Know Labs, Inc. — Form 10-Q Summary
Entity note: The request identifies USBC, Inc., but the supplied filing is for Know Labs, Inc. (NYSE American: KNW). This summary reflects the filing provided, for the quarter ended December 31, 2022, the company’s fiscal first quarter. The financial statements are unaudited.
Business context and reporting period
Know Labs is developing Bio-RFID and ChromaID sensor technologies, with its primary focus on a non-invasive glucose-monitoring product. Its proposed KnowU and UBand devices require FDA clearance before marketing. The company reported no revenue in the quarter and said it does not expect future activity or revenue from its NFT business.
Key financial metrics
| Metric | Three months ended Dec. 31, 2022 | Comparable 2021 period |
|---|---|---|
| Revenue | $0 | $4.351 million |
| Research and development | $1.743 million | $0.886 million |
| Selling, general and administrative | $1.905 million | $1.217 million |
| Operating loss | $3.648 million | $0.870 million |
| Net loss | $3.823 million | $5.357 million |
| Basic and diluted loss per share | $0.08 | $0.15 |
| Net cash used in operating activities | $2.917 million | $1.908 million |
With no revenue this quarter, a revenue margin is not meaningful. Cash and cash equivalents were $9.680 million at December 31, down from $12.594 million at September 30, 2022. Total assets were $10.710 million; total liabilities were approximately $3.704 million; and stockholders’ equity was $7.006 million. The company reported net working capital of $8.277 million excluding convertible notes payable.
Convertible notes payable, net, were $2.255 million on the balance sheet. The filing’s risk discussion separately describes approximately $2.552 million owed under notes, including accrued amounts; investors should reconcile these presentations. Operating lease liabilities totaled approximately $257,000. Cash interest paid during the quarter was $0.
Changes versus the prior comparable period
- Revenue fell to zero from $4.351 million, which was generated by NFT sales in the 2021 quarter. The company says it does not expect further NFT revenue.
- Operating loss widened to $3.648 million from $0.870 million. R&D rose by $0.857 million and SG&A by $0.688 million, reflecting greater development activity and higher costs, including stock compensation, insurance and regulatory expenses.
- Net loss narrowed to $3.823 million from $5.357 million, principally because the prior-year period included $4.185 million of debt-discount amortization in interest expense. This improvement did not reflect stronger operating performance.
- Operating cash use increased to $2.917 million from $1.908 million. Cash declined by $2.913 million during the quarter.
Outlook, management commentary, risks and unusual items
- Management said available cash was expected to fund operations through at least February 15, 2024, while also anticipating operating losses and seeking additional equity or debt financing. Potential proceeds of up to approximately $15.682 million from outstanding warrants are not assured.
- The company’s commercialization plan depends on continued technical development, product validation, clinical work and FDA clearance. Management stated it could not estimate the time or likelihood of obtaining clearance. The filing also identifies financing, market acceptance, competition, personnel, intellectual-property and cybersecurity risks.
- On January 23, 2023, CEO Phillip Bosua resigned and Ronald Erickson was appointed CEO. Bosua’s separation agreement provides for $400,000 severance, 18 months of COBRA benefits, one year of consulting at $10,000 per month, and other consideration, including transfer of specified AI Mind assets and payment of $24,000 in server costs. Bosua forfeited options covering 7,384,795 shares.
- In January 2023, certain related-party notes were extended to September 30, 2023. Clayton Struve notes had also been extended to that date. These extensions defer maturity but do not eliminate the company’s repayment and financing risks.
- The quarter included $744,640 of stock-based compensation and $206,994 of expense associated with note and warrant extensions. The company reported no pending non-routine legal proceedings and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer: the supplied filing is for Know Labs, Inc. (KNW), not USBC, Inc.
- Assess the assumptions behind management’s cash-runway estimate and the need, timing and terms of additional financing.
- Reconcile the $2.255 million balance-sheet note amount with the approximately $2.552 million described in the risk discussion, and review related-party terms and extensions.
- Track evidence of product validation, clinical progress and FDA clearance, none of which the filing guarantees.
- Evaluate potential dilution: the filing reports 24.480 million options, 21.736 million warrants, 8.108 million shares issuable on preferred-stock conversion, and 9.020 million shares reserved for convertible notes.
- Review the financial and intellectual-property effects of the Bosua separation agreement and the company’s stated expectations for the transferred AI Mind assets.