Know Labs, Inc. — Form 10-Q Summary
Filing identity: The supplied filing is for Know Labs, Inc. (NYSE American: KNW), not USBC, Inc. It covers the quarter and nine months ended June 30, 2023, the company’s fiscal third quarter. The filing was signed August 14, 2023.
Business context and reporting period
Know Labs is developing its Bio-RFID radio-frequency sensor and machine-learning technology, initially for non-invasive blood-glucose monitoring. The product is still in development and requires FDA clearance before commercial sale. The company reported no product revenue in the quarter or nine-month period.
Financial performance and liquidity
- Revenue: $0 for the three and nine months ended June 30, 2023. Prior-year nine-month revenue was $4.36 million, from NFT sales the company says it does not expect to repeat.
- Quarterly results: Operating expenses were $3.24 million and operating loss was $3.24 million, versus $3.03 million in expenses and operating loss in the prior-year quarter. Net loss was $3.60 million, compared with $3.00 million. Net loss available to common shareholders was $8.56 million, including $1.63 million of Series D dividends and $3.34 million of deemed preferred dividends; basic and diluted loss per share was $0.18.
- Nine-month results: Operating expenses were $11.69 million and operating loss was $11.69 million, versus $11.10 million and $6.74 million, respectively, in the prior-year period. Net loss was $12.35 million, compared with $14.50 million; the prior period included $7.27 million of non-cash debt-discount interest expense. Net loss available to common shareholders was $17.32 million and loss per share was $0.36.
- Expenses and margins: Nine-month R&D rose to $6.19 million from $3.41 million, including executive-departure costs; SG&A increased to $5.51 million from $4.25 million. With no current-period revenue, a revenue margin is not meaningful.
- Cash flow: Nine-month operating cash use was $8.98 million, compared with $3.69 million a year earlier. Investing activities used $81,000; financing provided $392,000. Cash fell by $8.66 million to $3.93 million.
- Balance sheet and debt: At June 30, cash was $3.93 million, total assets $4.44 million, and stockholders’ equity $715,000. Current liabilities were $3.72 million, including $2.26 million of convertible notes; the notes are convertible into common stock at $0.25 per share. The filing reports $2.26 million of notes due or convertible on demand, with related-party obligations among them.
- Working capital: The balance sheet implies current working capital of approximately $208,000, or $2.46 million excluding convertible notes. The filing gives other working-capital figures in its notes and discussion, so the reported values are not fully consistent.
Material changes versus the prior comparable period
- Revenue ceased after prior-year NFT sales; AI Mind, the subsidiary associated with those sales, was dissolved on July 25, 2023.
- Nine-month operating loss increased, while net loss decreased mainly because the prior year included substantial non-cash debt-discount interest expense.
- Cash used in operations increased, and cash declined substantially from $12.59 million at September 30, 2022 to $3.93 million at June 30, 2023.
- Common shares outstanding increased from 48.16 million at September 30, 2022 to 52.36 million at June 30, 2023. The filing also discloses substantial potential dilution from options, warrants, preferred-stock conversion and convertible notes.
Outlook, management commentary, risks and unusual items
- Going concern and funding: Management said available cash and planned expense flexibility were expected to fund operations only through at least December 31, 2023. The filing states that substantial doubt about the company’s ability to continue as a going concern for the following 12 months had not been alleviated. Management was pursuing financing but reported no commitment; warrant exercises could provide up to approximately $15.68 million, but exercise is not assured.
- Development and regulation: Management described a Generation 1 working prototype and ongoing testing and algorithm refinement. A company-reported study showed 11.3% MARD using data from 13 healthy participants; this is not FDA clearance or evidence of commercial readiness. The company could not estimate the timing or likelihood of FDA clearance.
- Cost reductions and leadership: Former CEO and CTO Phillip A. Bosua resigned in January 2023. The company reported staffing reductions, including a nine-person reduction referenced in its discussion, and 11 full-time employees at June 30. It said these actions reduced its monthly burn rate. The company also incurred severance and related costs.
- Preferred-stock changes: In June, the company issued 1,402,784 common shares to settle certain accrued Series D dividends, recording $1.63 million of dividends. Amendments to Series C and D terms were filed in August 2023; the filing describes future dividends as accruing and being paid in preferred shares rather than cash, subject to the amended terms.
- Other unusual items: A $384,000 loss on disposal of assets related to office consolidation affected the quarter and nine-month period. Two leased premises were offered for sublease, with no assurance a sublease would reduce costs.
- Other risks: Key risks include financing shortfalls, continued operating losses, product-development and FDA-clearance uncertainty, dependence on technical and other personnel, competition, potential share dilution, and maintaining the NYSE American listing.
Most important facts for investors to verify
- Confirm the intended issuer: the filing identifies Know Labs, Inc. (KNW), whereas the request metadata names USBC, Inc.
- Reconcile the filing’s differing working-capital figures and confirm current obligations, including related-party notes and accrued amounts.
- Monitor cash burn, runway, and whether any financing was completed after the filing date; projected warrant proceeds are not assured.
- Review the amended Series C and D preferred-stock terms, dividend accruals, conversion mechanics, and resulting potential dilution.
- Track independent validation, clinical-study progress, and FDA requirements; the reported prototype and study results do not establish regulatory approval.