10-Q 1 sobr_10q.htm FORM 10-Q sobr_10q.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended September 30, 2023

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from _______________ to _______________.

 

Commission file number:  000-53316

 

SOBR SAFE, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

26-0731818

(State or other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

6400 S. Fiddlers Green Circle,

Suite 1400 Greenwood Village, Colorado

 

80111

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code (844) 762-7723

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.00001 par value

 

SOBR 

 

 The Nasdaq Market (Nasdaq)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

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). Yes ☒ No ☐

 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated Filer

Smaller reporting company

Emerging growth company

 

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

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 8, 2023, there were 18,544,570 shares of common stock, $0.00001 par value, issued and outstanding.

 

 

 

 

SOBR SAFE, INC.

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

ITEM 1

Condensed Consolidated Financial Statements

 

4

 

 

 

 

ITEM 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26

 

 

 

 

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

 

35

 

 

 

 

ITEM 4

Controls and Procedures

 

35

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1

Legal Proceedings

 

37

 

 

 

 

ITEM 1A

Risk Factors

 

37

 

 

 

 

ITEM 2

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

 

37

 

 

 

 

ITEM 3

Defaults Upon Senior Securities

 

37

 

 

 

 

ITEM 4

Mine Safety Disclosures

 

37

 

 

 

 

ITEM 5

Other Information

 

37

 

 

 

 

ITEM 6

Exhibits

 

38

 

 
2

Table of Contents

 

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

 

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

 

PART I – FINANCIAL INFORMATION

 

ITEM 1 Condensed Consolidated Financial Statements

 

The condensed consolidated balance sheets as of September 30, 2023, and December 31, 2022, the condensed consolidated statements of operations for the three and nine months ended September 30, 2023, and 2022, the condensed consolidated statements of changes in stockholders’ equity for the three and nine months ended September 30, 2023, and 2022, and the condensed consolidated statements of cash flows for the nine months ended September 30, 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.

 

 
4

Table of Contents

 

 SOBR SAFE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

ASSETS

 

(Unaudited)

 

 

(Audited)

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$4,124,569

 

 

$8,578,997

 

Accounts receivable, net

 

 

25,734

 

 

 

30,322

 

Inventory

 

 

267,214

 

 

 

215,493

 

Prepaid expenses

 

 

297,639

 

 

 

200,905

 

Other current assets

 

 

2,675

 

 

 

-

 

Total current assets

 

 

4,717,831

 

 

 

9,025,717

 

Operating lease right-of-use assets, net

 

 

295,993

 

 

 

-

 

Intellectual technology, net

 

 

2,569,795

 

 

 

2,858,893

 

Other assets

 

 

43,163

 

 

 

27,427

 

Total Assets

 

$7,626,782

 

 

$11,912,037

 

 

 

 

 

 

 

 

 

 

LIABILITIES & STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$249,019

 

 

$142,965

 

Accrued expenses

 

 

405,453

 

 

 

392,282

 

Accrued interest payable

 

 

94,858

 

 

 

469,691

 

Related party payables

 

 

-

 

 

 

1,887

 

Operating lease liabilities, current portion

 

 

93,775

 

 

 

-

 

Notes payable - related parties, net

 

 

11,810

 

 

 

866,262

 

Notes payable - non-related parties, net

 

 

175,695

 

 

 

948,597

 

Total current liabilities

 

 

1,030,610

 

 

 

2,821,684

 

Operating lease liabilities - less current portion

 

 

229,204

 

 

 

-

 

Notes payable - non-related parties, net - less current portion

 

 

2,160,855

 

 

 

-

 

Accrued interest payable

 

 

91,082

 

 

 

-

 

Total Liabilities

 

 

3,511,751

 

 

 

2,821,684

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Preferred stock, $0.00001 par value; 16,300,000 shares authorized, no shares issued or outstanding at September 30, 2023 and December 31, 2022

 

 

-

 

 

 

-

 

Series A Convertible Preferred stock, $0.00001 par value; 3,000,000 shares authorized, no shares issued or outstanding at September 30, 2023 and December 31, 2022

 

 

-

 

 

 

-

 

Series A-1 Convertible Preferred stock, $0.00001 par value; 2,700,000 shares authorized, no shares issued or outstanding at September 30, 2023 and December 31, 2022

 

 

-

 

 

 

-

 

Series B Convertible Preferred stock, $0.00001 par value; 3,000,000 shares authorized, none and 3,000,000 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

 

 

-

 

 

 

30

 

Common stock, $0.00001 par value; 100,000,000 shares authorized, 18,544,570 and 16,984,570 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

 

 

185

 

 

 

170

 

Treasury stock, at cost; 12,329 shares at September 30, 2023 and December 31, 2022

 

 

(38,015 )

 

 

(38,015 )

Additional paid-in capital

 

 

89,430,821

 

 

 

87,509,666

 

Accumulated deficit

 

 

(85,224,294 )

 

 

(78,327,845 )

Total SOBR Safe, Inc. stockholders' equity

 

 

4,168,697

 

 

 

9,144,006

 

Noncontrolling interest

 

 

(53,666 )

 

 

(53,653 )

Total Stockholders' Equity

 

 

4,115,031

 

 

 

9,090,353

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity

 

$7,626,782

 

 

$11,912,037

 

 

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

 

 

 

For The Three

Months Ended

September 30,

 

 

For The Nine

Months Ended

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

Revenues

 

$36,274

 

 

$9,734

 

 

$121,743

 

 

$12,734

 

Cost of goods and services

 

 

20,195

 

 

 

4,950

 

 

 

66,835

 

 

 

6,050

 

Gross profit

 

 

16,079

 

 

 

4,784

 

 

 

54,908

 

 

 

6,684

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative

 

 

1,358,749

 

 

 

1,732,382

 

 

 

4,843,082

 

 

 

3,953,961

 

Stock-based compensation expense

 

 

509,999

 

 

 

594,763

 

 

 

1,836,674

 

 

 

2,272,826

 

Research and development

 

 

214,374

 

 

 

459,847

 

 

 

588,467

 

 

 

992,491

 

Total operating expenses

 

 

2,083,122

 

 

 

2,786,992

 

 

 

7,628,223

 

 

 

7,219,278

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(2,067,043 )

 

 

(2,782,208 )

 

 

(7,213,315 )

 

 

(7,212,594 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income, net

 

 

48,677

 

 

 

1,292

 

 

 

179,734

 

 

 

217,722

 

Gain (loss) on debt extinguishment, net

 

 

-

 

 

 

-

 

 

 

(26,125 )

 

 

245,105

 

Gain on fair value adjustment – derivatives, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,040,000

 

Interest expense

 

 

(179,014 )

 

 

(317,774 )

 

 

(613,324 )

 

 

(3,146,987 )

Total other expense, net

 

 

(130,337 )

 

 

(316,482 )

 

 

(459,715 )

 

 

(1,644,160 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before provision for income taxes

 

 

(2,197,380 )

 

 

(3,098,690 )

 

 

(7,673,030 )

 

 

(8,856,754 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(2,197,380 )

 

 

(3,098,690 )

 

 

(7,673,030 )

 

 

(8,856,754 )

Net loss attributable to noncontrolling interest

 

 

4

 

 

 

4

 

 

 

13

 

 

 

13

 

Net loss attributable to SOBR Safe, Inc.

