Know Labs, Inc. — Form 10-K Summary
Issuer identification: The request metadata names USBC, Inc., but the filing identifies the registrant as Know Labs, Inc. (OTCQB: KNWN). Verify that this is the intended filing. The report covers the fiscal year ended September 30, 2021; it is an annual report, not a standalone fourth-quarter report.
Business context
Know Labs is developing Bio-RFID radio-frequency and microwave spectroscopy, ChromaID optical spectroscopy, and AI tools to identify and measure materials. Its main commercial focus is a proposed non-invasive glucose monitor; the device requires FDA clearance before U.S. marketing. Subsidiaries pursue other applications: Particle is developing germ-inactivating light bulbs, while AI Mind is exploring monetization of the AI platform. The legacy TransTech distribution business, previously the company’s main revenue source, closed in 2020.
Financial results and liquidity
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Revenue | $0 | $121,939 |
| Gross profit | $0 | $52,213 |
| Research and development expense | $3.970 million | $2.034 million |
| Selling, general and administrative expense | $6.476 million | $4.844 million |
| Operating loss | $10.446 million | $6.826 million |
| Interest expense | $14.914 million | $6.095 million |
| Net loss | $25.360 million | $13.563 million |
| Basic and diluted loss per share | $0.86 | $0.62 |
| Cash used in operating activities | $6.851 million | $3.914 million |
At September 30, 2021, cash was $12.258 million, versus $4.298 million a year earlier. Management reported net working capital of approximately $10.093 million, calculated excluding convertible notes and lease assets and liabilities. Total assets were $12.889 million; stockholders’ equity was $1.242 million, compared with a $1.915 million deficit in 2020. Accumulated deficit was $81.326 million. The filing reports no revenue in 2021, so a meaningful gross margin is not available.
Financing activities provided $15.110 million, including $14.209 million from convertible notes. Gross convertible-note obligations were reported at $16.464 million; the balance sheet shows $9.191 million net of debt discounts. The notes include an 8% financing that, with accrued interest, was scheduled to convert into common shares at $2.00 per share beginning March 15, 2022. The company also had $431,803 of current PPP loans pending forgiveness approval at year-end.
Material changes and unusual items
- Revenue fell to zero following the closure of TransTech; the filing attributes the prior-year revenue to that business.
- Net loss increased by $11.798 million year over year. Interest expense included $13.723 million of noncash amortization of debt discounts; total noncash expenses were reported as $17.701 million.
- R&D spending rose about 95% as the company expanded work on Bio-RFID and Particle. SG&A increased, primarily reflecting higher stock-based compensation, including a $1.812 million valuation for a warrant issued to the chairman.
- Common shares outstanding rose from 24.805 million to 35.167 million. At year-end, the company also disclosed substantial potential dilution from options, warrants, convertible preferred stock, and convertible notes.
- After year-end, the company announced approximately $4.2 million of initial NFT revenue. This is a subsequent event, not FY 2021 revenue.
Outlook, risks, and controls
Management expects operating losses to continue during commercialization and estimated that year-end cash could fund operations through December 2023. This is management’s estimate, not a guarantee; the company also states that it may need additional financing. Key uncertainties include FDA clearance and clinical validation for the glucose monitor, product development and market acceptance, the ability to secure commercial and distribution partners, and access to capital. New equity or conversion of securities could materially dilute existing shareholders. COVID-19 disruptions and protection of intellectual property and trade secrets are also identified risks.
Management concluded that disclosure controls and internal control over financial reporting were not effective at September 30, 2021, citing the absence of a full-time CFO; the chairman served as interim CFO with assistance from a consultant. The auditor issued an unqualified opinion on the financial statements but did not audit or opine on internal-control effectiveness. The auditor identified convertible-note accounting as a critical audit matter. The filing reports no material pending legal proceedings outside ordinary routine matters.
Important facts for investors to verify
- Confirm the registrant: the filing is for Know Labs, Inc., not USBC, Inc.
- Review the terms, maturity or conversion mechanics, and related-party exposure of the convertible notes; reconcile the $16.464 million gross amount with the $9.191 million net balance-sheet amount.
- Assess cash runway against operating cash use, planned R&D and clinical-trial spending, and the company’s need for future financing.
- Track independent validation, clinical testing, and FDA progress for the glucose monitor; the filing does not establish regulatory approval or commercial readiness.
- Evaluate potential dilution from outstanding and reserved options, warrants, preferred shares, and convertible debt, including the increase in authorized common shares after year-end.
- Confirm subsequent NFT revenue in later filings and distinguish it from the reporting-period results; the company’s reported year-end revenue was zero.
- Monitor remediation of the disclosed material weakness and any subsequent changes in financial-reporting controls.