Business Context and Reporting Period
Company: Know Labs, Inc. (Note: Request metadata listed "USBC, Inc.", but the filing text identifies the registrant as Know Labs, Inc., trading symbol KNWN).
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended December 31, 2024.
Business Overview: Know Labs is developing proprietary radio and microwave dielectric spectroscopy sensor technology. The primary application is a non-invasive continuous glucose monitor (KnowU™). The company recently launched the Know Labs Technology Licensing (KTL) program to license its IP portfolio to third parties.
Key Financial Metrics
| Metric | Q1 2025 (Ended Dec 31, 2024) | Q1 2024 (Ended Dec 31, 2023) |
|---|---|---|
| Revenue | $0 | $0 |
| Net Loss | $(4,665,508) | $(3,446,624) |
| Net Loss Attributable to Common Shareholders | $(4,698,060) | $(3,510,253) |
| Operating Expenses | $2,767,235 | $3,497,634 |
| Cash and Cash Equivalents (End of Period) | $1,032,329 | $4,821,477 |
| Net Cash Used in Operating Activities | $(1,898,426) | $(3,392,647) |
| Total Debt (Convertible Notes Payable) | $4,049,603 | $4,723,506 |
| Working Capital Deficit | $(4,166,959) | N/A |
Material Changes vs. Prior Period
- Net Loss Increase: Net loss increased by approximately 35.4% to $4.67 million, driven primarily by significant non-cash interest expenses and losses on debt extinguishment.
- Operating Expenses: Total operating expenses decreased by 20.9% to $2.77 million. Research and Development (R&D) expenses dropped 46.1% to $802,102 due to reduced headcount and increased use of consultants. Selling, General, and Administrative (SG&A) expenses decreased slightly by 2.3%.
- Other Expense: The company recorded $1.9 million in other expenses, compared to $51,000 in other income in the prior year. This includes $1.18 million in interest expense and a $728,298 loss on debt extinguishment related to note extensions and repricing.
- Liquidity: Cash balances decreased by approximately $2.08 million during the quarter. The company reported a net working capital deficit of $4.17 million.
Guidance, Outlook, Risks, and Unusual Items
- Going Concern: Management has expressed substantial doubt about the company's ability to continue as a going concern. Cash on hand is projected to fund operations only until April 30, 2025. Additional financing is required.
- Capital Raising: The company completed a registered direct offering in December 2024 raising $300,000. It also entered into a "Capital on Demand" sales agreement allowing for the sale of up to $5 million of common stock. Subsequent to the period end, the company raised an additional $179,360 under this agreement.
- Delisting: On January 28, 2025, the NYSE American announced the delisting of the company's common stock due to the bid price falling below $0.10. Trading moved to the OTC Markets under symbol "KNWN" effective January 29, 2025. The company filed an appeal on February 5, 2025.
- Debt Restructuring: Significant non-cash charges resulted from extending the maturity dates of convertible notes held by related parties and third parties, and triggering down-round provisions that lowered conversion prices to $0.24 per share.
- Strategic Shift: The company is actively pursuing the KTL program to generate revenue through IP licensing while continuing development of its glucose monitoring device, which requires FDA clearance.
Investor Verification Checklist
- Cash Runway: Verify the company's ability to secure financing before April 30, 2025, given the substantial doubt regarding going concern status.
- Debt Obligations: Review the terms of the $4.05 million in convertible notes, specifically the down-round provisions and the potential for further dilution upon conversion.
- Delisting Status: Monitor the outcome of the appeal against the NYSE American delisting and the impact of trading on the OTC Markets on liquidity and investor access.
- Revenue Generation: Assess the progress of the Know Labs Technology Licensing (KTL) program as the primary near-term revenue strategy, given the lack of product sales.
- Related Party Transactions: Scrutinize the extensions and modifications of debt held by significant shareholders (Clayton A. Struve and Ronald P. Erickson) and the associated non-cash expenses.