UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

for the quarterly period ended September 30, 2022March 31, 2023

OR

☐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 000-54649

SAMSARA LUGGAGE, INC.

(Exact name of registrant as specified in its charter)

(855)-256-7477

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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 ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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 7(a)(2)(B) of the Securities Act. ☐

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

The number of shares of the registrant’s common stock outstanding as of November 14, 2022May 15, 2023 was 3,652,3376,178,554 shares.

SAMSARA LUGGAGE, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SAMSARA LUGGAGE, INC.

CONDENSED BALANCE SHEETS

(Dollars in thousands, except per-share amounts)

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

SAMSARA LUGGAGE, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per-share amounts)

(Unaudited)

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

SAMSARA LUGGAGE, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2023 AND 2022 AND 2021

(Dollars in thousands, except per-share amounts)

(Unaudited)

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

SAMSARA LUGGAGE, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in thousands)thousands, except per-share amounts)

(Unaudited)

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

SAMSARA LUGGAGE, INC.

NOTES TO FINANCIAL STATEMENTS

(U.S. dollars in thousands, except per share data) 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of September 30, 2022,March 31, 2023, the Company had approximately $125$57 in cash and cash equivalents, approximately $1,496$2,212 in deficit of working capital, a stockholders’ deficiencydeficit of approximately $1,687$2,333 and an accumulated deficit of approximately $11,894.$12,838. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon raising capital from financing transactions and revenue from operations. Management anticipates their business will require substantial additional investments that have not yet been secured. Management is continuing in the process of fund raisingfundraising in the private equity and capital markets as the Company will need to finance future activities. These financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Unaudited Interim Financial Statements

The accompanying unaudited financial statements include the accounts of the Company, prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the financial statements presented herein have not been audited by an independent registered public accounting firm but include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations and cash flows for the three and nine monthsfor three-months ended September 30, 2022.March 31, 2023. However, these results are not necessarily indicative of results for any other interim period or for the year ended December 31, 2022.2023. The preparation of financial statements in conformity with GAAP requires the Company to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual amounts could differ from these estimates.

Certain information and footnote disclosures normally included in financial statements in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission (“SEC”). The accompanying unaudited condensed financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022, filed with the SEC on April 11, 20223, 2023 (the “Annual Report”). For further information, reference is made to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2022.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“‘US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. As applicable to the financial statements, the most significant estimates and assumptions relate to the measurement of the convertible notes, derivative liabilities and Going Concern.going concern.

Functional currency

The functional currency of the Company is the US dollar (“US$”), which is the currency of the primary economic environment in which the operations of the Company are conducted.

Cash and cash equivalents

Cash equivalents are short-term highly liquid investments which include short term bank deposits (up to three months from date of deposit), that are not restricted as to withdrawals or use that are readily convertible to cash with maturities of three months or less as of the date acquired.

Inventory

Inventories are valued at the lower of cost or net realizable value. Cost of raw and packaging materials, purchased products, manufactured finished products and products in process are determined on the average cost basis. The Company regularly reviews its inventories for impairment and reserves are established when necessary.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives of the related assets, which range from three to five years.Maintenance and repair costs are expensed as they are incurred while renewals and improvements which extend the useful life of an asset are capitalized. At the time of retirement or disposal of property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in the consolidated results of operations.

Derivative Liabilities and Fair Value of Financial Instruments

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC 815.

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives.

Fair value of certain of the Company’s financial instruments including cash, accounts receivable, accountaccounts payable, accrued expenses, notes payables,payable, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure” defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments.

Fair value, as defined in ASC 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of nonperformance, which includes, among other things, the Company’s credit risk.

Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and resulting measurement as follows:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity, and that are significant to the fair values.

Fair value measurements are required to be disclosed by the Level within the fair value hierarchy in which the fair value measurements in their entirety fall. Fair value measurements using significant unobservable inputs (in Level 3 measurements) are subject to expanded disclosure requirements including a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings, and a description of where those gains or losses included in earning are reported in the statement of income.

The Company records a debt discount related to the issuance of convertible debts that have conversion features at adjustable rates. The debt discount for the convertible instruments is recognized and measured by allocating a portion of the proceeds as an increase in additional paid-in capital and as a reduction to the carrying amount of the convertible instrument equal to the fair value of the conversion features. The debt discount will be accreted by recording additional non-cash gains and losses related to the change in fair values of derivative liabilities over the life of the convertible notes.

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy are as follows:

ReclassificationRevenue recognition

Certain comparative figuresRevenues are recognized when delivery has occurred and there is persuasive evidence of an agreement, the fee is fixed or determinable and collection of the related receivables is reasonably assured, and no further obligations exist. Revenues from sales of products are recognized when title and risk and rewards for the products are transferred to the customer.

Research and development expenses

Research and development expenses are charged to operations as incurred.

Income Taxes

Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Use of net operating loss carry forwards for income tax purposes may be limited by Internal Revenue Code section 382 if a change of ownership occurs.

Net Loss Per Basic and Diluted Common Share

Basic loss per ordinary share is computed by dividing the loss for the period applicable to ordinary shareholders by the weighted average number of shares of common stock outstanding during the period. Securities that may participate in dividends with the shares of common stock (such as the convertible preferred) are considered in the computation of basic loss per share under the two-class method. However, in periods of net loss, only the convertible preferred shares are considered, since such shares have been reclassifieda contractual obligation to conformshare in the losses of the Company. In computing diluted loss per share, basic loss per share is adjusted to current period presentation.reflect the potential dilution that could occur upon the exercise of potential shares. Accordingly, in periods of net loss, no potential shares are considered.

Recent accounting pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“FASB”) or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed, the Company does not believe that the impact of recently issued standards that are not yet effective will have a material impact on the Company’s financial position or results of operations upon adoption. 

NOTE 3 – CONVERTIBLE NOTES

The first tranche of the convertible debentures in the amount of $200,000 was provided upon execution of the SPA. The second tranche in the amount of $300,000 was provided on October 23, 2019 upon the Company filing of a Registration Statement on Form S-4 in connection with the Merger with Samsara Delaware. The third tranche in the amount of $600,000 was provided on November 18, 2019 upon consummation of the Merger with Samsara Delaware and the fulfillment of all conditions required for the Merger. The Company incurred issuance cost of $100,000 with connection to those convertible debentures.

In the period from loan inception through December 31, 2021, the full amount of outstanding principal and accrued interest was converted into shares of common stock.

