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 | ||
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 May 15, 2023, there were
SOBR SAFE, INC.
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 | |
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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.
3 |
Table of Contents |
ITEM 1 Condensed Consolidated Financial Statements
The condensed consolidated balance sheets as of March 31, 2023, and December 31, 2022, the condensed consolidated statements of operations for the three months ended March 31, 2023, and 2022, the condensed consolidated statements of changes in stockholders’ equity (deficit) for the three months ended March 31, 2023, and 2022, and the condensed consolidated statements of cash flows for the three months ended March 31, 2023, and 2022, follow. The unaudited condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for 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 |
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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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Notes payable - related parties |
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* Includes unamortized debt discount related to warrants and beneficial conversion features of $ |
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Notes payable - non-related parties |
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* Includes unamortized debt discount related to warrants and beneficial conversion feature of $ |
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Total current liabilities |
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Notes payable - non-related parties - less current portion |
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* Includes unamortized debt discount related to original issue discount, warrants and costs of issuance of $ |
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Accrued interest payable |
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Total Liabilities |
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Stockholders' Equity |
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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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Treasury stock, at cost; |
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Additional paid-in capital |
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Accumulated deficit |
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Total SOBR Safe, Inc. stockholders' equity |
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Noncontrolling interest |
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Total Stockholders' Equity |
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Total Liabilities and Stockholders' Equity |
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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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Revenues |
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Cost of sales |
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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 |
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Loss on debt extinguishment |
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Loss on fair value adjustment - derivatives |
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Interest expense |
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Amortization of interest - beneficial conversion feature |
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Total other expense, net |
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Loss before provision for income taxes |
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Provision for income taxes |
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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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| Stockholders’ |
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| Common Stock |
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| Preferred Stock |
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| Treasury Stock |
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| Equity |
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| Total |
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| Amount |
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| Amount |
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| Accumulated |
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| SOBR Safe, |
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| Noncontrolling |
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| Par) |
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Balances at January 1, 2022 |
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Common stock issued for restricted stock units |
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Common stock issued for convertible debt |
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Common stock exchanged for convertible preferred stock |
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Paid-in capital - fair value of stock options and restricted stock units |
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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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Balances at January 1, 2023 |
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Cumulative effect of adopting ASU 2020-06 |
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Common stock issued for services |
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Warrants issued for services |
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Paid-in capital – fair value of stock options and restricted stock units |
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Paid in capital - relative fair value of stock warrants granted, net of issuance costs |
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Net loss |
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Balances at March 31, 2023 |
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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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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 of intangible assets |
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Amortization of interest - conversion features |
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Amortization of interest |
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Loss on extinguishment of debt |
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Change in fair value of derivative liability |
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Bad debt expense |
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Stock warrants expense |
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Stock-based compensation expense |
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Changes in assets and liabilities: |
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Accounts receivable |
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Inventory |
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Prepaid expenses |
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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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Net cash used in operating activities |
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Financing Activities: |
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Proceeds from notes payable - non-related parties |
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Repayments of notes payable - related parties |
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Repayments of notes payable - non-related parties |
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Debt issuance costs |
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Net cash provided by financing activities |
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Net Change In Cash |
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| ( | ) |
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| ( | ) | ||||||||||||||||||||||
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Cash At The Beginning Of The Period |
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| ||||||||||||||||||||||||
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| ||||||||||||||||||||||
Cash At The End Of The Period |
| $ |
|
| $ |
| ||||||||||||||||||||||||
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| ||||||||||||||||||||||
Schedule Of Non-Cash Investing And Financing Activities: |
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|
|
| ||||||||||||||||||||||
Issuance of common stock and warrants for prepaid services |
| $ |
|
| $ |
| ||||||||||||||||||||||||
Non-related party debt converted to capital |
| $ |
|
| $ |
| ||||||||||||||||||||||||
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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 |
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SOBR SAFE, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SOBR Safe, Inc., a Delaware corporation, (the “Company”, “we”, “us”, and “our”) is a hardware and software company headquartered in Greenwood Village, Colorado. Our company integrates proprietary software with our patented touch-based alcohol detection products, SOBRcheck™ and SOBRsure™, enabling non-invasive alcohol detection, biometric identity verification, and real-time cloud-based alerts and reporting. Currently our principal markets are located in North America.
On April 28, 2022,
On May 16, 2022, our common stock began trading on the Nasdaq exchange under the ticker symbol “SOBR.” Prior to this, our common stock was quoted on the “OTCQB” tier of the OTC Markets, also under the ticker symbol “SOBR.”
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, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2023.
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 March 31, 2023 and December 31, 2022, and results of operations and cash flows for the three-month periods ended March 31, 2023 and 2022.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiary, TransBiotec-CA, of 98.6%. 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.
Financial Instruments
The Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The 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. The Company prioritizes the inputs into three levels that may be used to measure fair value:
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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, and other liabilities. 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.