 

 

(2,197,376 )

 

 

(3,098,686 )

 

 

(7,673,017 )

 

 

(8,856,741 )

Deemed dividends related to warrant down round provisions

 

 

-

 

 

 

(8,501,440 )

 

 

-

 

 

 

(8,501,440 )

Net loss attributable to common stockholders

 

$(2,197,376 )

 

$(11,600,126 )

 

$(7,673,017 )

 

$(17,358,181 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per common share

 

$(0.12 )

 

$(1.06 )

 

$(0.43 )

 

$(1.82 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

18,544,570

 

 

 

10,973,759

 

 

 

18,004,790

 

 

 

9,516,637

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Preferred Stock

 

 

Treasury Stock

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

Total

 

 

 

 

 

Amount

 

 

 

 

Amount

 

 

 

 

 

 

Additional

 

 

 

 

 

(Deficit)

 

 

 

 

 

Stockholders’

 

 

 

 

 

 

($0.00001

 

 

 

 

($0.00001

 

 

 

 

Amount

 

 

Paid-in

 

 

Accumulated

 

 

SOBR Safe,

 

 

Noncontrolling

 

 

Equity

 

 

 

Shares

 

 

Par)

 

 

Shares

 

 

Par)

 

 

Shares

 

 

(at cost)

 

 

Capital

 

 

Deficit

 

 

Inc.

 

 

Interest

 

 

  (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at January 1, 2022

 

 

8,778,555

 

 

$88

 

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

 

$57,041,447

 

 

$(57,471,492 )

 

$(429,957 )

 

$(53,636 )

 

$(483,593 )

Common stock issued for restricted stock units

 

 

16,667

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common stock issued for convertible debt

 

 

7,917

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

47,500

 

 

 

-

 

 

 

47,500

 

 

 

-

 

 

 

47,500

 

Common stock exchanged for convertible preferred stock

 

 

(1,000,000 )

 

 

(10 )

 

 

3,000,000

 

 

 

30

 

 

 

-

 

 

 

-

 

 

 

(20 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

934,225

 

 

 

-

 

 

 

934,225

 

 

 

-

 

 

 

934,225

 

Paid-in capital - relative fair value of stock warrants granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

864,000

 

 

 

-

 

 

 

864,000

 

 

 

-

 

 

 

864,000

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,569,679 )

 

 

(5,569,679 )

 

 

(4 )

 

 

(5,569,683 )

Balances at March 31, 2022

 

 

7,803,139

 

 

$78

 

 

 

3,000,000

 

 

$30

 

 

 

-

 

 

$-

 

 

$58,887,152

 

 

$(63,041,171 )

 

$(4,153,911 )

 

$(53,640 )

 

$(4,207,551 )

Common stock and warrants issued in public equity offering, net of issuance costs

 

 

2,532,942

 

 

 

24

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,694,339

 

 

 

-

 

 

 

8,694,363

 

 

 

-

 

 

 

8,694,363

 

Additional common stock issued upon reverse stock split

 

 

1,012

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common stock issued for professional services

 

 

800,000

 

 

 

8

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

718,992

 

 

 

-

 

 

 

719,000

 

 

 

-

 

 

 

719,000

 

Common stock issued for restricted stock units vested

 

 

16,666

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

761,437

 

 

 

-

 

 

 

761,437

 

 

 

-

 

 

 

761,437

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(188,376 )

 

 

(188,376 )

 

 

(5 )

 

 

(188,381 )

Balances at June 30, 2022

 

 

10,973,759

 

 

$110

 

 

 

3,000,000

 

 

$30

 

 

 

-

 

 

$-

 

 

$69,044,321

 

 

$(63,229,547 )

 

$5,814,914

 

 

$(53,645 )

 

$5,761,269

 

Common stock issued in financing transaction, net of issuance costs

 

 

1,925,677

 

 

 

19

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,130,754

 

 

 

-

 

 

 

5,130,773

 

 

 

-

 

 

 

5,130,773

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

594,763

 

 

 

-

 

 

 

594,763

 

 

 

-

 

 

 

594,763

 

Deemed dividend s related to warrant down round provisions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,501,440

 

 

 

(8,501,440 )

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,098,686 )

 

 

(3,098,686 )

 

 

(4 )

 

 

(3,098,690 )

Balances at September 30, 2022

 

 

12,899,436

 

 

$129

 

 

 

3,000,000

 

 

$30

 

 

 

-

 

 

$-

 

 

$83,271,278

 

 

$(74,829,673 )

 

$8,441,764

 

 

$(53,649 )

 

$8,388,115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at January 1, 2023

 

 

16,984,570

 

 

$170

 

 

 

3,000,000

 

 

$30

 

 

 

(12,329 )

 

$(38,015 )

 

$87,509,666

 

 

$(78,327,845 )

 

$9,144,006

 

 

$(53,653 )

 

$9,090,353

 

Cumulative effect of adopting ASU 2020-06

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(909,214 )

 

 

776,568

 

 

 

(132,646 )

 

 

-

 

 

 

(132,646 )

Common stock issued for services

 

 

225,000

 

 

 

2

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

211,498

 

 

 

-

 

 

 

211,500

 

 

 

-

 

 

 

211,500

 

Warrants issued for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

162,481

 

 

 

-

 

 

 

162,481

 

 

 

-

 

 

 

162,481

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

698,913

 

 

 

-

 

 

 

698,913

 

 

 

-

 

 

 

698,913

 

Paid in capital - relative fair value of stock warrants granted, net of issuance costs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

398,517

 

 

 

-

 

 

 

398,517

 

 

 

-

 

 

 

398,517

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,601,687 )

 

 

(2,601,687 )

 

 

(5 )

 

 

(2,601,692 )

Balances at March 31, 2023

 

 

17,209,570

 

 

$172

 

 

 

3,000,000

 

 

$30

 

 

 