In addition, the Company issued to the Investor a warrant to purchase 13,095 shares of common stock, at an exercise price equal to $21.00. The warrants may be exercised within 5 years from the issuance date by cash payment or through cashless exercise by the surrender of warrants shares having a value equal to the exercise price of the portion of the warrant being exercised.

The Company considered the provisions of ASC 815-40, “Derivatives and Hedging: Contracts in Entity’s Own Equity”, with respect to the detachable warrants that were issued to the convertible loan, and determined that as a result of the “cashless exercise” and variable exercise price that would adjust the number of warrants and the exercise price of the warrants based on the price at which the Company subsequently issues shares or other equity-linked financial instruments, such warrants cannot be considered as indexed to the Company’s own stock. Accordingly, the warrants were recognized as derivative liability at their fair value on initial recognition. In subsequent periods, the warrants were marked to market with the changes in fair value recognized as financing expense or income in the consolidated statement of operations.

The warrants were estimated by third party appraiser using the Black-Scholes option-pricing model to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The following are the data and assumptions used as of the balance sheet dates:

In the period from loan inception through December 31, 2021, the full amount of outstanding principal and accrued interest was converted into shares of common stock.

In addition, the Company issued to the Investor a warrant to purchase 2,619 shares of common stock, at an exercise price equal to $21.00. The warrants may be exercised within 5 years from the issuance date by cash payment or through cashless exercise by the surrender of warrants shares having a value equal to the exercise price of the portion of the warrant being exercised.

The Company considered the provisions of ASC 815-40, “Derivatives and Hedging: Contracts in Entity’s Own Equity”, with respect to the detachable warrants that were issued to the Convertible loan, and determined that as a result of the “cashless exercise” and variable exercise price that would adjust the number of warrants and the exercise price of the warrants based on the price at which the Company subsequently issues shares or other equity-linked financial instruments, such warrants cannot be considered as indexed to the Company’s own stock. Accordingly, the warrants were recognized as derivative liability at their fair value on initial recognition. In subsequent periods, the warrants were marked to market with the changes in fair value recognized as financing expense or income in the consolidated statement of operations.

The warrants were estimated by third party appraiser using the Black-Scholes option-pricing model to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet dates:

The following are the data and assumptions used as of the balance sheet dates:

In accordance with ASC 815-15-25 the conversion feature was considered embeddedto be a derivative instrument and is to be recorded at its fair value as its fair value can be separated from the convertible loan and its conversion is independent of the underlying note value. The Company recorded finance expenses in respect of the convertible component in the convertible loan in the excess amount of the convertible component fair value over the face loan amount. The conversion feature derivative liability is then marked to market each reporting period with the resulting gains or losses shown in the statements of operations.

The fair value of the convertible component was estimated by third party appraiser using the Monte Carlo Simulation Model to compute the fair value of the derivative and to mark to market the fair value of the derivative at each of the issuance and balance sheet dates.

The following are the data and assumptions used as of the balance sheet dates:

As part of the transaction, the Company issued to the Investor warrants to purchase an aggregate of 10,838 shares of Common Stock, at an exercise price equal to $3.46. The term of each warrant is five years from the issue date. Each warrant may be exercised by cash payment or through cashless exercise by the surrender of warrant shares having a value equal to the exercise price of the portion of the warrant being exercised.

The warrants were estimated by third party appraiser using the Black-Scholes option-pricing model to compute the fair value of the derivative and to mark to market the fair value of the derivative at each of the issuance and balance sheet dates.

The following are the data and assumptions used as of the balance sheet dates:

On September 20, 2021,December 28, 2022, the Company signed a forbearance agreement with the Investor extending the maturity date for all outstanding principal and pursuantinterest under this loan to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $100 from the third tranche into 47,887 shares of Common Stock of the Company. The fair market value of the shares was $130.

On October 14, 2021, and pursuant to the SPA, YAII exercised its option to convert the remaining Convertible Promissory Note principal in the amount of $150 from the third tranche and accrued interest of $1 into 109,018 shares of Common Stock of the Company. The fair market value of the shares was $211.June 30, 2023.

As of December 31, 20212022, the thirdfull amount of the first tranche from September 7, 2021 was fully converted into shares of Common Stock.

On November 3, 2021, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $100 and accrued interest of $16 into 92,089 shares of Common Stock of the Company. The fair market value of the shares was $161.$500 remains outstanding.

OnIn the period from inception through December 20, 2021,31, 2022, $424 of outstanding principal from the second tranche and pursuant to$43 of accrued interest was converted into 2,121,262 shares of common stock. As of December 31, 2022, the SPA, YAII exercised its option to convertoutstanding principal balance from the Convertible Promissory Note principalsecond tranche was $76. As a result of the conversion of the convertible loans, for the year ended December 31, 2022, the Company recorded losses from conversion in the amount of $75 and accrued interest of $5 into 98,538 shares of Common Stock of the Company. The fair market value of the shares was $123.$71.

On March 1, 2022, and pursuant toIn the SPA, YAII exercised its option to convertperiod from loan inception through December 31, 2021, the Convertible Promissory Note principal in thefull amount of $35outstanding principal and accrued interest of $6relating to the third tranche was converted into 97,458 shares of Common Stock of the Company. The fair market value of the shares was $56.common stock. 

On April 25, 2022, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $30 and accrued interest of $4 into 103,963 shares of Common Stock of the Company. The fair market value of the shares was $45.

On May 11, 2022, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $23 and accrued interest of $1 into 113,109 shares of Common Stock of the Company. The fair market value of the shares was $29.

On June 7, 2022, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $13 and accrued interest of $2 into 117,244 shares of Common Stock of the Company. The fair market value of the shares was $36.

On June 28, 2022, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $18 and accrued interest of $1 into 123,288 shares of Common Stock of the Company. The fair market value of the shares was $31.

On July 26, 2022, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $13 and accrued interest of $2 into 130,250 shares of Common Stock of the Company. The fair market value of the shares was $38.

On July 27, 2022, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $29 and accrued interest of $0 into 259,404 shares of Common Stock of the Company. The fair market value of the shares was $44.

On August 3, 2022, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $28 and accrued interest of $0 into 295,579 shares of Common Stock of the Company. The fair market value of the shares was $35.

