Business Context and Reporting Period
Company: Know Labs, Inc. (Note: Request metadata listed "USBC, Inc." but filing text confirms "Know Labs, Inc.")
Filing Type: Form 8-K (Current Report)
Date of Report: May 30, 2025 (Event Date: June 2, 2025)
Context: The Company entered into a Promissory Note Conversion Agreement with J3E2A2Z LP, an entity affiliated with and controlled by CEO Ronald P. Erickson. The transaction involves converting outstanding debt into a new class of convertible preferred stock.
Key Financial Metrics and Transaction Details
- Debt Converted: $1,184,066 in aggregate principal owed under two Convertible Redeemable Promissory Notes dated January 31, 2018.
- Accrued Interest: Accrued and unpaid interest remains outstanding and is not converted.
- Equity Issued: 16,916 shares of newly designated Series H Convertible Preferred Stock.
- Conversion Ratio: One share of Series H Preferred Stock for every $70.00 of principal converted.
- Stated Value: $70.00 per share of Series H Preferred Stock.
- Dividend Rate: 8.0% per annum cumulative dividends (payable in cash or additional shares).
- Common Stock Conversion Price: Initial price of $0.335 per share (subject to adjustment).
Material Changes and Capital Structure
The filing details a material modification to the rights of security holders and the Company's capital structure:
- New Security Class: Creation of "Series H Convertible Preferred Stock" authorized from blank check preferred stock.
- Liquidity Impact: The conversion removes approximately $1.18 million in principal debt from the balance sheet, though accrued interest obligations persist.
- Voting Rights: Holders vote on an as-if-converted-to-common-stock basis, subject to a 19.99% beneficial ownership limitation unless stockholder approval is obtained.
- Anti-Dilution: Series H includes "full-ratchet" and proportional anti-dilution protections if securities are issued below the current conversion price of $0.50 per share.
Outlook, Risks, and Contingencies
- Redemption Rights: Holders may elect to redeem shares for the stated value ($70.00) after September 30, 2025, or immediately upon a Change in Control.
- Liquidity Risk: Redemption is contingent on "funds legally available," creating potential cash flow pressure if the Company lacks liquidity at the time of redemption.
- Related Party Transaction: The transaction is with an entity controlled by the CEO, requiring careful review of related party disclosures and potential conflicts of interest.
- Registration Exemption: The issuance relies on Section 4(a)(2) of the Securities Act; shares are restricted and not registered.
Investor Verification Checklist
- Verify the total amount of accrued and unpaid interest remaining on the J3E2A2Z Converted Notes post-conversion.
- Review the full text of the Certificate of Designation (Exhibit 3.1) for specific anti-dilution adjustment mechanics and "Change in Control" definitions.
- Assess the Company's current cash position against the potential redemption liability of the Series H Preferred Stock after September 30, 2025.
- Confirm the impact of the 19.99% beneficial ownership limitation on the holder's ability to convert to common stock.
- Check for any subsequent filings regarding the status of the accrued interest or additional debt conversions.