At March 31, 2023 and December 31, 2022, the Company did not have financial instruments requiring valuation from observable or unobservable inputs to determine fair value on a recurring basis.
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 at March 31, 2023 and December 31, 2022.
Accounts Receivable
Accounts receivable is derived from sales to a limited number of customers. 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 March 31, 2023 and December 31, 2022.
Inventory
Inventory is valued at the lower of cost or net realizable value. The cost of substantially all the Company’s inventory is determined by the FIFO cost method. Inventory is comprised primarily of component parts and finished products. The Company evaluates the need for reserves for excess or obsolete inventory primarily based upon estimates of future demand for the Company’s products. The Company had no reserves for excess inventory or obsolescence at March 31, 2023 and December 31, 2022.
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
As discussed under “Recently Adopted Accounting Standards” in Note 1, the Company adopted ASU 2020-06 effective January 1, 2023, which, among other things, eliminated the beneficial conversion feature model applicable to certain convertible instruments. Prior to the adoption of ASU 2020-06, a beneficial conversion feature existed 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 was recorded as a debt discount with a corresponding amount to additional paid-in capital. The debt discount was amortized to interest expense over the life of the note using the effective interest method.
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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 at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy 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
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 classify our preferred shares in stockholders’ equity.
Minority Interest (Noncontrolling Interest)
A subsidiary of the Company has minority members representing ownership interests of
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 three-month periods ended March 31, 2023 and 2022, respectively.
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 the Company’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.
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The Company determines revenue recognition through five steps which include (1) 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, physical possession or the risks and rewards of ownership 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 is recognized on a ratable basis for each respective performance obligation as allocated under the prescribed Transaction Price identification model applied.
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 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.
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Stock-based Compensation
The Company uses 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 the Black-Scholes options pricing model that 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
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 products.
Advertising and Marketing Costs
Advertising and marketing costs are charged to operations as incurred. Advertising and marketing costs were $
Income Tax
Deferred taxes are provided on an asset and 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 March 31, 2023 and December 31, 2022 as these have been offset by a
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 two domestic financial institutions. The Company is exposed to credit risk in the event of a default by the financial institutions to the extent that cash balances are in excess of the amount insured by the Federal Deposit Insurance Corporation of up to $250,000 per institution. 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 sales during the three-months ending March 31, 2023 and 2022, to a limited number of 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.
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Concentration of Suppliers – The Company relies on a limited number of component 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 Adopted Accounting Standards
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) which simplifies the accounting for convertible instruments by eliminating the beneficial conversion and cash conversion accounting models. In addition, ASU 2020-06 removes certain settlement conditions required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas.
The Company early adopted ASU 2020-06 effective January 1, 2023 using the modified retrospective method whereby the cumulative effect of the change is recognized as an adjustment to the opening balance of retained earnings at the date of adoption. On January 1, 2023, the Company recorded an increase to retained earnings (accumulated deficit) of $
The Company has reviewed other 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.
Reclassifications
Certain prior period amounts have been reclassified to conform with the current period presentation.
NOTE 2. GOING CONCERN
The Company has incurred recurring losses from operations. Future capital requirements will depend on many factors, including the Company’s ability to sell and develop products, generate cash flow from operations, and assess competing market developments. The Company may need additional capital in the future.
As of March 31, 2023, the Company has an accumulated deficit of approximately ($
On March 9, 2023, the Company received approximately $
On April 12, 2023, the Company prepaid the principal and all accrued interest for the convertible notes due in April and May 2023.
Management believes that cash balances of approximately $
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NOTE 3. INVENTORY
Inventory consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Component parts |
| $ |
|
| $ |
| ||
Finished goods |
|
|
|
|
|
| ||
Inventory |
| $ |
|
| $ |
|
NOTE 4. PREPAID EXPENSES
Prepaid expenses consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Insurance |
| $ |
|
| $ |
| ||
Deposit |
|
|
|
|
|
| ||
Consulting services |
|
|
|
|
|
| ||
Other |
|
|
|
|
|
| ||
Prepaid expenses |
| $ |
|
| $ |
|
On May 31, 2022, the Company entered into a new office facility lease agreement for a
On January 1, 2023, the Company entered into a 6-month agreement for investor relations services in exchange for the issuance of
NOTE 5. INTANGIBLE ASSETS
Intangible assets consist of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Gross carrying amount |
| $ |
|
| $ |
| ||
Accumulated amortization |
|
| ( | ) |
|
| ( | ) |
Intangible asset, net |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Amortization period (in years) |
|
|
|
|
|
|
Amortization expense was $
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As of March 31, 2023, estimated future amortization expense for device technology intangible assets is as follows:
2023 |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| 2027 |
|
| Thereafter |
| ||||||
$ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
NOTE 6. RELATED PARTY TRANSACTIONS
On March 1, 2022 the Board of Directors approved the designation of
NOTE 7. ACCRUED EXPENSES
Accrued expenses consist of the following:
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||
Consulting services |
|
|
|
|
|
| ||
Other |
|
|
|
|
|
| ||
Accrued expenses |
| $ |
|
| $ |
|
NOTE 8. CONVERTIBLE DEBENTURE PAYABLE
On September 28, 2021, (the “Closing Date”) the Company completed a financing transaction under a Securities Purchase Agreement (the “SPA”) and corresponding
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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”). As the default had not been cured through the Waiver date, mandatory default penalties of $
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
As a result of the change in the Original Warrant extended termination date and the New Warrant issued in exchange for the Waiver,
The debt discount amortization expense recorded as amortization of interest in the condensed consolidated statement of operations was $
The Company incurred $
NOTE 9. NOTES PAYABLE
RELATED PARTIES
Related party notes payable consist of the following:
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||
Convertible Notes Payable with Warrants - 2021 Debt Offering |
| $ |
|
| $ |
| ||
Non-Convertible Note Payable |
|
|
|
|
|
| ||
Unamortized Debt Discount |
|
| ( | ) |
|
| ( | ) |
Net Related Party Notes Payable |
| $ |
|
| $ |
| ||
Current Portion |
|
| ( | ) |
|
| ( | ) |
Net Long-Term Portion |
| $ |
|
| $ |
|
Total interest expense for related party notes was $
Related Party Convertible Notes Payable with Warrants - 2021 Debt Offering
The Company had four and thirteen convertible notes payable to related parties with total principal balances of $
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The notes contain both voluntary and automatic conversion features. The notes may be converted at any time, by the holders, beginning on the date of issuance. However, the holders may not convert any outstanding amounts due under the note, if at the time of such conversion the amount of common stock issued for the conversion, when added to other shares of Company common stock owned by the holders or which can be acquired by holders upon exercise or conversion of any other instrument, would cause the holder to own more than 4.9% of the Company’s outstanding common stock. Beginning on the issuance date, the outstanding principal amount of the note, and any accrued interest, will 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.
The Company evaluated the convertible notes payable for embedded derivatives and beneficial conversion features and determined that there were beneficial conversion features to record. The total beneficial conversion feature debt discount of $
At the time of issuance, a portion of the proceeds from the 2021 debt offering was allocated to the stock warrants issued with the notes based on their relative fair value, resulting in a debt discount of $
Related Party Non-Convertible Note 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 consist of the following:
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||
Convertible Notes Payable with Warrants - 2023 Debt Offering |
| $ |
|
| $ |
| ||
Convertible Notes Payable with Warrants - 2021 Debt Offering |
|
|
|
|
|
| ||
Convertible Notes Payable |
|
|
|
|
|
| ||
Non-Convertible Notes Payable |
|
|
|
|
|
| ||
Premium Financing Note 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 $
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Convertible Notes Payable with Warrants - 2023 Debt Offering
On March 7, 2023, the Company entered into a Debt Offering (the “2023 Debt Offering”) pursuant to a Purchase Agreement (the “Agreement”) and Registration Rights Agreement with institutional investors. The 2023 Debt Offering closed on March 9, 2023. The 2023 Debt Offering includes
Convertible Notes Payable with Warrants - 2021 Debt Offering
The Company had nine and sixteen convertible notes payable to related parties with total principal balances of $
The notes contain both voluntary and automatic conversion features. The notes will be convertible at any time, by the holders, beginning on the date of issuance. However, the holders may not convert any outstanding amounts due under the note if at the time of such conversion the amount of common stock issued for the conversion, when added to other shares of Company common stock owned by the holders or which can be acquired by holders upon exercise or conversion of any other instrument, would cause the holder to own more than 4.9% of the Company’s outstanding common stock. Beginning on the issuance date, the outstanding principal amount of the note, and any accrued interest, will 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.
The Company evaluated the convertible notes payable for embedded derivatives and beneficial conversion features and determined that there were beneficial conversion features to record. The total beneficial conversion feature debt discount of $
At the time of issuance, a portion of the proceeds from the 2021 debt offering was allocated to the stock warrants issued with the notes based on their relative fair value, resulting in a debt discount of $
Convertible Notes Payable
The Company has two convertible notes payable to a non-related entity with principal balances totaling $
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Non-Convertible Notes Payable
The Company has two non-convertible notes payable to non-related parties with principal balances totaling $
Premium Financing Note Payable
On May 25, 2022, the Company entered into a financing agreement for payment of annual Directors & Officers insurance premiums for coverage from May 2022 through May 2023 totaling $
NOTE 10. DERIVATIVE LIABILITY
As discussed in Note 8, in September 2021, the Company completed a financing transaction and received proceeds of $
NOTE 11. COMMON STOCK
The Company’s common stock transactions for the three-months ended March 31, 2023, consist of the following:
The Company issued
The Company’s common stock transactions for the three-months ended March 31, 2022, consisted of the following:
The Company issued
The Company issued
The Company exchanged
NOTE 12. PREFERRED STOCK
On November 20, 2015, the Company’s Board of Directors authorized a class of stock designated as preferred stock with a par value of $
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On December 9, 2019, the Company’s Board of Directors created a class of preferred stock designated as
On March 1, 2022 the Board of Directors approved the designation of
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.