The Convertible Debentures bear interest at a rate of 10% per annum (15% on default) and had initialhave a maturity datesdate of June 7, 2022, July 6, 2022, and September 7, 2022. The Company has not received any formal correspondence in respect of these debentures and intends to repay the note as soon as it is practicable.one (1) year. The Convertible Debentures provide a conversion right, in which any portion of the principal amount of the Convertible Debentures, together with any accrued but unpaid interest, may be converted into the Company’s Common Stock at a conversion price equal to 80% of the lowest volume weighted average price of the Company’s Common Stock during the ten (10) trading days immediately preceding the date of conversion, subject to adjustment. The Convertible Debentures may not be converted into common stock to the extent such conversion would result in the Investor beneficially owning more than 9.99% of the Company’s outstanding Common Stock (the “Beneficial Ownership Limitation”); provided, however, that the Beneficial Ownership Limitation may be waived by the Investor upon not less than 65 days’ prior notice to the Company. The Convertible Debentures provide the Company with a redemption right, pursuant to which the Company, upon fifteen (15) business days’ prior notice to the Investor, may redeem, in whole or in part, outstanding principal and interest at a redemption price equal to the principal amount being redeemed plus a redemption premium equal to 5% of the outstanding principal amount being redeemed plus outstanding and accrued interest; however, the Investor shall have fifteen (15) business days after receipt of the Company’s redemption notice to elect to convert all or any portion of the Convertible Debentures, subject to the Beneficial Ownership Limitation. In connection with the Securities Purchase Agreement, the Company executed a registration rights agreement (the “Registration Rights Agreement”) pursuant to which it is required to file the Registration Statement with the SEC for the resale of the Conversion Shares. Pursuant to the Registration Rights Agreement, the Company is required to meet certain obligations with respect to, among other things, the timeliness of the filing and effectiveness of the Registration Statement. The Company is obligated to file the Registration Statement no later than 45 days after the First Closing Date and to have it declared effective by the SEC no later than 105 days after filing (the “Registration Obligations”).

In accordance with ASC 815-15-25 the conversion feature was considered embeddedto be a derivative instrument and is to be recorded at its fair value as its fair value can be separated from the convertible loan and its conversion is independent of the underlying note value. The Company recorded finance expenses in respect of the convertible component in the convertible loan in the excess amount of the convertible component fair value over the face loan amount. The conversion feature derivative liability is then marked to market each reporting period with the resulting gains or losses shown in the statements of operations.

The fair value of the convertible components as of September 30, 2022 was estimated using the intrinsic method as the debentures are past due and payable immediately upon request.

The fair value of the convertible component at December 31, 2021 was estimated by third party appraiser using the Monte Carlo Simulation Model to compute the fair value of the derivative and to mark to market the fair value of the derivative.derivative at each balance sheet dates:

The following are the data and assumptions used as of the balance sheet dates:

The Convertible Debenture bears interest at a rate of 10% per annum (15% on default) and has a maturity date of one (1) year. The Convertible Debenture provides a conversion right, in which any portion of the principal amount of the Convertible Debenture, together with any accrued but unpaid interest, may be converted into the Company’s Common Stock at a conversion price equal to 80% of the lowest volume weighted average price of the Company’s Common Stock during the ten (10) trading days immediately preceding the date of conversion, subject to adjustment. The Convertible Debenture may not be converted into common stock to the extent such conversion would result in the Investor beneficially owning more than 4.99% of the Company’s outstanding Common Stock; provided, however, that the Beneficial Ownership Limitation may be waived by the Investor upon not less than 65 days’ prior notice to the Company. The Convertible Debenture provides the Company with a redemption right, pursuant to which the Company, upon fifteen (15) business days’ prior notice to the Investor, may redeem, in whole or in part, outstanding principal and interest under the Convertible Debenture at a redemption price equal to the principal amount being redeemed plus a redemption premium equal to 5% of the outstanding principal amount being redeemed plus outstanding and accrued interest; however, the Investor shall have fifteen (15) business days after receipt of the Company’s redemption notice to elect to convert all or any portion of the Convertible Debenture, subject to the Beneficial Ownership Limitation.

On December 28, 2022, the Company signed a forbearance agreement with the Investor extending the maturity date for all outstanding principal and interest under this loan to June 30, 2023.

In accordance with ASC 815-15-25 the conversion feature was considered embeddedto be a derivative instrument and is to be recorded at its fair value as its fair value can be separated from the convertible loan and its conversion is independent of the underlying note value. The Company recorded finance expenses in respect of the convertible component in the convertible loan in the excess amount of the convertible component fair value over the face loan amount. The conversion feature derivative liability is then marked to market each reporting period with the resulting gains or losses shown in the statements of operations.

The following are the data and assumptions used as of the balance sheet date:

Movement in derivative liabilities

The following table presents the changes in fair value of the level 3 liabilities for the periods ended September 30, 2022March 31, 2023 and December 31, 2021:2022:

NOTE 4 – STOCKHOLDERS’ EQUITY

Common Stock

On March 1, 2022, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $35 and accrued interest of $6 into 97,458 shares of Common Stock of the Company. The fair market value of the shares was $56.

On April 11, 2022, the Company issued 27,303 shares of Common Stock to a service provider as payment for services rendered. The fair market value of the shares was $41.

On April 25,During the year ended December 31, 2022, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $30$249 and accrued interest of $4$20 into 103,9631,930,735 shares of Common Stock of the Company. The fair market value of the shares was $45.$56.

On May 11,During the year ended December 31, 2022, and pursuant to the Series A SPA, YAIIthe Preferred A Investor exercised its option to convert the Convertible Promissory Note principal in the amount27,966 shares of $23 and accrued interest of $1Series A Preferred Stock into 113,109390,477 shares of Common Stock of the Company. The fair market value of the shares was $29.

On June 7, 2022,During the three months ended March 31, 2023, and pursuant to the Series A SPA, YAIIthe Preferred A Investor exercised its option to convert the Convertible Promissory Note principal in the amount48,212 shares of $13 and accrued interest of $2Series A Preferred Stock into 117,2441,481,840 shares of Common Stock of the Company. The fair market value of the shares was $36.

On June 28, 2022, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $18 and accrued interest of $1 into 123,288 shares of Common Stock of the Company. The fair market value of the shares was $31. 

On July 26, 2022, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $13 and accrued interest of $2 into 130,250 shares of Common Stock of the Company. The fair market value of the shares was $38.

On July 27, 2022, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $29 and accrued interest of $0 into 259,404 shares of Common Stock of the Company. The fair market value of the shares was $44.

On August 3, 2022, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $28 and accrued interest of $0 into 295,579 shares of Common Stock of the Company. The fair market value of the shares was $35. 

Series A Preferred Stock

On May 12, 2022, the Company established a series of redeemable convertible preferred stock (the “Series A Preferred Stock”), par value $0.0001 per share, stated value $1.0 per share, pursuant to a Certificate of Designation, Preference and Rights of Series A Preferred Stock of the Company (the “Certificate of Designation”).

