NOTE 15.  STOCK WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS

The Company accounts for share-based compensation stock options and restricted stock units, and non-employee stock warrants under ASC 718, whereby costs are recorded based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable, utilizing the Black-Scholes pricing model for stock options and warrants, and the closing price of our common stock on the grant date for restricted stock units. Unless otherwise provided for, the Company covers equity instrument exercises by issuing new shares. 

Stock Warrants

On August 8, 2019, the Company entered into an 8% Series A-1 Convertible Preferred Stock Investment agreement with First Capital Ventures, LLC (“FCV”), an entity controlled by a beneficial owner of the Company. FCV set up a special purpose vehicle (“SPV”) or SOBR SAFE, LLC, an entity controlled by a beneficial owner of the Company,  that purchased 1,000,000 of the 8% Series A-1 Convertible Preferred Shares at $1.00 per share on December 12, 2019. Upon purchase, the Company issued the SPV through FCV a three-year warrant to purchase 144,317 shares of the Company’s common stock at an exercise price of $1.039375 per share. The number of warrants outstanding to the SPV through FCV at December 31, 2021 and December 31, 2020 are 144,317 and 144,317, respectively. 

On May 4, 2020, the Company entered into an agreement with a vendor to provide investor relations services.  Under the terms of the agreement, the Company issued warrants to purchase up to 120,000 shares of our common stock at an exercise price of $2.00 per share. The warrants expire five years after the date of issuance. Approximately $220,000 of expense was recognized for the warrants issued for the services provide by the vendor.  In 2021, the vendor agreed to forfeit the warrants back to the Company.  

On June 5, 2020, upon closing of the Transaction, the Company entered into a Waiver Under Asset Purchase Agreement and Post-Closing Covenant Agreement under which we issued warrants to IDTEC to purchase up to 320,000 shares of our common stock (post-split) at an exercise price of $0.50 per share. The warrants expire five years after the date of issuance, (see Note 3).  The number of warrants outstanding at December 31, 2021 and December 31, 2020 are 143,062 and 320,000, respectively. 

During March, April and May 2021, the Company issued through the Offering convertible notes payable with warrants, (see Note 10), to purchase up to 1,002,500 shares of our common stock at an exercise price of $3 per share. The warrants expire two years after the date of issuance.

On September 28, 2021, the Closing Date, the Company issued through the sale of the Debenture (see Note 9), warrants to purchase up to 1,219,512 shares of our common stock at an exercise price of $2 per share. The warrants expire five years after the date of issuance.

The total outstanding balance of all non-employee stock warrants in the Company is 2,509,391 and 584,317 at December 31, 2021 and December 31 2020, respectively. There were 2,222,012 non-employee detached free-standing stock warrants granted during the year ended December 31, 2021 and 440,000 non-employee detached free-standing stock warrants granted during the year ended December 31, 2020. The fair value of these non-employee stock warrants granted during the years ended December 31, 2021 and 2020 totaled $1,939,756 and $915,124, respectively, and were determined using the Black-Scholes option pricing model based on the following assumptions:

The following table summarizes the changes in the Company’s outstanding warrants during the years ended December 31, 2020 and 2021:

Share-Based Compensation

On October 24, 2019, the Company’s 2019 Equity Incentive Plan (the “Plan”) went effective authorizing 3,848,467 shares of Company common stock for issuance as stock options and restricted stock units (“RSUs”) to employees, directors or consultants. The Plan was approved by the Company’s Board of Directors and the holders of a majority of the Company’s voting stock on September 9, 2019. The plan’s number of authorized shares is 3,848,467.  In January 2022, the stockholders ratified a further authorization of shares of common stock for a total of 5,200,000 shares subject to the Plan.

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

Stock Options

As of December 31, 2021 and December 31, 2020, the Company has granted Plan stock options to acquire 3,109,763 and 2,521,922 shares of common stock, respectively. As of December 31, 2021, the Plan has 1,856,521 vested shares and 1,253,242 non-vested shares. As of December 31, 2020, the Plan had 1,202,168 vested shares and 1,319,754 non-vested shares.   The stock options are held by our officers, directors, employees, and certain key consultants. 

