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Excrept from filing document 2024-09-30

This report contains forward looking statements that are based on our management s beliefs and assumptions and on information currently available to us All statements other than statements of historical facts are forward looking statements These statements relate to future events or to our future financial performance and involve known and unknown risks uncertainties and other factors that may cause our actual results levels of activity performance or achievements to be materially different from any future results levels of activity performance or achievements expressed or implied by these forward looking statements Forward looking statements include but are not limited to statements about
In some cases you can identify forward looking statements by terms such as may could will should would expect plan intend anticipate believe estimate predict potential project or continue or the negative of these terms or other comparable terminology These statements are only predictions You should not place undue reliance on forward looking statements because they involve known and unknown risks uncertainties and other factors which are in some cases beyond our control and which could materially affect results Factors that may cause actual results to differ materially from current expectations include among other things those listed under Item 1A Risk Factors and elsewhere in this report If one or more of these risks or uncertainties occur or if our underlying assumptions prove to be incorrect actual events or results may vary significantly from those implied or projected by the forward looking statements No forward looking statement is a guarantee of future performance
In addition statements that we believe and similar statements reflect our beliefs and opinions on the relevant subject These statements are based upon information available to us as of the date of this report and while we believe such information forms a reasonable basis for such statements such information may be limited or incomplete and our statements should not be read to indicate that we have conducted an exhaustive inquiry into or review of all potentially available relevant information These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements
The forward looking statements made in this report relate only to events or information as of the date on which the statements are made in this report Except as expressly required by the federal securities laws there is no undertaking to publicly update or revise any forward looking statements whether as a result of new information future events changed circumstances or any other reason
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Know Labs Inc the Company is an emerging leader in non invasive medical diagnostics We are focused on the development and commercialization of our proprietary sensor technology utilizing radio and microwave dielectric spectroscopy Our sensor technology elicits a dielectric response that is unique for every molecule It is based upon first principles of physics We believe that our patented technology is capable of uniquely identifying and measuring almost any material or analyte using electromagnetic energy to detect record identify and measure the unique signature of said materials or analytes and any rate of change when paired with our proprietary artificial intelligence and machine learning derived algorithms While our core focus is on medical diagnostics its technology is designed to be a true platform with a myriad of applications outside of the medical diagnostic realm
The first application of our sensor technology is in a product to non invasively monitor blood glucose levels Our device is intended to provide the user with real time information on their blood glucose levels During the quarter ended March 31 2024 we announced our KnowU non invasive wearable continuous glucose monitor working prototype device which includes our proprietary sensor that has been used in internal clinical testing We intend to expand our testing both internally and externally and to continue to refine the device over time which will require Food Drug Administration FDA clearance before entering the market
Following FDA clearance of our non invasive blood glucose monitoring device Know Labs plans to expand its sensor technology to other non invasive medical diagnostic applications As a platform technology we believe that it will be able to identify numerous other analytes in the human body that are important in medical diagnostics and human health and wellness With data gathered over time by our sensor and analyzed by our algorithms our longer term vision is to develop a technology that can provide what we call predictive health or an early warning system regarding the onset of disease
While medical diagnostics applications with blood glucose monitoring paramount are the focus of Know Labs we believe that our proprietary radio frequency and microwave dielectric spectroscopy platform has broad applicability outside of the medical diagnostic realm We have identified and intend to implement new core workstreams to leverage our intellectual property portfolio of over 300 active patent assets to generate revenues through patent licensing of opportunities developed in a Skunkworks program Announcements regarding this activity will be made as work progresses and material events occur
We have internally and under contract with third parties developed proprietary platform technology that we believe is able to uniquely identify and measure almost any organic and inorganic material or analyte Our patented technology is designed to direct electromagnetic energy in the radio wave and microwave frequencies to a substance or material to capture a unique molecular signature through the activation of a dialectic response known as permittivity from targeted analytes Our technology then performs analytics with our intelligence and machine learning driven algorithms which are designed to allow our sensors to accurately identify and measure individual materials and analytes at the molecular level
Our technology provides a unique platform upon which we believe a myriad of applications can be developed We believe that our radio frequency dielectric spectroscopy technology is an enabling technology that brings the science of electromagnetic energy to low cost real world commercialization opportunities across multiple industries The technology is foundational and as such the basis upon which we believe significant businesses can be built While we are pursuing our core focus on commercializing our non invasive continuous blood glucose monitor we believe non core clinical non clinical and medical research applications represent a multitude of opportunities for strategic collaboration joint development and licensing agreements with leading companies in their respective industries Additionally certain fields of use of our platform technology could provide the core element of a spin off company
We believe an important competitive differentiator for our sensor technology to be its ability to not only identify a wide range of organic and inorganic materials and analytes but to do so non invasively and in real time which potentially enables new multivariate models of clinical diagnostics and health and wellness monitoring
Our sensor technology embodies two key components hardware and software The key hardware component includes a sensor which both sends and receives a radio frequency signal The data obtained by the receiving aspect of the sensor is analyzed by software Today the sensor portion of our hardware development remains subject to adjustment and refinement The sensor is currently being used in our internal tests and has been for the past year gathering billions of data points to further refine our algorithms It is the core component in our KnowU wearable continuous glucose monitor prototype device and will be a core component of future versions of our device
As a consequence a significant amount of our focus has shifted from product development to data collection and algorithm development This involves sophisticated development of intelligence and machine learning algorithms which derive meaningful information from the raw data obtained by our sensor These algorithms are developed through the utilization of intelligence and machine learning by means of training various models We intend to continue data collection to further refine the accuracy of the algorithm until we feel confident that we can be successful in FDA clinical trials and bring to the market the first non invasive continuous blood glucose monitor
We previously announced the results of an internal exploratory study comparing tests between our sensor technology and the leading continuous glucose monitors from Abbott Labs Freestyle Libre and Dexcom G6 and G7 These results have provided evidence of a high degree of correlation between our technology and the current industry leaders and their continuous glucose monitors Our patented technology is fundamentally differentiated from these industry leaders as our technology completely non invasively monitors blood glucose levels We also believe our technology successfully addresses the limiting qualities of non invasive optical technologies whose diagnostic capacities may be inhibited by skin tones and other factors
On March 6 2024 we announced interim results from our internal clinical research study which assessed the accuracy of our proprietary radiofrequency RF dielectric sensor in non invasively measuring blood glucose in participants with prediabetes and Type 2 diabetes using venous blood as a comparative reference resulting in an overall Mean Absolute Relative Difference MARD of 11 1 The machine learning model was trained to estimate reference venous blood glucose values on 80 of the data 520 paired values randomly selected from measured values and then tested on the remaining held out 20 130 paired values where a paired value is defined as data collected from the novel RF sensor paired with a single venous blood glucose value This study has since been completed and represents an important step in our clinical development by using venous blood as a comparator which will be required for future FDA clearance and testing within the target population of the ultimate commercial product
We continue to build the internal and external development team necessary to commercialize our technology Our ability to obtain exacting results from the data collected through our sensor technology is enabled by our trade secret algorithms built through our intelligence and machine learning platform We have been and continue to refine these algorithms so they can accurately determine blood glucose levels across a broad population We believe our platform technology can also provide accurate measurements for blood alcohol and blood oxygen levels both of which we have identified in preliminary tests We expect our platform to provide the analytics for the long list of other potential analytes in the human body many of which are set forth in our issued patent USPTO 11 033 208 B1
Interim results of our most recent clinical research study titled Non Invasive Blood Glucose Monitoring in People with Diabetes Using an RF Sensor and Venous Blood Comparator This study was conducted in house at our lab and the interim results were presented at 17th International Conference on Advanced Technologies Treatments for Diabetes ATTD in Florence Italy on March 6 9 2024 The study assessed the accuracy of Know Labs proprietary radiofrequency dielectric sensor in non invasively measuring blood glucose in participants with prediabetes and Type 2 diabetes using venous blood as a comparative reference resulting in an overall Mean Absolute Relative Difference MARD of 11 1
Results of a proof of principle study titled Detecting Unique Analyte Specific Radio Frequency Spectral Responses in Liquid Solutions Implications for Non Invasive Physiologic Monitoring This study was conducted in collaboration with Mayo Clinic sponsored by our company and its results were presented at the 2023 American Physiological Society APS Summit The study demonstrated the accuracy of the sensor in quantifying three different analytes in vitro In the peer reviewed publication it was found Bio RFID achieved 100 accuracy in quantifying these three different analytes in vitro The study was peer reviewed by Sensors Journal and American Physiology Society
Results of our technical feasibility study titled Technical Feasibility of a Novel Sensor for Non Invasive Blood Glucose Monitoring Compared to Dexcom G6 These results were presented at the American Association of Clinical Endocrinology AACE Annual Meeting in Seattle WA on May 5 2023 The study was performed by the Know Labs Clinical Development Team at Know Labs Research Laboratory in Seattle The purpose of this technical feasibility study was to demonstrate hardware and software infrastructure stability and to collect additional data to determine the accuracy of the sensor at quantifying BGC in vivo non invasively using radio frequency by means of training a neural network NN model to predict readings of the Dexcom G6 as a proxy for BGC The study was peer reviewed by the American Association of Clinical Endocrinology
Results of a study titled Algorithm Refinement in the Non Invasive Detection of Blood Glucose Using Know Labs Bio RFID Technology The study demonstrates that algorithm optimization using a light gradient boosting machine lightGBM machine learning model improved the accuracy of Know Labs Bio RFID sensor technology at quantifying blood glucose using predicted readings of the Dexcom G6 as a proxy for BGC demonstrating an overall Mean Absolute Relative Difference MARD of 12 9 which is within the range of independently reported values for certain FDA cleared blood glucose monitoring devices The study was performed by the Know Labs Clinical Development Team at Know Labs Research Laboratory in Seattle and reviewed by members of Know Labs Scientific Advisory Board
Results from a study titled Novel data preprocessing techniques in an expanded dataset improve machine learning model accuracy for a non invasive blood glucose monitor The study demonstrates that continued algorithm refinement and more high quality data improved the accuracy of Know Labs proprietary Bio RFID sensor technology resulting in an overall Mean Absolute Relative Difference MARD of 11 3 As with all Know Labs previous research this study was designed to assess the ability of the Bio RFID sensor to non invasively and continuously quantify blood glucose using the Dexcom G6 continuous glucose monitor CGM as a reference device and proxy for BGC In this study where data collection was completed in May of 2023 Know Labs applied novel data preprocessing techniques and trained a light gradient boosting machine lightGBM model to predict blood glucose values of Dexcom G6 CGM using 3 311 observations or reference device values from over 330 hours of data collected from 13 healthy participants With this method Know Labs was able to predict blood glucose in the test set the dataset that provides a blind evaluation of model performance with a MARD of 11 3 The study was performed by the Know Labs Clinical Development Team at Know Labs Research Laboratory in Seattle and reviewed by members of Know Labs Scientific Advisory Board
Results from a study titled A Glycemic Status Classification Model Using a Radiofrequency Noninvasive Blood Glucose Monitor demonstrated that our technology correctly classified an individual s glycemic status as hyperglycemic normoglycemic or hypoglycemic with 93 37 accuracy compared to venous blood glucose values serving as an early proof of concept for a novel non invasive diabetes screening device This study was published in Diabetes Technology Therapeutics a leading peer reviewed journal covering all aspects of diagnosing and managing diabetes with cutting edge devices drugs drug delivery systems and software
Results from a study titled Non Invasive Blood Glucose Measurement Using RF Spectroscopy and a lightGBM AI Model details historical developments and limitations with RF based sensing technologies and the distinctiveness of Know Labs sensor architecture and trade secret prediction machine learning algorithm This study most recent one was published in the IEEE Sensors Journal IEEE Sensors is the leading scientific journal in the U S that focuses on the theory design fabrication and applications of sensing devices with an emphasis on emerging sensor innovations
As we successfully completed our foundational studies created a stable sensor that delivers repeatable results and developed a software infrastructure to manage and interpret large novel datasets we intend to continue to expand our testing and data gathering with larger and more diverse populations We expect that these new studies will help determine the need if any for individual calibration and we intend to evaluate the technology s performance throughout continuous wear in more real world environments and within more expansive glycemic ranges including the hypoglycemic range 70 mg dL Our data science and algorithm development efforts in 2024 include refining our algorithm to create personalized models seeking to ensure that it is calibrated with blood glucose reference data from each individual and to enable an accurate glucose value estimation for a known population Building personalized models is an early step toward a generalized algorithm but the ability to create these models may themselves prove to be viable in an FDA cleared commercial device
We have also begun the internal and external process to pursue FDA clearance for our non invasive blood glucose monitor Our Chief Medical Officer medical and regulatory advisory board our entire executive team along with external advisors guide us in this process Additionally our third party quality assurance and documentation consultants help ensure that the rigorous requirements of FDA are met We are unable to estimate the time necessary for FDA approval or the likelihood of success in that endeavor
During the quarter ended March 31 2024 we announced the next iteration of our Generation 1 prototype device the KnowU a wearable non invasive continuous glucose monitor We are currently undergoing further internal development work of this product The wearable nature of the KnowU is expected to enable continuous data collection and yield a large volume of data that machine learning algorithms require to improve accuracy across all intended use cases We have also announced that we are in discussions with several strategic partners focused on sensor technology product design data science machine learning manufacturing and regulatory affairs and clinical collaboration who we will work with to bring this product to market
As we showcase our Generation 1 prototype device and our KnowU prototype wearable non invasive continuous glucose monitor to audiences around the world we have received strong interest in the use of our technology as a screening device especially in populations with high incidence of diabetes where early detection can lead to improved outcomes Our non invasive device may be used by multiple individuals in diverse settings i e hospitals schools clinics etc which is not possible with the legacy incumbent CGM manufacturers Dexcom and Abbott Labs Internally we identify this as a Rest of the World product We expect to make further announcements regarding our products as development testing manufacturing clinical trials and regulatory approval work progresses
Our efforts are entirely focused on productizing our sensor technology and collecting high quality data for validation purposes including third party studies and appropriate and required clinical trials At this point in our development cycle the hardware continues to be further miniaturized and optimized the product form factor is moving in the direction of a final product that will be used for FDA clinical trials and the algorithms which provide results from the data collected by our sensor are being refined to improve accuracy
While we continue with our internal development efforts and the move toward clinical trials for FDA clearance of our non invasive blood glucose monitor we will explore the several potential avenues for moving our first product and potential follow on products into the marketplace The avenues being explored include direct to consumer initial launch partners broad distribution partners licensing partners and private label approaches to the market among others As part of our growth strategy we have begun discussions with potential biopharma medical device and consumer electronics partners regarding joint development agreements These agreements could be strategic collaborations that could help us accelerate development and commercial launch Others could focus on development and clinical work to identify additional analytes or work to integrate our technology into and with that of a joint development partner We attend and engage in conferences worldwide focused on diabetes management and technology which are valuable for building Know Labs reputation and network in the industry
The technology industry generally and blood glucose monitoring and other medical diagnostic markets in particular are intensely competitive subject to rapid change and significantly affected by new product introductions and other market activities by industry participants To compete successfully we will need to demonstrate the advantages of our products and technologies over well established alternative solutions products and technologies including legacy providers of blood glucose monitoring technology There are also new entrants working to achieve a non invasive solution or more acceptable blood glucose monitoring solutions which may or may not be similar to our technology Ultimately we must convince the patient medical and the insurance reimbursement market of the advantages of our products and technologies
We group our competition into three large categories Those are i large global technology companies who may enter the blood glucose monitoring and other medical diagnostic markets ii legacy providers of blood glucose monitoring technology and iii new entrants working to achieve a non invasive solution or more acceptable blood glucose monitoring solutions which may or may not be similar to our technology With regard to companies in each category we perform due diligence from all publicly available sources of information on their relevant technologies and their product plans This information informs and refines our activities and underscores our sense of urgency as we work to bring our own technology to the marketplace As it relates to all competitors we continue to focus on building the world s most robust patent portfolio in this space PatSnap Research and ipCapital Group two leading patent analytic firms have ranked Know Labs 1 for global patent leadership in non invasive glucose monitoring patents We have retained both organizations to perform patent related work We continue to build out our patent portfolio and grow our trade secret intelligence and machine learning driven algorithms Patents issued pending and in process increased from 159 to 279 year over year reflecting our high rate of innovation
With respect to our planned non invasive continuous glucose monitor we will face direct and indirect competition from a number of competitors who have developed or are developing products for continuous monitoring of glucose levels These competitors include Dexcom Inc Abbott Laboratories Medtronic plc Roche Diagnostics LifeScan Inc Ascensia Diabetes Care Holdings AG Senseonics Holdings Inc Integrity Applications Inc Nemaura Medical Biolinq Inc and Profusa Inc Our planned solution will also compete with traditional glucometers which remain an inexpensive alternative We also compete with companies who are seeking to create non invasive glucose monitors such as Movano Inc Hagar Afon and DiaMonTech AG Because of the large size of the potential market for our products it is possible that new or existing competitors may develop competing products procedures or clinical solutions that could prove to be more effective safer or less costly than our solution The introduction of new products procedures or clinical solutions by competitors may result in price reductions reduced margins or loss of market share or may render our products obsolete Many of the companies we will compete with enjoy significantly greater name recognition and have significantly greater financial resources and expertise in research and development manufacturing preclinical testing conducting clinical trials obtaining regulatory approvals and sales and marketing of approved products than we have
It is important as we approach the market with what we call the next generation of glucose monitor to do so in the context of the progress that has been made over the last forty years Glucose levels were historically determined by testing urine In the early 1980s the fingerstick was introduced with its enzymatic determination of glucose levels from blood drawn from the finger In the early 2000s Dexcom and Abbott Labs came to the market with the first continuous glucose monitors utilizing their own enzymatic determination of blood glucose from interstitial fluid
The size of the global population suffering from diabetes is estimated by the International Diabetes Federation to be 579 million It is expected to reach 643 million by 2030 and 784 million by 2040 Currently the leading CGM providers Dexcom Abbott and Medtronic have 100 of the market share of CGMs The latest available information from their regulatory filings indicate that they have penetrated less than 1 of the global addressable market While competitive analysis is always an important part of our business strategy and thinking the scope of the market provides room for a number of providers of accurate less expensive and more sustainable technology
Mergers and acquisitions in the medical device biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors Other small or early stage companies may also prove to be significant competitors particularly through collaborative arrangements with large and established companies There are also several academic and other institutions involved in various phases of technology development regarding blood glucose monitoring devices
Our current research and development efforts are primarily focused on improving our radio frequency dielectric spectroscopy technology for the monitoring of blood glucose As part of this effort we continuously perform clinical testing of our devices and we conduct on going laboratory testing to ensure that application methods are compatible with the end user and regulatory requirements and that they can be implemented in a cost effective manner Over time we plan to focus on extending the capacity of our sensor technology to identify new analytes and applications Our current internal team along with outside consultants have considerable experience working with the application of our technologies We engage third party experts as required to supplement our internal team We incurred expenses of approximately 6 114 000 and 7 727 000 for the years ended September 30 2024 and 2023 respectively on development activities
The cornerstone of our foundational platform technology is our intellectual property portfolio We have pursued an active intellectual property strategy which includes focus on patents where appropriate and a diligent protection of trade secrets To date we have been granted 75 patents We currently have a number of patents pending and continue on a regular basis with the filing of new patents Including pending and in process patents our IP portfolio reaches 279 patents issued and pending which positions us as the top worldwide IP holder in non invasive blood glucose monitoring according to ipCapital Group a leading IP and innovation consulting firm We possess all rights title and interest to all issued pending and in process patents
Our issued patents will expire at various times between 2027 and 2047 Pending patents if and when issued may have expiration dates that extend further in time The duration of our trademark registrations varies from country to country However trademarks are generally valid and may be renewed indefinitely as long as they are in use and or their registrations are properly maintained
The issued patents cover the fundamental aspects of our radio frequency spectroscopy technology and a number of unique applications We have filed patents which are pending on the additional fundamental aspects of our technology and growing number of unique applications We intend to continue over time to expand our patent portfolio
Inherent in a platform technology is the ability to develop or license technology in diverse fields of use apart from our core focus We focus on human health and wellness with a first focus on the non invasive monitoring of blood glucose We plan to pursue the identification of a multitude of analytes in the human body that are important to diagnostics over time We also plan to identify over time opportunities for our intellectual property to be deployed in areas outside of human health and wellness
As of September 30 2024 we had twelve full time and part time employees Our senior management and other personnel are co located in our Seattle Washington offices and remote We expanded our utilization of consulting firms and individual contractors to supplement our reduced workforce in an effort to reduce fixed expenses and extend operating resources
Our operations are subject to comprehensive federal state and local laws and regulations in the jurisdictions in which we or our research and development partners do business The laws and regulations governing our business and interpretations of those laws and regulations are subject to frequent change Our ability to operate profitably will depend in part upon our ability and that of our research and development partners and affiliates to operate in compliance with applicable laws and regulations The laws and regulations relating to medical devices that apply to our business and that of our partners and affiliates continue to evolve and we must therefore devote significant resources to monitoring developments in legislation enforcement and regulation in such areas As the applicable laws and regulations change we are likely to make conforming modifications in our business processes from time to time We cannot provide assurance that a review of our business by courts or regulatory authorities will not result in determinations that could adversely affect our operations or that the regulatory environment will not change in a way that restricts our operations
The Know Labs KnowU glucose monitoring product will be designed to allow our sensor technology platform to generate a glucose value and provide the user with real time information on its blood glucose levels A patient s glucose data will be displayed via a companion app and will be transmitted directly to certain compatible mobile devices including iPhone and Android devices
Our medical diagnostic products and operations initially the KnowU glucose monitoring product are subject to extensive and rigorous regulation by the FDA under the Federal Food Drug and Cosmetic Act or FFDCA and its implementing regulations guidance documentation and standards Our products will be regulated by FDA as medical devices FDA regulates the design development research testing manufacturing safety labeling storage recordkeeping promotion distribution sale and advertising of medical devices in the United States to ensure that medical products distributed domestically are safe and effective for their intended uses FDA also regulates the export of medical devices manufactured in the United States to international markets Any violations of these laws and regulations could result in a material adverse effect on our business financial condition and results of operations In addition if there is a change in law regulation or judicial interpretation we may be required to change our business practices which could have a material adverse effect on our business financial condition and results of operations
Under the FFDCA medical devices are generally classified into one of three classes Class I Class II or Class III depending on the degree of risk to the patient and or the user associated with each medical device and the extent of control needed to ensure safety and effectiveness Device classification also depends on the intended use of the device and upon indications for use Additionally the class to which a device is assigned also determines among other things the type of premarketing submission application required for FDA clearance to market
Class I includes devices with the lowest risk present a minimal potential for harm and for which safety and effectiveness can be assured by adherence to FDA s general controls for medical devices This includes compliance with the applicable portions of FDA s Quality System Regulation or QSR facility registration and product listing reporting of adverse medical events and appropriate truthful and non misleading labeling advertising and promotional materials Some Class I devices require premarket clearance by FDA through the 510 k premarket notification process described below but most are exempt from 510 k premarket notification requirements
Class II devices are moderate risk devices that present a higher risk than Class I devices Class II devices are subject to FDA s general controls and any other special controls deemed necessary by FDA to ensure the safety and effectiveness of the device such as performance standards product specific guidance documents special labeling requirements patient registries or post market surveillance Premarket review and clearance by FDA for Class II devices is accomplished through the 510 k premarket notification procedure though certain Class II devices are exempt from this premarket review process When a 510 k is required the manufacturer must submit to FDA a premarket notification submission demonstrating that the device is substantially equivalent to a legally marketed device which in some cases may require submission of clinical data If FDA determines that the device or its intended use is not substantially equivalent to a legally marketed device then FDA will place the device or the particular use of the device into Class III and the device sponsor must then fulfill much more rigorous premarketing requirements Additionally unless a specific exemption applies 510 k premarket notification submissions are subject to user fees
Class III includes those with the greatest risk as they sustain or support life are implanted or present a potential unreasonable risk of illness or injury In other words Class III devices consist of devices deemed by FDA to pose the greatest risk such as life sustaining life supporting or implantable devices or devices deemed not substantially equivalent to a predicate device The safety and effectiveness of Class III devices cannot be assured solely by general or special controls Submission and FDA approval of a premarket approval or PMA application is generally required before marketing of a Class III device can proceed The PMA process is much more demanding than the 510 k premarket notification process A PMA application which is intended to demonstrate that the device is safe and effective must be supported by extensive data typically including data from preclinical studies and human clinical trials Additionally as with 510 k submissions unless subject to an exemption PMA submissions are subject to user fees
The classification a product may be subject can be determined using three different methods searching for an appropriate product classification via FDA s Product classification database searching for a similar device by clearance or approval via FDA s 510 k Clearance Database PMA Database or De Novo Database or searching for a similar device by device listing via FDA s Establishment Registration and Device listing Database
There are also De Novo and unclassified device types Unclassified device types are pre amendments devices i e marketed prior to the Medical Device Amendments of 1976 but were not classified by the original classification panels for which a classification regulation has not been promulgated Until the unclassified device type has been formally classified and a regulation established by FDA submission of a 510 k premarket notification is generally required
De Novo classification described in more detail below provides a marketing pathway to classify novel medical devices for which general and or special controls provide reasonable assurance of safety and effectiveness for the intended use but for which there is no legally marketed device upon which to base a determination of substantial equivalence predicate device i e no predicate product new intended use or different technological characteristics that raise different questions of safety and effectiveness Devices classified into Class I or Class II through a De Novo request may be marketed and used as predicates for other future submissions where applicable
To obtain 510 k clearance for a medical device an applicant must submit to FDA a premarket notification submission demonstrating that the proposed device is substantially equivalent i e as safe and effective to a legally marketed device known as a predicate device A legally marketed predicate device may include a device that was legally marketed prior to May 28 1976 for which a PMA is not required known as a pre amendments device based on the date of enactment of the Medical Device Amendments of 1976 a device that has been reclassified from Class III to Class II or Class I a device that was found substantially equivalent through the 510 k process or a device that was granted marketing authorization via the De Novo classification process that is not exempt from premarket notification requirement A device is substantially equivalent if with respect to the predicate device it has the same intended use and has either i the same technological characteristics or ii different technological characteristics but the information provided in the 510 k submission demonstrates that the device does not raise new questions of safety and effectiveness and is at least as safe and effective as the legally marketed predicate device A showing of substantial equivalence sometimes but not always can require clinical data and non clinical bench performance data including engineering performance testing sterility electromagnetic compatibility software validation biocompatibility evaluation among other data
Before FDA will accept a 510 k submission for substantive review FDA will first assess whether the submission satisfies a minimum threshold of acceptability If FDA determines that the 510 k submission is incomplete then FDA will issue a Refuse to Accept letter which generally outlines the information FDA believes is necessary to permit a substantive review and to reach a determination regarding substantial equivalence An applicant must submit the requested information before FDA will proceed with additional review of the submission Once the 510 k submission is accepted for review by regulation FDA has 90 days to review and issue a determination As a practical matter clearance often takes longer FDA may require additional information including additional clinical and non clinical data to make a determination regarding substantial equivalence
If FDA agrees that the device is substantially equivalent to a predicate device currently on the market then it will grant 510 k clearance to commercially market the device If FDA determines that the device is not substantially equivalent to a previously cleared device the device is automatically designated as a Class III device The device sponsor must then fulfill more rigorous PMA requirements or can request a risk based classification determination for the device in accordance with the De Novo process
After a device receives 510 k clearance any modification that could significantly affect its safety or effectiveness or that would constitute a major change or modification in its intended use will require a new 510 k clearance or depending on the modification PMA approval The determination as to whether or not a modification could significantly affect the device s safety or effectiveness is initially left to the manufacturer using available FDA guidance Many minor modifications today are accomplished by a letter to file in which the manufacture documents the rationale for the change and why a new 510 k is not required However FDA may review such letters to file to evaluate the regulatory status of the modified product at any time and may require the manufacturer to cease marketing and recall the modified device until 510 k clearance or PMA approval is obtained The manufacturer may also be subject to significant regulatory fines or penalties
A PMA must be submitted to FDA for any device that is classified in Class III or otherwise cannot be cleared through the 510 k process although FDA has discretion to continue to allow certain pre amendment Class III devices to use the 510 k process PMA applications must be supported by among other things valid scientific evidence demonstrating the safety and effectiveness of the device which typically requires extensive data including technical preclinical clinical and manufacturing data e g study protocols adverse reactions and complications device failures and replacements patient information patient complaints tabulations of data from all individual subjects results of statistical analyses and non clinical laboratory or safety studies e g microbiology toxicology immunology biocompatibility stress wear shelf life and other laboratory or animal tests The PMA must also contain a full description of the device and its components a full description of the methods facilities and controls used for manufacturing and proposed labeling
Following receipt of a PMA application once FDA determines that the application is sufficiently complete to permit a substantive review FDA will formally accept the application for review FDA by statute and by regulation has 180 days to review an accepted PMA application although the review of an application more often occurs over a significantly longer period of time and can take up to several years During the review period FDA will typically request additional information or clarification of the information already provided Also an advisory panel of experts from outside FDA may be convened to review and evaluate the application and provide recommendations to FDA as to the approvability of the device FDA may or may not accept the panel s recommendation In addition FDA will generally conduct a pre approval inspection of the manufacturing facility or facilities to ensure compliance with the QSR
If FDA evaluations of both the PMA application and the manufacturing facilities are favorable FDA will either issue an approval letter or an approvable letter which usually contains a number of conditions that must be met in order to secure final approval of the PMA If FDA s evaluation of the PMA or manufacturing facilities is not favorable FDA will deny approval of the PMA or issue a not approvable letter A not approvable letter will outline the deficiencies in the application and where practical will identify what is necessary to make the PMA approvable FDA may also determine that additional clinical trials are necessary in which case the PMA approval may be delayed for several months or years while the trials are conducted Once granted PMA approval may be withdrawn by FDA if compliance with post approval requirements conditions of approval or other regulatory standards is not maintained or problems are identified following initial marketing
In approving a PMA FDA may also require some form of post market surveillance when necessary to protect the public health or to provide additional safety and effectiveness data for the device In such cases the manufacturer might be required to follow certain patient groups for a number of years and makes periodic reports to FDA on the clinical status of those patients
New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of a PMA approved device including for example certain types of modifications to the device s indication for use manufacturing process labeling and design PMA supplements often require submission of the same type of information as a PMA except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and may not require as extensive clinical data or the convening of an advisory panel
Medical device types that FDA has not previously classified as Class I II or III are automatically classified into Class III regardless of the level of risk they pose The Food and Drug Administration Modernization Act of 1997 established a new route to market for low to moderate risk medical devices that are automatically placed into Class III due to the absence of a predicate device called the Request for Evaluation of Automatic Class III Designation or the de novo classification procedure This procedure allows a manufacturer whose novel device is automatically classified into Class III to request down classification of its medical device into Class I or Class II on the basis that the device presents low or moderate risk rather than requiring the submission and approval of a PMA application If the manufacturer seeks reclassification into Class II the manufacturer must include a draft proposal for special controls that are necessary to provide a reasonable assurance of the safety and effectiveness of the medical device In addition FDA may reject the reclassification petition if it identifies a legally marketed predicate device that would be appropriate for a 510 k or determines that the device is not low to moderate risk or that general controls would be inadequate to control the risks and special controls cannot be developed Under the Medical Device User Fee Amendments of 2017 MDUFA IV FDA s goal is to make a decision about a De Novo request in 150 review days Review days are calculated as the number of calendar days between the date the De Novo request was received by FDA and the date of FDA s decision excluding the days a request was on hold for an additional information request
The goal of the Breakthrough Devices Program is to provide patients and health care providers with timely access to these medical devices by speeding up their development assessment and review while preserving the statutory standards for premarket approval 510 k clearance and De Novo marketing authorization consistent with the Agency s mission to protect and promote public health
The Breakthrough Devices Program replaces the Expedited Access Pathway and Priority Review for medical devices and offers manufacturers an opportunity to interact with FDA to efficiently address topics as they arise during the premarket review phase FDA considers devices granted designation under the Expedited Access Pathway to be part of the Breakthrough Devices Program
All requests for Breakthrough designation must be submitted prior to submitting a marketing submission and can be revoked by FDA at any time Additionally devices eligible for Breakthrough Device designation must 1 provide for more effective treatment or diagnosis of life threatening or irreversibly debilitating human disease or conditions and 2 meet at least one of the following i represent breakthrough technology ii have no approved or cleared alternatives that exist iii offer significant advantages over existing approved or cleared alternatives or iv whose availability is in the best interest of patients
When FDA clearance or approval of a Class I Class II or Class III device requires human clinical trials and if the device presents a significant risk to human health then the device sponsor is required to file an IDE application with FDA and obtain IDE approval prior to commencing the human clinical trial If the device is considered a non significant risk IDE submission to FDA is not required but must still follow IDE requirements such as monitoring the investigation ensuring that the investigators obtain informed consent and complying with labeling and record keeping requirements Instead only approval from the Institutional Review Board or IRB overseeing the investigation at each clinical trial site is required Human clinical studies are generally required in connection with approval of Class III devices and may be required for Class I and II devices
Regardless of the degree of risk presented by the medical device clinical studies must be approved by and conducted under the oversight of an IRB for each clinical site The IRB is responsible for the initial and continuing review of the IDE and may impose additional requirements for the conduct of the study If an IDE application is approved by FDA and one or more IRBs human clinical trials may begin at a specific number of investigational sites with a specific number of patients as approved by FDA
The sponsor is also required to comply with the applicable FDA requirements during the clinical trial e g trial monitoring selecting clinical investigators and providing them with the investigational plan ensuring IRB review adverse event reporting record keeping and prohibitions on the promotion of investigational devices or on making safety or effectiveness claims for them The sponsor may transfer some or all of its obligations related to a clinical study to a third party but is ultimately responsible for compliance regardless of whether these obligations are contractually transferred
The clinical investigators in the clinical study are also subject to FDA s regulations and must obtain patient informed consent rigorously follow the investigational plan and study protocol control the disposition of the investigational device and comply with all reporting and recordkeeping requirements Additionally after a trial begins we FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons including a belief that the risks to study subjects outweigh the anticipated benefits
FDA or the IRB at each institution at which a clinical trial is being performed may suspend a clinical trial at any time for various reasons including a belief that the subjects are being exposed to an unacceptable health risk Even if a trial is completed the results of clinical testing may not adequately demonstrate the safety and efficacy of the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States
medical device reporting regulations which require that manufacturers comply with FDA requirements to report if their device may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction of the device or a similar device were to recur
Advertising and promotion of medical devices in addition to being regulated by FDA are also regulated by the Federal Trade Commission the FTC as well as comparable state consumer protection laws Recently promotional activities for FDA regulated products of other companies have been the subject of enforcement action brought under healthcare reimbursement laws and consumer protection statutes In addition under the federal Lanham Act and similar state laws competitors and others can initiate litigation relating to advertising claims If FDA determines that our promotional materials or training constitutes promotion of an unapproved or uncleared use then it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions It is also possible that other federal state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproved or uncleared use which could result in significant fines or penalties under other statutory authorities such as laws prohibiting false claims for reimbursement In that event our reputation could be damaged and adoption of the products would be impaired
In addition under FDA medical device reporting MDR regulations medical device manufacturers are required to report to FDA information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury if the malfunction of the device or a similar device of such manufacturer were to recur The decision to file an MDR involves a judgment by the manufacturer If FDA disagrees with the manufacturer s determination FDA can take enforcement action
The MDR requirements also extend to health care facilities that use medical devices in providing care to patients or device user facilities which include hospitals ambulatory surgical facilities nursing homes outpatient diagnostic facilities or outpatient treatment facilities but not physician offices A device user facility must report any device related death to both FDA and the device manufacturer or any device related serious injury to the manufacturer or if the manufacturer is unknown to FDA within 10 days of the event Device user facilities are not required to report device malfunctions that would likely cause or contribute to death or serious injury if the malfunction were to recur but may voluntarily report such malfunctions through MedWatch FDA s Safety Information and Adverse Event Reporting Program
FDA also has the authority to require the recall of commercialized medical device products in the event of material deficiencies or defects in design or manufacture The authority to require a recall must be based on an FDA finding that there is a reasonable probability that the device would cause serious adverse health consequences or death Manufacturers may under their own initiative recall a product if any distributed devices fail to meet established specifications are otherwise misbranded or adulterated under the FFDCA or if any other material deficiency is found FDA requires that certain classifications of recalls be reported to FDA within ten working days after the recall is initiated
Our advertising for our products and services is subject to federal truth in advertising laws enforced by the FTC as well as comparable state consumer protection laws Under the Federal Trade Commission Act the FTC Act the FTC is empowered among other things to a prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce b seek monetary redress and other relief for conduct injurious to consumers and c gather and compile information and conduct investigations relating to the organization business practices and management of entities engaged in commerce The FTC has very broad enforcement authority and failure to abide by the substantive requirements of the FTC Act and other consumer protection laws can result in administrative or judicial penalties including civil penalties injunctions affecting the manner in which we would be able to market services or products in the future or criminal prosecution
You can find reports on our company including our annual report on Form 10 K quarterly reports on Form 10 Q current reports on Form 8 K and amendments to those reports on our website www knowlabs co under the Investors heading These reports are available free of charge and as soon as reasonably practicable after they have been filed with or furnished to the U S Securities and Exchange Commission the SEC We are providing the address of our website solely for the information of investors and the information on our website is not a part of or incorporated into this or any report that we file with the SEC
An investment in our common stock involves a high degree of risk You should carefully read and consider all of the risks described below together with all of the other information contained or referred to in this report before making an investment decision with respect to our common stock If any of the following events occur our financial condition business and results of operations including cash flows may be materially adversely affected In that event the market price of our common stock could decline and you could lose all or part of your investment
Future issuances of our common stock or securities convertible into or exercisable or exchangeable for our common stock or the expiration of lock up agreements that restrict the issuance of new common stock or the trading of outstanding common stock could cause the market price of our securities to decline and would result in the dilution of your holdings
Future issuances of debt securities which would rank senior to our common stock upon our bankruptcy or liquidation and future issuances of preferred stock which could rank senior to our common stock for the purposes of dividends and liquidating distributions may adversely affect the level of return you may be able to achieve from an investment in our common stock
An investment in our common stock involves a high degree of risk You should carefully read and consider all of the risks described below together with all of the other information contained or referred to in this report before making an investment decision with respect to our common stock If any of the following events occur our financial condition business and results of operations including cash flows may be materially adversely affected In that event the market price of our common stock could decline and you could lose all or part of your investment
We are currently operating at a loss and using substantial cash to fund our operation We believe that our cash on hand will be sufficient to fund our operations through February 28 2025 We may need additional financing to implement our business plan and to service our ongoing operations pay our current debts described below and maintain ownership of our intellectual property There can be no assurance that we will be able to secure any needed funding or that if such funding is available the terms or conditions would be acceptable to us If we are unable to obtain additional financing when it is needed we will need to restructure our operations and or divest all or a portion of our business We are seeking additional capital through a combination of private and public equity offerings debt financings and strategic collaborations Debt financing if obtained may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring additional debt and could increase our expenses and require that our assets secure such debt Equity financing if obtained could result in dilution to our then existing stockholders and or require such stockholders to waive certain rights and preferences If such financing is not available on satisfactory terms or is not available at all we may be required to delay scale back eliminate the development of business opportunities and our operations and financial condition may be materially adversely affected There can be no assurance that we will be able to sell that number of shares if any
Because we have generated limited revenues in prior years and currently operate at a loss we are completely dependent on the continued availability of financing in order to continue our business There can be no assurance that financing sufficient to enable us to continue our operations will be available to us in the future
As of September 30 2024 we have cash and cash equivalents of 3 111 000 and a net working capital deficit of approximately 2 053 000 We anticipate that we will record losses from operations for the foreseeable future We believe that we have enough available cash to operate until February 28 2025 As of September 30 2024 our accumulated deficit was 138 736 000 We intend to seek additional cash via equity and debt offerings As a result of not having at least twelve months of cash available and not having any firm commitment for debt or equity financing substantial doubt about our ability to continue on a going concern exists
We have financed our corporate operations and our technology development through the issuance of convertible debentures the issuance of preferred stock the sale of common stock and the exercise of warrants During the remainder of 2024 we expect to raise additional funds through the issuance of preferred stock convertible debentures or equity
We owe 4 724 000 under various convertible promissory notes as of September 30 2024 We may need additional financing to service and or repay these debt obligations If we raise additional capital through borrowing or other debt financing we may incur substantial interest expense If and when we raise more equity capital in the future it will result in substantial dilution to our current stockholders
We have experienced net losses since inception As of September 30 2024 we had an accumulated deficit of 138 736 000 and net losses in the amount of 16 582 000 and 15 289 000 for the years ended September 30 2024 and 2023 respectively There can be no assurance that we will achieve or maintain profitability If we achieve profitability in the future we may not be able to sustain profitability in subsequent periods Failure to become and remain profitable would impair our ability to sustain operations and adversely affect the price of our common stock and our ability to raise capital Our operating expenses may increase as we spend resources on growing our business and if our revenue does not correspondingly increase our operating results and financial condition will suffer Our businesses have produced minimal revenues and may not produce significant revenues in the near term or at all which would harm our ability to continue our operations or obtain additional financing and require us to reduce or discontinue our operations You must consider our business and prospects in light of the risks and difficulties we will encounter as a business with an early stage technology in a new and rapidly evolving industry We may not be able to successfully address these risks and difficulties which could significantly harm our business operating results financial condition and common stock price per share
We are in the early stages of commercializing our technology Failure to develop and sell products based upon our technology could have a material adverse effect on our business financial condition and results of operations To date we have not generated revenue from sales of our technology or products We believe that our commercialization success is dependent upon our ability to significantly increase the number of customers that will use our products In addition demand for our products may not materialize or increase as quickly as planned and we may therefore be unable to increase our revenue levels as expected We are currently not profitable Even if we succeed in introducing our technology and related products to our target markets we may not be able to generate sufficient revenue to achieve or sustain profitability
Our KnowU glucose monitoring products are subject to extensive regulation by FDA These regulations relate to manufacturing labeling sale promotion distribution and shipping Before a new medical device or a new intended use of a legally marketed device can be marketed in the United States it must be cleared or approved by FDA through the applicable premarket review process 510 k PMA or de novo classification unless an exemption applies
The KnowU and glucose monitoring products and substantially equivalent devices of this type that may later receive marketing authorization are similar to products referred to as integrated continuous glucose monitoring CGM systems Integrated continuous glucose monitoring systems are generally classified by FDA as Class II devices and have established special controls outlining requirements for assuring CGM accuracy reliability and clinical relevance FDA also has descriptions of the types of studies and data required to demonstrate acceptable CGM performance Though it is our current belief that our initial product the KnowU and glucose monitoring products are appropriate for a de novo classification request i e a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device that is described in more detail below we expect similar classification special controls and testing
If we receive 510 k clearance for our KnowU and glucose monitoring products we may be required to obtain new 510 k clearances for significant post market modifications Each premarket submission and review process can be expensive and lengthy and entail significant user fees unless exempt The classification and special controls for all other products using our proprietary radio frequency and microwave spectroscopy platform will be dependent on product type and explored as applicable
In addition regulatory clearance or approval by FDA does not ensure registration clearance approval or certification by regulatory authorities or notified bodies internationally While the regulatory requirements for marketing in international markets may require that we obtain clearance approval or certification by an international specified regulatory body or notified body Complying with foreign regulatory requirements including obtaining registrations clearances approvals or certifications can be expensive and time consuming and we may not receive regulatory clearances approvals or certifications in each country or region in which we plan to market our products or we may be unable to do so on a timely basis In turn this could limit our expected international growth and profitability which could have a material adverse effect on our business financial condition and results of operations
Clinical trials are generally required to support an application for clearance of a new device type such as our KnowU and glucose monitoring products All clinical trials must be conducted in accordance with FDA s Investigational Device Exemption IDE regulations which govern investigational device labeling prohibit promotion and specify an array of Good Clinical Practice requirements which include among other things recordkeeping reporting and monitoring responsibilities of study sponsors and study investigators Clinical trials must further comply with FDA s regulations for institutional review board approval and for informed consent and other human subject protections Required records and reports are subject to inspection by FDA
Results of clinical testing may be unfavorable or even if the intended safety and efficacy success criteria are achieved may not be considered sufficient for FDA to grant approval or clearance of a product In additional the commencement or completion of any of our clinical trials may be delayed or halted for numerous reasons including but not limited to the following
changes in governmental regulations or administrative actions applicable to our trial protocols including for example recent legislation passed by Congress requiring clinical trial sponsors to increase engagement with FDA on matters related to appropriate representation of racial and ethnic minorities in clinical trial data for pivotal studies
Additionally the ability of FDA to review and approve new products can be affected by a variety of factors including government budget and funding levels ability to hire and retain key personnel the availability of industry paid user fees and statutory regulatory and policy changes Average review times for product approvals at FDA have fluctuated in recent years as a result In addition government funding of other government agencies on which our operations may rely including those that fund research and development activities is subject to the political process which is inherently fluid and unpredictable
Disruptions at FDA and other agencies including those resulting from global concerns e g the ongoing COVID 19 global pandemic may also slow the time necessary for new products to be reviewed and or approved by necessary government agencies which would adversely affect our business For example if a prolonged government shutdown and or government employee furloughs were to occur or if FDA s response to a global issue diverts FDA resources and attention to other regulatory efforts then the ability of FDA to timely review and process our regulatory submissions could be significantly impacted which could have a material adverse effect on our business financial condition and results of operations Further in our operations as a public company future government shutdowns furloughs or public health emergencies could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations
Moreover even if our products are cleared in the United States commercialization of our products in foreign countries would require clearance or approval by regulatory authorities in those countries Clearance or approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from and greater than those in the United States including additional preclinical studies or clinical trials
Given the regulatory environment in which we operate we lack the breadth of published long term clinical data supporting the safety and efficacy of the KnowU and glucose monitoring products and the benefits it offers that might have been generated in connection with other marketing authorization pathways For these reasons clinicians may be slow to adopt our products we may not have comparative data that our competitors have or are generating and we may be subject to greater regulatory and product liability risks Further future patient studies or clinical experience may indicate that treatment with our product does not improve patient outcomes Such results would slow the adoption of our product by physicians would significantly reduce our ability to achieve expected sales and could prevent us from achieving and maintaining profitability
In addition because the KnowU and glucose monitoring products have never been marketed we have limited complaints or patient success rate data with respect to using these products If future patient studies or clinical testing do not support our belief that our products offer a more advantageous blood glucose monitoring then market acceptance of our products could fail to increase or could decrease and our business could be harmed Moreover if future results and experience indicate that our product has potentially recurring malfunctions or causes unexpected or serious complications or other unforeseen negative effects then we could be subject to mandatory or voluntary product recalls suspension or withdrawal of FDA clearance as well as significant legal liability or harm to our business reputation and financial results
If we choose to or are required to conduct additional clinical studies and the outcome of such studies are not positive then this could reduce the rate of coverage and reimbursement for the KnowU and glucose monitoring products This may slow the market adoption of our product by physicians significantly reduce our ability to achieve expected revenues and prevent us from becoming profitable
We believe that publications of scientific and medical results in peer reviewed journals and presentations at leading conferences are critical to the broad adoption of our products Publication in leading medical journals is subject to a peer review process and peer reviewers may not consider the results of studies involving our products sufficiently novel or worthy of publication The failure to be listed in physician guidelines or to be published in peer reviewed journals could limit the adoption of our products Unless specifically stated to be peer reviewed the studies referred to in this filing are not peer reviewed
The current regulatory requirements to which we are subject may change in the future in a way that adversely affects us If we fail to comply with present or future regulatory requirements that are applicable to us we may be subject to enforcement action by FDA which may include any of the following sanctions
Additionally any relationships we may have with healthcare professionals clinical investigators and payors in connection with our current and future business activities may be subject to federal and state healthcare fraud and abuse laws false claims laws transparency laws and health information privacy and security laws which could expose us to among other things criminal sanctions civil penalties contractual damages exclusion from governmental healthcare programs reputational harm administrative burdens and diminished profits and future earnings
Healthcare providers and payors play a primary role in the recommendation and or prescription of any product candidates for which we obtain future marketing approval Our current and future arrangements with healthcare professionals clinical investigators payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market sell and distribute our products for which we obtain marketing approval Restrictions under applicable federal and state healthcare laws and regulations include the following
the federal Anti Kickback Statute prohibits among other things persons and entities from knowingly and willfully soliciting offering receiving or providing remuneration directly or indirectly in cash or in kind to induce or reward or in return for either the referral of an individual for or the purchase order or recommendation of any good or service for which payment may be made under a federal healthcare program such as Medicare and Medicaid A person or entity does not need to have actual knowledge of the federal Anti Kickback Statute or specific intent to violate it in order to have committed a violation In addition the government may assert that a claim including items or services resulting from a violation of the U S federal Anti Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act
the federal false claims and civil monetary penalties laws including the civil False Claims Act which can be enforced by private citizens through civil whistleblower or qui tam actions prohibit individuals or entities from among other things knowingly presenting or causing to be presented to the federal government claims for payment that are false or fraudulent or making a false statement to avoid decrease or conceal an obligation to pay money to the federal government The federal Health Insurance Portability and Accountability Act of 1996 or HIPAA prohibits among other things executing or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters Similar to the federal Anti Kickback Statute a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation
HIPAA as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations also imposes obligations including mandatory contractual terms with respect to safeguarding the privacy security and transmission of individually identifiable health information
the federal Physician Payments Sunshine Act requires applicable manufacturers of covered drugs devices biologics and medical supplies for which payment is available under Medicare Medicaid or the Children s Health Insurance Program with specific exceptions to annually report to Centers for Medicare Medicaid Services CMS starting in 2022 information regarding payments and other transfers of value to physicians certain other healthcare providers and teaching hospitals as well as information regarding ownership and investment interests held by physicians and their immediate family members The information reported will be publicly available on a searchable website with disclosure required annually and
State and foreign laws also govern the privacy and security of health information in some circumstances many of which differ from each other in significant ways and often are not preempted by HIPAA thus complicating compliance efforts For instance the collection and use of health data in the European Union is governed by the General Data Protection Regulation or the GDPR which extends the geographical scope of European Union data protection law to non European Union entities under certain conditions tightens existing European Union data protection principles creates new obligations for companies and new rights for individuals Failure to comply with the GDPR may result in substantial fines and other administrative penalties In addition the California Consumer Privacy Act or CCPA creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal information The CCPA provides for civil penalties for violations as well as a private right of action for data breaches that is expected to increase data breach litigation The CCPA may increase our compliance costs and potential liability and similar laws have been proposed at the federal level and in other states
Efforts to ensure that our current and future business arrangements with third parties will comply with applicable healthcare laws and regulations will involve on going substantial costs It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us then we may be subject to significant penalties including civil criminal and administrative penalties damages fines disgorgement individual imprisonment exclusion from participation in government funded healthcare programs such as Medicare and Medicaid integrity oversight and reporting obligations temporary or permanent debarment contractual damages reputational harm diminished profits and future earnings and the curtailment or restructuring of our operations Defending against any such actions can be costly time consuming and may require significant financial and personnel resources Therefore even if we are successful in defending against any such actions that may be brought against us our business may be impaired Further if any of the physicians or other healthcare providers or entities with whom we expect to do business are found not to be in compliance with applicable laws then they may be subject to criminal civil or administrative sanctions including exclusions from government funded healthcare programs
Sales of any medical device depend often in part on the extent to which the product will be covered and reimbursed by government payors e g federal and state healthcare programs third party payors e g commercial insurance and managed healthcare organizations and other payors e g foreign government healthcare programs In the United States various glucose monitoring products are covered for individuals with both Type 1 and Type 2 diabetes by Medicare and Medicaid in the majority of states and by commercial insurers subject to satisfaction of certain eligibility and coverage criteria
But significant uncertainty exists as to the coverage and reimbursement status of any newly approved product For example there is no assurance that a product will be considered medically reasonable and necessary for a specific indication will be considered cost effective by payors that an adequate level of reimbursement will be established even if coverage is available or that the payors reimbursement policies will not adversely affect the ability for manufacturers to sell products profitably
Decisions regarding the extent of coverage and reimbursement amount are generally made on a plan by plan basis meaning one payors decision to cover a particular product does not ensure that other payors will also provide similar coverage As a result the coverage determination process can require manufactures to provide scientific and clinical support for the use of a product and require providers to show medical necessity for use to each payor separately This process can be time consuming with no assurance that coverage and adequate reimbursement will be applied consistently or even obtained
Payors are also increasingly reducing reimbursements for devices through continued implementation of cost containment programs including price controls and restrictions on coverage and reimbursement which could further limit sales of any product In addition payors continue to question safety and efficacy while also challenging the prices charged examining medical necessity and reviewing the cost effectiveness of devices in an effort to avoid coverage and reimbursement But decreases of this nature surrounding the reimbursement for any product or a decision by a government and third party payor not to cover a product could result in reduced physician usage and patient demand for the product
We are subject to FDA s medical device reporting regulations which require us to report to FDA when we receive or become aware of information that reasonably suggests that one or more of our products may have caused or contributed to a death or serious injury or malfunctioned in a way that if the malfunction were to recur it could cause or contribute to a death or serious injury The timing of our obligation to report is triggered by the date we become aware of the adverse event as well as the nature of the event
We may fail to report adverse events of which we become aware within the prescribed timeframe We may also fail to recognize that we have become aware of a reportable adverse event especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the initial use of the device If we fail to comply with our reporting obligations FDA could take action including warning letters untitled letters administrative actions criminal prosecution imposition of civil monetary penalties seizure of our products or if premarket review is required in the future delay in clearance of future products
FDA and foreign regulatory bodies have the authority to require the recall of commercialized medical device products in the event of material deficiencies or defects in design or manufacture of a product or in the event that a product poses an unacceptable risk to health FDA s authority to require a recall must be based on a finding that there is reasonable probability that the device could cause serious injury or death We may also choose to voluntarily recall a product if any material deficiency is found A government mandated or voluntary recall by us could occur as a result of an unacceptable risk to health component failures malfunctions manufacturing defects labeling or design deficiencies packaging defects or other deficiencies or failures to comply with applicable regulations We cannot assure you that product defects or other errors will not occur in the future Recalls involving our products could have a material adverse effect on our business financial condition and results of operations
Moreover medical device manufacturers are required to maintain certain records of recalls and corrections even if they are not reportable to FDA We may initiate voluntary withdrawals or corrections for our devices in the future that we determine do not require notification of FDA If FDA disagrees with our determinations then it could require us to report those actions as recalls and we may be subject to enforcement action A future recall announcement could harm our reputation with customers potentially lead to product liability and malpractice claims against us and negatively affect our sales
Existing regulations and regulatory policies may change and additional government regulations may be enacted that could prevent limit or delay regulatory approval of our product candidates Legislative changes may impact our future business and operations including those that may result in additional reductions in Medicare and other healthcare funding which could have a material adverse effect on customers for our product candidates if approved and accordingly our business financial condition and results of operations
Both before and after a product is commercially released we have ongoing responsibilities under various laws and regulations If a regulatory authority were to conclude that we are not in compliance with applicable laws or regulations or that any of our products are ineffective or pose an unreasonable risk for the end user then the authority may ban such devices detain or seize adulterated or misbranded devices order a recall repair replacement or refund of such instruments and require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health A regulatory authority may also impose operating restrictions enjoin and restrain certain violations of applicable law pertaining to medical devices and assess civil or criminal penalties against our officers employees or us The regulatory authority may also recommend prosecution by law enforcement agencies Any governmental law or regulation existing or imposed in the future or enforcement action taken may have a material adverse effect on our business financial condition and results of operations
We cannot predict the likelihood nature or extent of any legislative changes will be enacted or government regulation that may arise from future legislation or administrative action either in the U S or abroad Similarly we cannot predict whether FDA regulations guidance or interpretations will be changed or what the impact of such changes on the marketing approvals of our product candidates if any may be If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies or if we are not able to maintain regulatory compliance then we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability
If our product candidates are approved by FDA then potential competitors who seek to introduce similar product candidates may seek to take advantage of a shorter and less costly development program for a product that competes with our products Our ability to compete successfully against currently existing and future alternatives to our product candidates and systems and competitors who compete directly with us may depend in part on our ability to attract and retain skilled scientific and research personnel develop technologically superior products develop competitively priced products obtain patent or other required regulatory approvals for our products be an early entrant to the market and manufacture market and sell our products independently or through collaborations
We currently rely upon external resources for many engineering and product development services If we are unable to secure engineering or product development partners or establish satisfactory engineering and product development capabilities we may not be able to successfully commercialize our technology
Our success depends upon our ability to develop products that are accurate and provide solutions for our customers Achieving the desired results for our customers requires solving engineering issues in concert with them Any failure of our technology or related products to meet customer expectations could result in customers choosing to retain their existing methods or to adopt systems other than ours
Historically we have not had sufficient internal resources to work on all necessary engineering and product development matters We have used third parties in the past and will continue to do so These resources are not always readily available and the absence of their availability could inhibit our research and development efforts and our responsiveness to our customers Our inability to secure those resources could impact our ability to provide engineering and product development services and could have an impact on our customers willingness to use our technology Moreover third parties have their own internal demands on time and resources which may not always align with ours Hence our own expectations for development and product timelines may not be shared by third parties upon whom we rely
Our success depends on our ability to develop and market devices that are recognized as accurate safe and cost effective They must be safe and deliver the required level of accuracy under any condition regardless of the user as determined by their intended use This will be achieved through continued refinement of our technology Before presenting it to the FDA additional development is needed to increase its generalizability
Many of our potential customers may be reluctant to use our new technology Market acceptance will depend on many factors including our ability to convince potential customers that our technology and related products are an attractive alternative to existing technologies We will need to demonstrate that our products provide accurate and cost effective alternatives to existing technologies Compared to most competing technologies our technology is new and most potential customers will have limited knowledge of or experience with our products Prior to implementing our technology and related products some potential customers may be required to devote significant time and effort to testing and validating our products Any failure of our technology or related products to meet customer expectations could result in customers choosing to retain their existing methods or to adopt systems other than ours
Many factors influence the perception of a new technology including its use by leaders in the industry If we are unable to induce industry leaders in our target markets to implement and use our technology and related products acceptance and adoption of our products could be slowed In addition if our products fail to gain significant acceptance in the marketplace and we are unable to expand our customer base we may never generate sufficient revenue to achieve or sustain profitability
Additionally we may not be able to penetrate or successfully operate in international markets or encounter difficulty expanding into international markets because of limited brand recognition in certain parts of the world which may lead to delayed acceptance of our products by consumers in these international markets If we are unable to expand internationally and manage the complexity of international operations successfully then it could have a material adverse effect on our business financial condition and results of operations If our efforts to introduce our products into foreign markets are not successful then we may have expended significant resources without realizing the expected benefit Ultimately the investment required for expansion into foreign markets could exceed the results of operations generated from this expansion
Our success depends to a significant degree upon the continued contributions of key management and other personnel some of whom could be difficult to replace While our continued operation and ultimate success is not dependent upon one individual our success does depend on the performance of our officers our ability to retain and motivate our officers our ability to integrate new officers into our operations and the ability of all personnel to work together effectively as a team Our failure to retain and recruit officers and other key personnel could have a material adverse effect on our business financial condition and results of operations Our success also depends on our continued ability to identify attract hire train retain and motivate highly skilled technical managerial manufacturing administrative and sales and marketing personnel Competition for these individuals is intense and we may not be able to successfully recruit assimilate or retain sufficiently qualified personnel In particular we may encounter difficulties in recruiting and retaining a sufficient number of qualified technical personnel which could harm our ability to develop new products and adversely impact our relationships with existing and future customers The inability to attract and retain necessary technical managerial manufacturing administrative and sales and marketing personnel could harm our ability to obtain new customers and develop new products and could adversely affect our business and operating results
The manufacture of our products is complex and requires the integration of a number of components from several sources of supply We rely on numerous critical suppliers for various key components that are used in the manufacturing of our products We can make no assurance that we will be able to maintain such supply arrangements If we are unable to maintain supply arrangements our access to key components could be reduced which could harm our business
Additionally if demand for our products decreases we may have excess inventory and inventory that may expire which could result in inventory write offs that would have a material adverse effect on our business financial condition and results of operations We may also encounter defects in materials and or workmanship which could lead to a failure to adhere to regulatory requirements Any defects could delay operations at our contract manufacturers facilities lead to regulatory fines or halt or discontinue manufacturing indefinitely Any of these outcomes could have a material adverse effect on our business financial condition and results of operations
This reliance also adds additional risks to the manufacturing process that are beyond our control For example the occurrence of epidemics or pandemics may cause one or more of our suppliers to close or reduce the scope of their operations either temporarily or permanently In addition these suppliers may provide components and products to our competitors The medical device industry s reliance on a limited number of key components and product suppliers subjects us to the risk that in the event of an increase in demand our suppliers may fail to provide supplies to us in a timely manner while they continue to supply our competitors many of which have greater purchasing power than us or seek to supply components to us at a higher cost
Moreover our reputation and the quality of our products are in part dependent on the quality of the components that we source from third party suppliers If we are unable to control the quality of the components supplied to us or to address known quality problems in a timely manner then our reputation in the market may be damaged and sales of our products may suffer As a result we may experience a material adverse effect on our business financial condition and results of operations
We have directors and officers liability insurance and commercial liability insurance policies Claims however by third parties against us may exceed policy amounts and we may not have amounts to cover these claims Any significant claims would have a material adverse effect on our business financial condition and results of operations In addition our limited directors and officers liability insurance may affect our ability to attract and retain directors and officers
We rely on a combination of patent trademark and trade secret laws and confidentiality procedures to protect our intellectual property rights Creating and maintaining a strong patent portfolio is important to our business Patent law relating to the scope of claims in the technology fields in which we operate is complex and uncertain so we cannot be assured that we will be able to obtain or maintain patent rights or that the patent rights we may obtain will be valuable provide an effective barrier to competitors or otherwise provide competitive advantages Others have filed and in the future are likely to file patent applications that are similar or identical to ours or those of our licensors To determine the priority of inventions or demonstrate that we did not derive our invention from another we may have to participate in interference or derivation proceedings in the United States Patent and Trademark Office or in court that could result in substantial costs in legal fees and could substantially affect the scope of our patent protection We cannot be assured our patent applications will prevail over those filed by others Also our intellectual property rights may be subject to other challenges by third parties Patents we obtain could be challenged in litigation or in administrative proceedings such as ex parte reexam inter parties review or post grant review in the United States or opposition proceedings in Europe or other jurisdictions
Obtaining and maintaining a patent portfolio entails significant expense and resources Part of the expense includes periodic maintenance fees renewal fees annuity fees various other governmental fees on patents and or applications due in several stages over the lifetime of patents and or applications as well as the cost associated with complying with numerous procedural provisions during the patent application process We may or may not choose to pursue or maintain protection for particular inventions In addition there are situations in which failure to make certain payments or noncompliance with certain requirements in the patent process can result in abandonment or lapse of a patent or patent application resulting in partial or complete loss of patent rights in the relevant jurisdiction If we choose to forgo patent protection or allow a patent application or patent to lapse purposefully or inadvertently our competitive position could suffer
Legal actions to enforce our patent rights can be expensive and may involve the diversion of significant management time In addition these legal actions could be unsuccessful and could also result in the invalidation of our patents or a finding that they are unenforceable We may or may not choose to pursue litigation or interferences against those that have infringed on our patents or used them without authorization due to the associated expense and time commitment of monitoring these activities If we fail to protect or to enforce our intellectual property rights successfully our competitive position could suffer which could have a material adverse effect on our results of operations and business
In recent years there has been significant litigation in the United States involving patents and other intellectual property rights We may receive notices that claim we have infringed upon the intellectual property of others Even if these claims are not valid they could subject us to significant costs Any such claims with or without merit could be time consuming to defend result in costly litigation divert our attention and resources cause product shipment delays or require us to enter into royalty or licensing agreements Such royalty or licensing agreements if required may not be available on terms acceptable to us or at all We have not been engaged in litigation but litigation may be necessary in the future to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others Litigation may also be necessary to defend against claims of infringement or invalidity by others A successful claim of intellectual property infringement against us and our failure or inability to license the infringed technology or develop or license technology with comparable functionality could have a material adverse effect on our business financial condition and operating results
If we are not successful entering into appropriate collaboration arrangements or recruiting sales and marketing personnel or in building a sales and marketing infrastructure we will have difficulty successfully commercializing our technology which would adversely affect our business operating results and financial condition
We may not be able to enter into collaboration agreements on terms acceptable to us or at all In addition even if we enter into such relationships we may have limited or no control over the sales marketing and distribution activities of these third parties Our future revenues may depend heavily on the success of the efforts of these third parties If we elect to establish a sales and marketing infrastructure we may not realize a positive return on this investment In addition we must compete with established and well funded pharmaceutical and biotechnology companies to recruit hire train and retain sales and marketing personnel Factors that may inhibit our efforts to commercialize technology without strategic partners or licensees include