On May 17, 2022, the Company entered into a Series A Preferred Stock Purchase Agreement (the “SPA”“Series A SPA”) with 1800 Diagonal Lending LLC f/k/a Sixth Street Lending LLC, a Virginia limited liability company (the “Investor”“Preferred A Investor”) pursuant to which the Company issued and sold to the Preferred A Investor 148,062 shares of Series A Preferred Stock for a purchase price of $129, of which the Company received proceeds of $125, net of issuance costs. The Company has accounted for the Series A Preferred Stock as mezzanine equity. The Company recorded a discount of $23 representing the difference between the stated value and the cash proceeds. The discount will be amortized over the two-year redemption period. As of September 30, 2022, the Company has amortized $4 of the discount in the form of interest expense, and the balance as of September 30, 2022 is $129.

On August 10, 2022, the Company entered into aan additional Series A SPA with the Preferred Stock Purchase Agreement (the “SPA”) with 1800 Diagonal Lending LLC f/k/a Sixth Street Lending LLC, a Virginia limited liability company (the “Investor”)A Investor pursuant to which the Company issued and sold to the Preferred A Investor 73,312 shares of Series A Preferred Stock for a purchase price of $63, of which the Company received proceeds of $60, net of issuance costs. The Company has accounted for the Series A Preferred Stock as mezzanine equity. The Company recorded a discount of $13 representing the difference between the stated value and the cash proceeds. The discount will be amortized over the two-year redemption period. As of September 30, 2022, the Company has amortized $1 of the discount in the form of interest expense, and the balance as of September 30, 2022 is $61.

Pursuant to the Series A SPA, the Preferred A Investor may convert all or a portion of the outstanding Series A Preferred Stock into shares of the Company’s Common Stock beginning on the date which is 180 days after the issuance date of the Series A Preferred Stock (the “Issuance Date”) into Common Stock; provided, however, that the Preferred A Investor may not convert the Series A Preferred Stock to the extent that such conversion would result in beneficial ownership by the Preferred A Investor and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock. The Series A Preferred Stock may be convertible into shares of Common Stock of the Company at the option of the holders thereof at any time after the issuance of the Series A Preferred Stock, at a conversion price equal ato the Variable Conversion Price. The Variable Conversion Price means 80% multiplied by the Market Price. The Market Price means the average of the lowest two trading prices for the Common Stock during the ten-trading day period ending on the latest complete trading day prior to the conversion date.

The Company will have the right, at the Company’s sole option, provided that an event of default has not occurred, to redeem all or any portion of the shares of Series A Preferred Stock, exercisable on not more than 3 Trading Days prior written notice to the holders of the Series A Preferred Stock, in full. If the Company redeems the shares of Series A Preferred Stock within 180 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 110%; if such prepayment is made between the 181st day and the 730th day after the issuance of the Series A Preferred Stock, then such redemption premium is 120%. After the 730th day following the Issuance Date, there shall be no further right of redemption.

The Series A Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior with respect to dividends and right of liquidation with the Company’s Common Stock and (b) junior with respect to dividends and right of liquidation to all existing and future indebtedness of the Company and existing and outstanding preferred stock of the Company.

The Series A Preferred Stock shall have no right to vote on any matters requiring shareholder approval or any matters on which the shareholders are permitted to vote.

Each share of Series A Preferred Stock will carry an annual dividend in the amount of 6% of the price per share of Series A Preferred Stock of $1.00, which shall be cumulative, payable solely upon redemption, liquidation or conversion. As of September 30, 2022, the Company has accrued dividends in respect of the Series A Preferred Stock in the amount of $4. Upon the occurrence of an event of default (as further defined further in the Certificate of Designation), the Dividend Rate shall automatically increase to 15%.

NOTE 5 – RELATED PARTY TRANSACTIONS

Related party payable

General and Administrative Expenses

Research and developmentDevelopment Expenses

NOTE 6 – SUBSEQUENT EVENTS

On October 7, 2022,April 6, 2023, and pursuant to the Series A SPA, YAIIthe Preferred A Investor exercised its option to convert the Convertible Promissory Note principal in the amount7,020 shares of $32 and accrued interest of $2Series A Preferred Stock into 329,252290,402 shares of Common Stock of the Company. The fair market value of the shares was $43.

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes included elsewhere in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2021.2022. Some of the information contained in this discussion and analysis, particularly with respect to our plans and strategy for our business and related financing, includes forward-looking statements within the meanings of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including statements regarding expectations, beliefs, intentions or strategies for the future. When used in this report, the terms “anticipate,” “believe,” “estimate,” “expect,” “can,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and words or phrases of similar import, as they relate to our company or our management, are intended to identify forward-looking statements. We intend that all forward-looking statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance, and we undertake no obligation to update or revise, nor do we have a policy of updating or revising, any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as may be required under applicable law. Forward-looking statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements as a result of several factors including those set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, and in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022.March 31, 2023.

The Company notes that in addition to the description of historical facts contained herein, this report contains certain forward-looking statements that involve risks and uncertainties as detailed herein and from time to time in the Company’s other filings with the Securities and Exchange Commission and elsewhere. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. These factors include, among others: (a) the Company’s fluctuations in sales and operating results; (b) risks associated with international operations; (c) regulatory, competitive and contractual risks; (d) development risks; (e) the ability to achieve strategic initiatives, including but not limited to the ability to achieve sales growth across the business segments through a combination of enhanced sales force, new products, and customer service; and (f) pending litigation.

Overview and Outlook

The Company was incorporated on May 7, 2007 under the name, “Darkstar Ventures, Inc.” under the laws of the State of Nevada. On November 12, 2019, the Company completed its merger with the Delaware corporation that was previously known as “Samsara Luggage, Inc.” (“Samsara Delaware”) in accordance with the terms of the Merger Agreement and Plan of Merger, dated as of May 10, 2019, (the “Merger Agreement”) by and among the Company, Samsara Delaware, and Avraham Bengio, pursuant to which Samsara Delaware merged with and into the Company, with the Company being the surviving corporation (the “Merger”). Following the completion of the Merger, the business of the Company going forward became the business of Samsara Delaware prior to the Merger, namely, the development and sale of smart luggage products.

On October 5, 2020, the Board of Directors of the Company approved, and the holders of a majority of the outstanding shares of our common stock, par value $0.0001 per share, (the “Common Stock”), executed a written consent in lieu of a meeting that approved, amending the Company’s Articles of Incorporation to increase the number of authorized shares of common stock from 5,000,000,000 to 7,500,000,000 (the “Authorized Capital Increase”). On November 3, 2020, the Company effected the Authorized Capital Increase by filing with the Secretary of State of the State of Nevada a Certificate of Amendment amending the Company’s Articles of Incorporation to increase the number of authorized shares of common stock from 5,000,000,000 to 7,500,000,000.  

