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 June 30, 2019

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

For the transition period from _______________ to _______________.

Commission file number: 000-53316

TRANSBIOTEC, INC.

(Exact name of registrant as specified in its charter)

(303) 443-4430

Registrant’s telephone number, including area code

400 N. Tustin Ave., Suite 225

Santa Ana, CA 92705 

 (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 ¨     No x

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

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

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

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

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 January 30, 2020, there were 238,825,917 shares of common stock, $0.00001 par value, issued and outstanding.

TRANSBIOTEC, INC.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
ITEM 1	Condensed Consolidated Financial Statements		3
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk		35
ITEM 4	Controls and Procedures		35
PART II – OTHER INFORMATION
ITEM 1	Legal Proceedings		36
ITEM 1A	Risk Factors		36
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds		36
ITEM 3	Defaults Upon Senior Securities		36
ITEM 4	Mine Safety Disclosures		36
ITEM 5	Other Information		36
ITEM 6	Exhibits		37

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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 Condensed Consolidated Financial Statements

The balance sheets as of June 30, 2019 and December 31, 2018, the statements of operations for the three months and six months ended June 30, 2019 and 2018, the statements of changes in stockholders’ deficit for the three and the six months ended June 30, 2019 and 2018, and the statements of cash flows for the six months ended June 30, 2019 and 2018, follow. The unaudited condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. All such adjustments are of a normal and recurring nature.

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TransBiotec, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

		June 30, 2019				December 31, 2018
		(Unaudited)				(Audited)
ASSETS
Current assets
Cash		$	4,931			$	89
Prepaid expenses			10,966				12,991
Total current assets			15,897				13,080
Total Assets		$	15,897			$	13,080
LIABILITIES & STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable		$	163,097			$	191,714
Accrued expenses			419,572				421,000
Accrued interest payable			615,885				537,118
Related party payables			1,454,375				1,423,984
Derivative liabilities			52,900				-
Stock subscriptions payable			2,058				1,271
Notes payable - current - related parties			752,583	*			697,770
* Includes unamortized debt discount related to detached warrants of $28,011 and $8,074 at June 30, 2019 and December 31, 2018, respectively
Notes payable - current - non-related parties			185,317	*			163,654
* Includes unamortized discount related to convertible notes of $44,257 and $5,920 at June 30,2019 and December 31, 2018, respectively
Total current liabilities			3,645,787				3,436,511
Total Liabilities			3,645,787				3,436,511
Stockholders’ Deficit
Preferred stock, $0.00001 par value; 22,000,000 shares authorized, No shares issued or outstanding as of June 30, 2019 and December 31, 2018			-				-
Series A Convertible Preferred stock, $0.00001 par value; 3,000,000 shares authorized, 1,388,575 shares issued and outstanding as of June 30, 2019 and December 31, 2018			14				14
Common stock, $0.00001 par value; 800,000,000 shares authorized; 152,205,625 and 109,409,930 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively			1,522				1,172
Additional paid-in capital			14,977,006				14,887,804
Accumulated deficit			(18,556,562	)			(18,262,136	)
Total Transbiotec, Inc. stockholders’ deficit			(3,578,020	)			(3,373,146	)
Noncontrolling interest			(51,870	)			(50,285	)
Total Stockholders’ Deficit			(3,629,890	)			(3,423,431	)
Total Liabilities and Stockholders’ Deficit		$	15,897			$	13,080

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

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TransBiotec, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

		For The Three Months Ended								For The Six Months Ended
		June 30, 2019				June 30, 2018				June 30, 2019				June 30, 2018
Revenues		$	-			$	-			$	-			$	-
Operating expenses:
General and administrative			81,483				82,925				150,497				162,768
Total operating expenses			81,483				82,925				150,497				162,768
Loss from operations			(81,483	)			(82,925	)			(150,497	)			(162,768	)
Other income (expense):
Gain on fair value adjustment - derivatives			4,000				-				3,200				-
Interest expense			(67,065	)			(68,189	)			(130,951	)			(132,216	)
Amortization - debt discount			(12,407	)			(500	)			(17,763	)			(500	)
Total other income (expense)			(75,472	)			(68,689	)			(145,514	)			(132,716	)
Loss before provision for income taxes			(156,955	)			(151,614	)			(296,011	)			(295,484	)
Provision for income tax			-				-				-				-
Net loss			(156,955	)			(151,614	)			(296,011	)			(295,484	)
Net loss attributable to noncontrolling interest			818				804				1,585				1,625
Net loss attributable to TranBiotec, Inc.		$	(156,137	)		$	(150,810	)		$	(294,426	)		$	(293,859	)
Net loss per share
(Basic and fully diluted)		$	(0.001	)		$	(0.001	)		$	(0.002	)		$	(0.003	)
Weighted average number of common shares outstanding			152,205,625				115,152,177				141,236,262				112,296,916

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

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TransBiotec, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

(UNAUDITED)

