for young individual drivers and commercial fleet management, with an additional potential application in managed care/alcohol rehabilitation. We plan for the wearable band to be commercially available in the fall of 2022.
Design, manufacturing and assembly of our SOBRcheck™ and SOBRsure™ devices will take place in the United States. We currently utilize two companies for manufacturing of the SOBRcheck™ device. We do not have agreements in place with these companies and we operate with them on a purchase order/payment basis. We supply a purchase order, which they fulfill, and then they send us an invoice.
Our SOBRsafe™ technology can also be deployed across numerous additional devices for various uses; among those we are currently exploring include possible integrations with existing telematics systems, and it could be licensed by non-competitive third parties.
On January 15, 2021, we initiated a Private Offering (the “Offering”) of up to 40 Units ($2,000,000) with each Unit consisting of one $50,000 principal amount secured convertible debenture, convertible at $9 per share, and a Warrant to purchase 8,333 shares of the Company’s common stock at $9 per share. The Secured Debentures carry interest at 12% and mature 24 months after issuance. The Warrants are exercisable six months after issuance and expire 24 months after issuance. The Offering closed on May 31, 2021 with net proceeds to us of $2,005,000.
On September 28, 2021, we completed a financing transaction of a convertible debenture and issued warrants (the “Debenture”) that raised $2,225,000 of net proceeds after debt issuance costs. The Debenture is for a face amount $3,048,781 with an Original Issue Discount of 18% and was due March 27, 2022, if not converted. The Debenture matured on March 27, 2022 and we did not make the required principal payment putting the Company in default under the terms of the Debenture. On March 30, 2022, we entered into a Waiver Agreement with the purchaser, under which the Purchaser granted the Company a waiver of the default penalties under the Debenture such that any default penalties will not be charged and/or due until April 17, 2022 (the “Waiver”). In exchange for the Waiver of the default penalties the Company agreed to: (i) amend the original Common Stock Warrant (the “Original Warrant”) issued by the Company to the purchaser dated September 27, 2021 to extend the Termination Date (as defined in the Original Warrant) from September 28, 2026 to September 28, 2028; and (ii) issue the Purchaser a second Common Stock Purchase Warrant (the “New Warrant”) entitling the Purchaser to subscribe for and purchase up to an additional 101,626 shares of our common stock, expiring March 29, 2029, with all other terms of the warrant the same as the Original Warrant. The extended terms of the Original Warrants and the issuance of the New Warrants resulted in additional interest expense of $164,000 and $700,000, respectively during the six-month period ended June 30, 2022. We did not cure the default as of the Waiver date resulting in mandatory penalties of $914,634 accrued as of March 31, 2022.
We deployed the net funding we received from the 2021 financings ($4.2M) to bolster and expedite product development (SOBRcheck™ and SOBRsure™), deploy sales and marketing initiatives to develop the SOBR brand and grow the business and expand the employee base in correlation with customer and technology development.
On May 18, 2022, we received approximately $8,799,000 of net proceeds from the sale of an underwritten public offering of 2,352,942 units (Units) at a public offering price of $4.25 per Unit, with each Unit consisting of one share of our Common Stock and two warrants each to purchase one share of Common Stock. The Warrants included in the Units are exercisable immediately and have an exercise price of $4.25 per share (100% of the price per Unit sold in the offering). The Warrants will not be listed for trading and will expire five years from the date of their issuance. On May 19, 2022, the $3,048,781 principal balance of the 18% Original Issue Discount Convertible Debenture in default at March 31, 2022, was paid in full satisfying all amounts due and accrued under the default, including debt forgiveness of penalty, damages and interest provisions of the loan agreement totaling $1,109,105.
Management believes that the net offering proceeds of approximately $5,729,000, after the payment of the defaulted loan balance of $3,048,781, providing for a cash balance at June 30, 2022 of approximately $3,750,000 provides adequate working capital for operating activities for the next twelve months after the date the financial statements are issued. However, the Company is responsible for convertible notes payable plus interest at 12% per annum due 24 months from issuance in the first half of 2021. Total principal balances of the convertible notes at June 30, 2022 are $2,005,000 and are due $1,100,000, $155,000 and $750,000 in March 2023, April 2023 and May 2023, respectively. The notes are convertible at $9 per share of the Company’s common stock. The notes contain both voluntary and automatic conversion features. The notes may be convertible at any time, by the holders, beginning on the date of issuance. The notes automatically convert into shares of the Company’s common stock if the Company’s common stock closes at or above $6 per share for five (5) consecutive trading days while listed on Nasdaq. Should the notes not automatically convert or a significant portion of the note holders voluntarily not convert the notes to our common stock, we will need additional funds beyond the funds raised in the underwritten public offering.