On March 17, 2021, the Company filed a Certificate of Change with the Secretary of State of the State of Nevada (the “Certificate of Change”) to effect a reverse split of Company’s common stock at a ratio of 1-for-7,000 (the “Reverse Stock Split”). The Reverse Stock Split took effect at the open of business on Tuesday, March 23, 2021. As a result of the Reverse Stock Split, each seven thousand (7,000) pre-split shares of common stock outstanding automatically combined into one (1) new share of common stock without any action on the part of the holders, and the number of outstanding shares common stock were reduced from 5,995,825,131 shares to 8,565,465 shares (subject to rounding of fractional shares). No fractional shares were issued in connection with the Reverse Stock Split. The Company issued one whole share of the post-Reverse Stock Split Common Stock to any stockholder who otherwise would have received a fractional share as a result of the Reverse Stock Split.

On May 12, 2022,October 5, 2020, the Company established a seriesBoard of redeemable convertible preferred stock (the “Series A Preferred Stock”), par value $0.0001 per share, pursuant to a Certificate of Designation, Preference and Rights of Series A Preferred StockDirectors of the Company (the “Certificateapproved, and the holders of Designation”). Pursuant toa majority of the Certificate of Designation, the Company authorized 1,000,000outstanding shares of the Series A Preferred Stock, which may be convertible into shares ofour common stock, par value $0.0001 per share, of the Company (the “Common Stock”) at the option, executed a written consent in lieu of the holders thereof at any time after the issuance of the Series A Preferred Stock, at a conversion price equal a Variable Conversion Price (the “Conversion Price”). The “Variable Conversion Price” means 80% multiplied by the Market Price (representing a discount rate of 20%). The “Market Price” means the average of the lowest two (2) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete trading day prior to the conversion date. The “Trading Price” means, for any security as of any date, the actual closing price on the OTCQB, OTCQX, Pink Sheets electronic quotation system or applicable trading market (the “OTC”). The Series A Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior with respect to dividends and right of liquidation withmeeting that approved, amending the Company’s Common Stock and (b) junior with respectArticles of Incorporation to dividends and rightincrease the number of liquidationauthorized shares of common stock from 5,000,000,000 to all existing and future indebtedness of7,500,000,000 (the “Authorized Capital Increase”). On November 3, 2020, the Company and existing and outstanding preferred stock ofeffected the Company. The Series A Preferred Stock shall have no right to vote on any matters requiring shareholder approval or any matters on which the shareholders are permitted to vote. Each share of Series A Preferred Stock will carry an annual dividend in the amount of six percent (6%) of the price per share of Series A Preferred Stock of $1.00 (the “Divided Rate”), which shall be cumulative, payable solely upon redemption, liquidation or conversion. Upon the occurrence of an event of default (as further defined further in the Certificate of Designation), the Dividend Rate shall automatically increase to fifteen percent (15%).

On July 6, 2022, the Company filed a Certificate of Amendment to its Articles of IncorporationAuthorized Capital Increase by filing with the Secretary of State of the State of Nevada moving its official headquartersa Certificate of Amendment amending the Company’s Articles of Incorporation to 135 East 57th Street, Suite 18-130 New York, NY. The Company’s telephoneincrease the number remains the same, phone: (877) 421-1574.of authorized shares of common stock from 5,000,000,000 to 7,500,000,000.  

Recent Developments

Tag Smart Suitcases Collection

Samsara Luggage Inc. launched the Tag Smart collection of smart suitcases and travel accessories. The Tag Smart suitcase was introduced into the luggage market for consumers looking for precise and accurate tracking of their suitcase using technology that was familiar and user-friendly. The Tag Smart suitcase is the first of its kind and designed specifically for the Apple AirTag. The suitcase has a special compartment that secures the Apple AirTag from the interior of the suitcase. The suitcase comes with a customized AirTag with the Samsara logo on one side and Apple logo on the other. One side of the logo is visible from the exterior and protected with a transparent plastic. Consumers can track their suitcase using the Find My app that is standard on all iPhones. It is the same tracking solution that tracks all Apple devices and is streamlined for the Apple enthusiast.

The Tag Smart model is the first product in the Next Gen line of smart suitcases. The Next Gen collection was unveiled at CES in January 2020. This model is WiFi smart and equipped with a smart unit that has GPS tracking and WiFi Hotspot technology. The smart unit doubles as a portable wireless charger.

Street Smart Accessories

The Company launched Street Smart in February 2023. Street Smart is a curated collection of travel and lifestyle accessories that builds on the fashion element of travel. Included in the collection are a selection of sunglasses, tote bag, stylish ballcaps and a stand-alone portable battery for electronic devices. Street Smart compliments Samsara Luggage launched its new Tag Smart line of smart suitcases that are combined with Apple AirTag technology in April of 2022Luggage’s aesthetic and has since executed a targeted online marketing campaign to grow its audience and increase sales. This first product fromallows the Next Gen collection offers travelers precise tracking technology that can solve one of the most common pain points in travel – lost luggage. Tag Smart was added to the Next Gen collectionbrand to offer travelers user-friendly technology that could accurately locate luggage using Apple technology. The digital assets from the new “Find My” online marketing campaign was strategically unveiled both on the Company’s website and various social media platforms. more travel-ready products at varying price points.

Strategic Partnerships

Samsara Luggage has focusedentered into strategic partnerships with wireless network operator T-Mobile and luxury lifestyle clothing brand Tommy Bahama after the launch of its efforts on promoting the new Tag Smart collection through strategic advertising placements and public relations initiatives.of smart luggage. The Company has actively targeted travel,began its collaboration with T-Mobile in July of 2022. The two companies conceptualized a new co-branded carry-on suitcase that would merge the Samsara Luggage and T-Mobile aesthetic. Samsara Luggage began the process of designing and manufacturing the Un-carrier On suitcase, a magenta colored carry-on that offered the same tracking technology as the Tag Smart suitcase and lifestyle outlets to promote the new producta power bank with wireless and continue to establish the D2C brand as reputable. Samara also partnered with a popular tech influencer to do an ‘unboxing’ segment for InstagramUSB-C charging capabilities. The Un-carrier On was launched in late November 2022 and YouTube that included a gift with purchase promotion. All the PR and marketing initiatives were designed to increase traffic to the website and visibility of the brand. garnered significant press.