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Stock Warrants
On March 30, 2022, the Company issued warrants to purchase up to
In January 2023, the Company entered into a consulting agreement for professional services to be provided over a 6-month period in exchange for the issuance of
On March 9, 2023, in conjunction with the 2023 Debt Offering (see Note 9), the Company issued a total of
The fair values of stock warrants granted during the three-month periods ended March 31, 2023 and 2022 were determined using the Black-Scholes option pricing model based on the following assumptions:
|
| March 31, 2023 |
|
| March 31, 2022 |
| ||
Exercise Price |
| $ |
|
| $ |
| ||
Dividend Yield |
|
|
|
| % | |||
Volatility |
|
|
|
| % | |||
Risk-free Interest Rate |
|
|
|
| % | |||
Expected Life |
|
|
|
|
The following table summarizes the changes in the Company’s outstanding warrants during the three-month periods ended March 31, 2023 and 2022:
|
| 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 |
|
| - |
|
| $ |
|
|
|
| $ |
|
| $ |
| |||
Balance at March 31, 2022 |
|
|
|
| $ | |
|
|
| $ |
|
| $ |
|
|
| 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, 2022 |
|
|
|
| $ | |
|
|
| $ |
|
| $ |
| ||||
Warrants Granted |
|
|
|
| $ | |
|
|
| $ |
|
| $ |
| ||||
Warrants Exercised |
|
| - |
|
| $ |
|
|
|
| $ |
|
| $ |
| |||
Warrants Expired |
|
| ( | ) |
| $ |
|
|
|
| $ |
|
| $ |
| |||
Balance at March 31, 2023 |
|
|
|
| $ | |
|
|
| $ |
|
| $ |
|
22 |
Table of Contents |
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
At March 31, 2023 and December 31, 2022, the Company had outstanding stock options of
In total for the three months ended March 31, 2023 and 2022, the Company recorded $
In applying the Black-Scholes options pricing model, assumptions used to compute the fair value of stock options granted during the three-month periods ended March 31, 2023 and 2022 were as follows:
|
| March 31, 2023 |
|
| March 31, 2022 |
| ||
Exercise Price |
| $ | |
|
| $ | |
|
Dividend Yield |
|
| % |
|
| % | ||
Volatility |
| % |
| % | ||||
Risk-free Interest Rate |
| % |
| % | ||||
Expected Term |
|
|
| |
|
The following table summarizes the changes in the Company’s outstanding stock options during the three-month periods ended March 31, 2023 and 2022:
|
| 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 Expired/Forfeited |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
| |||
Balance at March 31, 2022 |
|
|
|
| $ | |
|
|
|
| $ |
|
| $ |
|
23 |
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 |
| |||||
Balance at December 31, 2022 |
|
|
|
| $ | |
|
|
|
| $ |
|
| $ |
| |||||
Options Granted |
|
|
|
| $ | |
|
|
|
| $ |
|
|
|
| |||||
Options Exercised |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
| |||
Options Expired/Forfeited |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
| |||
Balance at March 31, 2023 |
|
|
|
| $ | |
|
|
|
| $ |
|
| $ |
|
|
| 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, 2022 |
|
|
|
| $ | |
|
|
| $ |
|
| $ |
| ||||
Exercisable at March 31, 2023 |
|
|
|
| $ |
|
|
| $ |
|
| $ |
|
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 three-month periods ended March 31, 2023 and 2022:
|
| RSUs |
|
| Weighted Average Grant Date Fair Value Per Share |
|
| Weighted Average Vesting Period |
| |||
Unvested at December 31, 2021 |
|
|
|
| $ |
|
|
| ||||
Granted |
|
|
|
|
|
|
|
| ||||
Vested |
|
| - |
|
|
|
|
|
|
|
| |
Unvested at March 31, 2022 |
|
|
|
| $ |
|
|
|
24 |
Table of Contents |
|
| RSUs |
|
| Weighted Average Grant Date Fair Value Per Share |
|
| Weighted Average Vesting Period |
| |||
Unvested at December 31, 2022 |
|
|
|
| $ |
|
|
| ||||
Granted |
|
| - |
|
|
|
|
|
| - |
| |
Vested |
|
| - |
|
|
|
|
|
| - |
| |
Unvested at March 31, 2023 |
|
|
|
| $ |
|
|
|
In total for the three months ended March 31, 2023 and 2022, the Company recorded $
Executive Officers Stock Options and RSUs
The Company had
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 May 15, 2023, which is the date the condensed consolidated financial statements were available to be issued.
