SOBR Safe, Inc.: Form 10-Q for the period ended Mar 31, 2024

Disclaimer Regarding Forward Looking Statements

Our Management’s Discussion and Analysis or Plan of Operations contains not only statements that are historical facts, but also forward-looking statements within the meaning of the Exchange Act. Forward-looking statements include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider,” or similar expressions are used. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our access to capital to fund our continuing operations, our ability to sell our products and services and to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission (“SEC”).

Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

Corporate Overview

On September 19, 2011, we, as Imagine Media, Ltd., a Delaware corporation, acquired approximately 52% of the outstanding shares of TransBiotec, Inc. (“TBT”), a California corporation, from TBT’s directors in exchange for 124,439 shares of our common stock. In January 2012, our Board of Directors amended our Certificate of Incorporation changing our name from Imagine Media, Ltd. to TransBiotec, Inc., and we acquired approximately 45% of the remaining outstanding shares of TBT in exchange for 109,979 shares of our common stock. With the acquisitions in September 2011 and January 2012 of TBT common stock, we own approximately 99% of the outstanding shares of TBT. As a result of the acquisitions, TBT’s business is our business, and, unless otherwise indicated, any references to “we” or “us” include the business and operations of TBT.

On March 9, 2020, our Board of Directors approved the amendment to our Certificate of Incorporation and stockholders holding 52% of our then outstanding voting stock approved an amendment to our Certificate of Incorporation. The Certificate of Amendment to our Certificate of Incorporation was for the purpose of, among other things, changing our name from “TransBiotec, Inc.” to “SOBR Safe, Inc.” The Certificate of Amendment to our Certificate of Incorporation became effective with the State of Delaware on April 24, 2020.

Pursuant to approval of an application with Nasdaq to uplist our common stock to their exchange under the ticker symbol “SOBR,” our common stock began trading and quoted on the Nasdaq exchange on May 16, 2022. Prior to this uplist to the Nasdaq exchange, our common stock was quoted on the “OTCQB” tier of the OTC Markets under the ticker symbol “SOBR.”

Our corporate offices are located at 6400 South Fiddlers Green Circle, Suite 1400, Greenwood Village, Colorado 80111, telephone number (844) 762-7723.

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The following discussion:

• summarizes our plan of operation; and
• analyzes our financial condition and the results of our operations for the three-months ended March 31, 2024.

This discussion and analysis should be read in conjunction with our financial statements included as part of this Quarterly Report on Form 10-Q, as well as our financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Business Operations, Outlook and Challenges

We provide non-invasive technologies to quickly and humanely identify the presence of alcohol in individuals. Our mission is to save lives, positively impact behavioral outcomes and individual wellness, increase workplace safety and productivity, and create significant economic benefits. Our non-invasive technologies are integrated within our scalable and patent-pending software platform, SOBRsafe™, producing statistical, measurable business and user data. To that end, our SOBRsafe™ software platform, along with our integrated hardware devices used to provide non-invasive alcohol detection and identity verification, combine to create a robust solution that has current and potential applications in:

• Behavioral health and wellness
• Judicial administrative applications
• Licensing and integration
• Commercial environments, including but not limited to oil and gas, fleet management, telematics, ride share programs, and general workplace safety
• Individual consumer use, including co-parenting trust, personal accountability, teen driver safety

Our SOBRcheck™ device is a patent-pending, touch-based identity verification and alcohol detection solution. Users place two fingers on the device sensors for which one compares biometric data points from the finger to confirm identity, while the other senses alcohol released through the pores of the fingertip. The touch-based device connects to the SOBRsafe™ software solution to collect, present and communicate data collected to subscribed parties. The SOBRcheck™ device has been in commercial production since the first quarter of 2022 and we have executed customer agreements since that time.