During this time, Samsara Luggage also made its retail debut in Tommy Bahama stores. Select travel related items including Samsara’s Tag Smart carry-on became available in select Tommy Bahama stores in Florida and New York. Tommy Bahama also added the products to its online e-commerce store. The men’s and women’s clothing brand included the new Samsara Luggage products in its marketing assets for the Tommy Bahama website and social media channels. Samsara Luggage remains in Tommy Bahama stores and on its eponymous website.

Notable Accolades & Press Mentions

The Tag Smart Carry-on won Special Mention in TIME’s list of Best Inventions 2022. The prestigious list was published in early November, just before the launch of the Un-carrier On co-branded suitcase. Conde Nast Traveler included the Tag Smart Carry-on in its print edition, giving the smart suitcase an entire page in its October issue. Along with this special award, the Tag Smart Carry-on was included in several back-to-back “best of” roundups in noteworthy press outlets including Travel + Leisure, Tom’s Guide, Forbes, CBS News and Buy Side from WSJ. With the Tag Smart collection being designed for the AirTag, Apple-focused publications like iMore published stories around the new collection.

Un-carrier On Suitcases

In August of 2022, Samsara Luggage became the luggage carrier for Tommy Bahama, a luxury resort brand owned by retail giant Oxford Industries. Samsara’s Tag Smart Grand Carry-on and Weekender Bag was added to the Tommy Bahama e-commerce site and included in select stores in New York, Florida, and California. This marked Samsara Luggage’s debut in retail stores.

Samsara Luggage worked closely with T-Mobile to develop the Un-carrier On, a smart suitcase created with the iconic Samsara design and T-Mobile branded elements. Like the Tag Smart carry-on that was launched in April of 2022, the Un-carrier on is combined with the Apple AirTag, allowing travelers to track their suitcase using the iPhone’s FindMy app. The Un-carrier On is also equipped with a removable Power Bank that offers wireless charging and USB-C port for corded charging. Samsara Luggage and T-Mobile worked closely to develop the co-branded Un-carrier On and plan for its launch in November of 2022, on the heels of the holiday season.

Samsara Luggage’s Tag Smart suitcase was nominated for TIME magazine’s “Best Inventions of 2022.” Samsara was notified in early November 2022 that it would be awarded a “Special Mention” both online and in the printed magazine. The prestigious award will be used for future marketing efforts, social media posts and public relations efforts.

Samsara Luggage continues to engage new social media followers through its partnerships, marketing, and public relations campaigns. The company has increased its visibility throughout the luggage market.

The Next Gen collection was first unveiled at CES in January 2020. These models offered a WIFI Hotspot feature, GPS tracking and a portable wireless charger. The company is preparing to launch the WIFI Smart model of the Next Gen collection in the coming months.

Sarah & Sam

During the fourth quarter of 2020, Samsara launched its Sarah & Sam Fashion and Lifestyle Collection. Sarah & Sam is a part of Samsara’s direct business model prompted by the travel limitations due to the COVID-19 pandemic, leveraging the Company’s established digital assets and manufacturing and fulfillment supply chain capabilities to offer additional consumer products that respond to the changing needs of the market.

As of the first quarter of 2022, Sarah & Sam Fashion and Lifestyle Collection continues to add a cluster of sales for the Company and therefore will remain active and part of Samsara Luggage’s business model.

The online, Direct-to-consumer (D2C) fashion brand adds a consistent stream of sales and allows the company to expand its reach and online consumer data. Sarah & Sam utilizes Samsara Luggage’s digital assets and manufacturing and fulfillment supply chain capabilities to offer additional consumer products that respond to the changing needs of the market.

1800 Diagonal Lending LLC Series A Preferred Stock Issuance

On August 10, 2022, the Company entered into a Series A Preferred Stock Purchase Agreement (the “SPA”) with 1800 Diagonal Lending LLC f/k/a Sixth Street Lending LLC, a Virginia limited liability company (the “Investor”) pursuant to which the Company issued and sold to the Investor 73,312 shares of Series A Preferred Stock for a purchase price of $63,750.00. Pursuant to the SPA, the Investor may convert all or a portion of the outstanding Series A Preferred Stock into shares of the Company’s Common Stock beginning on the date which is 180 days after the issuance date of the Series A Preferred Stock (the “Issuance Date”) into Common Stock; provided, however, that the Investor may not convert the Series A Preferred Stock to the extent that such conversion would result in beneficial ownership by the Investor and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock.

The Company will have the right, at the Company’s sole option, provided that an event of default has not occurred, to redeem all or any portion of the shares of Series A Preferred Stock, exercisable on not more than 3 Trading Days prior written notice to the holders of the Series A Preferred Stock, in full. If the Company redeems the shares of Series A Preferred Stock within 180 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 110%; if such prepayment is made between the 181st day and the 730th day after the issuance of the Series A Preferred Stock, then such redemption premium is 120%. After the 730th day following the Issuance Date, there shall be no further right of redemption.

In connection with the Certificate of Designation, the Company agreed to cause its transfer agent to reserve four times the number of shares of Common Stock that would be issuable upon full conversion of the Series A Preferred Stock (assuming that the 4.99% limitation set forth in herein is not in effect) (based on the respective Conversion Price of the Series A Preferred Stock in effect from time to time).

YAII PN Ltd. Convertible Debentures

December 2021 Convertible Loan Agreement (YAII PN, Ltd.)

On December 14, 2021, Samsara Luggage, Inc. (the “Company”) entered into a securities purchase agreement (the “Securities Purchase Agreement”) with YA II PN Ltd., a Cayman Islands exempt company (the “Investor”), pursuant to which the Company sold and issued a convertible debenture in the amount of $500,000 (the “Convertible Debenture”), which is convertible into shares of the Company’s common stock, par value $0.0001 (the “Common Stock”) (as converted, the “Conversion Shares”).