(12,329 )

 

$(38,015 )

 

$88,071,861

 

 

$(80,152,964 )

 

$7,881,084

 

 

$(53,658 )

 

$7,827,426

 

Conversion of preferred stock to common stock

 

 

1,000,000

 

 

 

10

 

 

 

(3,000,000 )

 

 

(30 )

 

 

-

 

 

 

-

 

 

 

20

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common stock issued for restricted stock units vested

 

 

185,000

 

 

 

2

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common stock issued upon conversion of convertible debt

 

 

150,000

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

221,181

 

 

 

-

 

 

 

221,182

 

 

 

-

 

 

 

221,182

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

627,762

 

 

 

-

 

 

 

627,762

 

 

 

-

 

 

 

627,762

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,873,954 )

 

 

(2,873,954 )

 

 

(4 )

 

 

(2,873,958 )

Balances at June 30, 2023

 

 

18,544,570

 

 

$185

 

 

 

-

 

 

$-

 

 

 

12,329

 

 

$(38,015 )

 

$88,920,822

 

 

$(83,026,918 )

 

$5,856,074

 

 

$(53,662 )

 

$5,802,412

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

509,999

 

 

 

-

 

 

 

509,999

 

 

 

-

 

 

 

509,999

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,197,376 )

 

 

(2,197,376 )

 

 

(4 )

 

 

(2,197,380 )

Balances at September 30, 2023

 

 

18,544,570

 

 

$185

 

 

 

-

 

 

$-

 

 

 

(12,329 )

 

$(38,015 )

 

$89,430,821

 

 

$(85,224,294 )

 

$4,168,697

 

 

$(53,666 )

 

$4,115,031

 

 

 The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 
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 SOBR SAFE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

For The Nine Months Ended

 

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Operating Activities:

 

 

 

 

 

 

Net loss

 

$(7,673,030 )

 

$(8,856,754 )

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

 

289,098

 

 

 

289,098

 

Amortization of debt discounts

 

 

417,647

 

 

 

2,043,288

 

(Gain) loss on extinguishment of debt

 

 

26,125

 

 

 

(245,105 )

Change in fair value of derivative liability

 

 

-

 

 

 

(1,040,000 )

Stock-based compensation expense

 

 

1,836,674

 

 

 

2,272,826

 

Non-cash interest expense

 

 

29,638

 

 

 

-

 

Non-cash lease expense

 

 

34,714

 

 

 

-

 

Bad debt expense

 

 

1,132

 

 

 

-

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

3,456

 

 

 

(8,484 )

Inventory

 

 

(51,721 )

 

 

(157,303 )

Prepaid expenses

 

 

571,129

 

 

 

375,001

 

Other assets

 

 

(18,411 )

 

 

3,149

 

Accounts payable

 

 

106,054

 

 

 

(149,145 )

Accrued expenses

 

 

13,171

 

 

 

1,027,548

 

Accrued interest payable

 

 

(281,079 )

 

 

172,343

 

Related party payables

 

 

(1,887 )

 

 

(60,976 )

Common stock payable

 

 

-

 

 

 

70,500

 

Operating lease liabilities

 

 

(7,728 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

(4,705,018 )

 

 

(4,264,014 )

 

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from notes payable - non-related parties

 

 

3,000,001

 

 

 

-

 

Repayments of notes payable - non-related parties

 

 

(1,211,661 )

 

 

(145,932 )

Repayments of notes payable - related parties

 

 

(1,000,000 )

 

 

-

 

Debt issuance costs

 

 

(537,750 )

 

 

-

 

Proceeds from public equity offering

 

 

-

 

 

 

10,004,264

 

Cost of public equity offering

 

 

-

 

 

 

(1,309,882 )

Proceeds from private equity offering

 

 

-

 

 

 

5,997,854

 

Cost of private equity offering

 

 

-

 

 

 

(867,100 )

Repayments of convertible debenture payable

 

 

-

 

 

 

(3,048,781 )

Net cash provided by financing activities

 

 

250,590

 

 

 

10,630,423

 

 

 

 

 

 

 

 

 

 

Net Change in Cash

 

 

(4,454,428 )

 

 

6,366,409

 

 

 

 

 

 

 

 

 

 

Cash at the Beginning of the Period

 

 

8,578,997

 

 

 

882,268

 

 

 

 

 

 

 

 

 

 

Cash at the End of the Period

 

$4,124,569

 

 

$7,248,677

 

 

 

 

 

 

 

 

 

 

Schedule of Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Issuance of common stock and warrants for prepaid services

 

$373,981

 

 

$-

 

Non-related party debt converted to capital

 

$341,998

 

 

$47,500

 

Operating lease right-of-use assets and liabilities

 

$330,707

 

 

$-

 

Financing of prepaid insurance premiums

 

$293,882

 

 

$(274,589 )

Conversion of preferred stock to common stock

 

$30

 

 

$-

 

Conversion of common stock to preferred stock

 

$-

 

 

$30

 

Derecognition of convertible debenture

 

$-

 

 

$3,048,781

 

Reacquisition value of convertible debenture

 

$-

 

 

$(3,912,781 )

Fair value of shares issued for services

 

$-

 

 

$(719,000 )

Deemed dividends related to warrant down round provisions

 

$-

 

 

$8,501,440

 

Reclassification of common shares from reverse stock split

 

$-

 

 

$155

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$446,069

 

 

$15,986

 

Cash paid for income taxes

 

$-

 

 

$-

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 
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SOBR SAFE, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 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, SOBRsafeTM, 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 in North America.

 

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 Company’s financial position as of September 30, 2023 and December 31, 2022, its results of operations for the three and nine-month periods ended September 30, 2023 and 2022, and its cash flows for the nine-month periods ended September 30, 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 consolidated financial statements.

 

Use of Estimates

The preparation of 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 and intangible assets including the intellectual technology, 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:

 

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

 

 
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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. The Company believes that the recorded values of our financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

 

At September 30, 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 September 30, 2023 and December 31, 2022. 

 

Accounts Receivable

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 an allowance for doubtful accounts of $982 at September 30, 2023. The Company had no allowance for doubtful accounts at December 31, 2022.

 

Inventory

Inventory is comprised of component parts and finished product and 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. The Company evaluates the valuation of inventory and periodically adjusts the value for estimated excess based upon estimates of future demand and market conditions, and obsolete inventory based upon otherwise damaged or impaired goods. The Company had no reserves for excess inventory or obsolescence at September 30, 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 its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. 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 net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date. 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).

 

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 condensed consolidated balance sheets.