		Common Stock								Preferred Stock																Stockholders'
						Amount								Amount				Additional								Deficit -								Total
		Shares				($0.00001 Par)				Shares				($0.00001 Par)				Paid-in Capital				Accumulated Deficit				TransBiotec Inc.				Noncontrolling Interest				Stockholders' Deficit
Balances at January 1, 2018			109,409,930			$	1,096				1,388,575			$	14			$	14,785,051			$	(17,703,171	)		$	(2,917,010	)		$	(47,127	)		$	(2,964,137	)
Common stock issued to settle accounts payable			91,148				1				-				-				427				-				428				-				428
Paid-in capital - relative fair value of stock warrants granted			-				-				-				-				10,958				-				10,958				-				10,958
Paid-in capital - gain on related party debt conversion			-				-				-				-				7,776				-				7,776				-				7,776
Net loss for the period			-				-				-				-				-				(143,049	)			(143,049	)			(821	)			(143,870	)
Balances at March 31, 2018			109,501,078			$	1,097				1,388,575			$	14			$	14,804,212			$	(17,846,220	)		$	(3,040,897	)		$	(47,948	)		$	(3,088,845	)
Common stock issued for services			6,000,000				61				-				-				25,739				-				25,800				-				25,800
Common stock issued for compensation			800,000				9				-				-				7,991				-				8,000				-				8,000
Common stock issued due to options exercise			450,000				5				-				-				4,495				-				4,500				-				4,500
Paid-in capital - relative fair value of stock warrants granted			-				-				-				-				18,743				-				18,743				-				18,743
Paid-in capital - gain on related party debt conversion			-				-				-				-				7,367				-				7,367				-				7,367
Paid-in capital - beneficial conversion feature			-				-				-				-				6,000				-				6,000				-				6,000
Net loss for the period			-				-				-				-				-				(150,810	)			(150,810	)			(804	)			(151,614	)
Balances at June 30, 2018			116,751,078			$	1,172				1,388,575			$	14			$	14,874,547			$	(17,997,030	)		$	(3,121,297	)		$	(48,752	)		$	(3,170,049	)
Balances at January 1, 2019			116,751,078			$	1,172				1,388,575			$	14			$	14,887,804			$	(18,262,136	)		$	(3,373,146	)		$	(50,285	)		$	(3,423,431	)
Common stock issued for cash			35,454,547				350				-				-				38,650				-				39,000				-				39,000
Paid-in capital - relative fair value of stock warrants granted			-				-				-				-				22,665				-				22,665				-				22,665
Paid-in capital - gain on related party debt conversion			-				-				-				-				8,113				-				8,113				-				8,113
Net loss for the period			-				-				-				-				-				(138,289	)			(138,289	)			(767	)			(139,056	)
Balances at March 31, 2019			152,205,625			$	1,522				1,388,575			$	14			$	14,957,232			$	(18,400,425	)		$	(3,441,657	)		$	(51,052	)		$	(3,492,709	)
Paid-in capital - relative fair value of stock warrants granted			-				-				-				-				12,365				-				12,365				-				12,365
Paid-in capital - gain on related party debt conversion			-				-				-				-				7,409				-				7,409				-				7,409
Net loss for the period			-				-				-				-				-				(156,137	)			(156,137	)			(818	)			(156,955	)
Balances at June 30, 2019			152,205,625			$	1,522				1,388,575			$	14			$	14,977,006			$	(18,556,562	)		$	(3,578,020	)		$	(51,870	)		$	(3,629,890	)

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

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TransBiotec, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

		For The Six Months Ended
		June 30,
		2019				2018
Operating Activities:
Net loss		$	(296,011	)		$	(293,859	)
Adjustments to reconcile net loss to net cash used in
operating activities:
Change in fair value of derivative liability			(3,200	)			-
Amortization - debt discount			17,763				500
Stock warrants expense			15,093				22,517
Stock options expense			-				4,500
Stock-based compensation expense			-				7,999
Changes in assets and liabilities:
Prepaid expenses			2,025				5,483
Accounts payable			(28,617	)			(116,142	)
Accrued expenses			(1,428	)			20,925
Accrued interest payable			78,767				81,401
Related party payables			45,913				208,555
Stock subscriptions payable			787				557
Net cash used in operating activities			(168,908	)			(57,564	)
Financing Activities:
Proceeds from notes payable - related parties			74,750				55,300
Proceeds from notes payable - non-related parties			60,000				6,000
Proceeds from issuances of common stock - non-related parties			39,000				-
Net cash provided by financing activities			173,750				61,300
Net Change In Cash			4,842				3,736
Cash At The Beginning Of The Period			89				142
Cash At The End Of The Period		$	4,931			$	3,878
Schedule Of Non-Cash Investing And Financing Activities:
Gain on related party payables converted to capital		$	15,522			$	15,571
Relative fair value of stock warrants granted		$	35,030			$	29,701
Fair value of embedded conversion feature		$	56,100			$	-
Intrinsic value - beneficial conversion feature		$	-			$	6,000
Research and development prepaid expenses with commons shares		$	-			$	25,800
Supplemental Disclosure:
Cash paid for interest		$	3,750			$	-
Cash paid for income taxes		$	-			$	-

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

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TransBiotec, Inc.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

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" or “We”. 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 condensed consolidated financial statements 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 should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2018, included in the Company’s Annual Report on Form 10-K filed with the SEC on August 8, 2019.

In management’s opinion, the unaudited condensed consolidated financial statements reflect all adjustments (including reclassifications and normal recurring adjustments) necessary to present fairly the financial position as of June 30, 2019 and December 31, 2018, and results of operations and cash flows for the three and six month period ended June 30, 2019 and for the year ended December 31, 2018.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiary, TransBiotec-CA. We have eliminated all intercompany transactions and balances between entities consolidated in these unaudited condensed financial statements.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with 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 and beneficial conversion feature expenses. Actual results could differ from those estimates.

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TransBiotec, Inc.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

Cash

The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents. The Company does not have any cash equivalents as of June 30, 2019 and December 31, 2018.

Income Tax

The Company accounts for income taxes pursuant to Accounting Standards Codification (“ASC”) 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company has not recorded any deferred tax assets or liabilities at June 30, 2019 and December 31, 2018, respectively.

Net Loss Per Share

The basic and fully diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding.

Financial Instruments

Pursuant to ASC Topic 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 and 825 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 and 825 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1

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

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets: quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

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TransBiotec, Inc.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

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 payable, accrued expenses, accrued interest payable, notes payable, related party payables, convertible debentures, and other payables. Pursuant to ASC 820 and 825, the fair value of our derivative liabilities is determined based on “Level 3” inputs. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

The following table presents assets and liabilities that are measured and recognized at fair value as of June 30, 2019 and December 31, 2018:

June 30, 2019
		Level 1				Level 2				Level 3
Derivative liabilities		$	-			$	-			$	52,900
		$	-			$	-			$	52,900
December 31, 2018
		Level 1				Level 2				Level 3
Derivative liabilities		$	-			$	-			$	-
		$	-			$	-			$	-

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 operations under other income (expense).

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TransBiotec, Inc.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option at its fair value as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors. For stock-based derivative financial instruments, the Company uses a Monte Carlo Simulation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instruments are initially recorded at their fair values and are then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations.

Stock-based Compensation

Stock-based compensation cost to employees and non-employees is measured by the Company at the grant date based on the fair value of the award and over the requisite service period under ASC 718. For options issued to employees and non-employees, the Company recognizes stock compensation costs utilizing the fair value methodology over the related period of benefit.

Minority Interest (Noncontrolling Interest)

A subsidiary of the Company has minority members representing ownership interests of 1.38% at June 30, 2019 and December 31, 2018. 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.