The Convertible Debenture bears interest at a rate of 10% per annum (15% on default) and has a maturity date of one (1) year. The Convertible Debenture provides a conversion right, in which any portion of the principal amount of the Convertible Debenture, together with any accrued but unpaid interest, may be converted into the Company’s Common Stock at a conversion price equal to 80% of the lowest volume weighted average price of the Company’s Common Stock during the ten (10) trading days immediately preceding the date of conversion, subject to adjustment. The Convertible Debenture may not be converted into common stock to the extent such conversion would result in the Investor beneficially owning more than 4.99% of the Company’s outstanding Common Stock (the “Beneficial Ownership Limitation”); provided, however, that the Beneficial Ownership Limitation may be waived by the Investor upon not less than 65 days’ prior notice to the Company. The Convertible Debenture provides the Company with a redemption right, pursuant to which the Company, upon fifteen (15) business days’ prior notice to the Investor, may redeem, in whole or in part, outstanding principal and interest under the Convertible Debenture at a redemption price equal to the principal amount being redeemed plus a redemption premium equal to 5% of the outstanding principal amount being redeemed plus outstanding and accrued interest; however, the Investor shall have fifteen (15) business days after receipt of the Company’s redemption notice to elect to convert all or any portion of the Convertible Debenture, subject to the Beneficial Ownership Limitation.

June 2021 Convertible Loan Agreement (YAII PN, Ltd.)

On June 7, 2021, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with the Investor, pursuant to which the Company sold and issued convertible debentures (individually a “Convertible Debenture” and collectively, the “Convertible Debentures”) in the aggregate amount of up to $1,250,000 (the “Purchase Price”), which are convertible into shares of the Company’s common stock, par value $0.0001 (the “Common Stock”) (as converted, the “Conversion Shares”), of which:

The Convertible Debentures bear interest at a rate of 10% per annum (15% on default) and have a maturity date of one (1) year. The Convertible Debentures provide a conversion right, in which any portion of the principal amount of the Convertible Debentures, together with any accrued but unpaid interest, may be converted into the Company’s Common Stock at a conversion price equal to 80% of the lowest volume weighted average price of the Company’s Common Stock during the ten (10) trading days immediately preceding the date of conversion, subject to adjustment. The Convertible Debentures may not be converted into common stock to the extent such conversion would result in the Investor beneficially owning more than 9.99% of the Company’s outstanding Common Stock (the “Beneficial Ownership Limitation”); provided, however, that the Beneficial Ownership Limitation may be waived by the Investor upon not less than 65 days’ prior notice to the Company. The Convertible Debentures provide the Company with a redemption right, pursuant to which the Company, upon fifteen (15) business days’ prior notice to the Investor, may redeem, in whole or in part, outstanding principal and interest at a redemption price equal to the principal amount being redeemed plus a redemption premium equal to 5% of the outstanding principal amount being redeemed plus outstanding and accrued interest; however, the Investor shall have fifteen (15) business days after receipt of the Company’s redemption notice to elect to convert all or any portion of the Convertible Debentures, subject to the Beneficial Ownership Limitation.

In connection with the Securities Purchase Agreement, the Company executed a registration rights agreement (the “Registration Rights Agreement”) pursuant to which it was required to file the Registration Statement with the SEC for the resale of the Conversion Shares, which went effective on or about August 31, 2021.

As of the date of this filing, $363,000$424,000 of the Second Convertible Debenture and the full $250,000 of the Third Convertible Debenture were converted into shares of common stock.

April 2021 Convertible Loan Agreement (YAII PN, Ltd.)

On April 6, 2021, the Company entered into a Securities Purchase Agreement (“SPA”) with the Investor, pursuant to which the Investor invested $150,000, and the Company issued a convertible debenture and warrants to the Investor. The $150,000 investment was provided upon signature of the SPA.

The investment bears interest at an annual rate of ten percent (10%) and will be repayable after two years. The investment will be convertible at any time into shares of the Company’s Common Stock at a conversion price equal to the lower of (a) $3.46, or (b) 80% of the lowest the daily dollar volume-weighted average price for the Company’s Common Stock during the 10 trading days immediately preceding the conversion date.

As part of the transaction, the Company issued to the Investor warrants to purchase an aggregate of 10,838 shares of Common Stock, at an exercise price equal to $3.46. The term of each warrant is five years from the issue date. Each warrant may be exercised by cash payment or through cashless exercise by the surrender of warrant shares having a value equal to the exercise price of the portion of the warrant being exercised. 

Results of Operations

NineThree months ended September 30, 2022March31, 2023 compared to the ninethree months ended September 30, 2021March31, 2022

Revenue

The Company generates revenues through the sale and distribution of smart luggage products and sales through the Sarah & Sam fashion brand.products. Revenues during the ninethree months ended September 30, 2022March 31, 2023 totaled $378$248,000 compared to $294$31,000 for the ninethree months ended September 30, 2021.March 31, 2022. The increase in the total revenue is mainly due to the increased demand for the new product which was launched in the second quarter of 2022. The Company was mostly engaged and invested in developing the new line of products without adding new inventory for sales of the older model. Sales activities were focused on brand awareness to prepare for the launch that started in the second quarter of 2022. 

Revenues for the three months ended September 30, 2022 totaled $235 compared to $110 for the three months ended September 31, 2021. Luggage sales for the three months ended September 30, 2022 totaled $229 compared to $90 for the three months ended June 30, 2022 representing an increase of 154% due to the increased sales of the new product line.

Costs of Revenue

Costs of revenue consists of the purchase of raw materials and the cost of production. Cost of revenues during the nine months ended September 30, 2022 totaled $287 compared to $236 for the nine months ended September 30, 2021. The increase in the costs of revenue is mainly due to the increase in sales as described above.

Costs of revenues for the three months ended September 30, 2022 totaled $206 compared to $95 for the three months ended September 30, 2021. Costs of revenue related to luggage sales for the three months ended September 30, 2022 totaled $202 compared to $52 for the three months ended June 30, 2022 representing an increase of 288% due to the increase in sales of the new product line.

Gross Profit

During the nine months ended September 30, 2022, Gross Profit totaled $91, representing a Gross Profit margin of 24.07%. During the nine months ended September 30, 2021, Gross Profit totaled $58, representing a Gross Profit margin of 19.73%.

Operating Expenses

Operating expenses totaled $1,322 during the nine months ended September 30, 2022, compared to $1,262 during the nine months ended September 30, 2021, representing a net increase of $60. The increase in the operating expenses is mainly due to an increase in sales and marketing activities relating to the launch of the new line of product.

Financing expenses

Financing expenses totaled $469 during the nine months ended September 30, 2022 compared to a financing expenses of $1,820 during the nine months ended September 30, 2021 representing a net decrease of $1,351. The decrease in the financing expenses is mainly due to a gain from the movement in the fair value of the derivatives partially offset by an increase in interest expense relating to the outstanding convertible notes.

Net Loss

We realized a net loss of $1,700 for the nine months ended September 30, 2022, as compared to a net loss of $3,024 for the nine months ended September 30, 2021, for the reasons described above.