 

Preferred Stock

Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. The Company classifies 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 the Company’s control, as temporary equity. At all other times, the Company classifies preferred shares in stockholders’ equity.

 

Noncontrolling Interest

A subsidiary of the Company has minority members representing ownership interests of 1.4% at September 30, 2023 and December 31, 2022. The Company accounts for this noncontrolling interest whereby gains and losses in a subsidiary with a noncontrolling interest are allocated to the noncontrolling interest based on the ownership percentage of the noncontrolling interest, even if that allocation results in a deficit noncontrolling interest balance.

 

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 of the assets 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 nine-month periods ended September 30, 2023 and 2022.

 

Revenue Recognition

The Company enters into 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.

 

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.

 

 
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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 is 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 the Company’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 is 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.

 

The Company reports 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 goods and services when revenue is recorded for the related product. Royalties are also charged to cost of goods and services. 

 

Leases

The Company determines if an arrangement is or contains a lease at inception. Leases with an initial term of twelve months or less are considered short-term leases and are not recognized on the Company’s consolidated balance sheets. Right-of-use (“ROU”) assets and lease liabilities are recognized on the consolidated balance sheets for leases with an expected term greater than twelve months. Operating lease ROU assets represent our right to use an underlying asset over the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at inception based on the present value of lease payments over the lease term. When the rate implicit in the lease is not determinable, the Company uses its estimated secured incremental borrowing rate in determining the present value of lease payments. The lease expense for fixed lease payments is recorded on a straight-line basis over the lease term and variable lease payments are included in the lease expense when the obligation for those payments is incurred. The Company has elected not to separate lease and non-lease components. 

 

 
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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. 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 products.

 

Advertising and Marketing Costs

Advertising and marketing costs are charged to operations as incurred.  Advertising and marketing costs were $158,412 and $75,147 during the nine-month periods ended September 30, 2023 and 2022, respectively. Advertising and marketing costs were $61,396 and $29,628 during the three-month periods ended September 30, 2023 and 2022, respectively.   

 

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 September 30, 2023 and December 31, 2022 as these have been offset by a 100% valuation allowance.

 

Loss Per Share

Basic loss per common 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 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.

 

Concentrations

Credit Risk – Financial instruments that potentially subject the Company to concentrations of credit risk consist 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 is managed within established guidelines to mitigate risk. To date, the Company has not experienced any loss on its cash.

 

 
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Concentration of Customers – To date, the Company’s sales have been made 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.

 

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 could significantly increase, which could in turn have a material adverse effect on the Company’s financial condition, results of operations and cash flows.

 

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 $776,569 and a decrease to additional paid-in capital of $909,214 to fully remove the unamortized debt discount related to beneficial conversion features of $132,646.

 

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. None of these reclassifications had a material impact on the condensed consolidated financial statements. 

 

NOTE 2. GOING CONCERN 

 

The Company has incurred recurring losses from operations and has limited cash liquidity and capital resources to meet future capital requirements. The Company’s ability to meet 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 sources in the near futureSources of debt financing may result in high interest expense. Any financing, if available, may be on unfavorable terms.  If adequate funds are not available or obtained, the Company may be required to reduce or curtail operations.

 

As of September 30, 2023, the Company has an accumulated deficit of approximately $85,225,000. The Company continues to experience negative cash flows from operating activities of approximately $4,705,000 during the nine months ended September 30, 2023. It appears these principal conditions or events, considered in the aggregate, indicate it is probable that the Company will be unable to meet its obligations as they become due within one year after the date the financial statements are issued. As such, there is substantial doubt about the entity’s ability to continue as a going concern.

 

Management believes that cash balances of approximately $4,125,000 and positive working capital of $3,687,000 at September 30, 2023 do not provide adequate operating capital for operating activities for the next twelve months after the date these financial statements are issued. However, management believes actions presently being taken to generate product and services revenues, and positive cash flows, in addition to the Company’s plans and ability to access capital sources and implement expense reduction tactics to preserve working capital provide the opportunity for the Company to continue as a going concern as of September 30, 2023. These plans are contingent upon the actions to be performed by the Company and these conditions have not been met on or before September 30, 2023. As such, substantial doubt about the entity’s ability to continue as a going concern has not been alleviated as of September 30, 2023.

 

 
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Table of Contents

 

NOTE 3. INVENTORY

 

Inventory consists of the following:

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Component parts

 

$127,999

 

 

$68,643

 

Finished goods

 

 

139,215

 

 

 

146,850

 

Inventory

 

$267,214

 

 

$215,493

 

 

NOTE 4. PREPAID EXPENSES

 

Prepaid expenses consist of the following:

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Insurance

 

$244,901

 

 

$150,344

 

Deposit

 

 

-

 

 

 

15,736

 

Other

 

 

52,738

 

 

 

34,825

 

Prepaid expenses

 

$297,639

 

 

$200,905

 

 

A portion of the prepaid insurance premiums were financed under agreements as described in Note 8. 

 

NOTE 5. LEASES

 

The Company leases its corporate headquarters office space and certain office equipment under arrangements classified as operating leases. 

 

The Company entered into its lease agreement to rent office space for a twelve-month period beginning July 1, 2022 with a monthly base rent of $9,744. The lease did not contain renewal options and was considered a short-term lease at inception. In April 2023, the Company executed an amendment to extend the term of the lease from July 1, 2023 through September 30, 2026. The amended lease provides for monthly base rent of $9,744 through September 2024, with fixed escalating monthly base rent for each year thereafter, and no rent due for the months of July through September 2023.

 

The Company determined that the amendment results in a lease modification that is not accounted for as a separate contract.  Further, due to the extension of the lease term beyond the initial twelve months, the office lease can no longer be considered a short-term lease. The Company has recorded a right-of-use asset and lease liability as of April 17, 2023 (the effective date of the amendment) based on the modified terms and conditions of the amended lease.     

 

The Company entered into a lease agreement for copier equipment in June 2023, requiring monthly lease payments of $329 through May 2026. 

 

For the nine-month period ended September 30, 2023, total operating lease expense was $130,346, which included $17,094 of variable lease expense and $65,375 of short-term lease expense. For the three-month period ended September 30, 2023, total operating lease expense was $31,710, which included $2,786 of variable lease expense.  For the three and nine-month periods ended September 30, 2022, total operating lease expense was $45,688 and $110,465, respectively, all of which was short-term lease expense.   

 

Operating lease obligations recorded on the condensed consolidated balance sheet at September 30, 2023 are as follows:

 

Operating lease liabilities, current portion

 

$93,775

 

Operating lease liabilities - less current portion

 

 

229,204

 

Total Operating Lease Liabilities

 

$322,979

 

 

 
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Table of Contents

 

Future lease payments included in the measurement of operating lease liabilities on the condensed consolidated balance sheet at September 30, 2023 are as follows:

 

2023

 

$30,219

 

2024

 

 

121,831

 

2025

 

 

125,644

 

2026

 

 

95,063

 

Total future minimum lease payments

 

 

372,757

 

Less imputed interest

 

 

(49,778 )

Total Operating Lease Liabilities

 

$322,979

 

 

The weighted average remaining lease term is 36 months, and the weighted average discount rate is 10%. 

 

NOTE 6. INTANGIBLE ASSETS

 

Intangible assets include the Company’s intellectual technology and consist of the following:

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Gross carrying amount

 

$

3,854,675

 

 

$

3,854,675

 

Accumulated amortization

 

 

(1,284,880

)

 

 

(995,782

)

Intangible assets, net

 

$

2,569,795

 

 

$

2,858,893

 

 

 

 

 

 

 

 

 

 

Amortization period (in years)

 

 

10

 

 

 

10

 

 

Amortization expense was $289,098 for each of the nine-month periods ended September 30, 2023 and 2022 and $96,366 for each of the three-month periods ended September 30, 2023 and 2022 and is included in selling, general, and administrative expenses in the condensed consolidated statements of operations.

 

As of September 30, 2023, estimated future amortization expense for device technology intangible assets is as follows:

 

2023

 

 

2024

 

 

2025

 

 

2026

 

 

2027

 

 

Thereafter

 

$

96,366

 

 

$385,464

 

 

$385,464

 

 

$385,464

 

 

$385,464

 

 

$931,573

 

 

NOTE 7. RELATED PARTY TRANSACTIONS

 

On March 1, 2022 the Board of Directors approved the designation of 3,000,000 shares of the Company’s Preferred Stock as “Series B Convertible Preferred Stock”. The Series B Convertible Preferred Stock shares were issued in exchange for 333,333 shares of the Company’s common stock held by the Company’s CEO David Gandini and 666,667 shares of the Company’s common stock held by IDTEC SPV, LLC, an entity controlled by a beneficial owner of the Company (see Note 10). On April 20, 2023 the 3,000,000 Series B Convertible Preferred shares were converted to 1,000,000 shares of the Company’s common stock at the option of the preferred stockholders. Neither the exchange nor the conversion resulted in the transfer of value.

 

 
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Table of Contents

 

NOTE 8. NOTES PAYABLE

 

RELATED PARTIES

 

Notes payable to related parties consist of the following:

 

 

 

September 30,

2023

 

 

December 31,

2022

 

Convertible Notes Payable with Warrants - 2021 Debt Offering

 

$-

 

 

$1,000,000

 

Non-Convertible Note Payable

 

 

11,810

 

 

 

11,810

 

Unamortized Debt Discount

 

 

-

 

 

 

(145,548 )

Net Related Party Notes Payable

 

 

11,810

 

 

 

866,262

 

Current Portion

 

 

(11,810 )

 

 

(866,262 )

Net Long-Term Portion

 

$-

 

 

$-

 

 

Total interest expense for related party notes was $90,338 and $463,736 for the nine-month periods ended September 30, 2023 and 2022, respectively. Total interest expense for related party notes was none and $156,274 for the three-month periods ended September 30, 2023 and 2022, respectively.

 

Related Party Convertible Notes Payable with Warrants - 2021 Debt Offering

 

During March, April, and May 2021, as a part of a 2021 Debt Offering, the Company issued thirteen convertible notes payable to related parties with principal balances totaling $1,000,000. The notes, secured by the Company’s patents and patent applications, were convertible into the Company’s common stock at $9 per share, and were due 24 months after issuance. Each of the notes was issued with detached free-standing warrants to purchase the Company’s common stock at $9 per share.  The notes included interest at 12% which the noteholders could elect to have paid in cash monthly or have the interest accrue and be payable on the maturity date, if not sooner converted.

 

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 $448,999 is amortized over the life of the convertible notes payable. The debt discount amortization expense is recorded as amortization of interest – beneficial conversion features in the condensed consolidated statements of operations and was none and $167,913 for the nine-month periods ended September 30, 2023 and 2022, respectively, and was none and $56,586 for the three-month periods ended September 30, 2023 and 2022, respectively. The unamortized debt discount related to the beneficial conversion feature was $66,843 at December 31, 2022. This balance was eliminated upon adoption of ASU 2020-06 effective January 1, 2023 (see Note 1).

 

At the time of issuance, a portion of the proceeds from the 2021 Debt Offering was allocated to the stock warrants based on their relative fair value, resulting in a debt discount of $551,001 which was amortized over the life of the notes. Amortization of the debt discount related to the stock warrants is recorded as interest expense and was $62,837 and $206,070 for the nine-month periods ended September 30, 2023 and 2022, respectively, and was none and $69,441 for the three-month periods ended September 30, 2023 and 2022, respectively.

 

The Company fully repaid the remaining principal and accrued interest on the notes in March and April 2023. A portion of the notes were repaid prior to their stated maturities in April and May 2023. As a result, the Company recorded a loss on debt extinguishment of $15,868 equal to the remaining unamortized debt discount on the notes at the time of repayment.

 

 
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Table of Contents

 

Related Party Non-Convertible Note Payable

 

The Company has one non-convertible note payable to a related party that has a principal balance of $11,810 as of September 30, 2023 and December 31, 2022. The note carries an interest rate of 0%. The note payable had a due date of December 31, 2012 and is currently in default.

 

NON-RELATED PARTIES 

 

Notes payable to non-related parties consist of the following:

 

 

 

September 30,

2023

 

 

December 31, 

2022

 

Convertible Notes Payable with Warrants - 2023 Debt Offering

 

$3,219,725

 

 

$-

 

Convertible Notes Payable with Warrants - 2021 Debt Offering

 

 

-

 

 

 

1,005,000

 

Convertible Notes Payable

 

 

9,183

 

 

 

9,183

 

Non-Convertible Notes Payable

 

 

17,500

 

 

 

17,500

 

Premium Financing Notes Payable

 

 

149,012

 

 

 

61,792

 

Unamortized Debt Discount

 

 

(1,058,870 )

 

 

(144,878 )

Net Non-Related Party Notes Payable

 

 

2,336,550

 

 

 

948,597

 

Current Portion

 

 

(175,695 )

 

 

(948,597 )

Net Long-Term Portion

 

$2,160,855

 

 

$-

 

 

Total interest expense for non-related party notes was $522,042 and $475,801 for the nine-month periods ended September 30, 2023 and 2022, respectively. Total interest expense for non-related party notes was $178,699 and $161,186 for the three-month periods ended September 30, 2023 and 2022, respectively.

 

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 15% Original Issue Discount Convertible Notes (the “Notes”) and Common Stock Purchase Warrants (the “Warrants”).  Under the terms of the Agreement, the Company received $3,000,001 from the Purchasers and in exchange issued the Notes in principal amounts of $3,529,412 and Warrants to purchase up to 386,998 shares of the Company’s common stock. The Notes are convertible voluntarily by the Purchaser at any time the principal amounts are outstanding into shares of our common stock at a conversion price $2.28. The Notes are due March 10, 2025, and accrue interest quarterly at 5% per annum. The accrued interest is payable by way of inclusion in the convertible amount and is compounded quarterly. The Warrants are exercisable at any time through March 9, 2028, into shares of the Company’s common stock at an exercise price of $2.52 per share. The Company received approximately $2,500,000 of net proceeds from the 2023 Debt Offering after offering-related costs.

 

On May 10, 2023, noteholders elected to convert a total of $341,999 (the “Conversion Amount”) pertaining to the 2023 Debt Offering into 150,000 shares of the Company’s common stock at $2.28 per share. As provided for in the Agreement, the Conversion Amount included original Note principal of $309,688, as well as accrued interest of $32,311

 

Convertible Notes Payable with Warrants - 2021 Debt Offering

 

During March, April, and May 2021, as part of a 2021 Debt Offering, the Company issued sixteen convertible notes payable to non-related parties with principal balances totaling $1,005,000. The notes, secured by the Company’s patents and patent applications, were convertible into the Company’s common stock at $9 per share, and were due 24 months after issuance. Each of the notes was also issued with detached free-standing warrants to purchase the Company’s common stock at $9 per share. The notes included interest at 12% which the noteholders could elect to have paid in cash monthly or have the interest accrue and be payable on the maturity date, if not sooner converted.

 

 
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Table of Contents

 

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 $460,215 is amortized over the life of the convertible notes payable. The debt discount amortization expense is recorded as amortization of interest – beneficial conversion features in the condensed consolidated statements of operations and was none and $173,353 for the nine-month periods ended September 30, 2023 and 2022, respectively, and was none and $59,245 for the three-month periods ended September 30, 2023 and 2022, respectively. The unamortized debt discount related to the beneficial conversion feature was $65,803 at December 31, 2022. This balance was eliminated upon adoption of ASU 2020-06 effective January 1, 2023 (see Note 1).

 

At the time of issuance, a portion of the proceeds from the 2021 Debt Offering was allocated to the stock warrants based on their relative fair value, resulting in a debt discount of $541,707 which was amortized over the life of the notes. Amortization of the debt discount related to the stock warrants is recorded as interest expense and was $68,818 and $202,584 for the nine-month periods ended September 30, 2023 and 2022, respectively, and was none and $68,270 for the three-month periods ended September 30, 2023 and 2022, respectively.

 

The Company fully repaid the remaining principal and accrued interest on the notes in March and April 2023. A portion of the notes were repaid prior to their stated maturities in April and May 2023. As a result, the Company recorded a loss on debt extinguishment of $10,257 equal to the remaining unamortized debt discount on the notes at the time of repayment. 

 

Convertible Notes Payable

 

The Company has two convertible notes payable to a non-related entity with principal balances totaling $9,183 as of September 30, 2023 and December 31, 2022.  The notes bear interest at 12% and are convertible into shares of the Company’s common stock at $32.29 per share. The notes were due in February and March 2013 and are currently in default.

 

Non-Convertible Notes Payable

 

The Company has two non-convertible notes payable to non-related parties with principal balances totaling $17,500 as of September 30, 2023, and December 31, 2022. These notes carry interest rates ranging from 9% - 10% and have due dates ranging from December 2013 to November 2015. The notes are currently in default. 

 

Premium Financing Notes Payable

 

On May 25, 2022, the Company entered into a financing agreement for payment of its annual insurance premiums for coverage from May 2022 through May 2023 totaling $349,455. The financing agreement required an initial down payment of $74,866 with the remaining amount of $274,589 financed for a nine-month period at an annual interest rate of 4.37% with monthly payments of $31,068 beginning in June 2022. The note was paid in full in February 2023.

 

On June 15, 2023, the Company entered into a financing agreement for payment of its annual insurance premiums for coverage from May 2023 through May 2024 totaling $367,352. The financing agreement required an initial down payment of $73,470 with the remaining amount of $293,882 financed for an eight-month period at an annual interest rate of 8.49% with monthly payments of $37,914 beginning in June 2023.

 

NOTE 9. COMMON STOCK

 

The Company’s common stock transactions for the nine months ended September 30, 2023 consist of the following:

 

The Company issued 225,000 shares of common stock to a consultant for investor relations services to be provided over a six-month period. 

 

The Company issued 185,000 shares of its common stock for RSUs vested in April and June 2023. 

 

 
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Table of Contents

 

The Company issued 150,000 shares of its common stock upon conversion of a portion of the Notes issued in the 2023 Debt Offering. 

 

The Company exchanged 3,000,000 shares of Series B Convertible Preferred Stock with related parties for 1,000,000 shares of common stock (see Notes 7 and 10).

 

NOTE 10. 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 $0.00001 per share comprising 25,000,000 shares, 3,000,000 shares of which were classified as Series A Convertible Preferred Stock. In each calendar year, the holders of the Series A Convertible Preferred Stock are entitled to receive, when, as and if, declared by the Board of Directors, out of any funds and assets of the Company legally available, non-cumulative dividends, in an amount equal to any dividends or other Distribution on the common stock in such calendar year (other than a Common Stock Dividend). No dividends (other than a Common Stock Dividend) shall be paid and no distribution shall be made with respect to the common stock unless dividends shall have been paid or declared and set apart for payment to the holders of the Series A Convertible Preferred Stock simultaneously. Dividends on the Series A Convertible Preferred Stock shall not be mandatory or cumulative, and no rights or interest shall accrue to the holders of the Series A Convertible Preferred Stock by reason of the fact that the Company shall fail to declare or pay dividends on the Series A Convertible Preferred Stock, except for such rights or interest that may arise as a result of the Company paying a dividend or making a distribution on the common stock in violation of the terms. The holders of each share of Series A Convertible Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, and prior and in preference to any payment or Distribution (or any setting part of any payment or Distribution) of any Available Funds and Assets on any shares of common stock, and equal in preference to any payment or Distribution (or any setting part of any payment or Distribution)  of any Available Funds and Assets on any shares of any other series of preferred stock that have liquidation preference, an amount per share equal to the Original Issue Price of the series A Convertible Preferred Stock plus all declared but unpaid dividends on the Series A Convertible Preferred Stock. A reorganization, or any other consolidation or merger of the Company with or into any other corporation, or any other sale of all or substantially all of the assets of the Company, shall not be deemed a liquidation, dissolution, or winding up of the Company. Shares of the Series A Convertible Preferred Stock are convertible at a 35% discount rate to the average closing price per share of the Company’s common stock (either as listed on a national exchange or as quoted over-the-market) for the last 15 trading days immediately prior to conversion. However, no conversions of the Series A Convertible Preferred Stock to shares of common stock can occur unless the average closing price per share of the Company’s common stock (either as listed on a national exchange or as quoted over-the-market) for the last 15 trading days immediately prior to conversion is at least $5.01. The shares of Series A Convertible Preferred Stock vote on a one for one basis. The right of conversion is limited by the fact the holder of the Series A Convertible Preferred Stock may not convert if such conversion would cause the holder to beneficially own more than 4.9% of the Company’s common stock after giving effect to such conversion. 

 

On December 9, 2019, the Company’s Board of Directors created a class of preferred stock designated as 8% Series A-1 Convertible Preferred Stock comprising of 2,000,000 shares. During 2020, the authorized shares were increased to 2,700,000 shares. The rights and preferences of the 8% Series A-1 Convertible Preferred Stock are as follows: (a) dividend rights of 8% per annum based on the original issuance price of $1 per share, (b) liquidation preference over the Company’s common stock, (c) conversion rights into shares of the Company’s common stock at $3 per share, (d) redemption rights such that we have the right, upon 30 days written notice, at any time after one year from the date of issuance, to redeem all or part of the Series A-1 Convertible Preferred Stock for 150% of the original issuance price, (e) no call rights by the Company, and (f) each share of Series A-1 Convertible Preferred Stock will vote on an “as converted” basis.

 

On March 1, 2022 the Board of Directors approved the designation of 3,000,000 shares of the Company’s Preferred Stock as Series B Convertible Preferred Stock. The rights and preferences of the Series B Convertible Preferred Stock are as follows: (a) dividends shall not be mandatory or cumulative, (b) liquidation preference over the Company’s common stock at an amount per share equal to the original issue price of the Series B Convertible Preferred Stock plus all accrued but unpaid dividends on the Series B Convertible Preferred Stock, (c) each three shares of Series B Convertible Preferred Stock shall be convertible, at the option of the holder, beginning on the date that is six months from the date the Holder acquired the shares of Series B Convertible Preferred Stock, and without the payment of additional consideration by the holder, into one share of common stock, (d) no redemption rights by the Company, (e) no call rights by the Company, and (f) each share of Series B Convertible Preferred Stock will vote on an “as converted” basis. 

 

 
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Table of Contents

 

On March 1, 2022, the 3,000,000 Series B Convertible Preferred shares were issued in exchange for 333,333 shares of the Company’s common stock held by the Company’s CEO David Gandini and 666,667 shares of the Company’s common stock held by IDTEC SPV, LLC, an entity controlled by a beneficial owner of the Company. The Company entered into the Share Exchange Agreements to provide certain changes to its capital structure in connection with the underwriting offering and listing on Nasdaq. On April 20, 2023 the 3,000,000 Series B Convertible Preferred shares were converted back into 1,000,000 shares of the Company’s common stock. Neither the exchange nor the conversion resulted in any value transfer.

 

NOTE 11. 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, 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 or the Monte Carlo simulation option pricing models for stock options and warrants, and the closing price of our common stock on the grant date for restricted stock units. Unless otherwise provided for, the Company covers equity instrument exercises by issuing new shares. 

 

Stock Warrants

 

On March 30, 2022, the Company issued warrants to purchase up to 101,626 shares of common stock at $6 per share in exchange for a waiver of default penalties under the terms of a convertible debenture. The relative fair value of the warrants at the time of issuance was $864,000. The exercise price on the warrants was reduced to $1.35 per share in September 2022 in accordance with a down-round provision contained in the warrants. The warrants expire seven years after the date of issuance.

 

On May 18, 2022, the Company issued through an underwritten public offering 4,705,884 Offering Warrants, 424,116 Underwriter Warrants, and 141,177 Representative Warrants to purchase common stock of the Company at exercise prices of $4.25, $4.25 and $5.3125 per share, respectively. The warrants expire five years from the date of issuance and were valued using the Monte Carlo simulation option pricing model at approximately $5,700,000. The exercise price on the Offering Warrants and Underwriter Warrants was reduced to $2.125 per share in September 2022 in accordance with a down-round provision contained in those warrants.

 

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 225,000 common shares and 225,000 warrants to purchase shares of common stock at $1.35 per share.  The warrants expire three years from the date of issuance. The warrants were valued at $162,481 using the Black-Scholes model on the date of issuance, which was recognized over the six-month term of the agreement. 

 

On March 9, 2023, in conjunction with the 2023 Debt Offering (see Note 8), the Company issued a total of 386,998 warrants to purchase shares of common stock at $2.52 per share. The warrants expire five years from the date of issuance. Total proceeds from the 2023 Debt Offering were allocated to the warrants based on their relative fair value, resulting in $398,517 allocated to the warrants after issuance costs.

 

The fair values of stock warrants granted during the nine-month periods ended September 30, 2023 and 2022 were determined based on the following assumptions:

 

 

 

September 30,

 2023

 

 

September 30,

2022

 

Exercise Price

 

$

1.35 - 2.52

 

 

$

1.35 - 6.00

 

Dividend Yield

 

 

0%

 

 

0%

Volatility

 

162-209

 

110-160

Risk-free Interest Rate

 

4.56-4.73

 

2.45-3.88

Expected Term

 

1.5 - 2.5 Years

 

 

 3 - 7 Years

 

 

 
21

Table of Contents

 

The following tables summarize the changes in the Company’s outstanding warrants during the nine-month periods ended September 30, 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

 

 

836,464

 

 

$

1.509.00

 

 

3.04 Years

 

 

$6.78

 

 

$1,784,838

 

Warrants Granted

 

 

13,315,461

 

 

$

1.355.31

 

 

 

-

 

 

$1.94

 

 

$9,896,694

 

Warrants Exercised

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

 

$-

 

Warrants Expired  

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

 

$-

 

Balance at September 30, 2022

 

 

14,151,925

 

 

$

1.359.00

 

 

5.66 Years

 

 

$1.62

 

 

$14,934,593

 

 

 