Our SOBRsure™ device is a patent-pending, fitness-style wearable band with an alcohol detection solution intended for discrete, low-profile and voluntary use providing real-time alcohol monitoring and GPS tracking. The wearable band is a device which includes a contained sensor which senses alcohol released through the pores of the skin. The wearable band connects to a mobile device via Bluetooth communication where the SOBRsafe™ mobile application collects and transmits data to the SOBRsafe™ software solution. The SOBRsure™ device provides passive, real-time alcohol insights to administrators, clinicians, parents and more, and also includes device removal and service interruption notifications. The SOBRsure™ is in commercial production and became available for sale in late September 2023.

Our SOBRsafe™ technology can also be deployed across numerous additional devices for various uses. We are currently exploring possible integrations with existing telematics systems and licensing by non-competitive third parties.

We believe our device portfolio approach could yield a substantial repository of user data – a potentially monetizable asset for statistical analytics. The opportunity to collect data points over time could enable the development of business and insurance liability benchmarking, through artificial intelligence (AI), powerful guidance for perpetual safety improvement and associated cost savings capture. By demonstrating substance-free environments, organizations could deliver a data-driven argument for lowering insurance premiums. We could potentially partner with insurance providers to mandate use of the SOBRsafe™ devices and/or technology.

Design, manufacturing, quality testing and distribution for all SOBRsafe™ integrated devices takes place in the United States.

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Our products continue to gain awareness and recognition through trade shows, media exposure, social media and product demonstrations. To generate sales, we have a three-part strategy: 1) direct sales to businesses and consumers, 2) enter into agreements with channel partners and 3) enter into licensing and integration agreements. We currently employ four highly experienced sales professionals facilitating direct sales and channel partner relationships. Licensing and integration opportunities with non-competitive third parties continue in preliminary stages. We anticipate hiring an expert in licensing and integrations in 2024 to formulate and execute an expansion plan.

We anticipate that our outsourced manufacturers can adequately support an increase in sales for the foreseeable future. We expect that we will need to continue to evolve our products and software to meet diverse customer requirements across varied markets.

Since inception we have generated significant losses from operations and anticipate that we will continue to generate significant losses for the foreseeable future. Our success is dependent on our ability to access additional capital. Additional capital will be required under the following circumstances: 1) to offset negative cash flows from operations, 2) to accelerated customer acquisition, thereby increasing capital outlay, 3) for advanced purchasing of materials, 4) for the acquisition of new technology, 5) for potential acquisition of a key asset, and 6) for sales expansion.

Recent Developments

During the quarter ended March 31, 2024, the following developments occurred:

• We entered into inducement offer letter agreements (the “Inducement Letters”) on March 4, 2024, with each holder (collectively, the “Holders”, and individually, a “Holder”) of the Company’s Convertible Notes issued on March 9, 2023. The inducement offer to the Holders provided an opportunity to reduce the Company’s debt payment obligation at the future maturity date in March 2025. On March 5, 2024, the Holders elected to convert a total of $804,695 (the “Conversion Amount”) pertaining to the 2023 Debt Offering into 1,297,895 shares of the Company’s common stock at $0.62 per share. As provided for in the Agreement, the Conversion Amount included original Note principal of $772,896, as well as accrued interest of $31,799.

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Results of Operations for Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Summary of Results of Operations

Revenue

We progressed to commercial production, launch and sale of our first SOBRsureTM devices being delivered for use in October 2023, and our first SOBRcheckTM devices being delivered for use in January 2022. Both the SOBRcheckTM and SOBRsureTM devices are used in conjunction with our SOBRsafeTM software solution. We have executed customer agreements, invoiced customers and recognized revenue of $47,990 and $47,868 during the three-month periods ended March 31, 2024, and March 31, 2023.

Gross Profit

The cost of sales for the three-months ended March 31, 2024, was $24,781 resulting in a gross profit of $23,209 and a gross margin of 48.4%. The cost of sales for the three-months ended March 31, 2023, was $30,064 resulting in a gross profit of $17,804 and a gross margin of 37.2%. Due to the limited history of generating revenue, the gross profit and gross margins at March 31, 2024 and 2023 are not indicative of future planned or actual performance of the Company, its product lines or services.