Three months ended September 30, 2022 compared to the three months ended September 30, 2021

Revenue

The Company generates revenues through the sale and distribution of smart luggage products and sales through the Sarah & Sam fashion brand. Revenues during the three months ended September 30, 2022 totaled $235 compared to $110 for the three months ended September 30, 2021. The increase in the total revenue is mainly due to sales of the new line in the current quarter. Luggage sales for the three months ended September 30, 2022 totaled $229 compared to $45 for the three months ended September 30, 2021 representing an increase of 407% due to the increased sales of the new product line.period.

Costs of RevenueSales

Costs of revenuesales consists of the purchase of raw materials and the cost of production. Cost of revenues during the three months ended September 30, 2022March 31, 2023 totaled $206$146,000 compared to $95$20,000 for the three months ended September  30, 2021.March 31, 2022. The increase in the costs of sales is mainly due to the increase in sales.

Gross Profit

During the three months ended September 30, 2022,March 31, 2023, Gross Profit totaled $29,$102,000, representing a Gross Profit margin of 12.34%41.13%. During the three months ended September 30, 2021,March 31, 2022, Gross Profit totaled $15,$11,000, representing a Gross Profit margin of 13.6%35.48%.

Operating Expenses

Operating expenses totaled $417$222,000 during the three months ended September 30, 2022,March 31, 2023, compared to $485,000$454,000 during the three months ended September  30, 2021. AMarch 31, 2022, representing a net decrease of $232,000. The decrease in general and administrativeoperating expenses was offset by an increaseis mainly due to a decrease in salesselling and marketing expenses resulting from decreased marketing activities in respect of the launch ofrelating to the new line launched in the second quarter as well as increased research and development costs relating to futureof products.

Financing Income (expenses)

Financing expenses totaled $81 during the three months ended September 30, 2022 compared to financing expenses of $77 during the three months ended September 30, 2021.

Net Profit/Loss 

We realized a net loss of $469$238,000 for the three months ended September 30, 2022,March 31, 2023, as compared to a net loss of $547$289,000 for the three months ended September 30, 2021,March 31, 2022, for the reasons described above.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.

As of September  30, 2022,March 31, 2023, the Company had $125$57,000 of cash, total current assets of $326,$214,000, and total current liabilities of $1,822,2,426,000, creating a working capital deficit of $1,496.$2,212,000. As of December 31, 2021,2022, the Company had $827$168,000 of cash, total current assets of $974$345,000 and total current liabilities of $1,675$2,320,000 creating a working capital deficit of $701.$1,975,000.

The decreaseincrease in our working capital deficit was mainly attributable to decreases of $702$111,000 in cash and cash equivalents, $12,000 in inventory, $19,000 of other current assets and $38increases in other current assets, increases inliabilities of $68,000, convertible notes payable of $578$52,000, and deferred revenues of $135, partially offset by an increase of $92 in inventory and decreases of $15 of accounts payable, $34 of other current liabilities, $16 of related party payables, $480$6,000 in the fair value of the Conversion Option Derivative Liability partially offset by an increases of $11,000 of accounts receivable and $21decreases of the Warrant derivative liability.$4,000 of accounts payable, $4,000 of related party payables, $2,000 of deferred revenue, and $10,000 of Notes payable, net.

Net cash used in operating activities was $887$95,000 for the ninethree months ended September 30, 2022,March 31, 2023, as compared to cash used in operating activities of $562$478,000 for the ninethree months ended September 30, 2021.March 31, 2022. The Company’s primary uses of cash have been for research and development expenses, sales and marketing expenses, and working capital purposes.

We have principally financed our operations through the sale of our common stock preferred stock and the issuance of debt. In the nine-month period ending September 30, 2022, we raised $185 through the sale of Series A Preferred shares. Due to our operational losses, we relied to a large extent on financing our cash flow requirements through issuance of common stock and debt. There can be no assurance we will be successful in raising the necessary funds to execute our business plan.

Necessity of Additional Financing

Securing additional financing is critical to the implementation of our business plan. If and when we obtain the required additional financing, we should be able to fully implement our business plan. In the event we are unable to raise any additional funds we will not be able to pursue our business plan, and we may fail entirely. We currently have no committed sources of financing.

Going Concern Consideration

The above conditions raise substantial doubt about our ability to continue as a going concern. Our independent auditors included an explanatory paragraph in their report on the accompanying financial statements regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that leadled to this disclosure by our independent auditors. Although we anticipate that our current operations will provide us with cash resources, we believe existing cash will not be sufficient to fund planned operations and projects through the next 12 months. Therefore, we believe we will need to increase our sales, attain profitability, and raise additional funds to finance our future operations. Any meaningful equity or debt financing will likely result in significant dilution to our existing stockholders. There is no assurance that additional funds will be available on terms acceptable to us, or at all.

To address these risks, we must, among other things, implement and successfully execute our business and marketing strategy surrounding our products, continually develop and upgrade our website, respond to competitive developments, lower our financing costs, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

Seasonality

We do not expect our sales to be impacted by seasonal demands for our products.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 3. - Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information necessary under this item.

Item 4. - Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The controls evaluation was conducted under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures are also designed to reasonably assure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Based on the controls evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the Commission, and that material information relating to our company and our consolidated subsidiary is made known to management, including the Chief Executive Officer and Chief Financial Officer, particularly during the period when our periodic reports are being prepared.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15f and 15d-15f under the Exchange Act) that occurred during the quarter ended September 30, 2022March 31, 2023 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

Part II: Other Information

Item 1 –- Legal Proceedings

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interests.

Item 1A. Risk Factors

An investment in our securities involves a high degree of risk. Except as set forth below, thereThere have been no material changes to the risk factors previously reported under Item 1A. “Risk Factors” ofdisclosed in our annual reportAnnual Report on Form 10-K for the year ended December 31, 2021. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially affect our business, financial condition and/or operating results.

Terrorist attacks, acts of war, global health emergencies or natural disasters may impact our business, operating results and financial condition. 

Terrorist acts, acts of war, global health emergencies or natural disasters may disrupt our operations, as well as the operations of our businesses. Such acts have created, and continue to create, economic and political uncertainties and have contributed to global economic instability. Any market disruptions as a result of such acts could affect our operations and, as a result, could have a material adverse effect on our business, financial condition and results of operations.

Inflation may adversely affect our business, results of operations and financial condition. 

We may be impacted by inflation, such as current inflation related to global supply chain disruptions. Recent inflationary pressures have increased the cost of raw materials and may adversely affect our operations. If we are unable to pass any increases in their costs along to their customers, it could adversely affect our results and impact our ability to pay interest and principal on our loans.2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits