Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2012, for Transbiotec, Inc. (formerly Imagine Media, Ltd.). The Company is a development-stage entity that completed a reverse acquisition of TransBioTec, Inc. in September 2011. It has pivoted from a defunct publishing business to developing a non-invasive transdermal alcohol sensing system (SOBR) for ignition interlock applications. The Company has generated no revenue to date and is focused on product development and manufacturing capability.
Key Financial Metrics
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenues | $0 | $0 |
| Net Loss | $(2,078,611) | $(206,439) |
| Operating Expenses | $2,031,299 | $120,432 |
| Cash Flow from Operations | $(156,099) | $(19,338) |
| Cash Balance (End of Period) | $126 | $10,202 |
| Total Current Liabilities | $1,091,788 | N/A |
| Total Liabilities | $1,641,051 | N/A |
| Stockholders' Deficit | $(1,636,455) | N/A |
Note: Q1 2011 data reflects the legacy publishing business prior to the reverse acquisition. The Company is currently in a development stage with no revenue.
Material Changes vs. Prior Period
- Revenue: Remained at $0 for both periods.
- Net Loss: Increased significantly from $(206,439) in Q1 2011 to $(2,078,611) in Q1 2012. This increase is primarily driven by a surge in General and Administrative expenses ($11.7M cumulative vs. $119k prior year) and interest expenses related to new debt financing.
- Liquidity: Cash on hand plummeted from $108,019 at the end of 2011 to just $126 at March 31, 2012, indicating severe cash burn.
- Debt: Total liabilities increased to $1.64 million, with significant related-party notes and accrued interest. Interest expense for the quarter was $35,212, plus $20,136 in beneficial conversion feature expenses.
- Equity: The Company issued equity for services (compensatory equity issuances of $1.89M) and cash ($25,000), increasing shares outstanding to 27,887,518.
Outlook, Risks, and Management Commentary
- Going Concern: The filing explicitly states that recurring losses, working capital deficits, and the need for significant future expenditures raise substantial doubt about the Company's ability to continue as a going concern.
- Capital Requirements: Management projects a need for approximately $715,000 in funding through December 2012 to complete product design, outsource manufacturing, and scale production to 10,000 units per month.
- Product Roadmap: The Company aims to sell 500 units by June 2012 and is targeting commercial vehicle applications initially. Beta testing is complete, and manufacturing capabilities are being developed.
- Risks: The Company relies entirely on future equity or debt financing to survive. There is no assurance that funding will be available on acceptable terms.
Investor Verification Checklist
- Cash Runway: Verify the immediate ability to operate with only $126 in cash and over $1.6M in liabilities.
- Debt Structure: Review the terms of the numerous convertible notes payable to related parties, many carrying high interest rates (up to 30%) and complex conversion features.
- Related Party Transactions: Confirm the valuation of services provided by officers and the conversion of debt to equity, which significantly impacted the loss per share.
- Product Viability: Assess the timeline and cost estimates for the SOBR sensor commercialization, given the lack of current revenue.
- Dilution Risk: Monitor future equity issuances required to fund the $715k projected operational costs, which will likely dilute existing shareholders.