On April 5, 2023, the Company received notice from holders of the Company’s Series B Preferred Shares, SOBR Safe, Inc. CEO, David Gandini, and IDTEC SPV, LLC, an entity controlled by a beneficial owner of the Company, for exercise of their option to convert the Series B Convertible Preferred Stock to Common Shares on a three to one basis. On April 20, 2023, the Company completed the conversion of
On April 12, 2023, the Company paid $
On April 17, 2023, the Company entered into the First Amendment to the current office lease extending the term of the lease from July 1, 2023 through September 30, 2024. The First Amendment requires monthly base rent payments of $
25 |
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.
Corporate Overview
On September 19, 2011, we, as 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.
On March 9, 2020, our Board of Directors approved the amendment to our Certificate of Incorporation and stockholders holding 52% 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, changing our name from “TransBiotec, Inc.” to “SOBR Safe, Inc.” The Certificate of Amendment to our Certificate of Incorporation became effective with the State of Delaware on April 24, 2020.
On April 28, 2022, the Company completed a 3-for-1 reverse stock split which went effective with the 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 of the 3-for-1 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.
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.
26 |
Table of Contents |
The following discussion:
| o | summarizes our plan of operation; and |
| o | analyzes our financial condition and the results of our operations for the three-months ended March 31, 2023. |
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, 2022.
Business Operations and Outlook
We provide organizations with a non-invasive technology that quickly and safely identifies the presence of alcohol in its employees, contractors, participants or patients. 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 benefits and positively impact behavior. To that end, we developed the scalable, patent-pending SOBRsafe™ software platform for non-invasive alcohol detection and identity verification, a solution that has applications in probation management, fleet & facility safety, and for outpatient alcohol rehabilitation and youth drivers in a wearable form. We believe that uniform daily use of our device could result in material insurance savings across workers’ compensation, general liability, umbrella and fleet policies.
SOBRcheck™ is our stationary identification and alcohol monitoring product. When installed, SOBRcheck™ enables a rapid, hygienic biometric finger scan to authenticate ID and determine the presence or absence of alcohol. The SOBRcheck™ product provides the administrator with real-time results, delivered securely, to more efficiently manage their existing substance abuse policy. Our device is meant to be a specific point in time, quick test for the presence of alcohol, with the results to be used as a complementary data source in support of the organization’s alcohol policies. If alcohol is detected by the device, then our customers follow up in accordance with its own policies, which could include additional tests via a blood test or breathalyzer (we will not provide these devices). We will gather de-identified information regarding Pass/Fail tests for use in determining trends in a company and/or industry, etc., but such information does not include any specific data about the individual user, only whether a pass or fail result occurred.
We are in commercial production and sale of our SOBRcheck™ solution. We have executed customer agreements and have had revenue since the first quarter 2022.
Our second device, the SOBRsure™, is our transdermal, alcohol-detecting wearable wristband that uses the same SOBRsafe™ hardware/software technology platform for ongoing, real-time alcohol monitoring and GPS tracking. The primary intended applications include probation management, fleet & facility, outpatient alcohol rehabilitation, commercial fleets and youth drivers. The wearable band will be commercially available in the second quarter of 2023.
Our SOBRsafe™ technology can also be deployed across numerous additional devices and form factors 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.
Design, manufacturing, quality testing and distribution for all SOBRsafe™ devices takes place in the United States.
Our SOBRcheck™ and SOBRsureTM revenue model consists of two components: a hardware device purchase price and a recurring monthly SaaS subscription fee per user.
27 |
Table of Contents |
Recent Developments
March 2023 Senior Convertible Debt Offering (“Debt Offering”)
On March 7, 2023, we entered into a Purchase Agreement and Registration Rights Agreement with institutional investors and issued an aggregate of $3.5 million principal amount of convertible senior notes due in 2025 and accompanying warrants to purchase 386,998 shares of Company common stock for aggregate gross proceeds of approximately $3.0 million, before deducting fees to the placement agent and other expenses payable by the Company. The Company has utilized the proceeds to replace and pay off approximately $2.5 million in existing debt. The transaction financing closed on March 9, 2023
Pursuant to the convertible note agreement, the Notes have an original issue discount of 15%. The Notes mature on March 10, 2025, unless earlier converted upon the satisfaction of certain conditions. The initial conversion price is $2.28 per share of Common Stock, subject to adjustment upon the occurrence of specific events. Interest on the Notes shall commence accruing on the Issuance Date at the Interest Rate of 5% per annum (as defined in the Note Agreement) and shall be computed on the basis of a 360-day year and twelve 30-day months.
Pursuant to the common stock purchase warrant, the Warrants are immediately exercisable upon the date of issuance and have an initial exercise price of $2.52. The Company issued 386,998 Warrants. The Warrants expire on March 9, 2028, five years from the date of issuance. Pursuant to the terms of the Registration Rights Agreement, the Company will register the Common Stock underlying the Warrants no later than the 45th calendar day following the closing of the Offering. The Company completed registration of Common Stock underlying both the conversion of the Notes and the Warrants which became effective April 21, 2023.