In addition, capital may be required under the following circumstances, 1) accelerated customer acquisition increasing capital outlay, 2) advanced purchasing of materials due to COVID backlog, 3) acquisition of new technology, 4) potential acquisition of a key asset, and 5) global expansion.
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| Table of Contents |
Results of Operations for Three-Months Ended June 30, 2022 Compared to Three-Months Ended June 30, 2021
Summary of Results of Operations
|
| Three-Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Revenue |
| $ | 1,500 |
|
| $ | - |
|
Cost of goods sold |
|
| - |
|
|
| - |
|
Gross Profit |
|
| 1,500 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
General and administrative |
|
| 878,861 |
|
|
| 831,781 |
|
Stock-based compensation expense |
|
| 308,823 |
|
|
| 168,375 |
|
Research and development |
|
| 485,184 |
|
|
| 314,532 |
|
Total operating expenses |
|
| 1,672,868 |
|
|
| 1,314,688 |
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (1,671,368 | ) |
|
| (1,314,688 | ) |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Other income (expense), net |
|
| 216,402 |
|
|
| - |
|
Gain on debt extinguishment |
|
| 1,109,105 |
|
|
| - |
|
Gain of fair value adjustment – derivatives |
|
| 1,380,000 |
|
|
| - |
|
Interest expense |
|
| (1,111,671 | ) |
|
| (148,028 | ) |
Amortization of interest – conversion features |
|
| (110,849 | ) |
|
| (82,001 | ) |
Total other income (expense), net |
|
| 1,482,987 |
|
|
| (228,029 | ) |
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (188,381 | ) |
| $ | (1,542,717 | ) |
Operating Loss; Net Loss
Our net loss decreased by $1,354,336 from $1,542,717 to $188,381, from the three-month period ended June 30, 2021 compared to the three-month period ended June 30, 2022. The change in our net loss and operating loss for the three-months ended June 30, 2022, compared to the same prior year period, is primarily a result of acceleration of our planned strategic operational and financing activities resulting in increases in interest and other financing related costs, general and administrative expenses, stock-based compensation expense, research and development expense, offset by gains related to debt extinguishment and fair-value adjustments to derivative liabilities. The changes are detailed below.
Revenue
We progressed to commercial production, launch and sale of our first SOBRcheck™ devices and software solution to initial customers with our devices being delivered for use in January 2022. Since, we have executed customer agreements, invoiced these customers and recognized revenue of $1,500 during the three-months ended, June 30, 2022.
Gross Profit
The cost of goods sold for the three-months ended June 30, 2022 was none resulting in a gross profit of $1,500 and a gross margin of 100%. Due to the limited history of generating revenue, the gross profit and gross margin at June 30, 2022 is not indicative of future planned or actual performance of the Company, its product lines or services.
General and Administrative Expenses
General and administrative expenses increased by $47,080, from $831,781 for the three-month period ended June 30, 2021 to $878,861 for the three-month period ended June 30, 2022. The increase from the same prior year period is primarily due to increases in our employee compensation and benefits.
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| Table of Contents |
Stock-Based Compensation Expense
The Company had stock-based compensation expense of $308,823 for the three-months ended June 30, 2022, compared to $168,375 for the three-months ended June 30, 2021. The stock-based compensation expense was related to the issuance or vesting of our common stock or restricted stock units as compensation to certain consultants and employees.
Research and Development
Research and development increased by $170,652, to $485,185 for the three-months ended June 30, 2022, compared to $314,533 for the three-months ended June 30, 2021. The increase in research and development was due to the finalization of our initial development of our SOBR® Safe™ software platform and completion of development and testing of our SOBRcheck™ devices.
Other Income (Expense), Net
Other income (expense), net for the three-month period ended June 30, 2022 consists primarily of Employee Retention Tax Credits applied for and received under the CARES ACT for employers who met certain requirements of impacts due to COVID-19.