During 2021, under the Plan, the Company granted stock options to acquire 1,160,000 shares of its common stock at exercise prices ranging from $2.77 to $3.58.  The weighted average fair value of the options granted was approximately $3,074,000.  The stock options vest monthly and quarterly over 6 months to 3-year terms.  A total of 138,680 stock options were vested as of December 31, 2021.  None of the vested stock options have been exercised and no shares have been issued as December 31, 2021. 

For the years ended December 31, 2021 and 2020, the Company recorded in general and administrative expense $723,261 and $239,478, respectively, of share-based compensation related to the stock options. The unrecognized compensation expense as of December 31, 2021 was approximately $2,200,000 for non-vested share-based awards to be recognized over periods of approximately five months to three years.

In applying the Black-Scholes options pricing model, assumptions used to compute the fair value of the stock options granted during the year ended December 31, 2021 and 2020 were as follows:

The following table summarizes the changes in the Company’s outstanding stock options during the years ended December 31, 2020 and 2021:

Restricted Stock Units

The Plan provides for the grant of RSUs.  RSUs are settled in shares of the Company’s common stock as the RSUs become vested.  On January 12, 2022, 50,000 shares of the Company’s common stock was issued for the RSUs vested during 2021.  In October and November 2020, the Company granted 165,000 service-based RSUs to a director vesting the earlier of the expiration of any lock-up period that includes the securities of the Company owned by the Plan participant after the up lift of the Company to a national exchange or January 1, 2023.  In November 2020, the Company granted 50,000 performance based RSUs to a consultant vesting over a period of one year.  In May 2021, the Company granted 10,000 service based RSUs to an executive officer.  In September 2021, the Company granted 125,756 service based RSUs to executive officers and 50,000 service based RSUs to its legal counsel.  In October 2021, the Company granted 50,000 service based RSUs to an executive officer. All RSUs granted in 2021 vest the earlier of the expiration of any lock-up period that includes the securities of the Company owned by the Plan participant after the up list of the Company to a national exchange or January 1, 2023. 

The following table summarizes RSU activity under the Plan for the years ended December 31, 2020 and 2021:

For the years ended December 31, 2021 and 2020, the Company recorded in stock-based compensation expense $364,057 and none, respectively, of RSU based compensation.  The fair value of RSUs granted during the years ended December 31, 2021 and 2020 was $669,750 and $626,800, respectively.  As of December 31, 2021, total estimated compensation costs of RSUs granted and outstanding but not yet vested was $932,493 which is expected to be recognized over 1 year. 

Executive Officers Stock Options and RSUs

The Company has 2,470,445 outstanding executive officers stock options exercisable at $0.26341 to $3.38 per share with a weighted average remaining contractual life of 6.9 years as of December 31, 2021 and 2,068,551 outstanding executive stock options exercisable at $0.26341 per share with a weighted average remaining contractual life of 8.7 years as of December 31, 2020. The Company has 185,756 unvested RSUs granted to executive officers with a remaining weighted average vesting period of 1 year as of December 31, 2021.  There were no unvested RSUs granted to executive officers as of December 31, 2020.

On October 25, 2019, the Company granted Charles Bennington, one of the Company’s former executive officers, options to acquire 24,053 shares of the Company’s common stock under the Plan. The stock options have an exercise price of $0.2635 and vest quarterly over a one-year period commencing January 1, 2020. The stock options have a five-year term. A total of 24,053 vested options were exercised in 2021 and shares have been issued as of December 31, 2021. 

On October 25, 2019, the Company granted Nick Noceti, the Company’s former Chief Financial Officer, options to acquire 24,053 shares of the Company’s common stock under the Plan. The stock options have an exercise price of $0.2635 and vest quarterly over a two-year period commencing January 1, 2020. The stock options have a five-year term. On termination of services in June of 2020 the vesting period ceased and the period to exercise the vested options expired in 2021 without the vested options being exercised.  The options to acquire 24,053 shares were forfeited and cancelled in 2021.