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General and Administrative Expenses

General and administrative expenses decreased by $169,388, from $1,584,950 for the three-month period ended March 31, 2023, to $1,415,562 for the three-month period ended March 31, 2024. The decrease from the same prior year period is primarily due to decreases in payroll expense as a result of our decreased employee base, a reduction in investor relations expense, offset by an increase in professional service fees.

Stock-Based Compensation Expense

The Company had stock-based compensation expense of $214,398 for the three-months ended March 31, 2024, compared to $698,913 for the three-months ended March 31, 2023. The stock-based compensation expense was related to the issuance of our common stock or restricted stock units as compensation to certain consultants and employees that is recognized over the period of service.

Research and Development

Research and development expenses decreased by $78,884, to $102,034 for the three-months ended March 31, 2024, compared to $180,918 for the three-months ended March 31, 2023. The decrease in research and development was due to the final development stages of the SOBRcheckTM device which were completed in 2023, and the development of the SOBRsafeTM software platform which was completed in Q3 2023.

Other Income (Expense), net

Other income decreased by $49,215 to $21,255 for the three-months ended March 31, 2024, compared to $70,470 for the three-months ended March 31, 2023. The decrease is due to less interest earned in the Company’s money market account due to a lower cash balance in 2024.

Notes Payable – Conversion Expense

Conversion expense was $585,875 for the three-months ended March 31, 2024. This expense relates to the convertible debt inducement that occurred on March 4, 2024. There was no conversion expense for the three-months ended March 31, 2023.

Interest Expense

Interest expense increased by $7,331, from $225,185 for the three-month period ended March 31, 2023, to $232,516 for the three-month period ended March 31, 2024. This increase was due to make-whole interest related to the conversion of debt to common stock from outstanding convertible debt, offset by a decrease in overall interest expense on the remaining convertible debt post conversion.

Operating Loss; Net Loss

Our net loss decreased by $95,771 from $2,601,692 to $2,505,921, from the three-month period ended March 31, 2023, compared to the three-month period ended March 31, 2024. The change in our net loss and operating loss for the three months ended March 31, 2024, compared to the same prior year period, is primarily a result of a decrease in stock-based compensation expense and a decrease in investor relations spend, offset by notes payable conversion expense. The changes are detailed below.

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Liquidity and Capital Resources for Three Months Ended March 31, 2024 Compared to December 31, 2023

Introduction

During the three-months ended March 31, 2024 and 2023, the Company has incurred recurring losses from operations. Future capital requirements will depend on many factors including the Company’s ability to sell and develop products, generate cash flow from operations, and assess competing market developments. The Company will need additional capital in the near term. Our cash on hand as of March 31, 2024, was $1,336,250 and our current normalized operating cash flow burn rate is approximately $475,000 per month.

Management believes that cash balances and negative working capital at March 31, 2024 do not provide adequate operating capital for operating activities for the twelve months from the date these financial statements are issued. However, management believes actions presently being taken to generate product and services revenues, and positive cash flows, in addition to the Company’s plans and ability to access capital sources and implement additional expense reduction tactics to preserve working capital, provide the opportunity for the Company to continue as a going concern. These plans are contingent upon the actions to be performed by the Company and these conditions have not been met on or before March 31, 2024. As such, substantial doubt about the entity’s ability to continue as a going concern has not been alleviated as of March 31, 2024.

Our cash, total current assets, total assets, total current liabilities, and total liabilities as of March 31, 2024, and as of December 31, 2023, respectively, are as follows:

Our total current assets and total assets decreased as of March 31, 2024, as compared to December 31, 2023, primarily due to use of cash to support our negative cash flow from operations.

Our total current liabilities increased as of March 31, 2024, as compared to December 31, 2023. The increase was due to the classification of convertible debt which is due in March 2025.