Gain on Extinguishment of Debt
On May 19, 2022, pursuant to an arrangement with the Debenture holder, the principal balance of the Debenture in default of $3,048,781, was paid in full satisfying all amounts due and accrued under the default, including penalty, damages and interest provisions of the agreement. Where the Company was not required to pay the penalty, damages and interest provision of the agreement, a gain on extinguishment of debt of $1,109,105 was recorded during the three-month period ending June 30, 2022.
Fair Value Adjustment – Derivatives
Fair value adjustment – derivatives was a gain of $1,380,000 for the three-month period ended June 30, 2022, which is related to outstanding financial instruments issued in September 2021 that contain an embedded derivative liability component. Upon completing a cash payment of $3,048,751 for the principal balance of the Convertible Debenture on May 19, 2022, the voluntary and automatic conversion feature associated with the derivative liability no longer existed where the fair value of the derivative liability recorded on the balance sheet was none at June 30, 2022. We did not have any outstanding financial instruments that contain derivative liability components during the three-month period ended, June 30, 2021. Fair value and gains or losses related to the instruments are affected by the price of our common stock.
Interest Expense
Interest expense increased by $693,643, from $148,028 for the three-month period ended June 30, 2021 to $1,111,671 for the three-month period ended June 30, 2022. This increase is primarily attributable to the Company having more outstanding convertible debt during the three-months ended June 30, 2022 compared to the same period in 2021 where the increase is related to an increase in interest amortization of $50,631 from the private placement offering in January 2021 of $188,728 for the three-month period ended June 30, 2022, as compared to $138,097 of interest expense for the three-month period ended June 30, 2021. The remaining difference of can be attributed to an increase in added conventional debt to prepay insurance and penalty, damages and interest related the default on the Convertible Debenture.
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| Table of Contents |
Amortization of Interest – Conversion Features
During the three-months ended June 30, 2022, the Company had amortization of interest – beneficial conversion feature expense of $110,149 compared to $82,001 during the three-months ended June 30, 2021, resulting in an increase of $28,848. The expenses for the periods were related to the amortized discount on convertible notes payable of which we had more outstanding convertible debt during the three-months ended June 30, 2022 compared to the same period in 2021.
Results of Operations for Six-Months Ended June 30, 2022 Compared to Six-Months Ended June 30, 2021
Summary of Results of Operations
|
| Six-Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Revenue |
| $ | 3,000 |
|
| $ | - |
|
Cost of goods sold |
|
| 1,100 |
|
|
| - |
|
Gross Profit |
|
| 1,900 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
General and administrative |
|
| 3,148,035 |
|
|
| 1,608,642 |
|
Stock-based compensation expense |
|
| 751,607 |
|
|
| 187,065 |
|
Research and development |
|
| 532,644 |
|
|
| 485,995 |
|
Total operating expenses |
|
| 4,432,286 |
|
|
| 2,281,702 |
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (4,430,386 | ) |
|
| (2,281,702 | ) |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Other income (expense), net |
|
| 216,429 |
|
|
| - |
|
Gain on debt extinguishment |
|
| 245,105 |
|
|
| - |
|
Gain of fair value adjustment – derivatives |
|
| 1,040,000 |
|
|
| - |
|
Interest expense |
|
| (2,138,142 | ) |
|
| (171,906 | ) |
Amortization of interest – conversion features |
|
| (691,071 | ) |
|
| (91,543 | ) |
Total other (expense), net |
|
| (1,327,679 | ) |
|
| (263,449 | ) |
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (5,758,065 | ) |
| $ | (2,545,151 | ) |
Operating Loss; Net Loss
Our net loss increased by $3,212,914 from $2,545,151 to $5,758,065, from the six-month period ended June 30, 2021 compared to the six-month period ended June 30, 2022. The change in our net loss and operating loss for the six-months ended June 30, 2022, compared to the same prior year period, is primarily a result of acceleration of our planned strategic operational and financing activities resulting in increases in interest and other financing related costs, general and administrative expenses, and stock-based compensation expense, offset by gains related to debt extinguishment and fair-value adjustments to derivative liabilities. The changes are detailed below.