On October 25, 2019, the Company entered into an Employment Agreement with Kevin Moore to serve as the Company’s Chief Executive Officer which was amended when he resigned from that position in October 2021. Under the terms of the agreement, the Company granted Kevin Moore stock options under the Plan to acquire 1,058,328 shares of its common stock at an exercise price of $0.2635. The stock options vest in 36 equal monthly installments of 29,398 shares during the term of his Employment Agreement. A total of 764,348 and 411,572 stock options were vested as of December 31, 2021 and December 31, 2020, respectively. None of the vested stock options have been exercised and no shares have been issued as of December 31, 2021 or December 31, 2020. In September 2021, 62,878 RSUs were granted under the Plan for executive services bonus.  The RSUs per share weighted average fair value at grant date was $2.95 with a weighted average vesting period of 1 year as of December 31, 2021. The RSUs vest the earlier of the expiration of any lock-up period that includes the securities of the Company owned by the Plan participant after the up lift of the Company to a national exchange or January 1, 2023. 

On October 25, 2019, the Company entered into an Employment Agreement with David Gandini to serve as the Company’s Chief Revenue Officer and subsequently as the Company’s Chief Executive Office effective October 2021. Under the terms of the agreement, the Company granted David Gandini stock options under its 2019 Equity Compensation Plan to acquire 721,588 shares of its common stock at an exercise price of $0.2635. The stock options vest in 36 equal monthly installments of 20,044 shares during the three-year term of his Employment Agreement. David Gandini was also granted an aggregate of 240,529 additional option shares (the “Pre-Vesting Option Shares”) to vest as follows: (i) 200,439 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 40,090 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.  A total of 761,675 and 521,146 stock options were vested as of December 31, 2021 and December 31, 2020, respectively. None of the vested stock options have been exercised and no shares have been issued as of December 31, 2021 or December 31, 2020. In September 2021, 62,878 RSUs were granted under the Plan for executive services bonus.  The RSUs per share weighted average fair value at grant date was $2.95 with a weighted average vesting period of 1 year as of December 31, 2021. The RSUs vest the earlier of the expiration of any lock-up period that includes the securities of the Company owned by the Plan participant after the up lift of the Company to a national exchange or January 1, 2023. 

On August 17, 2021, the Company entered into an Employment Agreement with Scott Bennett to serve as the Company’s Executive Vice President of Business Operations beginning on October 18, 2021.  Under the terms of the agreement, the Company granted Scott Bennett under the Plan stock options to acquire 100,000 shares of our common stock at an exercise price of $3.07 per share and 50,000 RSUs.  The stock options vest in equal quarterly installments over a two-year period during the term of his Employment Agreement.  The RSUs per share weighted average fair value at grant date was $2.80. Prior to his hiring as an executive officer, under a prior employment agreement with the Company he was granted in May 2021 under the Plan stock options to acquire 100,000 shares of our common stock at an exercise price of $3.38 and 10,000 RSUs pursuant to a prior consulting arrangement with the Company.  The stock options vest in equal monthly installments over a three-year period. The RSUs per share weighted average fair value at grant date was $3.38. A total of 37,500 stock options were vested as of December 31, 2021. None of the vested stock options have been exercised and no shares have been issued as of December 31, 2021. The RSUs weighted average vesting period is 1 year as of December 31, 2021. The RSUs vest the earlier of the expiration of any lock-up period that includes the securities of the Company owned by the Plan participant after the up lift of the Company to a national exchange or January 1, 2023. 

On October 18, 2021, the Company entered into an Employment Agreement with Michael Watson to serve as the Company’s Executive Vice President of Sales and Marketing and Revenue Officer.  Under the terms of the agreement, the Company granted Michael Watson under the Plan stock options to acquire 250,000 shares of our common stock at an exercise price of $3.07 per share. The stock options vest in equal quarterly installments over a two-year period during the term of his Employment Agreement. A total of 31,250 stock options were vested as of December 31, 2021. None of the vested stock options have been exercised and no shares have been issued as of December 31, 2021.