Business Outlook and Challenges
Our products continue to gain awareness and recognition through trade shows, media exposure, social media and product demonstrations. To generate sales, we have a three-part strategy: 1) direct sales, 2) distributors and 3) licensing & integration. We currently employ four highly experienced sales professionals. We have signed nine distributors, representing an additional 29 sales professionals actively introducing our solutions to established drug and alcohol testing buyers. Finally, initial licensing & integration discussions are underway, and we anticipate hiring an expert in this field in 2023 to formulate and execute a global expansion plan.
We anticipate that our outsourced manufacturers can adequately support an increase in sales for the foreseeable future. We expect that we will need to continue to evolve our products and software to meet diverse customer requirements across varied markets.
Since inception in August 2007, we have generated significant losses from operations and anticipate that we will continue to generate significant losses for the foreseeable future.
On March 9, 2023, the Company received approximately $2,500,000 of net proceeds from the Debt Offering pursuant to a Purchase Agreement (the “Agreement”) and Registration Rights Agreement with institutional investors. The March 2023 Debt Offering requires that the $2,005,000 of the convertible notes payable due in March, April and May 2023 be paid by April 24, 2023. Total principal balances of the convertible notes at March 31, 2023 are $905,000 and are payable at $155,000 and $750,000 in April 2023 and May 2023, respectively. On April 12, 2023, the Company prepaid the principal and all accrued interest for the convertible notes due in April and May 2023.
Management believes that cash balances of approximately $8,300,000 and positive working capital of $7,100,000 at March 31, 2023 provide adequate working capital for operating activities for the next twelve months after the date these financial statements are issued. Further, actions presently being taken to generate product and services revenues in addition to working capital provide the opportunity for the Company to continue as a going concern as of March 31, 2023.
28 |
Table of Contents |
Additional 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.
Impact of COVID-19 on our Business
We are closely monitoring the coronavirus and the directives from federal and local authorities regarding not only our workforce, but how it impacts companies we work with for the development of our SOBRSafe™ technology and the devices that deploy that technology. The extent to which the COVID-19 continues to impact our financial conditions and results of operations, or those of our third-party suppliers, will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, including the duration of new outbreaks, information which may emerge concerning the severity of COVID-19 and the actions being taken to contain COVID-19 or treat its impact, among others. Governmental agencies can fluctuate in their implementation of social distancing and “work from home” regulations. If those regulations increase then the chances increase that more and more companies may be forced to either shut down, slow down or alter their work routines. Since the development and testing of our SOBR technologies and the potential platform devices is a “hands on” process, these alternative work arrangements could significantly slow down our anticipated schedules for the marketing and sale of our SOBR devices, which could have a negative impact our business. 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 variants and the global responses to curb its spread, we are not able to estimate the effects of the COVID-19 on our results of operations, financial condition, or liquidity for fiscal year 2023. However, as the COVID-19 variants continue, it could have an adverse effect on our results of future operations, financial position and liquidity in fiscal year 2023.
29 |
Table of Contents |
Results of Operations for Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
Summary of Results of Operations
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Revenue |
| $ | 47,868 |
|
| $ | 1,500 |
|
Cost of sales |
|
| 30,064 |
|
|
| 1,100 |
|
Gross Profit |
|
| 17,804 |
|
|
| 400 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
General and administrative |
|
| 1,584,950 |
|
|
| 863,100 |
|
Stock-based compensation expense |
|
| 698,913 |
|
|
| 934,225 |
|
Research and development |
|
| 180,918 |
|
|
| 47,459 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
| 2,464,781 |
|
|
| 1,884,784 |
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (2,446,977 | ) |
|
| (1,844,384 | ) |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Other income (expense), net |
|
| 70,470 |
|
|
| 27 |
|
Loss on extinguishment of debt |
|
| - |
|
|
| (864,000 | ) |
Loss on fair value adjustment – derivatives |
|
| - |
|
|
| (340,000 | ) |
Interest expense |
|
| (225,185 | ) |
|
| (1,941,105 | ) |
Amortization of interest – conversion features |
|
| - |
|
|
| (580,221 | ) |
Total other expense, net |
|
| (154,715 | ) |
|
| (3,725,299 | ) |
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (2,601,692 | ) |
| $ | (5,569,683 | ) |
Operating Loss; Net Loss
Our net loss decreased by $2,967,991 from $5,569,683 to $2,601,692, from the three-month period ended March 31, 2022 compared to the three-month period ended March 31, 2023. The change in our net loss and operating loss for the three months ended March 31, 2023, compared to the same prior year period, is primarily a result in acceleration of our planned strategic operational activities resulting in increases for general and administrative expenses, and research and development expense, which have been offset by a reduction in costs associated with financing activities including interest expenses and other financing related costs, and stock-based compensation expense. The changes are detailed below.
Revenue
Prior to the three-month period ended March 31, 2022, 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 $47,868 during the first quarter 2023 compared to $1,500 in the prior year quarter.