Revenue
Prior to the six-month period ended June 30, 2022, we progressed to commercial production, launched the sale of our first SOBRcheck™ devices and software solution to initial customers with our devices being delivered for use in January 2022. Since, we have executed customer agreements, invoiced these customers and recognized revenue of $3,000 during the six-months ended, June 30, 2022.
Gross Profit
The cost of goods sold for the six-months ended June 30, 2022 was $1,100 resulting in a gross profit of $1,900 and a gross margin of 63%. Due to the limited history of generating revenue, the gross profit and gross margin at June 30, 2022 is not indicative of future planned or actual performance of the Company, its product lines or services.
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| Table of Contents |
General and Administrative Expenses
General and administrative expenses increased by $1,539,393, from $1,608,642 for the six-month period ended June 30, 2021 to $3,148,035 for the six-month period ended June 30, 2022. The increase from the same prior year period is primarily due to increases in our employee compensation and benefits of $294,843, employee stock-option expense of $785,730, professional, legal and consulting services of $350,958, licenses and fees of $65,175, general insurance expense of $30,983 and other general & administrative expenses in aggregate of $11,704.
Stock-Based Compensation Expense
The Company had stock-based compensation expense of $751,607 for the six-months ended June 30, 2022, compared to $187,065 for the six-months ended June 30, 2021. The stock-based compensation expense was related to the issuance or vesting of our common stock or restricted stock units as compensation to certain consultants and employees.
Research and Development
Research and development increased by $46,649, to $532,644 for the six-months ended June 30, 2022, compared to $485,995 for the six-months ended June 30, 2021. The increase in research and development was due to the finalization of our initial development of our SOBR® Safe™ software platform and completion of development and testing of our SOBRcheck™ devices.
Other Income (Expense), Net
Other income (expense), net for the six-month period ended June 30, 2022 consists primarily of Employee Retention Tax Credits applied for and received under the CARES ACT for employers who met certain requirements of impacts due to COVID-19.
Gain on Extinguishment of Debt
On May 19, 2022, pursuant to an arrangement with the Debenture holder, the principal balance of the Debenture in default of $3,048,781, was paid in full satisfying all amounts due and accrued under the default, including penalty, damages and interest provisions of the agreement. Where the Company was not required to pay the penalty, damages and interest provision of the agreement, a gain on extinguishment of debt of $1,109,105 was recorded during the six-month period ending June 30, 2022. This gain has been offset by a loss on extinguishment of debt of $864,000 related to the fair value of original warrants issued and extended for an additional two-year period in conjunction with the Convertible Debenture which was in default.
Fair Value Adjustment – Derivatives
Fair value adjustment – derivatives was a gain of $1,040,000 for the six-month period ended June 30, 2022, which is related to outstanding financial instruments issued in September 2021 that contain an embedded derivative liability component. Upon completing a cash payment of $3,048,751 for the principal balance of the Convertible Debenture on May 19, 2022, the voluntary and automatic conversion feature associated with the derivative liability no longer existed where the fair value of the derivative liability recorded on the balance sheet was none at June 30, 2022. We did not have any outstanding financial instruments that contain derivative liability components during the six-month period ended, June 30, 2021. Fair value and gains or losses related to the instruments are affected by the price of our common stock.
Interest Expense
Interest expense increased by $1,966,236, from $171,906 for the six-month period ended June 30, 2021 to $2,138,142 for the six-month period ended June 30, 2022. The increase in interest expense is primarily attributed to the interest amortization from original issued debt and convertible warrants in September 2021 of $828,743, penalty, damages and interest related the default on the Convertible Debenture of $914,364, and increase in interest amortization of $171,851 from private placement offering in January 2021 of $197,414 for the six-month period ended June 30, 2022, as compared to $25,878 of interest expense for the six-month period ended June 30, 2021.
Amortization of Interest – Conversion Features
During the six-months ended June 30, 2022, the Company had amortization of interest – beneficial conversion feature expense of $691,071 compared to $91,544 during the six-months ended June 30, 2021, resulting in an increase of $5,799,527. The expenses for the periods were related to the amortized discount on convertible notes payable of which we had substantially more outstanding convertible debt during the six-months ended June 30, 2022 compared to the same period in 2021.