Research and Development

The Company accounts for its research and development costs pursuant to ASC 730, whereby it requires the Company to disclose the amounts of costs for company and customer-sponsored research and development activities, if material. Research and development costs are expensed as incurred. The Company incurred research and development costs as it acquired new knowledge to bring about significant improvements in the functionality and design of its SOBR product. Research and development costs were none during the six month period ended June 30, 2019 and $1,347 during the six month period ended June 30, 2018.

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TransBiotec, Inc.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

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.

New Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires a lessee to recognize most leases on its balance sheet. For leases with terms of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. This lease standard was effective for public business entities for periods beginning after December 15, 2018. The standard’s modified retrospective transition approach will require entities to reflect the effect to reflect the effect in the earliest year presented in the financial statements. The Company has adopted this standard; however, during the six month period ended June 30, 2019 the Company had one lease identified as an operating lease with a term of less than 12 months, and therefore elected not to recognize the lease on its balance sheet.

In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting, clarifies Topic 718, Compensation – Stock Compensation, which requires a company to apply modification accounting to changes in the terms or conditions of a share-based payment award unless all of the following criteria are met: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the modification.  The ASU indicates that if the modification does not affect any of the inputs to the valuation technique used to value the award, the entity is not required to estimate the value immediately before and after the modification; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the modification; and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the modification.  The ASU is effective for all entities for fiscal years beginning after December 15, 2017, including interim periods within those years.  Early adoption is permitted, including adoption in an interim period. The Company has decided to adopt this standard; however, during the six month period ended June 30, 2019 the Company currently does not have any modifications to existing stock compensation agreements but will be able to calculate the impact of the ASU, if and when modifications arise.

In July 2017, the FASB issued ASU-2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Noncontrolling Interests of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The first part of this update addresses the complexity of accounting for certain financial instruments with down round features and the second part addresses the complexity of distinguishing equity from liabilities. The guidance is applicable to public business entities for fiscal years beginning after December 15, 2018 and interim periods within those years. The adoption of this standard did not have a material impact on the condensed combined financial statements.

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TransBiotec, Inc.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

In March 2018, the FASB issued ASU 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendments in this update provide guidance on when to record and disclose provisional amounts for certain income tax effects of the Tax Cuts and Jobs Act ("Tax Reform Act"). The amendments also require any provisional amounts or subsequent adjustments to be included in net income from continuing operations. Additionally, this ASU discusses required disclosures that an entity must make with regard to the Tax Reform Act. This ASU is effective immediately as new information is available to adjust provisional amounts that were previously recorded. The Company has decided to adopt this new standard; however, the Company currently has no revenue and only net operating loss carryforwards that result in a tax benefit during the six month period ended June 30, 2019. The Company also has no deferred tax assets (offset in full by a valuation allowance) or tax liabilities on its balance sheet as of June 30, 2019 and December 31, 2018.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting. This update is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to non-employees (for example, service providers, external legal counsel, suppliers, etc.). The ASU expands the scope of Topic 718, Compensation—Stock Compensation, which currently only includes share-based payments issued to employees, to also include share-based payments issued to non-employees for goods and services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. The standard will be applied in a retrospective approach for each period presented. The Company has adopted this standard for the year ended December 31, 2018. The Company made no share-based payments to non-employees and did not grant stock warrants or stock options for services rendered or goods received during the six month period ended June 30, 2019.

NOTE 2. 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 and administrative expenses. As of June 30, 2019, the accumulated deficit is $18,556,562, a cash balance of $4,931, carrying loans of principal and interest in default totaling $1,458,037 and cash outflows from operating activities of $168,908. These principal conditions or events, considered in the aggregate, indicate it is probable that the entity 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.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

On May 25, 2017, the Company increased their number of unauthorized shares from 100,000,000 to 800,000,000 as they hope to raise additional capital through the sale of its equity securities, through an offering of debt securities, or through borrowings from financial institutions or others, and debt restructure (conversion of debt to equity). By doing so, the Company further hopes to generate revenues from sales of its alcohol sensing and ignition lock systems. The Company is currently engaged in talks with potential sales reps, funding sources, and manufacturers.

The Company is also considering opportunities to create synergy with its SOBR product. On October 29, 2018, the Company entered into a non-binding Letter of Intent (“LOI”) with First Capital Holdings, LLC (“FCH”). The LOI sets forth the terms under which the Company could potentially acquire certain assets related to robotics equipment from FCH in exchange for shares of their common stock equal to 60% of our then outstanding common stock on a fully-diluted basis. The LOI is non-binding and subject to various conditions that must be met in order for the parties to close the transaction, including, but not limited to, (i) the Company being current in its reporting requirements under the Securities Exchange Act of 1934, as amended, (ii) the Company completing a reverse stock split of its common stock such that approximately 8,000,000 shares will be outstanding immediately prior to closing the transaction with no convertible instruments other than as set forth herein, (iii) the Company having no more than $125,000 in outstanding debt, all in the form of convertible notes that mature in two years post-closing and are convertible into shares of TransBiotec common stock at $2.00 per share; (iv) FCH completing any necessary audits and reviews of the financial statements related to the assets by a PCAOB-approved independent registered accounting firm, and (v) the parties executing definitive documents related to the potential transaction. On March 6, 2019, the parties entered into an amendment No. 1 to the LOI in order to extend certain dates in the LOI namely : (i) the date for the parties to complete initial due diligence was moved to March 29, 2019 (ii) the date for the parties to execute definitive agreements related to the transaction was moved to May 6, 2019, and (iii) the date to close the transaction was tentatively moved to August 31, 2019 (the “Amendment No.1”). On May 6, 2019, TransBiotec, Inc. (“The Company” or “TransBiotec” and “Buyer”) entered into an asset purchase agreement with IDTEC, LLC (“Seller”) in which TransBiotec agreed to acquire the Seller’s rights, title and interest to and in certain assets. The aggregate purchase price for the purchased assets shall be 12 million (12,000,000) restricted shares of the $0.00001 par value common stock of the Buyer; provided that the total number of shares of TransBiotec’s $0.00001 par value common stock issued and outstanding following a tentative closing date of January 31, 2020 shall not exceed 20 million (20,000,000) shares (on a fully dilated basis).