Gross Profit
The cost of sales for the three-months ended March 31, 2023 was $30,064 resulting in a gross profit of $17,804 and a gross margin of 37.2%. The cost of sales for the three-months ended March 31, 2022 was $1,100 resulting in a gross profit of $400 and a gross margin of 27%. Due to the limited history of generating revenue, the gross profit and gross margins at March 31, 2023 and 2022 are not indicative of future planned or actual performance of the Company, its product lines or services.
30 |
Table of Contents |
General and Administrative Expenses
General and administrative expenses increased by $721,850, from $863,100 for the three-month period ended March 31, 2022 to $1,584,950 for the three-month period ended March 31, 2023. The increase from the same prior year period is primarily due to increases in our employee compensation and benefits of $250,780 as a result of our increased employee base, professional, legal and consulting services of $294,361, insurance expense of $75,507, and other general & administrative expenses in aggregate of $101,202
Stock-Based Compensation Expense
The Company had stock-based compensation expense of $698,913 for the three-months ended March 31, 2023, compared to $934,225 for the three-months ended March 31, 2022. The stock-based compensation expense was related to the issuance of our common stock or restricted stock units as compensation to certain consultants and employees that is recognized over the period of service.
Research and Development
Research and development expenses increased by $133,459, to $180,918 for the three-months ended March 31, 2023, compared to $47,459 for the three-months ended March 31, 2022. The increase in research and development was due to the continued development of our SOBR® Safe™ software platform, and the final development stages of our SOBRsure™ device, as the Company prepares to commercialize the device in the second quarter of 2023. During the three months ended March 31, 2022, the Company was in the final development stages of the SOBRcheckTM device and the initial development of the SOBRsafeTM software platform largely complete.
Fair Value Adjustment – Derivatives
Fair value adjustment – derivatives was a loss of $340,000 for the three-month period ended March 31, 2022, which is related to outstanding financial instruments issued in September 2021 that contain an embedded derivative liability component. We did not have any outstanding financial instruments that contain derivative liability components during the three-month period ended, March 31, 2023. The gain or loss related to the instruments are affected by the price of our common stock.
Interest Expense
Interest expense decreased by $1,715,920, from $1,941,105 for the three-month period ended March 31, 2022 to $225,185 for the three-month period ended March 31, 2023. This decrease is primarily attributable to the lower interest expense of $801,286 from outstanding convertible debt and related default penalties of $914,634 during the three months ended March 31, 2022 compared to the same period in 2023.
Amortization of Interest – Conversion Features
During the three-months ended March 31, 2023, the Company had amortization of interest – beneficial conversion feature expense of none compared to $580,221 during the three-months ended March 31, 2022. The expense for the three-month period ending March 31, 2022 was related to the amortized discount on convertible notes payable.
31 |
Table of Contents |
Liquidity and Capital Resources for Three Months Ended March 31, 2023 Compared to December 31, 2022
Introduction
During the three-months ended March 31, 2023, because of our operating losses, we did not generate positive operating cash flows. Future capital requirements will depend on many factors, including the Company’s ability to sell and develop products, generate cash flow from operations, and assess competing market developments. The Company may need additional capital in the future. Our cash on hand as of March 31, 2023 is $8,290,003 and our current normalized monthly operating cash flow burn rate is approximately $500,000. Management believes the cash balance at March 31, 2023 will provide adequate working capital for operating activities for the next twelve months after the date these financial statements are issued.
Our cash, current assets, total assets, current liabilities, and total liabilities as of March 31, 2023 and as of December 31, 2022, respectively, are as follows:
|
| March 31, 2023 |
|
| December 31, 2022 |
|
| Change |
| |||
Cash |
| $ | 8,290,003 |
|
| $ | 8,578,997 |
|
| $ | (288,994 | ) |
Total Current Assets |
|
| 9,308,366 |
|
|
| 9,025,717 |
|
|
| 282,649 |
|
Total Assets |
|
| 12,098,320 |
|
|
| 11,912,037 |
|
|
| 186,283 |
|
Total Current Liabilities |
|
| 1,837,384 |
|
|
| 2,821,684 |
|
|
| (984,300 | ) |
Total Liabilities |
|
| 3,944,760 |
|
|
| 2,821,684 |
|
|
| 1,123,076 |
|
Our current assets and total assets increased as of March 31, 2023, as compared to December 31, 2022, primarily due to the completion of a convertible debt financing resulting in net proceeds of approximately $2,500,000 offset by the use of cash to support our negative cash flow from operations.
Our current liabilities decreased as of March 31, 2023, as compared to December 31, 2022. This decrease was primarily due to payments made to principal and interest amounts owed to holders of convertible debt notes payable which matured during the three-month period ending March 31, 2023 and a decrease in accrued expenses which are offset by increases in operating accounts payable.