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| Table of Contents |
Liquidity and Capital Resources for Six-Months Ended June 30, 2022 Compared to December 31, 2021
Introduction
During the six-months ended June 30, 2022, because of our operating losses, we did not generate positive operating cash flows. Our cash on hand as of June 30, 2022 of approximately $3,750,000 and our current normalized monthly operating cash flow burn rate is approximately $350,000. As a result, we need to raise additional funds to finance our current and long-term business plans. We currently do not believe we will be able to satisfy our cash needs from our revenues for some time, and there is no guarantee we will be successful in the future to adequately satisfy these needs through the proceeds generated from the sales of our securities or additional financing
Our cash, current assets, total assets, current liabilities, and total liabilities as of June 30, 2022 and as of December 31, 2021, respectively, are as follows:
|
| June 30, 2022 |
|
| December 31, 2021 |
|
| Change |
| |||
Cash |
| $ | 3,751,391 |
|
| $ | 882,268 |
|
| $ | 2,869,123 |
|
Total Current Assets |
|
| 5,200,045 |
|
|
| 934,282 |
|
|
| 4,265,763 |
|
Total Assets |
|
| 8,285,397 |
|
|
| 4,209,215 |
|
|
| 4,076,182 |
|
Total Current Liabilities |
|
| 2,524,128 |
|
|
| 3,981,935 |
|
|
| (1,457,807 | ) |
Total Liabilities |
|
| 2,524,128 |
|
|
| 4,652,808 |
|
|
| (2,128,680 | ) |
Our current assets and total assets increased as of June 30, 2022, as compared to December 31, 2021, primarily due to the completed underwritten public offering proceeds of approximately $ 8,799,000, offset by payment of the principal amount of $3,048,751 for the past due Convertible Debenture and use of cash to support our operations.
Our current liabilities decreased as of June 30, 2022, as compared to December 31, 2021. This decrease was primarily due to the payment of the principal amount of $3,048,751 for the past due Convertible Debenture, accompanied by decreases in accounts payable of $56,085, accrued expenses payable of $99,136, and derivative liability of $1,040,000, offset by maturities of long-term debt of $2,005,000 becoming current net of amortization of discounts of $493,367, other Notes Payable, net of payments of $172,006 and increases in accrued interest payable $112,822.
In order to repay our obligations in full or in part when due in conjunction with continued operating expenses, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.
Sources and Uses of Cash
Operations
We had net cash used in operating activities of $2,721,376 for the six-month period ended June 30, 2022, as compared to net cash used for operating activities of $1,628,316 for the six-month period ended June 30, 2021. For the period in 2022, the net cash used in operating activities consisted primarily of our net loss of $5,758,066, offset by non-cash expense items including depreciation and amortization of $192,732, amortization of interest – conversion features of $709,121, amortization of interest of $423,782, gain on extinguishment of debt of $245,105, stock warrants expense of $655,346, change in fair value of a derivative liability by ($1,040,000), stock options expense of $1,125,245, and stock-based compensation expense of $552,817, and changes in our assets and liabilities for accounts receivable of ($1,250), inventory of ($132,849), prepaid expenses of ($243,952), other assets of ($3,149), accounts payable of $(20,109), related party payables of $66,976, accrued expenses of $1,011,586, and accrued interest payable of $113,451.
For the same six-month period in 2021, the net cash used in operating activities of $(1,628,316) consisted primarily of our net loss of $2,545,151, offset by amortization of $192,732, amortization of interest – beneficial conversion feature of $91,543, amortization of interest of $111,655, stock options expense of $140,726, and stock-based compensation expense of $187,065, and changes in our assets and liabilities of prepaid expenses of $13,517, accounts payable of $114,809, accrued expenses of ($13,344), accrued interest payable of ($217), related party payables of ($10,120), and common stock subscriptions payable of $88,469.
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| Table of Contents |
Investments
We had no cash provided by or used for investing activities during the six-month periods ended June 30, 2022 or 2021.
Financing
During the six-month period ended June 30, 2022, we completed an underwritten public financing on May 18, 2022 of $10,004,245 offset by associated costs of the financing of ($1,309,882). On May 19, 2022, pursuant to an arrangement with the Debenture holder, the $3,048,781 principal balance of the Convertible Debenture in default at March 31, 2022, was paid in full satisfying all amounts due and accrued under the default, including debt forgiveness of penalty, damages and interest provisions of the loan agreement. During the six-month period ended June 30, 2022, the Company also completed schedule repayments of notes payable to non-related parties of ($55,083). For the six-month period ended June 30, 2021, our net cash from financing activities consisted of proceeds from notes payable – non-related parties of $1,005,000 and proceeds from notes payable – related parties, net of $1,000,000.
Contractual Obligations and Commitments
At June 30, 2022, the Company had no financial commitments and was not committed to material contractual obligations which exceed one year for the design, production, delivery or assemble of its software platform or associated devices, or commercial leases.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements as of June 30, 2022 and December 31, 2021.
Effects of COVID 19
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak and its variants continues to evolve as of the date of this filing. Management is actively monitoring the global situation on our financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak, its variants, and the global responses to curb its spread, we are not able to estimate the effects of the COVID-19 outbreak on our results of operations, financial condition, or liquidity for fiscal year 2022. However, if the pandemic continues, it could have an adverse effect on our results of future operations, financial position, and liquidity in 2022.
Effects of Inflation
We do not believe that inflation has had a material impact on our business, revenue or operating results during the periods presented. However, continued increases in inflation could have an adverse effect on our results of future operations, financial position, and liquidity in 2022.
Recent Accounting Pronouncements
There have been no recent accounting pronouncements or changes in accounting pronouncements during the period ended June 30, 2022, or subsequently thereto, that we believe are of potential significance to our financial statements.
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| Table of Contents |
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
| (c) | Evaluation of Disclosure and Controls Procedures |
Disclosure controls and procedures (as defined in Rules 13a-15 (c) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure and control procedures are also designed to ensure that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures.
As of June 30, 2022, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer (our Principal Executive Officer) and Chief Financial Officer (our Principal Financial Officer), of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, management is required to apply its reasonable judgment. During the six-month period ended June 30, 2022, we hired a Chief Financial Officer, whereas previously our Chief Executive Officer also served as our Principal Financial Officer, and hired a Vice President of Finance and Accounting to improve disclosure controls and procedures, and support additional segregation of financial and internal controls. Also, our Board approved our Audit Committee Charter in compliance with Nasdaq requirements. Although the Company began mitigating certain limitations in the effectiveness of its system of controls and procedures during the six-month period ended June 30, 2022, based on the evaluation described above, and as a result, in part, of the timing of beginning to implement the mitigating improvements, management has concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective and have not significantly improved as reported in our Annual Report on Form 10-K for the year ended December 31, 2021.
As funds become available to us, we expect to implement additional measures to improve disclosure controls and procedures.
(b) Changes in Internal Controls over Financial Reporting
There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
(c) Officer’s Certifications
Appearing as an exhibit to this quarterly report on Form 10-Q are “Certifications” of our Chief Executive and Financial Officer. The Certifications are required pursuant to Sections 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This section of the quarterly report on Form 10-Q contains information concerning the Controls Evaluation referred to in the Section 302 Certifications. This information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.
| 38 |
| Table of Contents |
PART II – OTHER INFORMATION
ITEM 1 Legal Proceedings
On December 6, 2006, Orange County Valet and Security Patrol, Inc. filed a lawsuit against us in Orange County California State Superior Court for Breach of Contract in the amount of $11,164. A default judgment was taken against us in this matter. In mid-2013 we learned the Plaintiff’s perfected the judgment against us, but we have not heard from the Plaintiffs as of May 2022. In the event we pay any money related to this lawsuit, IDTEC, LLC agreed, in connection with us closing the asset purchase transaction with IDTEC, to pay the amount for us in exchange for shares of our common stock.
We had one outstanding judgment against us involving a past employee of the Company. The matter was under the purview of the State of California, Franchise Tax Board, Industrial Health and Safety Collections. We owed approximately $28,786 plus accrued interest of approximately $53,000 to our ex-employee for unpaid wages under these Orders. On March 8, 2021, we received an Acknowledgement of Satisfaction of Judgement-Full by the California Court notifying us that the judgement has been settled with a payment of approximately $85,000 including the accrued interest owed through settlement date and legal fees of approximately $3,000. IDTEC, LLC agreed, in connection with us closing the asset purchase transaction with IDTEC, to pay the amount for us in exchange for shares of our common stock acquired through the exercise of a warrant held by IDTEC, LLC.