Management believes actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern; however, these plans are contingent upon actions to be performed by the Company and this performance has not occurred on or before June 30, 2019. As such, substantial doubt about the entity’s ability to continue as a going concern has not been alleviated as of June 30, 2019.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

NOTE 3. RELATED PARTY TRANSACTIONS

In May 2011, the Company entered into an employment agreement with Mr. Bennington which expired on December 31, 2017. The employment agreement provided that the Company would pay Mr. Bennington a salary of $120,000 during the first year of the agreement, $156,000 during the second year of the agreement, $172,000 during the third year of the agreement, $190,000 during the fourth year of the agreement and $208,000 during the fifth year of the agreement. Since the Company was unable to compensate him as stipulated per the agreement, Mr. Bennington agreed to drop his yearly compensation, and resulting yearly accrual, to $120,000 per year with no yearly increases as stipulated in years 2 through 5. In September 2016, before the expiration of Mr. Bennington’s contract, the Company appointed Ivan Braiker as its sole CEO, and Mr. Bennington subsequently took a role as a member of the Board of Directors at a monthly rate of $5,000. In connection with his appointment, Mr. Braiker entered into a letter agreement with the Company, under which he accrued a monthly retainer of $7,500, to be paid only if the Company successfully closed financing of at least $200,000. Mr. Braiker was also granted options to purchase 1,500,000 shares of common stock at an exercise price of $0.0045 per share at a fair value of $6,290. In an act of good faith by the Company, Mr. Braiker was paid $15,000 in 2017 in relation to his letter agreement. Effective with his resignation on December 31, 2017, the Company did not owe, accrue for or pay Mr. Braiker any further compensation as he was unable to secure financing of $200,000 for the Company as stipulated per the letter agreement. Mr. Braiker was not compensated for his services as a member of our Board of Directors.

As of June 30, 2019 and December 31, 2018, the Company had payables due to officers for accrued compensation and services of $595,000 and $474,156, respectively, recorded as related party payables on the condensed consolidated balance sheets. Due to cash flow constraints, the Company has experienced difficulty in compensating its directors for their service in their capacity as directors; therefore, such directors may receive stock options to purchase common shares as awarded by its Board of Directors or (as to future stock options) a compensation committee which may be established. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with business related travel and attendance at meetings of its Board of Directors. The Company’s Board of Directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director.

On December 3, 2014, Lanphere Law Group, a related party and the Company’s largest shareholder, entered into an agreement with the Company to convert 50% of its outstanding accounts payable of $428,668 to a note payable. This note payable represents one half of the balance in the amount of $214,334 of attorney fees and costs owed up until October 31, 2014. This agreement further provided that the remaining 50% of unpaid legal fees in accounts payable were to be paid and retained as a current payable. In addition, 50% of the attorney fees and costs incurred starting from November 1, 2014 are to be converted on a monthly basis to common stock at a price of $0.09 per share until the accounts payable balance for attorney fees is paid current. These payables were for legal expenses recorded to general and administrative expense as incurred. The Company has recorded to equity, a total related party gain connected to these conversions during the six month period ended June 30, 2019 and 2018 of $15,522 and $15,143, respectively. Per this agreement as of June 30, 2019 and December 31, 2018, on a cumulative basis, approximately $201,831 of related party payables was converted into 2,242,565 common shares and $201,831 was converted into 2,242,565 common shares, respectively. The Company has a stock subscription payable due to Lanphere Law Group as of June 30, 2019 of $2,058 convertible into 424,479 of its common shares, and $1,271 convertible into 243,273 of its common shares as of December 31, 2018.

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TransBiotec, Inc.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

On July 1, 2015, the Company amended the December 3, 2014 note payable agreement with Lanphere Law Group, a related party and the Company’s largest shareholder, which forgave $108,000 of the note payable’s principal balance. This debt forgiveness brought down the original principal balance on the note of $214,334 to a new principal balance of $106,335, and a related party gain of $108,000 was recorded to additional paid-in capital. This amendment also extended the note payable’s due date to December 2, 2015; however, this note is currently in default.

On March 8, 2017, Lanphere Law Group, a related party and the Company’s largest shareholder, irrevocably elected to exercise warrants in order to acquire 32,248,932 shares of the Company’s common stock in exchange for an aggregate exercise price of $112,871, which was used for the deduction of $74,672 of principal and $38,199 of accrued interest related to the December 3, 2014 note payable agreement with Lanphere Law Group. The principal balance of the note after the debt deduction was $31,662. At June 30, 2019 and December 31, 2018, the principal balance of this note was $31,662 and $31,662, respectively. At June 30, 2019 and December 31, 2018, the accrued interest on this note was $7,910 and $5,539, respectively. The forgiveness of the note payable principal of $74,672 was recorded to equity and the $38,199 of related accrued interest was recorded to equity. After this exercise, Lanphere Law Group still owns warrants to acquire an additional 27,400,745 shares of our common stock.

The Company entered into a lease agreement with Lanphere Law Group, a related party and the Company’s largest shareholder, whereas the Company is the tenant and is paying monthly rent of $4,100. The term of this operating lease runs from July 1, 2015 to June 30, 2019. As of July 1, 2019, the Company leases the same office space on a month to month basis. Rent expense, including CAM charges, for the six month period ended June 30, 2019 and 2018 of $26,210 and $26,210, respectively, was recorded to general and administrative expense.

On April 30, 2018, Daljit Khangura, a related party, irrevocably elected to exercise options in order to acquire 450,000 shares of the Company’s common stock in exchange for an aggregate exercise price of $4,500, which was used as stock compensation for consulting services provided as a member of the Board of Directors. Mr. Khangura was issued an additional 50,000 shares of the Company’s common stock with a value of $500, which was also used as stock compensation for consulting services provided as a member of the Board of Directors.

On April 30, 2018, the Company converted $7,500 to Nick Noceti, a related party, for executive compensation into 750,000 issued shares of common stock at $0.01 per share.

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TransBiotec, Inc.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

NOTE 4. NOTES PAYABLE

RELATED PARTIES

The Company has four convertible notes payable to related parties that have a principal balance of $91,000 and $91,000 as of June 30, 2019 and December 31, 2018, respectively. These notes carry interest rates of 9% and have due dates ranging from 1/23/2014 - 4/8/2015. All four notes are currently in default and carry a default interest rate of 10%. These notes carry conversion prices ranging from $0.0072 - $0.0800 per share. The Company evaluated these convertible notes and determined that, for the embedded conversion option, there was a beneficial conversion value to record. The beneficial conversion feature was amortized over the life of the notes, one year, and was fully amortized at June 30, 2019 and December 31, 2018. No beneficial conversion feature expense was incurred during the six month period ended June 30, 2019 and 2018.

The Company has ten non-convertible notes payable to related parties that have a principal balance of $343,700 and $343,700 as of June 30, 2019 and December 31, 2018, respectively. These notes carry interest rates ranging from 0% - 10% and have due dates ranging from 8/03/2012 - 11/28/2016. Nine of the ten notes are currently in default and carry a default interest rate of 10%.

The Company has thirty notes payable with detached free-standing warrants to related parties that have a principal balance of $345,894 and $271,144 as of June 30, 2019 and December 31, 2018, respectively. These notes carry interest rates ranging from 7% - 10% and have due dates ranging from 8/05/2015 - 03/30/2020. Twenty-eight of the thirty notes, carrying a total principal balance of $336,144, are currently in default and carry a default interest rate of 10%. The exercise price for each note payable detached free-standing warrant ranges from $0.0018664652 - $0.0160. As of June 30, 2019 and December 31, 2018, these notes carried outstanding detached free-standing warrants of 40,535,165 and 23,953,003, respectively. The unamortized discount related to these warrants at June 30, 2019 and December 31, 2018 is $28,011 and $8,074, respectively. During the six month period ended June 30, 2019 and 2018, stock warrants amortization expense recorded to interest expense was $15,093 and $22,517, respectively. The reason for the decrease in stock warrants expense was directly related to the timing of funds borrowed and the related amortization of its stock warrants. The relative fair market value of stock warrants granted during the six month period ended June 30, 2019 and 2018 was $35,030 and $29,701, respectively. The fair market value of the outstanding stock warrants was calculated utilizing the Black-Sholes method using the following assumptions: risk free rates ranging between 2.31% - 2.53%, dividend yield of 0%, expected life of 5 years, volatility between 135% - 138%.

Total interest expense for related party notes was $43,235 and $39,446 for the six month period ended June 30, 2019 and 2018, respectively.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

NON- RELATED PARTIES

The Company has eighteen convertible notes payable to non-related parties that have a principal balance of $203,136 and $143,136 as of June 30, 2019 and December 31, 2018, respectively. These notes carry interest rates ranging from 5% - 30% and have due dates ranging from 10/30/2012 - 5/23/2019. Sixteen of the eighteen notes, carrying a total principal balance of $143,136, are currently in default and carry a default interest rate of 10%. These notes carry conversion prices ranging from $0.0017- $0.3235688 per share. On March 1, 2019 and May 3, 2019, the Company entered into convertible note payable agreements that converts to its common stock at a variable conversion price. As further discussed in Note 5 – Derivative Liability, the Company analyzed the conversion features of the note agreement for derivative accounting consideration under ASU 2017-11 (ASC 815-15 Derivatives and Hedging), and determined the embedded conversion features should be classified as a derivative because the exercise price of the convertible note is subject to a variable conversion rate. The Company evaluated these convertible notes and determined that an embedded conversion feature was recorded. Unamortized debt discount related to these notes was $44,257 and $5,920 as of June 30, 2019 and December 31, 2018, respectively. Beneficial conversion feature expense incurred was $17,763 and none during the six month period ended June 30, 2019 and 2018, respectively.

The Company has three non-convertible notes payable to non-related parties that have a principal balance of $21,438 and $21,438 as of June 30, 2019 and December 31, 2018, respectively. These notes carry interest rates ranging from 9% - 18% and have due dates ranging from 1/31/2013 - 11/28/2015. All three notes are currently in default and carry a default interest rate of 10%.

The Company has one note payable with detached free-standing warrants to a non-related party that has a principal balance of $5,000 and $5,000 as of June 30, 2019 and December 31, 2018, respectively. This note carries an interest rate of 10% and had a due date of 9/11/2014. This note is currently in default. The exercise price for the attached warrants is $0.019 for a total amount of 50,000 common shares. At June 30, 2019 and December 31, 2018, this note carried outstanding detached free-standing warrants of none and 50,000, respectively. There was no unamortized discount related to these warrants as of June 30, 2019 and December 31, 2018, and no stock warrant amortization expense was recorded to interest expense during the six month period ended June 30, 2019 and 2018.

Total interest expense for non-related party notes was $28,762 and $24,371 for the six month period ended June 30, 2019 and 2018, respectively.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

NOTE 5. DERIVATIVE LIABILITY

On March 1, 2019, the Company borrowed $29,000 under a convertible promissory note agreement from an unrelated party that is due upon demand from the investor. On May 3, 2019, the Company borrowed $31,000 under a convertible promissory note agreement from an unrelated party that is due upon demand from the investor. Both notes bear interest at a rate of 10% per annum and are convertible into the Company’s common shares at a variable conversion price based on a 50% discount of the market price at an undetermined future date. The Company analyzed the conversion features of the note agreement for derivative accounting consideration under ASU 2017-11 (ASC 815-15 Derivatives and Hedging), and determined the embedded conversion features should be classified as a derivative because the exercise price of the convertible note is subject to a variable conversion rate and should be therefore accounted for at fair value under ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments. In accordance with ASC 815-15, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the notes is carried on the Company’s balance sheet at fair value. The derivative liability is marked to market each measurement period and any unrealized change in fair value is recorded as a component of the statement of operations and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility from 280% to 350%, (2) risk-free interest rate from 1.96% to 2.55%, and (3) expected life of 1 year. On March 1, 2019, the date of the first note, the fair value of the embedded derivative was $28,000. On May 3, 2019, the date of the second note, the fair value of the embedded derivative was $28,100. The notes carried an embedded conversion feature of $56,100 that is recorded as a discount on the balance sheet that will be amortized over the life of each respective note. Interest amortization expense of the embedded conversion feature for these notes is $13,946 during the six month period ended June 30, 2019. The fair value of the embedded derivative is $52,900 and is recorded on the balance sheet as a derivative liability at June 30, 2019. The note was not converted during the six month period June 30, 2019. Utilizing level 3 inputs, the Company recorded a fair market value gain of $3,200 and none during the six month period ended June 30, 2019 and 2018, respectively.

A summary of the activity of the derivative liability is shown below:

Balance at December 31, 2018		$	-
Fair value of derivatives issued			56,100
Fair market value adjustments			(3,200	)
Balance at June 30, 2019		$	52,900

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

NOTE 6. STOCK WARRANTS AND STOCK OPTIONS

The Company accounts for employee stock options and non-employee stock warrants 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, utilizing the Black Sholes pricing model. Unless otherwise provided for, the Company covers option exercises by issuing new shares.

Beginning on December 12, 2012, Michael A. Lanphere, a related party and non-employee, loaned the Company money for a variety of purposes, some for working capital and some to allow the Company to pay outstanding obligations. Each of these loans was made pursuant to the terms of a Loan Agreement with Promissory Note and Stock Fee (the “Agreements”). Under the terms of the Agreements, Mr. Lanphere was not only entitled to repayment of the principal amount loaned to us, with interest, but also what was termed in the Agreements as a “Stock Fee” that the parties are interpreting as a stock warrant, which permits Mr. Lanphere to acquire shares of our common stock in exchange for an exercise price that was estimated based on the date of the loan agreement. The number of shares to be issued to Mr. Lanphere as a Stock Fee under each Agreement was an estimate and varied based on the loan amount and the price of our common stock on the day of the loan and was calculated by this formula: sixty percent (60%) or eighty percent (80%) of the loan amount divided by the Company’s stock price on the day of the loan, but at a price per share no higher than two and one-half cents ($0.025). Each Stock Fee is fully vested immediately and expires five (5) years from the date of the loan. Although the Stock Fee could be taken by Mr. Lanphere as a stock grant or a stock warrant, due to the fully vested nature of the Stock Fee, Mr. Lanphere is deemed to beneficially own those shares on the date of each Agreement. The number of warrants outstanding to Mr. Lanphere at June 30, 2019 and December 31, 2018 were 27,400,745 and 10,818,583, respectively.

The total outstanding balance of all non-employee stock warrants in TransBiotec, Inc. is 40,535,165 and 24,003,003 at June 30, 2019 and December 31 2018, respectively. There were 16,582,162 non-employee detached free-standing stock warrants granted during the six month period ended June 30, 2019 and 7,882,392 non-employee detached free-standing stock warrants granted during the six month period ended June 30, 2018. The fair value of these non-employee stock warrants granted during the six month period ended June 30, 2019 and 2018 totaled $35,030 and $29,701, respectively, and were determined using the Black-Sholes option pricing model based on the following assumptions:

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

The following table summarizes the changes in the Company’s outstanding warrants during the six months ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018:

On April 30, 2018, a related party exercised 450,000 stock options at an exercise price of $0.01 per share.

As of June 30, 2019 and December 31, 2018, there were two outstanding stock options to officers, directors, and consultants to purchase 275,000 shares of TransBiotec, Inc. common stock. The first outstanding stock option is dated October 1, 2014 and has an option price on that day of $0.0062, with an option exercise price of $0.25. The second outstanding option is dated October 27, 2014 at an option price on that day of $0.0066 with an option exercise price of $0.007. These stock options vested upon grant. There were no stock options granted during the six months ended June 30, 2019 and 2018.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

The following table summarizes the changes in the Company’s outstanding stock options during the six month period ended June 30, 2019 and 2018, and as of June 30, 2019 and December 31, 2018:

Executive Stock Options  

The Company had 250,000 outstanding executive stock options exercisable at $0.007 per share as of June 30, 2019 and December 31, 2018.

Stock Subscriptions Payable

The Company had stock subscriptions payable due to a related party of $2,058 convertible into 424,479 of its common shares at June 30, 2019. The Company had stock subscriptions payable due to a related party of $1,271 convertible into 243,273 of its common shares at December 31, 2018. The Company recorded a related party gain of $15,522 and $15,143 related to the outstanding stock subscriptions payable during the six month period ended June 30, 2019 and 2018, respectively.

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JUNE 30, 2019

NOTE 7. COMMON STOCK

On March 31, 2018, the Company converted $8,204 of its related party payables into 91,148 issued shares of its common stock at $0.09 per share. $7,776 was recorded as a related party gain.

On April 18, 2018, the Company converted $25,800 of prepaid consulting, research and development costs owed to six non-related parties into 6,000,000 issued shares of our common stock at a purchase price of $0.0043 per share.

On April 30, 2018, the Company converted $500 of related party compensation for consulting services into 50,000 issued shares of its common stock at $0.01 per share.

On April 30, 2018, the Company converted $4,500 of stock options exercised by a related party into 450,000 issued shares of its common stock at $0.01 per share.

On April 30, 2018, the Company converted $7,500 owed to a related party for executive compensation into 750,000 shares of its common stock at $0.01 per share.

On February 25, 2019, the Company issued 35,454,547 shares of its common stock to non-related parties for $39,000 in cash.

NOTE 8. 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 fifteen (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 Corporation’s common stock (either as listed on a national exchange or as quoted over-the-market) for the last fifteen (15) trading days immediately prior to conversion is at least five cents ($0.05). The shares of Series A Convertible Preferred stock vote on an “as converted” 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.

As of June 30, 2019 and December 31, 2018, the Company has 1,388,575 issued shares of its Series A Convertible Preferred stock.

During the six month ended June 30, 2019 and 2018, no dividends have been declared for holders of the Series A Convertible Preferred stock.

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JUNE 30, 2019

NOTE 9. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leased office space under a long-term operating lease that expired in June 2019. As of July 1, 2019, the Company leases the same office space on a month to month basis. Rent expense under this lease, including CAM charges, was $26,210 and $26,210 for the six month period ended June 30, 2019 and June 30, 2018, respectively.

Legal Proceedings

On December 6, 2006, Orange County Valet and Security Patrol, Inc. filed a lawsuit against us in Orange County California State Superior Court for Breach of Contract in the amount of $11,164. A default judgment was taken against us in this matter. In mid-2013 we learned the Plaintiff’s perfected the judgment against us, but we have not heard from the Plaintiffs as of January 2020.

We currently have one outstanding judgment against us involving a past employee of the Company. The matter is under the purview of the State of California, Franchise Tax Board, Industrial Health and Safety Collections. We currently owe approximately $28,786, plus accrued interest, to our ex-employee for unpaid wages under these Orders and are working to get this amount paid off.

NOTE 10. SUBSEQUENT EVENTS

On July 18, 2019, the Company borrowed $41,375 from a related party. The note payable carries an interest rate of 7%, matures on July 17, 2020, and contains a conversion feature that allows the Company to convert all principal and interest due under note into 9,103,261 shares of the Company’s common stock.

On August 8, 2019, the Company entered into an 8% Series A-1 Convertible Preferred Stock Investment Agreement with First Capital Ventures, LLC (“FCV”), and its assignee. The Company desires to raise between $1,000,000 and $2,000,000 from the sale of its 8% Series A-1 Convertible Preferred Stock and FCV intends to raise between $1,000,000 and $2,000,000 (net after offering expenses) in a special purchase vehicle (“SPV”) created by FCV to purchase the 8% Series A-1 Convertible Preferred Stock. The Company granted FCV and its assigns, the exclusive right to purchase the 8% Series A-1 Convertible Preferred Stock. The Company agreed to pay certain legal and other expenses of the SPV subsequent to the day in which the Company receives a minimum of $1,000,000 from the sale of 1,000,000 shares of the 8% Series A-1 Convertible Preferred Stock. The Company also agreed to cancel all shares of its issued and outstanding Series A Preferred Stock, immediately following the closing date and to pay $15,000 to the SPV for its legal costs and expenses and to pay or reimburse for any other costs or expenses related to the offering and sale of the interests in the SPV, including but not limited to, any sales commissions or other offering and organization expenses. The Company further agreed to issue FCV a three-year stock warrant to purchase 150,000 (post-split) shares of its Common Stock at an exercise price of $1.00 per share immediately following the closing date. The Company agreed to enter into a “business development” agreement with FCV, or its assignee, on the sale of the first $1,000,000 of 8% Series A-1 Convertible Preferred Stock and also granted FCV and its assigns, the right to use the name “SOBR SAFE” and any related intellectual property in connection with the SPV, and the offering of the Interests in the SPV.

On August 23, 2019, the Company entered into a Common Stock Purchase Agreement (the “Bennington” SPA) with Charles Bennington, one of the Company’s officers and directors, under which the Company agreed to issue 14,000,000 shares of its common stock in exchange for Mr. Bennington forgiving $595,000 in accrued compensation due. The common shares were issued on or about August 28, 2019 at a per-share purchase price of $0.0425 per share.

On August 23, 2019, the Company entered into a Share Exchange Agreement (the “Lanphere” SEA) with Michael Lanphere, one of the Company’s officers, under which the Company agreed to issue 5,206,430 shares of its common stock in exchange for 520,643 shares of the Company’s Series A Preferred Stock owned by Mr. Lanphere. The Series A Preferred stock were exchanged for the Company’s common shares at a price of $0.10 per share and were issued on or about August 28, 2019.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

On August 23, 2019, the Company entered into a Share Exchange Agreement (the “Justus” SEA) with Vernon Justus, an individual, under which the Company agreed to issue 8,679,320 shares of its common stock in exchange for 867,932 shares of the Company’s Series A Preferred Stock owned by Mr. Justus. The Series A Preferred stock were exchanged for the Company’s common shares at a price of $0.10 per share and were issued on or about August 28, 2019.

On August 23, 2019, the Company entered into a Debt Conversion and Common Stock Purchase Plan (the “Lanphere” SPA) with Michael Lanphere, one of the Company’s officers, under which the Company agreed to issue 21,400,745 shares of its common stock in exchange for a reduction in the amounts owed to Mr. Lanphere under numerous promissory notes. Mr. Lanphere’s option to acquire the shares was under the terms of certain Loan Agreement with Promissory Note and Stock Fees agreements entered into with the Company and Mr. Lanphere. The amount of the debt reduction and, therefore the purchase price of the shares was $96,303.35. The common shares were issued on or about August 28, 2019 at an effective conversion price of $0.0045 per share.

On August 23, 2019, the Company entered into a Debt Conversion and Common Stock Purchase Plan (the “Mishal” SPA) with Devadatt Mishal, one of the Company’s directors, under which the Company agreed to issue 13,134,420 shares of its common stock in exchange for a reduction in the amounts owed to Mr. Mishal under numerous promissory notes. Mr. Mishal’s option to acquire the shares was under the terms of certain Loan Agreement with Promissory Note and Stock Fees agreements entered into with the Company and Mr. Mishal. The amount of the debt reduction and, therefore the purchase price of the shares was $58,478.01. The common shares were issued on or about August 28, 2019 at an effective conversion price of $0.0043 per share. After the acquisition of the 13,134,420 shares under the Mishal SPA, the reporting person owned 20,534,857 shares of the Company’s common stock equal to approximately 9.5% of the Company’s outstanding common stock.

On September 9, 2019, the Company’s Board of Directors approved the TransBiotec, Inc. 2019 Equity Incentive Plan, and authorized an aggregate of 128,000,000 shares of the Company’s common stock, subject to stock splits, recapitalizations, and other adjustments, for issuance to all employees of the Company, or any Subsidiary of the Company, to any non-employee director, consultants, and to independent contractors of the Company, or any Subsidiary and any joint venture partners of the Company or any Subsidiary. The Plan will be administered by the Compensation Committee of the Board of Directors (or the entire Board of Directors if the Company does not have a Compensation Committee). Under the Plan, the Committee may award Eligible Recipients with shares of its Common Stock in the form of Incentive Awards, Restricted Stock Awards, SARs, RSUs, Performance Awards, and Other Awards as defined in the Plan. The Common Stock under the Plan will come from authorized but unissued shares of the Company’s Common Stock. The Plan is intended to advance the interest of the Company and its stockholders by enabling the Company and its Subsidiaries to attract and retain persons of ability to perform services for the Company and its Subsidiaries by providing an incentive to such individuals through equity participation in the Company and by rewarding those individuals who contribute to the achievement of the Company’s operational and financial objectives. This Plan went effective on October 24, 2019 and allows our Board of Directors to issue stock grants, stock options and other equity incentive awards to our officers, directors, employees and consultants.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

On October 17, 2019 and October 28, 2019, Daljit Khangura and Devadatt Mishal, respectively, submitted their resignations from the Company’s Board of Directors. According to their resignation letters, there are no disagreements with either Mr. Khangura or Dr. Mishal.