Sources and Uses of Cash

Operations

We had net cash used in operating activities of $1,453,897 for the three-month period ended March 31, 2024, as compared to net cash used for operating activities of $1,589,453 for the three-month period ended March 31, 2023. For the period in 2024, the net cash used in operating activities consisted primarily of our net loss of $2,505,921, offset by non-cash expense items including amortization of $96,366, amortization of debt discounts of $149,295, stock-based compensation expense of $214,398, interest expense of $80,784 conversion expense of $585,875, and changes in our assets and liabilities primarily from inventory of $22,179, prepaid expenses of $14,808, other assets of ($15,300), accounts payable of $107,073, accrued expenses of $(204,486), and accrued interest payable of $2,171.

For the period in 2023, the net cash used in operating activities consisted primarily of our net loss of $2,601,692, offset primarily by non-cash expense items including amortization of $96,366, amortization of interest of $21,644, stock warrants expense of $134,598, and stock-based compensation expense of $698,913, bad debt expense of $882 and changes in our assets and liabilities primarily from inventory of ($34,239), prepaid expenses of $162,477, accounts payable of $198,159, accrued expenses of $(87,986), and accrued interest payable of $(177,927).

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Investments

We had no cash provided by or used in investing activities during the three-month periods ended March 31, 2024 or March 31, 2023.

Financing

We had no cash provided by or used in financing activities during the three-month period ended March 31, 2024.

During the three-month period ended March 31, 2023, we received gross proceeds from the issuance of convertible notes payable of $3,000,001 which was offset by issuance costs of $537,750. Payments of approximately $1,161,792 were made toward the principal and accrued interest amounts for matured convertible notes payable issued in 2021 to both related and non-related parties.

Contractual Obligations and Commitments

At March 31, 2024, the Company had contractual commitments to make payments under operating leases. Payments due under these commitments are as follows:

For additional information about our contractual commitments for these leases, see “Note 5 – Leases” included in our Notes to Consolidated Financial Statements.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements as of March 31, 2024, and December 31, 2023.

Effects of Inflation

We do not believe that inflation has had a material impact on our business, revenue or operating results during the periods presented. However, continued increases in inflation could have an adverse effect on our results of future operations, financial position, and liquidity in 2024.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the period ended March 31, 2024, or subsequently thereto, that we believe are of potential significance to our financial statements.

On December 28, 2010, we borrowed $11,810 from a related party. The note payable carries an interest rate of 0% and matured on December 31, 2012. As of March 31, 2024 this note was in default.

On February 20, 2012, we borrowed $3,750 from a non-related party. The note payable carries an interest rate of 12% and matured on February 19, 2013. As of March 31, 2024 this note was in default.

On March 20, 2012, we borrowed $5,433 from a non-related party. The note payable carries an interest rate of 12% and matured on March 19, 2013. As of March 31, 2024 this note was in default.

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On September 27, 2013, we borrowed $15,000 from a non-related party. The note payable carries an interest rate of 9% and matured on December 25, 2013. As of March 31, 2024 this note was in default.

On July 31, 2015, we borrowed $2,500 from a non-related party. The note payable carries an interest rate of 10% and matured on November 28, 2015. As of March 31, 2024 this note was in default.

(a) Evaluation of Disclosure and Controls Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (our Principal Executive Officer) and Chief Financial Officer (our Principal Accounting Officer), of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rules 13a – 15(c) and 15d – 15(e)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer, who are our Principal Executive Officer and Principal Financial Officer, respectively, concluded that, as of the quarter ended March 31, 2024, our disclosure controls and procedures were effective.

In designing and evaluating the disclosure controls and procedures, management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, management is required to apply its reasonable judgment.

(b) Changes in Internal Controls over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies, which may be identified during this process.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

(c) Officer’s Certifications

Appearing as an exhibit to this quarterly report on Form 10-Q are “Certifications” of our Chief Executive and Financial Officer. The Certifications are required pursuant to Sections 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This section of the quarterly report on Form 10-Q contains information concerning the Controls Evaluation referred to in the Section 302 Certifications. This information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

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