Know Labs, Inc. — Form 10-Q summary
Filing and period: The filing identifies the registrant as Know Labs, Inc., not USBC, Inc. It covers the unaudited quarter and nine months ended June 30, 2022; the company’s fiscal year ends September 30, making this fiscal Q3. The filing was signed August 12, 2022.
Business context and financial results
Know Labs is developing Bio-RFID and ChromaID biosensor technologies, with an initial focus on a non-invasive glucose monitor. Its AI Mind subsidiary generated NFT sales, while Particle is seeking partners for a germ-inactivating light bulb. The company remains development-stage in its core biosensor business and reported no core product revenue.
| Metric | Three months ended June 30, 2022 | Nine months ended June 30, 2022 | Comparable 2021 period |
|---|---|---|---|
| Revenue | $0 | $4.36 million, all digital-asset sales | $0 |
| Operating expenses | $3.03 million | $11.10 million | $1.86 million / $8.03 million |
| Operating loss | $3.03 million | $6.74 million | $1.86 million / $8.03 million |
| Net loss | $3.00 million | $14.50 million | $7.09 million / $17.76 million |
| Loss per share, basic and diluted | $0.07 | $0.37 | $0.23 / $0.64 |
| Operating cash used | Not provided for the quarter | $3.69 million | $5.14 million |
| Cash at period end | $8.35 million | $8.35 million | $13.87 million at June 30, 2021 |
For the nine months, NFT-related costs were $3.44 million against $4.36 million of sales; the digital-asset segment reported $923,000 of operating profit. The filing does not present a company-wide gross margin. Core research and development expense was $3.41 million for the nine months, up from $3.09 million. Total operating expenses increased, while operating and net losses narrowed versus 2021, partly reflecting lower non-cash debt-discount interest expense and the new NFT revenue.
At June 30, 2022, total assets were $9.63 million, current liabilities $4.61 million, and stockholders’ equity $4.92 million. Current convertible notes payable, net, were $2.26 million; operating lease liabilities were also reported. The company reported $6.04 million of net working capital excluding convertible notes; including them, current assets less current liabilities were approximately $3.79 million. Cash fell by $3.91 million during the nine months. Investing cash use was $844,000, mainly for R&D equipment; financing provided $629,000, primarily from warrant exercises.
Material changes and management outlook
- NFT sales began in fiscal 2022 and contributed all reported nine-month revenue; the company had no revenue in the June quarter. The filing says NFTs had no recorded cost basis, while related selling and transactional costs were expensed.
- The $14.21 million 2021 convertible-note offering and accrued interest converted into common shares in March 2022. Common shares outstanding rose from 35.17 million at September 30, 2021 to 43.80 million at June 30, 2022. Substantial additional dilution is possible from outstanding options, warrants, preferred stock and convertible notes.
- The SBA required repayment of portions of two PPP loans; the remaining balances were forgiven. The company recognized approximately $253,000 of forgiveness income. It also recorded $244,000 of interest expense related to extending a related-party warrant agreement.
- Management expects continued operating losses and said existing cash should fund operations through June 30, 2023. It cautioned that failure of the proposed offering or lack of cash warrant exercises could raise substantial doubt about the company’s ability to continue as a going concern.
- After quarter-end, the company filed an S-1 for a proposed 3 million-share offering at an anticipated $2 per share, contingent on a successful NYSE American listing. Outstanding warrants could generate up to $16.38 million if exercised for cash, but exercise is not assured. No formal revenue, earnings, or product-launch guidance is provided.
- The glucose-monitoring devices require FDA clearance, and management says it cannot estimate the timing or likelihood of success. COVID-related testing delays, supply-chain issues, inflation, competition, commercialization execution, financing needs, and intellectual-property protection remain risks. The filing reports disclosure controls and internal control over financial reporting were not effective as of June 30, citing a material weakness associated with the lack of a full-time CFO before May 2022.
Investor verification priorities
- Confirm the registrant and filing identity: the supplied metadata says USBC, Inc., while the 10-Q names Know Labs, Inc.
- Review the S-1 offering conditions, actual proceeds, NYSE American listing status, and whether warrants are exercised for cash.
- Assess cash runway against operating cash use, upcoming note maturities, and management’s stated going-concern risk.
- Verify the sustainability and economics of NFT revenue, including costs, Ethereum conversion losses, taxes, royalties, and the related-party cash-handling arrangements. The filing reports a $46,146 related-party receivable and says $799,353 of CEO compensation accrued for NFT revenue was paid in July 2022.
- Track FDA development, clinical validation, manufacturing readiness, and any independent evidence supporting the company’s glucose-monitoring claims.
- Reconcile share-count disclosures: the balance sheet reports 43,802,147 common shares at June 30, while an equity note states 43,826,781; the cover page later reports 43,849,281 outstanding as of August 12. Review potential dilution and anti-dilution provisions.
- Monitor remediation of the reported internal-control material weakness and subsequent filings for updates.