On October 25, 2019, Charles Bennington submitted his resignation as the Company’s Chief Executive Officer, effective with the appointment of his replacement. Mr. Bennington is continuing on as the Company’s President (our principal executive officer), our Secretary, and as a member of our Board of Directors. According to Mr. Bennington’s resignation letter, there are no disagreements with Mr. Bennington.

On October 25, 2019, the Company entered into an Employment Agreement with Mr. Kevin Moore to serve as the Company’s Chief Executive Officer (the “Moore Agreement”). Under the terms of the Moore Agreement, Mr. Moore will serve as our Chief Executive Officer until October 24, 2022, unless either (i) the transaction that is the subject of that certain Asset Purchase Agreement with IDTEC, LLC, a Colorado limited liability company (the “IDTEC Transaction”), has not closed by January 31, 2020, in which case Mr. Moore’s employment will terminate immediately, or (ii) he is terminated pursuant to the other termination provisions set forth in the Moore Agreement. Under the terms of the Moore Agreement, Mr. Moore will perform services for the Company that are customary and usual for a chief executive officer of a company, in exchange for: (i) 800,000 shares of our common stock per month until the IDTEC Transaction closes, (ii) thereafter, an annual base salary of $213,000, (iii) sales bonuses based on the Company’s sales, and (iv) incentive stock options under our 2019 Equity Compensation Plan to acquire 35,200,000 shares of our common stock, at an exercise price of $0.00792, which is equal to 110% of the fair market value of our common stock on October 25, 2019, with the stock options to vest in 36 equal monthly installments of 977,777 shares during the three-year term of the Moore Agreement. The stock options have a ten year term. The Company will be issuing Mr. Moore a stock option agreement for the options he was issued under the Moore Agreement. No shares were issued to Mr. Moore.

On October 25, 2019, the Company entered into an Employment Agreement with Mr. David Gandini to serve as our Chief Revenue Officer (the “Gandini Agreement”). Under the terms of the Gandini Agreement, Mr. Gandini will serve as the Company’s Chief Revenue Officer until October 24, 2022, unless either (i) the transaction that is the subject of that certain Asset Purchase Agreement with IDTEC, LLC, a Colorado limited liability company (the “IDTEC Transaction”), has not closed by January 31, 2020, in which case Mr. Gandini’s employment will terminate immediately, or (ii) he is terminated pursuant to the other termination provisions set forth in the Gandini Agreement. Under the terms of the Gandini Agreement, Mr. Gandini will perform services for us that are customary and usual for a chief revenue officer of a company, in exchange for: (i) an annual base salary of $185,000, (ii) sales bonuses based on the Company’s sales, (iii) incentive stock options under our 2019 Equity Compensation Plan to acquire 24,000,000 shares of our common stock, at an exercise price of $0.00792, which is equal to 110% of the fair market value of our common stock on October 25, 2019, with the stock options to vest in 36 equal monthly installments of 666,666 shares during the three-year term of the Gandini Agreement, and (iv) an aggregate of 8,000,000 additional option shares (the “Pre-Vesting Option Shares”) to vest as follows: (i) 6,666,600 Pre-Vesting Option Shares representing the monthly vesting option shares for the ten months ended October 31, 2019 to vest on November 1, 2019; and (ii) the remaining 1,333,400 Pre-Vesting Option Shares representing the monthly vesting option shares for the two months ended December 31, 2019 shall vest on January 1, 2020. The stock options have a ten year term. The Company will be issuing Mr. Gandini a stock option agreement for the options he was issued under the Gandini Agreement. No shares were issued to Mr. Gandini.

On October 25, 2019, the Company granted Charles Bennington, one of the Company’s officers and directors, an option to acquire 800,000 shares of our common stock under the Company’s 2019 Equity Incentive Plan. The stock option has an exercise price of $0.00792, which is equal to 110% of the fair market value of our common stock on October 25, 2019, with option vesting quarterly over a one year period commencing January 1, 2020. The stock option has a five year term. The issuance of the stock option was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, due to the fact Mr. Bennington is one of our officers and directors, is a sophisticated investor and familiar with our operations. No shares were issued to Mr. Bennington.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

On October 25, 2019, the Company granted Nick Noceti, the Company’s Chief Financial Officer, an option to acquire 800,000 shares of our common stock under our 2019 Equity Incentive Plan. The stock option has an exercise price of $0.00792, which is equal to 110% of the fair market value of our common stock on October 25, 2019, with option vesting quarterly over a two year period commencing January 1, 2020. The stock option has a five year term. The issuance of the stock option was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, due to the fact Mr. Noceti is the Company’s Chief Financial Officer, is a sophisticated investor and familiar with our operations. No shares were issued to Mr. Noceti.

On October 25, 2019, the Company granted Gary Graham, one of the Company’s directors, an option to acquire 800,000 shares of our common stock under our 2019 Equity Incentive Plan. The stock option has an exercise price of $0.00792, which is equal to 110% of the fair market value of our common stock on October 25, 2019, with option vesting quarterly over a one year period commencing January 1, 2020. The stock option has a five year term. The issuance of the stock option was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, due to the fact Mr. Graham had been consulting with the Company for more than one year at the time of grant, is a sophisticated investor and familiar with our operations. No shares were issued to Mr. Graham.

On October 25, 2019, the Company issued stock options to acquire an aggregate of 6,400,000 shares of our common stock to four non-affiliated individuals and entities that have been working with the Company for over the last year. The stock options were issued under our 2019 Equity Incentive Plan at an exercise price of $0.00792, which is equal to 110% of the fair market value of our common stock on October 25, 2019, with the options vesting quarterly over a two year period commencing January 1, 2020. The stock options have either a two year or five year term. The issuance of the stock option was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, due to the fact the individuals and entities have been consulting with the Company for months, are sophisticated investors and familiar with our operations.

On November 7, 2019, the Company’s Board of Directors appointed Gary Graham to its Board of Directors. Mr. Graham will serve in this capacity until the next meeting of stockholders or until his successor has been duly elected and qualified, or until the earlier of his death, resignation or removal.