UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2016

o 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

TRANSBIOTEC, 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.)
400 N. Tustin Ave., Suite 225 Santa Ana, CA		92705
(Address of principal executive offices)		(Zip Code)

(562) 280-0483

Registrant’s telephone number, including area code

___________________________________ 

(Former address, if changed since last report)

____________________________________

(Former fiscal year, if changed since last report)

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

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

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x
(Do not check if a smaller reporting company)

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

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

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

Applicable only to corporate issuers:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 18, 2016, there were 67,751,068 shares of common stock, $0.00001 par value, issued and outstanding.

TRANSBIOTEC, INC.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
ITEM 1	Financial Statements			3
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk			28
ITEM 4	Controls and Procedures			28
PART II – OTHER INFORMATION
ITEM 1	Legal Proceedings			30
ITEM 1A	Risk Factors			30
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds			30
ITEM 3	Defaults Upon Senior Securities			30
ITEM 4	Mine Safety Disclosures			30
ITEM 5	Other Information			31
ITEM 6	Exhibits			32

2

PART I – FINANCIAL INFORMATION

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.

ITEM 1 Financial Statements

The unaudited consolidated financial statements of registrant for the three and nine months ended September 30, 2016 and 2015 follow. The unaudited consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. All such adjustments are of a normal and recurring nature.

3

Table of Contents

		Sept. 30, 2016				Dec. 31, 2015
ASSETS
Current assets
Cash		$	20,154			$	7,851
Total current assets			20,154				7,851
Total Assets		$	20,154			$	7,851
LIABILITIES & STOCKHOLDERS'DEFICIT
Current liabilities
Accounts payable		$	753,840			$	622,129
Accrued interest payable			274,368				182,678
Notes payable - current - related parties			582,022				489,095
Notes payable - current, net			163,574				157,324
Derivative liability payable			86,394				-
Stock subscription payable			54,750				55,882
Related party payables			496,656				412,656
Other payables			242,827				242,612
Total current liabilties			2,654,431				2,162,376
Total Liabilities			2,654,431				2,162,376
Stockholders' Deficit
Preferred stock, $.00001 par value;
22,000,000 shares authorized,
No shares issued or outstanding
as of September 30, 2016 and December 31, 2015, respectively			-				-
Series A Convertible Preferred stock, $.00001 par value;
3,000,000 shares authorized,
No shares issued or outstanding
as of September 30, 2016 and December 31, 2015, respectively			-				-
Common stock, $.00001 par value;
100,000,000 shares authorized;
67,751,068 and 60,251,068 shares issued and outstanding
as of September 30, 2016 and December 31, 2015, respectively			677				602
Additional paid in capital			14,408,926				14,353,628
Accumulated deficit			(17,001,034	)		(16,468,956		)
Total Transbiotec, Inc. stockholders' deficit			(2,591,431	)		(2,114,726		)
Noncontrolling interest			(42,846	)			(39,799	)
Total Stockholders' Deficit			(2,634,277	)			(2,154,525	)
Total Liabilities and Stockholders' Deficit		$	20,154			$	7,851

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

4

Table of Contents

TransBiotec, Inc.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

		For The Three Months Ended								For The Nine Months Ended
		Sept. 30,								Sept. 30,
		2016				2015				2016				2015
Revenues		$	-			$	-			$	-			$	-
Operating expenses:
Amortization & depreciation			-				44				-				413
General and administrative			80,768				127,363				275,191				316,594
			80,768				127,407				275,191				317,007
Loss from operations			(80,768	)			(127,407	)			(275,191	)			(317,007	)
Other income (expense):
Gain (loss) on fair value adjustment - derivatives			(86,394	)			-				(86,394	)			25,456
Gain on debt reversal			-				108,000				-				108,485
Interest expense			(49,193	)			(66,964	)			(167,290	)			(179,482	)
Interest expense - beneficial conversion feature			-				(6,250	)			(6,250	)			(17,500	)
Total Other income(expense)			(135,587	)			34,786				(259,934	)			(63,041	)
Loss before provision for income taxes			(216,355	)			(92,621	)			(535,125	)			(380,048	)
Provision for income tax			-				-				-				-
Net loss before noncontrolling interest			(216,355	)			(92,621	)			(535,125	)			(380,048	)
Less: Net loss attributable to noncontrolling interest			(924	)			(1,626	)			(3,047	)			(3,493	)
Net loss attributable to TranBioTec, Inc.		$	(215,431	)		$	(90,995	)		$	(532,078	)		$	(376,555	)
Net loss per share
(Basic and fully diluted)		$	(0.003	)		$	(0.002	)		$	(0.008	)		$	(0.006	)
Weighted average number of
common shares outstanding			67,751,068				59,696,720				67,176,250				58,927,503

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

 

5

Table of Contents

TransBiotec, Inc.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

		For The Nine Months Ended
		September 30,
		2016				2015
Operating Activities:
Net loss		$	(532,078	)		$	(376,555	)
Adjustments to reconcile net loss to
net cash provided by (used for)
operating activities:
Amortization & depreciation			-				413
Change in fair value of derivative liability			86,394				(25,456	)
Note payable benefical conversion expense			6,250				(7,500	)
Non controlling interest			(3,047	)			(3,493	)
Stock Based Compensation			3,603				56,631
Changes in assets and liabilities:		.
Accounts payable			158,481				139,579
Stock subscription payable			(1,132	)			-
Accrued interest payable			91,690				127,703
Related party payable			84,000				89,500
Other payable			215				(7	)
Net cash used for (provided by)
operating activities			(105,624	)			815
Financing Activities:
Net proceeds from shares issuances			25,000				-
Net proceeds from notes payable			92,927				15,475
Net cash provided by
financing activities			117,927				15,475
Net Change In Cash			12,303				16,290
Cash At The Beginning Of The Period			7,851				623
Cash At The End Of The Period		$	20,154			$	16,913
Schedule Of Non-Cash Investing And Financing Activities
Debt converted to capital		$	26,770			$	3,900
Shares issued for cash received in prior year		$	25,000			$	-
Supplemental Disclosure
Cash paid for interest		$	7,500			$	10,075
Cash paid for income taxes		$	-			$	-

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

 

6

Table of Contents

TransBiotec, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF

SEPTEMBER 30, 2016

NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

TransBiotec, Inc. (“TransBiotec – DE”), formerly Imagine Media LTD., was incorporated August, 2007 in the State of Delaware. A corporation also named TransBiotec, Inc. (“TransBiotec – CA”) was formed in the state of California July 4, 2004. Effective September 19, 2011 TransBiotec - DE was acquired by TransBiotec - CA in a transaction classified as a reverse acquisition as the shareholders of TransBiotec - CA retained the majority of the outstanding common stock of TransBiotec - DE after the share exchange. The financial statements represent the activity of TransBiotec - CA from July 4, 2004 forward, and the consolidated activity of TransBiotec - DE and TransBiotec - CA from September 19, 2011 forward. TransBiotec - DE and TransBiotec - CA are hereinafter referred to collectively as the "Company". The Company has developed and plans to market and sell a non-invasive alcohol sensing system which includes an ignition interlock. The Company has not generated any revenues from its operations.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) as promulgated in the United States of America.

Principles of consolidation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its majority owned subsidiary, Transbiotec-CA. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of unaudited consolidated financial statements in conformity with generally accepted accounting principles 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 valuation of derivative liability, stock compensation and beneficial conversion feature expenses. Actual results could differ from those estimates.

Cash

The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents. The Company does not have any cash equivalents as of September 30, 2016 and December 31, 2015.

7

Table of Contents

TransBiotec, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF

SEPTEMBER 30, 2016 

NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Property and equipment

Property and equipment are recorded at cost and depreciated under straight line methods over each item's estimated useful life.

Income tax

The Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Net loss per share

The net loss per share is computed by dividing the net loss by the weighted average number of shares of common outstanding. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company, subject to anti-dilution limitations. The Company has 36,669,111 stock options that can be converted to common stock if exercised.

Financial Instruments

SC Topic 820 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The carrying value of cash, accounts payable, accrued expenses, notes payable, related party payables, and other payable approximates their fair values due to their short-term maturities.

Long-Lived Assets

In accordance with ASC 350, the Company regularly reviews the carrying value of intangible and other long-lived assets for the existence of facts or circumstances, both internally and externally, that may suggest impairment. If impairment testing indicates a lack of recoverability, an impairment loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair value.

8

Table of Contents

TransBiotec, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF

SEPTEMBER 30, 2016

Beneficial Conversion Features

From time to time, the Company may issue convertible notes that may contain an embedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.

Derivative Instruments

The fair value of derivative instruments is recorded and shown separately under current liabilities. Changes in fair value are recorded in the consolidated statement of income under other income (expenses).

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 is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average Black-Sholes-Merton option pricing 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.

Stock based compensation

The Company has share-based compensation plans under which employees, consultants, suppliers and directors may be granted restricted stock, as well as options and warrants to purchase shares of Company common stock at the fair market value at the time of the grant. Stock-based compensation cost to employees is measured by the Company at the grant date, based on the fair value of the award, over the requisite service period under ASC718. For options issued to employees, the Company recognizes stock compensation costs utilizing the fair value methodology over the related period of benefit. Grants of stock to non-employees and other parties are accounted for in accordance with the ASC 505.

Recent accounting pronouncement

In August 2014, the FASB issued the FASB Accounting Standards Update No. 2014-15 “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). In connection with preparing financial statements for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued (or at the date that the financial statements are available to be issued when applicable). Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). The term probable is used consistently with its use in Topic 450, Contingencies.

When management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, management should consider whether its plans that are intended to mitigate those relevant conditions or events will alleviate the substantial doubt. The mitigating effect of management’s plans should be considered only to the extent that (1) it is probable that the plans will be effectively implemented and, if so, (2) it is probable that the plans will mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

9

Table of Contents

TransBiotec, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF

SEPTEMBER 30, 2016

If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of consideration of management’s plans, the entity should disclose information that enables users of the financial statements to understand all of the following (or refer to similar information disclosed elsewhere in the footnotes):

	a.	Principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern (before consideration of management’s plans).
	b.	Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations.
	c.	Management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern.

If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, but the substantial doubt is not alleviated after consideration of management’s plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued). Additionally, the entity should disclose information that enables users of the financial statements to understand all of the following:

	a.	Principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.
	b.	Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations.
	c.	Management’s plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

The amendments in this Update are effective for the annual period ending after December 15, 2016, and for the annual periods and interim periods thereafter. Early application is permitted. The Company is currently evaluating the impact of the adoptions of ASU 2014-15 on its consolidated financial statements.

Minority interest (Noncontrolling interest)

A subsidiary of the Company has minority members, representing ownership interests of 1.38% at September 30, 2016. The Company accounts for these minority, or noncontrolling interests pursuant to ASC 810-10-65 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.

10

Table of Contents

TransBiotec, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF

SEPTEMBER 30, 2016

NOTE 2. RELATED PARTY TRANSACTIONS

As of September 30, 2016 and December 31, 2015, the Company had payables due to officers, for accrued compensation and services of $496,656 and $412,656 respectively.

On December 3, 2014, as part of a related party note payable agreement, the company agreed to convert 50% of certain outstanding accounts payable to common stock at a price of .09 per share. As of September 30, 2016, $117,132 of AP was converted into 1,301,463 common shares. All gains for a related party transaction are recorded to additional paid-in capital, therefore the difference between the value of shares and the accounts payable was transferred to additional paid-in capital for this transaction. The Company determined approximately $23,025 of certain accounts payable that was converted to 255,834 shares were in excess of the Company’s authorized shares amount of 100,000,000 and have an embedded derivative and are therefore accounted for at fair value under ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments. Utilizing Level 2 Inputs, the Company recorded fair market value adjustments related to certain accounts payable converted to shares over the Company’s 100,000,000 authorized shares amount for the nine months ended September 30, 2015 and September 30, 2016 of none and $2,630, respectively. The fair market value adjustments were based on the Black-Sholes method using the following assumptions: risk free rates ranging between 0.45% - 0.68%, dividend yield of 0%, expected life of 1 year, volatility between 297% - 369%. The fair value derivative liability under certain accounts payable converted to shares that were in excess of the Company’s 100,000,000 authorized shares amount as of December 31, 2015 and September 30, 2016 was none and $2,630 respectively.

On July 1, 2015, the Company amended a note payable agreement with Lanphere Law Group, the company’s largest shareholder, which forgave $108,000 of the principal balance. The original principal balance on the note was $214,335 and the new principal balance on the note after the debt forgiveness is $106,335.

The Company entered into a lease agreement with Lanphere Law Group, whereas the Company is the tenant and is paying monthly rent of $4,100.

NOTE 3. PROPERTY & EQUIPMENT

Property and equipment values recorded at cost are as follows:

		Sept. 30,				Dec. 31,
		2016				2015
Office and Lab Equipment		$	32,127			$	32,127
Furniture and fixtures			11,556				11,556
			43,683				43,683
Less accumulated depreciation			(43,683	)			(43,683	)
Property & Equipment, Net		$	-			$	-

Depreciation expense for the nine months ended September 30, 2016 and 2015 was none, and $369, respectively.

 

11

Table of Contents

TransBiotec, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF

SEPTEMBER 30, 2016

NOTE 4. NOTES PAYABLE

		December 31, 2015				(Unaudited) September 30, 2016
Note payable to related party, unsecured, due 8/3/2012, interest rate 0%. Currently in default.		$	1,950			$	1,950
Notes payable to related party, unsecured, due 12/31/2012, interest rate 0%. Currently in default.		$	11,810			$	11,810
Note payable to related party, unsecured, $731,763, 5-years at 0% simple interest, due 7/1/2016, payment amounts vary each month, various late penalties. Currently in default.		$	180,001			$	180,001
Note payable to non-related party, unsecured, due 2/8/12, quarterly interest due, convertible at holder’s option at $0.3235688 per TBT - DE share, interest rate 30%. Currently in default. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue.		$	10,000			$	10,000
Note payable to non-related party, unsecured, due 2/8/12, quarterly interest due, convertible at holder’s option at $0.3235688 per TBT - DE share, interest rate 30%. Currently in default. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue.		$	25,000			$	25,000
Note payable to non-related party, unsecured, due 2/17/12, quarterly interest due, convertible at holder’s option at $0.3235688 per TBT - DE share, interest rate 30%. Currently in default. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue.		$	25,000			$	25,000
Note payable to non-related party, unsecured, due 2/18/12, quarterly interest due, convertible at holder’s option at $0.3235688 per TBT - DE share, interest rate 30%. Currently in default. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue.		$	10,000			$	10,000
Note payable to non-related party, unsecured, due 2/18/13, annual interest due, convertible at holder’s option at $0.3235688 per TBT-DE share, interest rate 18%. Currently in default. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue.		$	750			$	750

12

Table of Contents

TransBiotec, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF

SEPTEMBER 30, 2016

Note payable to non-related party, unsecured, due 2/8/13, annual interest due, convertible at holder’s option at $0.3235688 per TBT-DE share, interest rate 18%. Currently in default. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue.		$	6,875			$	6,875
Note payable to non-related party, unsecured, due 2/15/13, annual interest due, convertible at holder’s option at $0.3235688 per TBT-DE share, interest rate 12%. Currently in default. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue.		$	2,500			$	2,500
Note payable to non-related party, unsecured, due 2/20/13, annual interest due, convertible at holder’s option at $0.3235688 per TBT-DE share, interest rate 12%. Currently in default. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue.		$	3,750			$	3,750
Note payable to non-related party, unsecured, due 2/21/13, annual interest due, convertible at holder’s option at $0.3235688 per TBT-DE. share, interest rate 12%. Currently in default. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue.		$	2,625			$	2,625
Note payable to non-related party, unsecured, due 3/20/13, annual interest due, convertible at holder’s option at $0.3235688 per TBT-DE share, interest rate 12%. Currently in default. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue.		$	5,433			$	5,433
Note payable to non-related party, unsecured, due 3/22/13, annual interest due, convertible at holder’s option at $0.3235688 per TBT-DE share, interest rate 12%. Currently in default. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue.		$	3,203			$	3,203
Note payable to non-related party, unsecured, due 08/29/2013, simple interest 8% convertible at holder’s option at $.249 per TBT-CA share. Currently in default. Principal balance including interest to be paid upon receipt of equity funding and/or sales revenue.		$	15,000			$	15,000
Note payable to related party, unsecured, due 03/01/2013, simple interest 9%. Currently in default. Principal balance including interest to be paid upon receipt of equity funding and/or sales revenue.		$	5,000			$	5,000
Note payable to non-related party, unsecured, due 01/31/2013, simple interest 18%. Currently in default. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue.		$	3,938			$	3,938

13

Table of Contents

TransBiotec, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF

SEPTEMBER 30, 2016

Note payable to related party, unsecured, due 01/23/2014, simple interest 9%. Currently in default.		$	50,000			$	50,000
Note payable to related party, unsecured, due 07/02/2014, simple interest 9%. Currently in default.		$	15,000			$	15,000
Note payable to non-related party, unsecured, due 10/25/2013, simple interest 18%. Currently in default.		$	2,000			$	2,000
Note payable to non-related party, unsecured, due 12/27/2013, simple interest 9% quarterly, Currently in default. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue.		$	15,000			$	15,000
Note payable to non-related party, unsecured, due 9/11/2014, simple interest 10% yearly, Currently in default. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue.		$	5,000			$	5,000
Note payable to related party, unsecured, due 11/12/2014, simple interest 9%, Convertible at $0.04 per share, currently in default. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue.		$	11,000			$	11,000
Note payable to related party, unsecured, due 4/08/2015, simple interest 7%, Convertible at $0.0072 per share. Currently in default. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue.		$	15,000			$	15,000
Note payable to related party, unsecured, due 8/05/2015, simple interest 7%, default interest 10%. Currently in default. Note contains a stock option.		$	10,000			$	10,000
Note payable to related party unsecured, due 12/02/2015, simple interest 7%, default interest 10%. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue. Currently in default.		$	106,334			$	106,334
Note payable to non-related party, unsecured, due 3/26/2016, simple interest 8%, convertible at $0.0017 per share. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue. Currently in default.		$	25,000			$	25,000

14

Table of Contents

TransBiotec, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF

SEPTEMBER 30, 2016

Note payable to related party, unsecured, due 4/11/2016, simple interest 10%. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue. Currently in default.		$	13,000			$	13,000
Note payable to related party, unsecured, due 11/11/2015, simple interest 10%. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue. Currently in default.		$	45,000			$	45,000
Note payable to non-related party, unsecured, due 11/11/2015, simple interest 10%. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue. Currently in default.		$	2,500			$	2,500
Note payable to related party, unsecured, due 12/26/2015, simple interest 10%. Principal balance including interest to be paid upon the receipt of equity funding and/or sales revenue. Currently in default.		$	25,000			$	25,000
Note payable to related party, unsecured, due on demand, simple interest 10%.		$	-			$	15,277
Note payable to related party, unsecured, due 7/23/2016, simple interest 10%. Currently in default.		$	-			$	15,000
Note payable to related party, unsecured, due 5/1/2017, simple interest 7%. Note contains a stock option.		$	-			$	3,750
Note payable to related party, unsecured, due 11/9/2016, simple interest 7%. Note contains a stock option.		$	-			$	15,000
Note payable to related party, unsecured, due 7/26/2017, simple interest 7%. Note contains a stock option.		$	-			$	3,900
Note payable to related party, unsecured, due 8/03/2017, simple interest 7%. Note contains a stock option.		$	-			$	20,000
Note payable to related party, unsecured, due 9/28/2017, simple interest 7%. Note contains a stock option.		$	-			$	20,000
		$	652,669			$	745,596
Less note discounts			(6,250	)			-
Less current - related parties			(489,095	)			(582,022	)
Less current – non-related parties			(157,324	)			(163,574	)
Long-term – related parties		$	-			$	-

 

15

Table of Contents

TransBiotec, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF

SEPTEMBER 30, 2016

Required principal payments from September 30, 2016 forward are as follows:

2016		$	697,946
2017		$	47,650
2018		$	-
2019		$	-
2020		$	-
		$	745,596

Interest expense under notes payable for the nine months ended September 30, 2016 and September 30, 2015 was $89,276 and $142,721 respectively.

During the nine months ended September 30, 2016 and September 30, 2015 the Company recognized a beneficial conversion feature expense on borrowing from convertible notes of $6,250 and $17,500, respectively.

During the nine months ended September 30, 2016 and September 30, 2015 the unamortized note discount from the beneficial conversion feature was none, and $12,500, respectively.

In 2012 the company borrowed $110,000 under convertible notes with a variable conversion price based on a percentage of market price of which $103,395 were converted at December 31, 2014. The Company paid the remaining principal balance due on these convertible notes in January 2015. The Company determined that these notes have an embedded derivative and are therefore accounted for at fair value. The Company recorded fair market value adjustments for the nine months ended September 30, 2016 and September 30, 2015 of none and $(25,456), respectively. The fair market value adjustments were based on the Black-Sholes method using the following assumptions: risk free rates ranging between 0.10% - 0.21%, dividend yield of 0%, expected life of 1 year, volatility between 128% - 354%. The fair value derivative liability under the notes as of September 30, 2016 and December 31, 2015 was none and none, respectively.

NOTE 5. INCOME TAXES

Deferred income taxes arise from the temporary differences between financial statement and income tax recognition of net operating losses. These loss carryovers are limited under the Internal Revenue Code should a significant change in ownership occur.

NOTE 6. STOCK OPTIONS AND SUBSCRIPTIONS PAYABLE

The Company accounts for employee and non-employee stock options under ASC 718 and ASC 505, whereby option 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. Unless otherwise provided for, the Company covers option exercises by issuing new shares.

 

16

Table of Contents

TransBiotec, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF

SEPTEMBER 30, 2016

The Company’s stock option activity is described below.

Non-employee stock options

At the beginning of 2012, the Company had 22,500 options outstanding for shares in Transbiotec – CA. The fair value of the option grants was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 2.67%, dividend yield of 0%, expected life of five years, volatility of 100%. During the year ended December 31, 2012 no options were exercised or expired, leaving a December 31, 2012 outstanding balance of 22,500 non-employee stock options, exercisable at prices from $0.10 - $0.15 per share with the option terms expiring from January 2012 through January 2015. All of these options are for the stock of TransBiotec - CA. During the year ended December 31, 2014, 20,000 options were exercised, leaving a December 31, 2014 outstanding balance of 2,500 non-employee stock options, exercisable at $0.10 per share with the option terms expiring in January 2015. During the year ended December 31, 2015, no options were exercised as all outstanding options expired in January 2015 leaving no outstanding balance of non-employee stock options in the stock of Transbiotec-CA at December 31, 2015. During the nine months ended September 30, 2016, no options were exercised as all outstanding options expired in January 2015 leaving no outstanding balance of non-employee stock options in the stock of Transbiotec-CA at September 30, 2016

During 2012 the Company granted 29,678 stock options for shares in Transbiotec - DE. The fair value of the option grants was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 0.8%, dividend yield of 0%, expected life of five years, volatility of 189%. No options were exercised or expired, leaving a December 31, 2012 outstanding balance of 29,678 options for Transbiotec – DE. The Company incurred and recorded compensation expense under these stock option grants of $4,042 in 2012, vested immediately.

During 2013 the Company granted 5,321,735 stock options for shares in Transbiotec - DE. The fair value of the option grants was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: risk free interest rates between 7% - 14%, dividend yield of 0%, expected life of five years, volatility between 179% - 186%. No options were exercised or expired, leaving a December 31, 2013 outstanding balance of 5,351,413 options for Transbiotec – DE. The Company incurred and recorded compensation expense under these stock option grants of $145,997 in 2013, vested immediately.

During 2014 the Company granted 8,403,633 stock options for shares in Transbiotec - DE. The fair value of the option grants was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: risk free interest rates between 1.55% - 1.77%, dividend yield of 0%, expected life of five years, volatility between 147% - 178%. No options were exercised or expired, leaving a December 31, 2014 outstanding balance of 13,755,046 options for Transbiotec – DE. The Company incurred and recorded compensation expense under these stock option grants of $69,886 in 2014, vested immediately.

During the year ended December 31, 2015, the Company granted 16,282,995 stock options for shares in Transbiotec - DE. The fair value of the option grants was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: risk free interest rate between 1.37% - 1.68%, dividend yield of 0%, expected life of five years, a volatility range of 172% - 174%. No options were exercised or expired, leaving a December 31, 2015 outstanding balance of 30,038,041 options for Transbiotec – DE. The Company incurred and recorded compensation expense under these stock option grants of $27,731 during the year ended December 31, 2015, vested immediately.

 

17

Table of Contents

TransBiotec, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF

SEPTEMBER 30, 2016

During the nine months ended September 30, 2016, the Company granted 8,131,070 stock options for shares in Transbiotec - DE. The fair value of the option grants was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: risk free interest rate between 1.03% - 1.14%, dividend yield of 0%, expected life of five years, a volatility rate between 162% - 167%. No options were exercised or expired, leaving a September 30, 2016 outstanding balance of 38,169,111 options for Transbiotec – DE. The Company incurred and recorded compensation expense under these stock option grants of $3,603 during the nine months ended September 30, 2016, vested immediately. The Company determined approximately 7,169,315 stock options for shares that were granted during the nine months ended September 30, 2016 were in excess of the Company’s authorized shares amount of 100,000,000 and have an embedded derivative and are therefore accounted for at fair value under ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments. Utilizing Level 2 Inputs, the Company recorded fair market value adjustments related to stock options for shares that were granted over the Company’s 100,000,000 authorized shares amount for the nine months ended September 30, 2015 and September 30, 2016 of none and $83,734, respectively. The fair market value adjustments were based on the Black-Sholes method using the following assumptions: risk free rates ranging between 0.51% - 0.59%, dividend yield of 0%, expected life of 1 year, volatility between 292% - 370%. The fair value derivative liability under certain stock options for shares that were granted in excess of the Company’s 100,000,000 authorized shares amount as of December 31, 2015 and September 30, 2016 was none and $83,734, respectively.

A summary of stock option activity for California is as follows:

		Number of Shares				Weighted Average Exercise Price
Outstanding at December 31, 2015			-			$	-
Granted			-				-
Exercised			-				-
Forfeited			-				-
Outstanding at September 30, 2016			-			$	-

A summary of stock option activity for Delaware is as follows:

		Number of Shares				Weighted Average Exercise Price
Outstanding at December 31, 2015			30,038,041			$	.0143
Granted			8,131,070				.0055
Exercised			-				-
Forfeited			-				-
Outstanding at September 30, 2016			38,169,111			$	.0124

18

Table of Contents

TransBiotec, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF

SEPTEMBER 30, 2016

Following is a summary of the status of options for Delaware outstanding at September 30, 2016:

Exercise Price				Number of Shares				Remaining Contractual Life		Weighted Average Exercise Price					Exercised at September 30, 2016
$	0.0900				29,678			2 years			0.0900					-
$	0.1700				83,333			3 years			0.1700					-
$	0.1700				27,778			3 years			0.1700					-
$	0.1700				362,624			3 years			0.1700					-
$	0.1300				80,914			3 years			0.1300					-
$	0.1300				429,086			3 years			0.1300					-
$	0.0600				38,000			3 years			0.0600					-
$	0.0400				250,000			3 years			0.0400					-
$	0.0400				1,625,000			3 years			0.0400					-
$	0.0500				400,000			3 years			0.0500					-
$	0.0400				75,000			3 years			0.0400					-
$	0.0400				300,000			3 years			0.0400					-
$	0.0200				300,000			3 years			0.0200					-
$	0.0200				1,200,000			3 years			0.0200					-
$	0.0400				150,000			3 years			0.0400					-
$	0.0125				1,200,000			4 years			0.0125
$	0.0150				50,137			4 years			0.0150					-
$	0.0150				140,000			4 years			0.0150					-
$	0.0190				31,256			4 years			0.0190					-
$	0.0161				167,702			4 years			0.0161					-
$	0.0147				204,082			4 years			0.0147					-
$	0.0200				75,000			4 years			0.0200					-
$	0.0198				75,758			4 years			0.0198					-
$	0.0213				165,915			4 years			0.0213					-
$	0.0195				133,262			4 years			0.0195					-
$	0.0188				79,787			4 years			0.0188					-
$	0.0140				229,714			4 years			0.0140					-
$	0.0190				50,000			4 years			0.0190					-
$	0.0127				42,283			4 years			0.0127					-
$	0.0090				213,833			4 years			0.0090					-

19

Table of Contents

TransBiotec, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF

SEPTEMBER 30, 2016

$	0.0074				48,649			4 years			0.0074					-
$	0.0060				375,000			4 years			0.0060					-
$	0.0098				612,245			4 years			0.0098					-
$	0.0098				61,224			4 years			0.0098					-
$	0.2500				25,000			4 years			0.2500					-
$	0.0680				450,000			4 years			0.0680					-
$	0.0072				123,828			4 years			0.0072					-
$	0.0056				375,000			4 years			0.0056					-
$	0.0070				250,000			4 years			0.0070					-
$	0.0070				373,714			4 years			0.0070					-
$	0.0041				850,244			4 years			0.0041					-
$	0.0045				2,000,000			4 years			0.0045					-
$	0.0024				150,000			5 years			0.0024					-
$	0.0010				7,625,544			5 years			0.0010					-
$	0.0024				1,770,000			5 years			0.0024					-
$	0.0023				400,782			5 years			0.0023					-
$	0.0012				275,000			5 years			0.0012					-
$	0.0017				1,764,706			5 years			0.0017					-
$	0.0018				2,463,333			5 years			0.0018					-
$	0.0021				285,714			5 years			0.0021					-
$	0.0018				333,333			5 years			0.0018					-
$	0.0018				1,083,333			5 years			0.0018					-
$	0.0018				131,250			5 years			0.0018					-
$	0.0040				2,250,000			5 years			0.0040					-
$	0.0040				562,500			5 years			0.0040					-
$	0.0060				390,000			5 years			0.0060					-
$	0.0070				1,714,285			5 years			0.0070					-
$	0.0045				1,500,000			5 years			0.0045					-
$	0.0070				1,714,285			5 years			0.0070					-
Total					38,169,111						0.0124

  

20

Table of Contents

TransBiotec, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF

SEPTEMBER 30, 2016

Employee stock options

The parent company had no outstanding employee stock options.

Stock subscriptions received

At September 30, 2016 and December 31, 2015, the Company converted certain accounts payable into common shares which amounts to $54,736 for 1,503,890 common shares to be issued, and $55,868 for 6,049,578 common shares to be issued, respectively.

At September 30, 2016 and December 31, 2015, the Company converted certain notes payable into preferred shares which amounts to $14 for 1,388,575 preferred shares to be issued.

NOTE 7. GOING CONCERN

The Company has suffered recurring losses from operations and has a working capital deficit and stockholders' deficit, and in all likelihood will be required to make significant future expenditures in connection with continuing marketing efforts along with general administrative expenses. As of September 30, 2016, the accumulated deficit is $17,001,034. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company may raise additional capital through the sale of its equity securities, through an offering of debt securities, or through borrowings from financial institutions or others. By doing so, the Company hopes to generate revenues from sales of its alcohol sensing and ignition lock systems. Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern.

NOTE 8. COMMON STOCK

On June 11, 2015, as an inducement for a loan, the Company issued 834,408 shares of its common stock on said date valued at $1,502 with a purchase price of $0.0018 per share.

On August 20, 2015, the Company converted accrued interest of $3,900 into 1,000,000 shares of its common stock, with a purchase price $0.0039 per share.

On January 21, 2016, the Company issued for $25,000 cash, 5,000,000 shares of its common stock, with a purchase price of $0.0050 per share.

On January 21, 2016, the Company converted $9,750 of its account payable into 2,500,000 issued shares of its common stock, with a purchase price of $0.0039 per share.

NOTE 9. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases its office space under a long-term operating lease expiring in June 2019. Rent expense under this lease was $39,315 and none for the nine months ended September 30, 2016 and September 30, 2015, respectively.

