Company: SOBR
Filing Date: 2025-04-15
Form Type: 10-K
Source: 0001477932-25-002746
Chunk: 747

Company: SOBR Safe, Inc.
Filing Date: 2025-04-15
Form: 10-K
Item: Item 4
Chunk 747
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 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 allocation of proceeds and the recognition of deemed dividends, requires careful evaluation of the terms of the convertible debt and the impact on the Company’s financial position. 

Addressing the matter involved performing procedures included, among others, evaluation of the Company’s accounting policies and methodologies for recognizing and measuring inducements and deemed dividends, and reviewing the assumptions and estimates used in determining the allocation of proceeds between debt and equity. We examined the underlying calculations, including the assessment of the impact on the effective interest rate and the appropriate recognition of deemed dividends. Additionally, we reviewed the disclosures in Note 9 to ensure they were in compliance with the applicable accounting standards and provided adequate transparency regarding the complexity of the transactions.