In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
ITEM 1A Risk Factors
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended June 30, 2022 we issued the following unregistered securities:
On June 7, 2022, we issued 16,666 shares of our common stock for restricted stock units that vested in connection with our uplist to Nasdaq.
On June 7, 2022 and June 29, 2022, we issued 300,000 and 500,000 shares of our common stock, respectively, for professional services.
These issuances were made in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended. To make this determination we relied on our knowledge of the purchaser and the representations of the purchaser contained in certain agreements, which indicated the purchaser was knowledgeable about our management and our operations, was a sophisticated investor, and understood the purchase was part of a private placement.
ITEM 3 Defaults Upon Senior Securities
On December 28, 2010, we borrowed $11,810 from a related party. The note payable carries an interest rate of 0% and matured on December 31, 2012. As of June 30, 2022 this note was in default.
On February 20, 2012, we borrowed $3,750 from a non-related party. The note payable carries an interest rate of 12% and matured on February 19, 2013. As of June 30, 2022 this note was in default.
On March 20, 2012, we borrowed $5,433 from a non-related party. The note payable carries an interest rate of 12% and matured on March 19, 2013. As of June 30, 2022 this note was in default.
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On September 27, 2013, we borrowed $15,000 from a non-related party. The note payable carries an interest rate of 9% and matured on December 25, 2013. As of June 30, 2022 this note was in default.
On March 14, 2014, we borrowed $5,000 from a non-related party. The note payable carries an interest rate of 10% and matured on September 14, 2014. As of June 30, 2022 this note was in default.
On July 31, 2015, we borrowed $2,500 from a non-related party. The note payable carries an interest rate of 10% and matured on November 28, 2015. As of June 30, 2022 this note was in default.
On September 28, 2021, we received from a non-related party $2,500,000 for an 18% Original Issue Discount Convertible Debenture in the principal amount of $3,048,781. On May 19, 2022, pursuant to an arrangement with the Debenture holder, the principal balance in default was paid in full satisfying all amounts due and accrued under the default and damages provisions of the loan agreement.
ITEM 4 Mine Safety Disclosures
There have been no events which are required to be reported under this Item.
ITEM 5 Other Information
On May 13, 2022, we entered into an underwriting agreement (the “Underwriting Agreement”), with Aegis Capital Corp., who acted as the lead book running manager (the “Underwriter”), pursuant to which we agreed to sell to the Underwriter in a firm commitment underwritten public offering (the “Offering”) an aggregate of 2,352,942 units. Each unit consisted of one share of our common stock, par value $0.00001 per share (the “Common Stock”), and two warrants (“Warrants”, and together with the Common Stock the “Units”), at a public offering price of $4.25 per Unit. Each Warrant included in the Units is exercisable for one share of Common Stock, is exercisable immediately, has an exercise price of $4.25 per share, which represents 100% of the price per unit sold in the Offering, and expires five years from the date of issuance. The exercise price of the Warrant may adjust downward based on certain events. The Common Stock began trading on the Nasdaq Capital Market under the symbol SOBR on May 16, 2022. The Warrants are non-tradeable.
The Units were offered and sold to the public pursuant to the Company’s registration statement on Form S-1 (File No. 333-262665), initially filed by us with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”) on February 11, 2022, and declared effective on May 13, 2022.
In addition, the Underwriter was granted a 45-day option, exercisable in one or more times in whole or in part, to purchase up to an additional 352,941 shares of Common Stock and/or up to an additional 705,882 Warrants solely to cover over-allotments. The over-allotment shares of Common Stock can be purchased at the public offering price of the Units ($4.25), less the underwriting discounts payable by us, and the Warrants can be purchased for $0.01 per Warrant.
The Underwriting Agreement contains customary representations, warranties and agreements by us, customary conditions to closing, indemnification obligations of us and the Underwriter, including for liabilities under the Securities Act of 1933, as amended, other obligations of the parties and termination provisions. Further, pursuant to the terms of the Underwriting Agreement and related “lock-up” agreements, we, each director and executive officer of our, and certain stockholders have agreed with the Underwriter not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of Common Stock or securities convertible into Common Stock for a period of 180 days (24 months for the Company) commencing on the May 13, 2022, the date of the final prospectus.