 

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

 

 

10,387,877

 

 

$

1.359.00

 

 

5.11 Years

 

 

$

1.92

 

 

$

-

 

Warrants Granted

 

 

611,998

 

 

$

 1.352.52

 

 

 

-

 

 

$

2.09

 

 

$

-

 

Warrants Exercised

 

 

-

 

 

$

-

 

 

 

 -

 

 

$

-

 

 

$

-

 

Warrants Expired

 

 

(334,166

)

 

$

9.00

 

 

 

 -

 

 

$

9.00

 

 

$

-

 

Balance at September 30, 2023

 

 

10,665,709

 

 

$

1.355.31

 

 

4.48 Years

 

 

$

1.71

 

 

$

-

 

 

Stock-Based Compensation

 

On October 24, 2019, the Company’s 2019 Equity Incentive Plan (the “Plan”) became effective authorizing 1,282,823 shares of the Company’s common stock for issuance as stock options and restricted stock units (“RSUs”) to employees, directors or consultants. The Plan provisions provide automatically increasing the shares authorized for issuance under the Plan on February 1st of each year by 5% of the total number of shares of common stock outstanding on December 31st of the preceding year. In January 2022 and June 2023, the stockholders approved amendments to increase the shares authorized under the Plan to 1,733,333 and 3,500,000 shares, respectively. 

 

The Company generally determines the fair value of the share-based compensation expense on the grant date and recognizes the expense over the period of vesting or period that services will be provided.

 

Stock Options

 

At September 30, 2023 and December 31, 2022, the Company had outstanding stock options of 1,943,632 and 1,086,813, respectively, that were granted under the Plan.  In addition, there were 16,769 stock options outstanding at September 30, 2023 and December 31, 2022 that were not granted under the Plan.

 

 
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In total for the nine months ended September 30, 2023 and 2022, the Company recorded $1,298,979 and $1,262,396, respectively, of share-based compensation expense related to stock options. In total for the three months ended September 30, 2023 and 2022, the Company recorded $456,524 and $335,940, respectively, of share-based compensation expense related to stock options. As of September 30, 2023, unrecognized compensation expense related to stock options was $1,388,411 which will be recognized over a weighted average period of 21 months.

 

The weighted average grant date fair value per option granted during the nine-month periods ended September 30, 2023 and 2022 was $1.88 and $2.07, respectively. The fair value was estimated at the grant date using the Black-Scholes option pricing model and the following assumptions:

 

 

 

September 30,

 2023

 

 

September 30,

2022

 

Exercise Price 

 

$

1.362.32

 

 

$

8.259.08

 

Dividend Yield 

 

 

0

%

 

 

0

%

Volatility 

 

143%-207

 

191%-192

Risk-free Interest Rate 

 

4.09-4.69

 

0.78%-1.52

Expected Term

 

2.7 - 5.8 Years

 

 

 2.03.0 Years

 

 

The following tables summarize the changes in the Company’s outstanding stock options during the nine-month periods ended September 30, 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

 

 

1,053,356

 

 

$

0.7910.74

 

 

6.21 Years

 

 

$

3.39

 

 

$

5,804,517

 

Options Granted

 

 

70,000

 

 

$

8.259.08

 

 

-

 

 

$

8.29

 

 

$

-

 

Options Exercised

 

 

-

 

 

-

 

 

 

-

 

 

$

-

 

 

-

 

Options Expired/Forfeited

 

 

(21,667

 

4.9410.73

 

 

 

-

 

 

$

9.33

 

 

-

 

Balance at September 30, 2022

 

 

1,101,689

 

 

$

0.7910.30

 

 

5.28 Years

 

 

$

3.59

 

 

$

559,146

 

 

 

 

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

 

 

1,103,583

 

 

$

0.79 - 9.30

 

 

5.33 Years

 

 

$

1.71

 

 

$

-

 

Options Granted

 

 

875,000

 

 

$

1.36 - 2.32

 

 

-

 

 

$

2.26

 

 

-

 

Options Exercised

 

 

-

 

 

-

 

 

 

-

 

 

-

 

 

-

 

Options Expired/Forfeited  

 

 

(18,181

 

$

2.11

 

 

 

-

 

 

-

 

 

-

 

Balance at September 30, 2023

 

 

1,960,401

 

 

$

0.79 - 9.30

 

 

5.81 Years

 

 

$

1.94

 

 

$

-

 

 

 
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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

 

 

930,573

 

 

$

0.79 - 9.30

 

 

5.83 Years

 

$

1.60

 

 

$

-

 

Exercisable at September 30, 2023           

 

 

1,338,912

 

 

$

0.79 - 9.30

 

 

5.01 Years

 

$

1.81

 

 

$

-

 

 

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.

 

The following tables summarize RSU activity under the Plan for the nine-month periods ended September 30, 2023 and 2022:

 

 

 

RSUs

 

 

Weighted Average

Grant Date Fair Value Per Share

 

 

Weighted Average

Vesting Period

 

Unvested at December 31, 2021

 

 

133,585

 

 

$8.56

 

 

1.66 Years

 

Granted

 

 

41,667

 

 

$6.92

 

 

0.96 Years

 

Cancelled

 

 

-

 

 

$-

 

 

 

-

 

Vested

 

 

(16,667 )

 

$7.50

 

 

 

-

 

Unvested at September 30, 2022

 

 

158,585

 

 

$8.24

 

 

1.51 Years

 

 

 

 

RSUs

 

 

Weighted Average

Grant Date Fair Value Per Share

 

 

Weighted Average

Vesting Period

 

Unvested at December 31, 2022

 

 

380,000

 

 

$2.17

 

 

0.74 Years

 

Granted

 

 

-

 

 

$-

 

 

 

-

 

Cancelled

 

 

(80,000 )

 

$2.17

 

 

0.58 Years

 

Vested

 

 

(185,000 )

 

$2.17

 

 

 

-

 

Unvested at September 30, 2023

 

 

115,000

 

 

$2.17

 

 

1.17 Years

 

 

In total for the nine months ended September 30, 2023 and 2022, the Company recorded $537,695 and $1,010,430, respectively, in stock-based compensation expense related to RSUs. In total for the three months ended September 30, 2023 and 2022, the Company recorded $53,475 and $258,823, respectively, in stock-based compensation expense related to RSUs. As of September 30, 2023, total unrecognized compensation cost related to RSUs was $53,475 which will be recognized over a period of three months. 

 

 
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Executive Officer Stock Options and RSUs

 

The Company had 980,705 and 537,371 outstanding stock options for executive officers as of September 30, 2023 and December 31, 2022, respectively,