Company: SOBR
Filing Date: 2025-04-15
Form Type: 10-K
Source: 0001477932-25-002746
Chunk: 499

Company: SOBR Safe, Inc.
Filing Date: 2025-04-15
Form: 10-K
Item: Item 1C
Chunk 499
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 including stock options and stock warrants. The accounting for these equity instruments involves complex judgments and estimates, including the determination of fair value for stock options and warrants, as well as the appropriate recognition of compensation expense over the vesting period. The fair value of stock options and warrants is determined using option-pricing models, such as the Black-Scholes model, which require the use of assumptions related to volatility, expected term, risk-free interest rate, and dividend yield. Additionally, the presentation of these equity-based awards in the financial statements requires judgment regarding their classification as equity or liability, depending on the specific terms of the awards.

We identified this as a critical audit matter due to the complexity of the valuation of stock options and warrants, as well as the judgment required in estimating key inputs used in the option-pricing models. The recognition of compensation expense and the classification of the awards involve significant judgment. This requires a high degree of auditor judgment and an increased extend of effort to address these matters.

Addressing the matter included evaluating the Company’s accounting policies for stock options and warrants, and assessing the reasonableness of the key assumptions used in the option-pricing models, such as the volatility, expected term, and risk-free interest rate. We assessed the accuracy and consistency of these assumptions by comparing them to available market data and industry benchmarks. We also examined the calculation of the total compensation expense recognized for these awards, ensuring that it was properly allocated over the requisite service periods. Additionally, we assessed the Company’s classification of these awards as equity or liability and reviewed the related disclosures in Note 12 to ensure compliance with applicable accounting standards.

Complex accounting for the inducements on convertible debt and deemed dividends – Refer to Note 9 to the financial statements 

As described in Note 9 to the financial statements, the Company entered into inducement offer letter agreement with the convertible debt notes holders, which included inducements and features that require complex accounting judgments. The accounting for these inducements and the associated deemed dividends involves complex judgments regarding the classification of debt and equity, as well as the allocation of proceeds between the liability and equity components. In particular, the Company needs to assess the impact of the inducements on the effective interest rate and determine the appropriate accounting treatment for deemed dividends, which requires significant judgment and estimation.

This matter was considered critical due to the complexity involved in accounting for the inducements and deemed dividends, as well as the judgment required in applying the relevant accounting standards to these transactions. The determination of the appropriate accounting treatment, including the