On May 17, 2022, we entered into a warrant agent agreement (the “Warrant Agent Agreement”) with Equiniti Trust Company (“Warrant Agent”), to serve as our warrant agent for the Warrants. Upon the closing of the Offering, the Warrant Agent issued the Warrants.
On May 18, 2022, pursuant to the Underwriting Agreement, we issued Representative’s Warrants to purchase up to an aggregate of 141,177 shares of Common Stock (the “Representative’s Warrants”). The Representative’s Warrants are exercisable beginning on November 17, 2022, until May 17, 2027. The initial exercise price of Representative's Warrants is $5.3125 per share, which equals 125% of the public offering price per Unit in the Offering.
The Offering closed on May 18, 2022.
The foregoing description of the Underwriting Agreement, Representative’s Warrants and Warrant Agent Agreement are not complete and are qualified in their entirety by references to the full text of the Underwriting Agreement, the form of Representative’s Warrants, the Warrant Agent Agreement and the Form of Unit Warrant, which are filed as exhibits 1.1, 4.1, 4.2 and 4.3, respectively, to this report and are incorporated by reference herein.
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ITEM 6 Exhibits
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101.INS ** |
| XBRL Instance Document | ||||
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101.SCH ** |
| XBRL Taxonomy Extension Schema Document | ||||
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101.CAL ** |
| XBRL Taxonomy Extension Calculation Linkbase Document | ||||
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101.DEF ** |
| XBRL Taxonomy Extension Definition Linkbase Document | ||||
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101.LAB ** |
| XBRL Taxonomy Extension Label Linkbase Document | ||||
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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 registrati0n statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
| (1) | Incorporated by reference from our Registration Statement on Form SB-2, filed with the Commission on January 31, 2008 |
| (2) | Incorporated by reference from our Registration Statement on Form S-1, filed with the Commission on November 6, 2012 |
| (3) | Incorporated by reference from our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Commission on February 6, 2019 |
| (4) | Incorporated by reference from our Current Report on Form 8-K, filed with the Commission on May 14, 2019. |
| (5) | Incorporated by reference from our Current Report on Form 8-K, filed with the Commission on September 10, 2019. |
| (6) | Incorporated by reference from our Current Report on Form 8-K, filed with the Commission on November 19, 2019 |
| (7) | Incorporated by reference from our Current Report on Form 8-K, filed with the Commission on December 23, 2019 |
| (8) | Incorporated by reference from our Annual Report on Form 10-K, filed with the Commission on April 17, 2020 |
| (9) | Incorporated by reference from our Quarterly Report on Form 10-Q for the period ended September 30, 2020, filed with the Commission on May 26, 2020 |
| (10) | Incorporated by reference from our Current Report on Form 8-K filed with the Commission on June 11, 2020 |
| (11) | Incorporated by reference from our Annual Report on Form 10-K for the period ended December 31, 2021, filed with the Commission on March 31, 2022 |
| (12) | Incorporated by reference from our Current Report on Form 8-K filed with the Commission on October 1, 2021 |
| (13) | Incorporated by reference from Amendment No. 1 to our Registration Statement on Form S-1 filed with the Commission on December 1, 2021 |
| (14) | Incorporated by reference from Amendment No. 3 to our Registration Statement on Form S-1 filed with the Commission on December 20, 2021 |
| (15) | Incorporated by reference from Amendment No. 4 to our Registration Statement on Form S-1 filed with the Commission on January 19, 2022 |
| (16) | Incorporated by reference from our Current Report on Form 8-K filed with the Commission on January 19, 2022. |
| (17) | Incorporated by reference from our Amendment No. 1 to our Registration Statement on Form S-1 filed with the Commission on March 17, 2022 |
| (18) | Incorporated by reference from our Current Report on Form 8-K filed with the Commission on April 1, 2022 |
| (19) | Incorporated by reference from our Current Report on Form 8-K filed with the Commission on May 19, 2022 |
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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.
| SOBR Safe, Inc. | |||
| Dated: August 15, 2022 | /s/ David Gandini | ||
| By: | David Gandini | |
| Its: | Chief Executive Officer and Principal Executive Officer | ||
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