In order to repay all our obligations in full or in part when due, we will be required to generate adequate cash flow from operations or 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 $1,589,453 for the three-month period ended March 31, 2023, as compared to net cash used for operating activities of $774,820 for the three-month period ended March 31, 2022. For the period in 2023, the net cash used in operating activities consisted primarily of our net loss of $2,601,692, offset by non-cash expense items including depreciation and amortization of $96,366, amortization of interest of $21,644, stock warrants expense of $134,598, and stock-based compensation expense of $698,913, bad debt expense of $882 and changes in our assets and liabilities for accounts receivable of ($648), inventory of ($34,239), prepaid expenses of $162,477, accounts payable of $198,159, accrued expenses of $(87,986), and accrued interest payable of $(177,927).
For the period in 2022, the net cash used in operating activities consisted primarily of our net loss of $5,569,684, offset by non-cash expense items including depreciation and amortization of $96,366, loss on extinguishment of debt of $864,000, change in fair value of a derivative liability by $340,000, amortization of interest – conversion features of $1,291,882, amortization of interest of $252,297, stock options expense of $491,441, and stock-based compensation expense of $442,784, and changes in our assets and liabilities for accounts receivable of ($500), inventory of ($65,489), prepaid expenses of $8,267, accounts payable of $84,323, accrued expenses of $929,059, and accrued interest payable of $60,437.
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Investments
We had no cash provided by or used in investing activities during the three-month periods ended March 31, 2023 or March 31, 2022.
Financing
We received gross proceeds from the issuance of convertible notes payable of $3,000,001 during the three-month period ended March 31, 2023 which was offset by issuance costs of $537,750. Payments of approximately $1,161,792 were made toward the principal and accrued interest amounts for matured convertible notes payable issued in 2021 to both related and non-related parties.
We had no cash provided by or used in financing activities during the three-month period ended March 31, 2022.
Contractual Obligations and Commitments
At March 31, 2023, the Company had no financial commitments and was not committed to material contractual obligations for the design, production, delivery or assembly of its software platform or associated devices, or commercial leases.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements as of March 31, 2023 and December 31, 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 2023.
Recent Accounting Pronouncements
There have been no recent accounting pronouncements or changes in accounting pronouncements during the period ended March 31, 2023, or subsequently thereto, that we believe are of potential significance to our financial statements.
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.
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ITEM 4 Controls and Procedures
(a) Evaluation of Disclosure and Controls Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) 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 March 31, 2023, 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. In order to remediate the material weakness in our documentation, evaluation and testing of internal controls, the Company hired a new Chief Financial Officer and a Vice President of Finance and Accounting in 2022, and a Controller in February 2023 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. These additions will significantly decrease the risk associated with the identified material weaknesses including segregation of duties, design, and documentation of internal controls. However, we may need to hire additional qualified and experienced personnel to assist us in further remedying these material weaknesses, especially with our transactional accounting and the preparation of our financial statements. To that end, we plan to hire additional qualified individuals whose primary job responsibilities will be performing day-to-day accounting-related functions. Although the Company began mitigating certain limitations in the effectiveness of its system of controls and procedures during 2022 and the three month period ended March 31, 2023, 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, 2022.
(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.
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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 2023. 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.
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 March 31, 2023 we issued the following unregistered securities.
The Company issued 225,000 common shares and 225,000 warrants to purchase common shares for professional services.
The Company entered into a Purchase Agreement and Registration Rights Agreement issuing an aggregate of $3.5 million principal amount of convertible senior notes (the “Notes”) due in 2025 and accompanying warrants (the “Warrants”) to purchase common shares of the Company. The initial conversion price for the Notes is $2.28 per share of common stock. The Company issued 386,998 Warrants with an initial exercise price of $2.52 per Warrant. The Company completed a registration statement for 1,709,734 shares of common stock underlying the outstanding Notes and 386,998 shares of common stock underlying the Warrants which was effective April 21, 2023.
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 March 31, 2023 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 March 31, 2023 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 March 31, 2023 this note was in default.
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 March 31, 2023 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 March 31, 2023 this note was in default.
ITEM 4 Mine Safety Disclosures
There have been no events which are required to be reported under this Item.
ITEM 5 Other Information
None.
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ITEM 6 Exhibits
_________
* 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 |
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(2) | Incorporated by reference from our Registration Statement on Form S-1, filed with the Commission on November 6, 2012 |
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(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 |
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(4) | Incorporated by reference from our Current Report on Form 8-K, filed with the Commission on November 18, 2019. |
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(5) | Incorporated by reference from our Current Report on Form 8-K, filed with the Commission on June 11, 2020. |
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(6) | Incorporated by reference from our Current Report on Form 8-K, filed with the Commission on February 3, 2023. |
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(7) | Incorporated by reference from our Current Report on Form 8-K, filed with the Commission on March 13, 2023. |
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(8) | Incorporated by reference from our Annual Report on Form 8-K, filed with the Commission on April 11, 2023. |
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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. |
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Dated: May 15, 2023 |
| /s/ David Gandini |
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| By: | David Gandini |
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| Its: | Chief Executive Officer and Principal Executive Officer |
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