As of September 30, 2016, future minimum annual payments under operating lease agreements for years ending December 31 are as follows.

		2016				2017				2018				2019				2020				Total
Operating leases			12,300				49,200				49,200				24,600				-				135,300
		$	12,300			$	49,200			$	49,200			$	24,600			$	-			$	135,300

21

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.

Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

Overview

We have developed an alcohol detection device called “SOBR”. The device is a patented system for use in detecting alcohol in a person’s system by measuring the ethanol content in their perspiration. Once SOBR is completed and tested, we plan to market the device to four primary business segments: (i) as an aftermarket-installed device to companies and institutions that employ or contract with vehicle drivers, such as trucking companies, limousine companies, and taxi cab companies, where the system will be marketed as a preventative drunk driving detection system, with a possible ignition locking device, (ii) the original equipment manufacturing (OEM) market, where the device would be installed in new vehicles during the original building of a vehicle, (iii) companies and institutions that have an interest in monitoring their employees’ or contractors’ alcohol level due to their job responsibilities, such as surgeons prior to entering surgery, pilots prior to flying aircraft, mineworkers prior to entering a mine, or the military for personnel returning to a military base from off-base leave or prior to leaving for a mission, and (iv) companies that would want to provide knowledge to their customers of their current alcohol level, such as lounge and bar owners, or customers attending a golfing event. We believe SOBR offers a unique solution to the national alcohol abuse problem.

We have developed a marketing plan that our management believes will gain market recognition for the SOBR device, primarily through trade shows, industry publications, general solicitation, social media, and public relations, as well as hopefully generating the demand for the SOBR device through the use of selling groups, such as channel sales, distributors, and independent sales contractors. We believe the primary market for the in-vehicle SOBR device initially is the commercial vehicle market, such as trucking companies, taxi cab companies, limousine companies, and bus companies. Many of these companies have a significant financial interest in eliminating drunk drivers from their operations. Secondarily, individuals may desire to monitor a family member's vehicle, such as an automobile operated by a minor or a family member with a past alcohol issue.

22

Table of Contents

We believe the primarily market for the portable SOBR device is its use by companies and institutions that have an interest in monitoring their employees’ or contractors’ alcohol level due to their job responsibilities, such as surgeons prior to entering surgery, pilots prior to flying aircraft, mineworkers prior to entering a mine, or the military for personnel returning to a military base from off-base leave.

Although we are currently performing beta testing of SOBR, on January 15, 2016, we received a purchase order from our distributor, AG Global Capital, for 250 of our SOBR Ignition Interlock devices. We are currently manufacturing the requested devices and expect to deliver the devices to on or about the first quarter of 2017. Under the terms of the purchase order we will receive $35,000 as payment for the devices once the devices are delivered.

Corporate Overview

We were formed in August 2007 to publish and distribute Image Magazine, a monthly guide and entertainment source for the Denver, Colorado area. We generated only limited revenue and essentially abandoned its business plan in January 2009. On September 19, 2011 we acquired approximately 52% of the outstanding shares of TBT from TBT's directors, in exchange for 12,416,462 shares of our common stock.

On January 31, 2012, we acquired approximately 45% of the remaining outstanding shares of TBT in exchange for 10,973,678 shares of our common stock.

Between the acquisitions in September 2011 and January 2012 we own approximately 97% of the outstanding shares of TBT.

As a result of the acquisition, TBT's business is our business, and, unless otherwise indicated, any references to we or us, include the business and operations of TBT.

TBT as the accounting acquirer in the transaction recorded the acquisition as the issuance of stock for our net monetary assets accompanied by a recapitalization. This accounting for the transaction was identical to that resulting from a reverse acquisition, except that no goodwill or other intangible assets were recorded.

We have developed and patented a high technology, state-of-the-art transdermal sensing system that detects ethanol alcohol levels through a person's skin.

The following discussion analyzes our financial condition and the results of our operations for the three and nine months ended September 30, 2016.

This discussion and analysis should be read in conjunction with TBT's financial statements included as part of this Quarterly Report on Form 10-Q, as well as TBT’s financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2015.

23

Table of Contents

Results of Operations for Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015

Summary of Results of Operations

		Three Months Ended September 30,
		2016				2015
Revenue		$	-			$	-
Operating expenses:
General and administrative			80,768				127,363
Amortization and depreciation			-				44
Total operating expenses			80,768				127,407
Operating loss			(80,768	)			(127,407	)
Loss on fair value adjustment-derivatives			(86,394	)			-
Gain on debt reversal			-				108,000
Interest expense			(49,193	)			(66,964	)
Interest expense – beneficial conversion feature			-				(6,250	)
Net income (loss)		$	(216,355	)		$	(92,621	)