In the normal course of business we engage in discussions relating to possible acquisitions equity investments mergers strategic alliances joint ventures and divestitures Such transactions are accompanied by a number of risks including the use of significant amounts of cash potentially dilutive issuances of equity securities incurrence of debt on potentially unfavorable terms as well as impairment expenses related to goodwill and amortization expenses related to other intangible assets the possibility that we may pay too much cash or issue too many of our shares as the purchase price for an acquisition relative to the economic benefits that we ultimately derive from such acquisition and various potential difficulties involved in integrating acquired businesses into our operations
From time to time we have also engaged in discussions with candidates regarding the potential acquisitions of our product lines technologies and businesses If a divestiture such as this does occur we cannot be certain that our business operating results and financial condition will not be materially and adversely affected A successful divestiture depends on various factors including our ability to effectively transfer liabilities contracts facilities and employees to any purchaser identify and separate the intellectual property to be divested from the intellectual property that we wish to retain reduce fixed costs previously associated with the divested assets or business and collect the proceeds from any divestitures
We may not be successful in effectively integrating acquired businesses and completing acquisitions in the future We also may incur substantial expenses and devote significant management time and resources in seeking to complete acquisitions Acquired businesses may fail to meet our performance expectations If we do not achieve the anticipated benefits of an acquisition as rapidly as expected or at all investors or analysts may not perceive the same benefits of the acquisition as we do If these risks materialize our stock price could be materially adversely affected
Our technology will have a number of potential applications in fields of use that will require prior governmental regulatory approval before the technology can be introduced to the marketplace For example we are exploring the use of our technology for certain medical diagnostic applications with an initial focus on the monitoring of blood glucose There is no assurance that we will be successful in developing glucose monitoring medical applications for our technology If we were to be successful in developing glucose monitoring medical applications of our technology prior clearance by FDA and other governmental regulatory bodies will be required before the technology could be introduced into the marketplace Our devices leverage machine learning and artificial intelligence to process the massive data collected through the Bio RFID sensor Our intelligence and machine learning also controls the sensor operation enabling the device to emit and capture data and ultimately to identify and measure blood glucose levels Machine learning enabled device software functions ML DSF continue to be evaluated by FDA which recently released new guidance proposing a science based approach for machine learning and artificial intelligence enabled medical devices to be modified and improved more quickly There is no assurance that such regulatory approval would be obtained for a glucose monitoring medical diagnostic device or other applications requiring such approval FDA can refuse to grant delay and limit or deny approval of an application for clearance of marketing a glucose monitoring device for many reasons We may not obtain the necessary regulatory approvals or clearances to market these glucose monitoring systems in the United States or outside of the United States Any delay in or failure to receive or maintain approval or clearance for our products could prevent us from generating revenue from these products or achieving profitability
Sales of our products internationally are subject to foreign regulatory requirements that vary widely from country to country In addition FDA regulates exports of medical devices from the U S Complying with international regulatory requirements can be an expensive and time consuming process and marketing approval or clearance is not certain The time required to obtain clearances or approvals if required by other countries may be longer than that required for FDA clearance or approvals and requirements for such clearances or approvals may significantly differ from FDA requirements We may rely on third party distributors to obtain regulatory clearances and approvals required in other countries and these distributors may be unable to obtain or maintain such clearances or approvals Our distributors may also incur significant costs in attempting to obtain and in maintaining foreign regulatory approvals or clearances which could increase the difficulty of attracting and retaining qualified distributors If our distributors experience delays in receiving necessary qualifications clearances or approvals to market our products outside the U S or if they fail to receive those qualifications clearances or approvals then we may be unable to market our products or enhancements in international markets effectively or at all
Foreign governmental authorities that regulate the manufacture and sale of medical devices have become increasingly stringent and to the extent we market and sell our products outside of the U S we may be subject to rigorous international regulation in the future In these circumstances we would be required to rely on our foreign independent distributors to comply with the varying regulations and any failures on their part could result in restrictions on the sale of our product in foreign countries
Cybersecurity risks and cyber incidents could result in the compromise of confidential data or critical data systems and give rise to potential harm to customers remediation and other expenses expose us to liability under consumer protection laws or other common law theories subject us to litigation and federal and state governmental inquiries damage our reputation and otherwise be disruptive to our business and operations
Cyber incidents can result from deliberate attacks or unintentional events We collect and store on our networks sensitive information including intellectual property proprietary business information and personally identifiable information of our customers The secure maintenance of this information and technology is critical to our business operations We have implemented multiple layers of security measures to protect the confidentiality integrity and availability of this data and the systems and devices that store and transmit such data We utilize current security technologies and our defenses are monitored and routinely tested internally and by external parties Despite these efforts threats from malicious persons and groups new vulnerabilities and advanced new attacks against information systems create risk of cybersecurity incidents These incidents can include but are not limited to gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information corrupting data or causing operational disruption Because the techniques used to obtain unauthorized access disable or degrade service or sabotage systems change frequently and may not immediately produce signs of intrusion we may be unable to anticipate these incidents or techniques timely discover them or implement adequate preventative measures
These threats can come from a variety of sources ranging in sophistication from an individual hacker to malfeasance by employees consultants or other service providers to state sponsored attacks Cyber threats may be generic or they may be custom crafted against our information systems Over the past several years cyber attacks have become more prevalent and much harder to detect and defend against Our network and storage applications may be vulnerable to cyber attack malicious intrusion malfeasance loss of data privacy or other significant disruption and may be subject to unauthorized access by hackers employees consultants or other service providers In addition hardware software or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security Unauthorized parties may also attempt to gain access to our systems or facilities through fraud trickery or other forms of deceiving our employees contractors and temporary staff
There can be no assurance that we will not be subject to cybersecurity incidents that bypass our security measures impact the integrity availability or privacy of personal health information or other data subject to privacy laws or disrupt our information systems devices or business including our ability to deliver services to our customers As a result cybersecurity physical security and the continued development and enhancement of our controls processes and practices designed to protect our enterprise information systems and data from attack damage or unauthorized access remain a priority for us As cyber threats continue to evolve we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any cybersecurity vulnerabilities
Additionally the U S may institute additional cybersecurity requirements especially for medical devices For example the data security requirements in the Food and Drug Omnibus Reform Act FDORA enacted in December 2022 that among other provisions requires developers of certain cyber devices to design and implement plans to monitor identify and address cybersecurity vulnerabilities of those devices and to submit those plans to FDA as part of every new 510 k or PMA for a cyber device Cyber devices are defined as devices that include software connect to the internet and contain any technological features that could be vulnerable to cybersecurity threats This provision entered into effect on March 29 2023 and FDA has indicated that it expects sponsors of cyber devices to begin to comply with these requirements as of October 1 2023 FDA has stated that failure to comply with these requirements will result in FDA denying approval of the cyber device application
We must comply with corporate governance requirements under the Sarbanes Oxley Act of 2002 and the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 as well as additional rules and regulations currently in place and that may be subsequently adopted by the Securities and Exchange Commission or the SEC and the Public Company Accounting Oversight Board These laws rules and regulations continue to evolve and may become increasingly stringent in the future The financial cost of compliance with these laws rules and regulations is expected to remain substantial
We cannot assure you that we will be able to fully comply with these laws rules and regulations that address corporate governance internal control reporting and similar matters in the future Failure to comply with these laws rules and regulations could materially adversely affect our reputation financial condition and the value of our securities
Our common stock is currently listed on the NYSE American and the continued listing of our common stock on the NYSE American is contingent on our continued compliance with a number of listing requirements If we are unable to comply with the continued listing requirements of the NYSE American our common stock would be delisted from the NYSE American which would limit investors ability to effect transactions in our common stock subject us to additional trading restrictions In order to maintain our listing we must maintain certain share prices financial and share distribution targets including maintaining a minimum amount of stockholders equity and a minimum number of public stockholders as well as satisfy other listing requirements of the NYSE American In addition to these objective standards NYSE American may delist the securities of any issuer for other reasons involving the judgment of NYSE American
On September 27 2024 we received a notification from the NYSE American LLC the NYSE American stating that our company is not in compliance with the minimum stockholders equity requirements of Sections 1003 a i 1003 a ii and 1003 a iii of the NYSE American Company Guide the Company Guide requiring stockholders equity of 2 0 million or more if our company has reported losses from continuing operations and or net losses in two of its three most recent fiscal years 4 0 million or more if our company has reported losses from continuing operations and or net losses in three of the four most recent fiscal years and 6 0 million or more if our company has reported losses from continuing operations and or net losses in its five most recent fiscal years respectively As of June 30 2024 we had stockholders deficit of 4 6 million and we have had losses in the most recent five fiscal years ended September 30 2023
We are now subject to the procedures and requirements of Section 1009 of the Company Guide On October 27 2024 we submitted a plan the Plan of actions it has taken or will take to regain compliance with the continued listing standards by March 27 2026 If the NYSE American accepts the Plan we will be able to continue its listing during the Plan period and will be subject to periodic reviews including quarterly monitoring for compliance with the Plan until it has regained compliance If the Plan is not accepted by the NYSE American delisting proceedings will commence We may appeal a staff delisting determination in accordance with Section 1010 and Part 12 of the Company Guide
If the NYSE American delists our common stock from trading on its exchange and we are not able to list our securities on another national securities exchange we expect the common stock would qualify to be quoted on an over the counter market If this were to occur we could face significant material adverse consequences including
potential breaches of representations or covenants of our agreements pursuant to which we made representations or covenants relating to our compliance with applicable listing requirements which regardless of merit could result in costly litigation significant liabilities and diversion of our management s time and attention and could have a material adverse effect on our financial condition business and results of operations
As of September 30 2024 we had 108 097 936 shares of common stock issued and outstanding As of September 30 2024 there were options outstanding for the purchase of 27 506 731 shares of our common stock including unearned stock option grants totaling 3 869 825 shares related to performance targets warrants for the purchase of 49 341 861 shares of our common stock 8 108 356 shares of our common stock issuable collectively upon the conversion of our Series C and D Convertible Preferred Stock and approximately 480 436 shares of our common stock collectively reserved to pay accrued dividends on our Series C and Series D Convertible Preferred Stock In addition we currently have 9 020 264 shares of our common stock are issuable upon conversion of convertible debentures of 2 761 931 and 3 840 000 shares of our common stock are issuable upon conversion of convertible debentures of 1 961 575 Further under the current terms of our Series C and D Convertible Preferred Stock and assuming no changes in the ownership thereof going forward on a quarterly basis we will accrete as a preferred dividend the value of approximately 160 000 shares of common stock which are issuable if such dividends become payable as additional shares of preferred stock and such preferred stock is then converted into common stock We have the option to repay Lind in cash or common stock Should we make our monthly payments in common stock there may be a price adjustment All of the foregoing shares could potentially dilute future earnings per share and are excluded from the September 30 2024 calculation of diluted net loss per share because their impact is antidilutive
Significant shares of common stock are held by our principal stockholders other company insiders and other large stockholders As affiliates as defined under Rule 144 under the Securities Act our principal stockholders other of our insiders and other large stockholders may only sell their shares of common stock in the public market pursuant to an effective registration statement or in compliance with Rule 144
Pursuant to our articles of incorporation we are authorized to issue 300 000 000 shares of common stock To the extent that common stock is available for issuance subject to compliance with applicable stock exchange listing rules our board of directors has the ability to issue additional shares of common stock in the future for such consideration as the board of directors may consider sufficient The issuance of any additional shares could among other things result in substantial dilution of the percentage ownership of our stockholders at the time of issuance result in substantial dilution of our earnings per share and adversely affect the prevailing market price for our common stock
Pursuant to our articles of incorporation we are also authorized to issue 5 000 000 shares of blank check preferred stock of which 30 000 shares have been designated as our Series C Convertible Preferred Stock and 20 000 shares have been designated as our Series D Convertible Preferred Stock Such preferred stock is senior to our common stock in terms of dividend priority and liquidation preference Any preferred stock that we issue in the future may rank ahead of our common stock in terms of dividend priority or liquidation preference and may have greater voting rights than our common stock In addition such preferred stock may contain provisions allowing those shares to be converted into shares of common stock which could dilute the value of our common stock to current stockholders and could adversely affect the market price if any of our common stock In addition the preferred stock could be utilized under certain circumstances as a method of discouraging delaying or preventing a change in control of our company Although we have no present intention to designate or issue any shares of our authorized blank check preferred stock there can be no assurance that we will not do so in the future
As a result of the modifications of our Series C and D Convertible Preferred Stock see Description of Securities Preferred Stock assuming no changes in the amount of outstanding Series C Convertible Preferred Stock or Series D Convertible Preferred Stock ownership going forward on a quarterly basis we will accrete as a preferred dividend the value of approximately 160 000 shares of common stock Future accreted dividends will be settled by issuing additional shares of preferred stock which can then be converted to common stock
In the future we may also attempt to increase our capital resources by offering debt securities These debt securities would have rights senior to those of our common stock and the terms of the debt securities issued could impose significant restrictions on our operations including liens on our assets
Because our decision to issue securities or incur debt in our future offerings will depend on market conditions and other factors beyond our control we cannot predict or estimate the amount timing or nature of our future offerings and debt financing Further market conditions could require us to accept less favorable terms for the issuance of our securities in the future Thus you will bear the risk of our future offerings reducing the value of your shares and diluting your interest in us
If in the future if we sell our common stock at a price below 0 25 per share the conversion price of i the outstanding shares of Series C and D Convertible Preferred Stock ii promissory notes convertible into 9 020 264 shares of our common stock and iii warrants to purchase 7 634 381 shares of common stock would adjust below 0 25 per share We have the option to repay Lind in cash or common stock Should we make our monthly payments in common stock there may be a price adjustment
If we were to wind up or dissolve our company and liquidate and distribute our assets our common stockholders would share in our assets only after we satisfy any amounts we owe to our creditors and preferred equity holders If our liquidation or dissolution were attributable to our inability to profitably operate our business then it is likely that we would have material liabilities at the time of liquidation or dissolution Accordingly it is very unlikely that sufficient assets will remain available after the payment of our creditors and preferred equity holders to enable common stockholders to receive any liquidation distribution with respect to any common stock
Certain provisions of our outstanding warrants could make it more difficult or expensive for a third party to acquire us The warrants prohibit us from engaging in certain transactions constituting fundamental transactions unless among other things the surviving entity assumes our obligations under the warrants These and other provisions of our outstanding warrants could prevent or deter a third party from acquiring us even where the acquisition could be beneficial to you
We have never declared or paid cash dividends on our capital stock We currently intend to retain all of our future earnings if any to finance the growth and development of our business and we do not anticipate paying any cash dividends on our capital stock in the foreseeable future In addition the terms of any future debt agreements may preclude us from paying dividends As a result capital appreciation if any of our common stock will be your sole source of gain for the foreseeable future
Our cybersecurity and risk management program is intended to protect the confidentiality integrity and availability of our critical information systems and the data resident on them Due to the nature of our business and our customers we face cybersecurity challenges and threats including attempts to gain unauthorized access to our intellectual property trade secrets codebase proprietary or confidential information denial of service attacks attacks from foreign nations as well as threats to our identity and personnel We have designed our IT systems and processes with the intention that our solutions should defend against the ever evolving threat landscape while remaining agile to keep up with such threats
We leverage a combination of cyber security frameworks to protect its assets We use the controls from these frameworks as well as guidelines and best practices from the industry to develop our cybersecurity plan Our cybersecurity plan and its elements are reviewed regularly to ensure they meet the requirements and expectations of our security needs We have an information security policy in place which includes monthly meetings with outside cybersecurity experts to review and maintain the procedures up to current standards
The Audit Committee of the Board of Directors performs an annual review of our cybersecurity program including management s actions to identify and detect threats The Board receives periodic reports and annual updates on our crisis management plan which includes cybersecurity Both the Chief Science Officer and the Chief Financial Officer share responsibility for our program and solicit support of third party experts as necessary
Risk is assessed based on multiple factors First our IT and administrative team updates and maintains our asset inventory to ensure all assets are included in our risk management process From there key assets are identified and risk is assessed based on business impact availability of information and attack feasibility After the risks have been identified they are reviewed with the stakeholders for action plans or sign off on the acceptance of risk
An incident response plan has been established which provides detailed information on actions to take in the event of an incident The incident response plan includes the scope of the plan establishes the incident response team details the incident response lifecycle and provides templates to make the process easier to document and follow Timelines communication methods and notification information are included in the plan to ensure the process can be followed in high pressure situations which can occur during incidents
Sensitive and confidential data is a part of business We leverage an encryption and signing policy that identifies the type of information we store and what level of encryption and signing is required for the data This document also details the overarching requirements for encryption such as allowed cyphers encryption methods and key storage
We have had one cybersecurity incident in the last decade A company issued computer was reported stolen from an employee s residence This incident represented a potential cybersecurity threat as the device contained sensitive company information including access credentials confidential data and proprietary software The threat was quickly identified and isolated before significant damage could be done This incident did not affect business operations and did not have a financial impact on our company Our cybersecurity experts promptly locked the device changed all relevant passwords and access credentials initiated a remote wipe and notified relevant teams and law enforcement everything according to its info security plan No proprietary information was lost
On March 2 2024 we signed a lease on executive and research and testing facilities at 619 Western Avenue Suite 610 Seattle Washington 98104 We leased 5 996 square feet and the current net monthly payment is 11 492 and increases at 3 annually after year one The lease commenced on May 1 2024 and terminates on July 31 2027
From time to time we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business However litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business financial condition or operating results
We have never declared or paid cash dividends on our common stock We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends on our common stock in the near future We may also enter into credit agreements or other borrowing arrangements in the future that will restrict our ability to declare or pay cash dividends on our common stock Any future determination to declare dividends will be made at the discretion of our board of directors subject to limitations under applicable law including Nevada Revised Statutes 78 288 and will depend on our financial condition operating results capital requirements contractual restrictions general business conditions and other factors that our board of directors may deem relevant See also Item 1A Risk Factors Risks Related Ownership of Our Common Stock We do not anticipate paying any cash dividends on our capital stock in the foreseeable future
The following description summarizes certain terms of our capital stock Because this is a summary description it does not contain all of the information that may be important to you This summary does not purport to be complete and is qualified in its entirety by the provisions of our articles of incorporation as amended restated and supplemented to date or our articles of incorporation and our second amended and restated bylaws or our bylaws as well as the applicable provisions of the Nevada Revised Statutes
We currently have authority to issue up to 300 000 000 shares of common stock 0 001 par value per share As of September 30 2024 we had 108 097 936 shares of common stock outstanding From time to time we may amend our certificate of incorporation to increase the number of authorized shares of common stock Any such amendment would require the approval of the holders of a majority of the voting power of the shares entitled to vote thereon
Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders including the election of directors and are entitled to receive dividends when and as declared by our Board out of funds legally available therefore for distribution to stockholders and to share ratably in the assets legally available for distribution to stockholders in the event of the liquidation or dissolution whether voluntary or involuntary of our company We have not paid any dividends and do not anticipate paying any dividends on our common stock in the foreseeable future It is our present policy to retain earnings if any for use in the development of our business Our common stockholders do not have cumulative voting rights in the election of directors and have No preemptive subscription or conversion rights Our common stock is subject to redemption by us
If in the future if we sell our common stock at a price below 0 25 per share the conversion price of i the outstanding shares of Series C and D Convertible Preferred Stock ii promissory notes convertible into 9 020 264 shares of our common stock and iii warrants to purchase 7 634 381 shares of common stock would adjust below 0 25 per share We have the option to repay Lind in cash or common stock Should we make our monthly payments in common stock there may be a price adjustment
In 2016 we closed a Series C Convertible Preferred Stock and Warrant Purchase Agreement with Clayton A Struve an accredited investor for the purchase of 1 250 000 of preferred stock with a conversion price of 0 70 per share The preferred stock has a cumulative dividend of 8 and an ownership blocker of 4 99 Dividends are due and payable in cash when declared or when the stock is converted Series C Convertible Preferred Stock is senior to Series D Convertible Preferred Stock and is entitled to receive equal dividends paid to Series D Convertible Preferred Stock In addition Mr Struve received a five year warrant to acquire 1 785 714 shares of common stock at 0 70 per share On August 14 2017 the price of the Series C Convertible Preferred Stock and warrant and its conversion price were adjusted to 0 25 per share pursuant to the documents governing such instruments As of September 30 2024 Mr Struve owns all of the 17 858 issued and outstanding shares of Series C Convertible Preferred Stock Each holder of Series C Convertible Preferred Stock is allowed to vote as a common shareholder as if the shares were converted to common stock up to the ownership blocker of 4 99
In 2017 we closed a 750 000 Series D Convertible Preferred Stock and Warrant offering with Mr Struve As of March 31 2024 Mr Struve owns all of the 10 161 issued and outstanding shares of Series D Convertible Preferred Stock Each outstanding share of Series D Convertible Preferred Stock will accrue cumulative cash dividends at a rate equal to 8 0 per annum subject to adjustment as provided in the Series D Convertible Preferred Stock certificate of designations Dividends are due and payable in cash when declared or when the stock is converted In addition On August 14 2017 the price of the Series D Convertible Preferred Stock were adjusted to 0 25 per share pursuant to the documents governing such instruments Each holder of Series D Convertible Preferred Stock is allowed to vote as a common shareholder as if the shares were converted to common stock up to the ownership blocker of 4 99
Based upon the modified terms and conditions of our Series C and Series D Convertible Preferred Stock certificates of designations dated August 10 2023 it was determined that Series C and Series D Convertible Preferred Stock dividends need to be accreted going forward As of September 30 2024 we have recorded 121 000 in cumulative deemed dividends related to Series C and D Convertible Preferred Stock which have not been paid net of i 350 696 of accumulated dividends with respect to the Series D Convertible Preferred Stock that were settled for 1 402 784 shares of common stock on June 28 2023 and ii 800 384 of accumulated dividends with respect to the Series C and D Convertible Preferred Stock that were settled for 3 201 534 shares of common stock on June 18 2024 Mr Struve is subject to an ownership blocker limiting his ownership to 4 99 of our outstanding shares of common stock and thus the number of common shares he can receive for dividends Unpaid accreted stock dividends will be issued to Mr Struve if he converts preferred stock or if the Board declares a dividend thereon limited to his 4 99 ownership blocker Assuming no changes in the amount of outstanding Series C and Series D Convertible Preferred Stock ownership going forward on a quarterly basis we will accrete as a preferred dividend the value of approximately 160 000 shares of common stock which are issuable if such dividends become payable as additional shares of preferred stock and such preferred stock is then converted into common stock
There are 27 506 731 including unearned stock option grants totaling 3 869 825 shares related to performance milestones options to purchase common stock at an average exercise price of 0 81 per share outstanding as of September 30 2024 under the 2021 Plan The expiration dates of these stock options range from now to September 11 2029
We owe Clayton A Struve a significant stockholder 1 301 005 1 071 000 excluding 230 005 recorded as loss on debt extinguishment under convertible promissory or OID notes We recorded accrued interest of 101 582 and 94 062 as of September 30 2024 and 2023 respectively On September 15 2023 the due dates on the notes was further extended to September 30 2024 We expensed 230 005 as loss on debt extinguishment during the year ended September 30 2023 related to the extension of the notes We recorded in convertible note payable the incremental value related to the conversion feature and as such we recorded the extension value as an expense with an offset to convertible note payable The extension value will be reclassified to equity upon conversion We are currently working on a further extension for the notes
We owe Ronald P Erickson and J3E2A2Z an entity affiliated controlled by Ronald P Erickson 1 460 926 1 184 066 excluding 276 860 as loss on debt extinguishment under convertible promissory notes On March 16 2018 we entered into a Note and Account Payable Conversion Agreement pursuant to which a all 664 233 currently owing under the J3E2A2Z Notes was converted to a Convertible Redeemable Promissory Note in the principal amount of 664 233 and b all 519 833 of the J3E2A2Z Account Payable was converted into a Convertible Redeemable Promissory Note in the principal amount of 519 833 together with a warrant to purchase up to 1 039 666 shares of common stock of our for a period of five years The initial exercise price of the warrants described above is 0 50 per share also subject to certain adjustments We recorded accrued interest of 84 573 and 218 334 as of September 30 2024 and 2023 respectively
On September 15 2023 the due dates on the notes were extended to September 30 2024 We expensed 276 860 as interest during the year ended September 30 2023 related to the extension of the notes We recorded in convertible note payable the incremental value related to the conversion feature and as such we recorded the extension value as an expense with an offset to convertible note payable The extension value will be amortized to equity upon conversion On October 22 2024 the due dates on the notes was further extended to September 30 2025 and increased the interest rate from 6 to 8
On February 27 2024 we a entered into a securities purchase agreement the Lind Purchase Agreement with Lind Global Fund II LP Lind pursuant to which we may issue Lind one or more senior convertible notes the aggregate principal amount of up to 14 400 000 for an aggregate purchase price equal to up to 12 000 000 and warrants to purchase a number of shares equal to the applicable funding amount multiplied by 75 and divided by the volume weighted average price of the common stock on the trading date immediately preceding the issuance date of the warrant and b issued to Lind an initial convertible note with an outstanding principal amount of 4 800 000 in exchange for a purchase price of 4 000 000 that is convertible into shares of our common stock at an adjusted conversion price of 0 26 per share subject to adjustment and an initial five year warrant to purchase up to 6 000 000 shares of our common stock at an adjusted exercise price of 0 26 per share subject to adjustment
The convertible notes issued under the Lind Purchase Agreement bearing an Original Issue Discount the OID equal to 20 of the principal amount of the note and do not accrue interest Beginning on the date that is 120 days from the issuance date of each note and on each one month anniversary thereafter for 20 months we are obligated to pay to Lind an amount equal to the greater of x 5 of the aggregate principal amount of such note or y 240 000 until the outstanding principal amount of such note has been paid in full prior to or on its maturity date or if earlier upon acceleration conversion or redemption of such note in accordance with the terms At our discretion the monthly payments may be made in cash in shares of our common stock or in a combination of cash and shares If made in shares the number of shares shall be determined by dividing x the principal amount being paid in shares by y 90 of the average of the 3 lowest daily VWAPs during the 20 trading days prior to the applicable payment date The notes set forth certain conditions that must be satisfied before we may make any monthly payments in shares of common stock If we make a monthly payment in cash we must also pay Lind a cash premium of 5 of such monthly payment Lind may elect with respect to no more than two 2 monthly payments to increase the amount of such monthly payment up to 750 000 which increase would be paid only in shares of our common stock upon notice by us Any such increased payment shall be deducted from the amount of the last monthly payment owed under the note
Issuance of note shares and warrant shares upon repayment or conversion of notes and exercise of warrants is subject to an ownership limitation equal to 4 99 of our outstanding shares of common stock provided that if Lind and its affiliates beneficially own in excess of 4 99 of our outstanding shares of common stock then such limitation shall automatically increase to 9 99 so long as Lind and its affiliates own in excess of 4 99 of such common stock and shall for the avoidance of doubt automatically decrease to 4 99 upon Lind and its affiliates ceasing to own in excess of 4 99 of such common stock
Upon the occurrence of any event of default the notes will become immediately due and payable and we must pay Lind an amount equal to 120 of the then outstanding principal amount of each Note in addition to any other remedies under the note or the other transaction documents Events of default include among others our failure to make any note payment when due a default in any indebtedness or adverse judgements in excess of 250 000 our failure to instruct its transfer agent to issue unlegended certificates our shares of common stock no longer being public traded or listed on a national securities exchange any stop order or trading suspension restricting the trading in our common stock and our market capitalization is below 15 million for consecutive 10 days
Pursuant to the terms of the securities purchase agreement if at any time prior to a date that is 24 months following the closing of the offering we propose to offer or sell any additional securities in a subsequent financing we shall first offer Lind the opportunity to purchase up to 20 of such new securities
Our obligations under the notes are secured by a first priority security interest in all of its assets pursuant to the terms of a security agreement in favor of Lind In addition in connection with the offering our subsidiary Particle Inc a Nevada corporation has guaranteed all of our obligations in connection with the offering pursuant to the terms of a guaranty in favor of Lind
We received net proceeds of 3 805 699 in exchange for the issuance of the 4 800 000 notes and a warrant to purchase 6 000 000 shares of our common stock The fair value of the 6 000 000 warrant shares was 2 110 731 on the date of issuance of which 1 411 052 was classified in equity after the allocation of issuance costs The value of the warrant shares was recorded as debt discount with an offset to APIC and will be amortized over the two year term of the Note
In connection with this securities purchase agreement we incurred approximately 994 000 of issuance costs of which 557 000 were allocated to the note and 437 000 to the warrant shares The amount allocated to the notes was recorded as debt discount with an offset to APIC and will be amortized over the two year term of the notes
On June 27 2024 we issued 546 697 shares of our common stock at 0 44 per share related to a principal payment of convertible debt settled with a common stock issuance for a total value of 240 000 During the year ended September 30 2024 we made principal payments of 720 000 and interest payments of 36 000
Provisions of the Nevada Revised Statutes our articles of incorporation and our bylaws could have the effect of delaying or preventing a third party from acquiring us even if the acquisition could benefit our stockholders Such provisions of the Nevada Revised Statutes our articles of incorporation and our bylaws can have the effect of enhancing continuity and stability in the composition of our board of directors and the policies formulated by the board of directors and can also have the effect of discouraging certain types of transactions that may involve an actual or threatened change of control of our company These provisions also may have the effect of reducing our vulnerability to an unsolicited proposal for a takeover that does not contemplate the acquisition of all of our outstanding shares or an unsolicited proposal for the restructuring or sale of all or part of our company
The Nevada Revised Statutes or NRS contain provisions governing the acquisition of a controlling interest in certain Nevada corporations Nevada s acquisition of controlling interest statutes NRS 78 378 through 78 3793 inclusive contain provisions governing the acquisition of a controlling interest in certain Nevada corporations These control share laws provide generally that any person that acquires a controlling interest in certain Nevada corporations may be denied voting rights unless a majority of the disinterested stockholders of the corporation elects to restore such voting rights These laws will apply to us as of a particular date if we were to have 200 or more stockholders of record at least 100 of whom have addresses in Nevada appearing on our stock ledger at all times during the 90 days immediately preceding that date and do business in the State of Nevada directly or through an affiliated corporation unless our articles of incorporation or bylaws in effect on the tenth day after the acquisition of a controlling interest provide otherwise These laws provide that a person acquires a controlling interest whenever a person acquires shares of a subject corporation that but for the application of these provisions of the NRS would enable that person to exercise 1 one fifth or more but less than one third 2 one third or more but less than a majority or 3 a majority or more of all of the voting power of the corporation in the election of directors Once an acquirer crosses one of these thresholds shares which it acquired in the transaction taking it over the threshold and within the 90 days immediately preceding the date when the acquiring person acquired or offered to acquire a controlling interest become control shares to which the voting restrictions described above apply These laws may have a chilling effect on certain transactions if our articles of incorporation or bylaws are not amended to provide that these provisions do not apply to us or to an acquisition of a controlling interest or if our disinterested stockholders do not confer voting rights in the control shares
Nevada s combinations with interested stockholders statutes NRS 78 411 through 78 444 inclusive provide that specified types of business combinations between certain Nevada corporations and any person deemed to be an interested stockholder of the corporation are prohibited for two years after such person first becomes an interested stockholder unless the corporation s board of directors approves the combination or the transaction by which such person becomes an interested stockholder in advance or unless the combination is approved by the board of directors and sixty percent of the corporation s voting power not beneficially owned by the interested stockholder its affiliates and associates Furthermore in the absence of prior approval certain restrictions may apply even after such two year period For purposes of these statutes an interested stockholder is any person who is 1 the beneficial owner directly or indirectly of 10 or more of the voting power of the outstanding voting shares of the corporation or 2 an affiliate or associate of the corporation and at any time within the two previous years was the beneficial owner directly or indirectly of 10 or more of the voting power of the then outstanding shares of the corporation The definition of the term combination is sufficiently broad to cover most significant transactions between a corporation and an interested stockholder These laws generally apply to Nevada corporations with 200 or more stockholders of record However a Nevada corporation may elect in its articles of incorporation not to be governed by these particular laws but if such election is not made in the corporation s original articles of incorporation the amendment 1 must be approved by the affirmative vote of the holders of stock representing a majority of the outstanding voting power of the corporation not beneficially owned by interested stockholders or their affiliates and associates and 2 is not effective until 18 months after the vote approving the amendment and does not apply to any combination with a person who first became an interested stockholder on or before the effective date of the amendment Neither our original articles of incorporation nor our current articles of incorporation include such an election
NRS 78 139 also provides that directors may resist a change or potential change in control of the corporation if the board of directors determines that the change or potential change is opposed to or not in the best interest of the corporation upon consideration of any relevant facts circumstances contingencies or constituencies pursuant to NRS 78 138 4 The Nevada Revised Statutes also provide that any director may be removed from our board of directors by the vote or written consent of stockholders representing not less than two thirds of the voting power of the issued and outstanding shares entitled to vote and this standard is also reflected in our bylaws
Our authorized but unissued shares of common stock are available for our board of directors to issue without stockholder approval We may use these additional shares for a variety of corporate purposes including future public or private offerings to raise additional capital corporate acquisitions and employee benefit plans The existence of our authorized but unissued shares of common stock could render it more difficult or discourage an attempt to obtain control of our company by means of a proxy contest tender offer merger or other transaction Our authorized but unissued shares may be used to delay defer or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest including those attempts that might result in a premium over the market price for the shares held by our stockholders
Trades in our common stock may be subject to Rule 15g 9 of the Exchange Act which imposes requirements on broker dealers who sell securities subject to the rule to persons other than established customers and accredited investors For transactions covered by the rule broker dealers must make a special suitability determination for purchasers of the securities and receive the purchaser s written agreement to the transaction before the sale
As of November 8 2024 the high and low sales price of our common stock was 0 28 per share and 0 23 per share respectively As of November 8 2024 we had 108 097 936 shares of common stock issued and outstanding held by 181 stockholders of record This number does not include approximately 5 000 beneficial owners whose shares are held in the names of various security brokers dealers and registered clearing agencies
The following discussion and analysis summarizes the significant factors affecting our operating results financial condition liquidity and cash flows as of and for the periods presented below The following discussion and analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this report The discussion contains forward looking statements that are based on the beliefs of management as well as assumptions made by and information currently available to management Actual results could differ materially from those discussed in or implied by forward looking statements as a result of various factors including those discussed below and elsewhere in this report particularly in the sections titled Risk Factors and Special Note Regarding Forward Looking Statements
Know Labs is an emerging leader in non invasive medical diagnostics We are focused on the development and commercialization of our proprietary sensor technology utilizing radio and microwave spectroscopy When paired with our machine learning platform our technology is capable of uniquely identifying and measuring almost any material or analyte using electromagnetic energy to detect record identify and measure the unique signature of said materials or analytes
On August 9 2024 we completed a registered securities offering the Underwritten Offering of 13 250 000 units consisting of one share of our common stock par value 0 001 per share and one warrant to purchase one share of common stock at an exercise price equal to 0 26 per share of common stock The net proceeds from the Offering were approximately 3 445 million before deducting underwriting discounts and commissions and offering expenses paid by us We expect to use the proceeds of the Underwritten Offering to fund general corporate purposes including working capital capital expenditures or research and development We granted the Representatives a 30 day option to purchase up to an additional 1 987 500 shares of common stock and 1 987 500 warrants to cover over allotments if any On August 8 2024 the representatives partially exercised their over allotment option to purchase 1 987 500 shares Between the closing date and August 21 2024 the representatives fully exercised their over allotment option to purchase 1 987 500 shares The Offering closed on August 9 2024 After deducting underwriting commissions and other offering expenses the Company received net proceeds of 3 468 million from the offering and exercise of over allotment option
On August 16 2024 we completed a registered securities offering the Registered Offering of 6 365 385 units consisting of one share of our common stock par value 0 001 per share and one warrant to purchase one share of common stock at an exercise price equal to 0 26 per share of common stock The net proceeds from the Registered Offering were approximately 1 655 million before offering expenses paid by us We expect to use the proceeds of the Registered Offering to fund general corporate purposes including working capital capital expenditures or research and development As compensation for the Advisors services in connection with this Offering we have agreed to pay a cash fee of 5 of the aggregate gross proceeds of this Offering and to issue to the Advisors Boustead Securities LLC and The Benchmark Company LLC warrants to purchase 636 538 shares of our common stock After deducting underwriting commissions and other offering expenses the Company received net proceeds of 1 515 million from the direct offering
Research and Development Expenses Research and development expenses for the year ended September 30 2024 decreased 1 613 000 to 6 114 000 as compared to 7 727 000 for the year ended September 30 2023 The decrease was due to reduced personnel use of consultant expenditures related to the development of our radio frequency spectroscopy Bio RFID technology During the year ended September 30 2024 we reduced our headcount by nine and operating expenses and used external consultants to reduce the future cost of the development of our Bio RFID technology We launched the Generation 2 working prototype device during the year ended September 30 2024
Selling General and Administrative Expenses Selling general and administrative expenses for the year ended September 30 2024 increased 2 538 000 to 9 109 000 as compared to 6 571 000 for the year ended September 30 2023 The increase primarily was due to i an increase of 1 257 000 in salaries ii an increase in legal expense of 669 000 iii issuance of common stock for services of 277 000 iv an increase in other expenses of 335 000 As part of the selling general and administrative expenses for the years ended September 30 2024 and 2023 we recorded 606 000 and 305 000 respectively of investor relationship and business development expenses
Other Income Expense Net Other expense net for the year ended September 30 2024 was 1 359 000 as compared to other expense net of 1 265 000 for the year ended September 30 2023 The other expense net for the years ended September 30 2024 included interest income of 155 000 offset by interest expense of 1 514 000 The increase in interest expense is related to 595 000 in interest expense for the extension of notes and warrants in February 2024 and amortization of issuance costs related to the Lind convertible note
The other expense net for the year ended September 30 2023 included i interest income of 127 000 offset by ii interest expense of 390 000 related to convertible notes payable and the modification and extension of terms iii loss on debt extinguishment of 507 000 related to the extension of convertible notes payable and iv other expense of 495 000 related to the write off of certain equipment
Net Loss Net loss for the year ended September 30 2024 was 16 582 000 as compared to 15 289 000 for the year ended September 30 2023 The net loss for the year ended September 30 2024 included non cash expenses of 4 930 000 The non cash items include i depreciation and amortization of 81 000 ii stock based compensation stock options of 2 958 000 iii issuance of common stock for services of 277 000 iv amortization of operating lease right of use asset of 189 000 amortization of debt issuance costs of 831 000 and v interest expense for extension of notes and warrants of 594 000
The net loss for the year ended September 30 2023 included non cash expenses of 4 768 000 The non cash items include i depreciation and amortization of 313 000 ii loss on sale of assets of 550 000 iii loss on debt extinguishment of 507 000 iv modification of notes and warrants interest expense of 350 000 v stock based compensation stock options of 2 956 000 vi amortization of operating lease right of use asset of 142 000 and vii gain on debt settlement of 50 000
Liquidity is the ability of a company to generate funds to support its current and future operations satisfy its obligations and otherwise operate on an ongoing basis Significant factors in the management of liquidity are funds generated by operations levels of accounts receivable and accounts payable and capital expenditures
As of September 30 2024 we have cash and cash equivalents of 3 111 000 and a net working capital deficit of approximately 2 053 000 We anticipate that we will record losses from operations for the foreseeable future We believe that we have enough available cash to operate until February 28 2025 As of September 30 2024 our accumulated deficit was 138 736 000 and net losses in the amount of 16 582 000 and 15 289 000 during years ended September 30 2024 and 2023 respectively
We have financed our corporate operations and our technology development through the issuance of convertible debentures the sale of common or preferred stock and the exercise of warrants During the remainder of 2024 and in 2025 we expect to raise additional funds through the issuance of preferred stock convertible debentures or equity There can be no assurance that we will be able to secure any needed funding or that if such funding is available the terms or conditions would be acceptable to us
On February 27 2024 we a entered into a securities purchase agreement with Lind Global Fund II LP pursuant to which we may issue to Lind one or more senior convertible notes in the aggregate principal amount of up to 14 400 000 for an aggregate purchase price equal to up to 12 000 000 and common stock purchase warrants and b issued a 4 800 000 note and a warrant to purchase 6 000 000 shares of our common stock to Lind in exchange for a purchase price of 4 000 000 and net proceeds of 3 805 699
On March 20 2024 we entered into an At the Market Offering Agreement with The Benchmark Company LLC pursuant to which we may from time to time offer and sell shares of our common stock through or to The Benchmark Company LLC as our sales agent or manager in an aggregate amount of up to 5 000 000 We have not received any of the 15 000 in funds due under this agreement as of September 30 2024
On August 7 2024 we entered into an Underwriting Agreement with Boustead Securities LLC and The Benchmark Company LLC as representatives of the underwriters named therein relating to our registered public offering of 13 250 000 units consisting of one share of our common stock par value 0 001 per share and one warrant to purchase one share of Common Stock at an exercise price equal to 0 26 per share of Common Stock The public offering price was 0 26 per Unit The underwriters agreed to purchase 13 250 000 units at a 7 0 discount to the public offering price We granted the Representatives a 30 day option to purchase up to an additional 1 987 500 shares of common stock and 1 987 500 warrants to cover over allotments if any The gross proceeds from the Offering are approximately 3 445 million or approximately 3 961 million if the representatives exercise in full their over allotment option before deducting underwriting discounts and commissions and other offering expenses On August 8 2024 the representatives partially exercised their over allotment option to purchase 1 987 500 warrants Between the closing date and August 21 2024 the representatives fully exercised their over allotment option to purchase 1 987 500 shares The Offering closed on August 9 2024 After deducting underwriting commissions and other offering expenses the Company received net proceeds of 3 468 million from the offering and exercise of over allotment option
On August 15 2024 we entered into Subscription Agreements with certain investors for a registered direct offering of 6 365 385 units consisting of one share of our common stock par value 0 001 per share and one warrant to purchase one share of Common Stock at an exercise price equal of 0 26 per share of Common Stock at an offering price of 0 26 per Unit for an aggregate purchase price of 1 655 million As compensation for the Advisors services in connection with this Offering we have agreed to pay a cash fee of 5 of the aggregate gross proceeds of this Offering and to issue to the Advisors warrants to purchase 636 538 shares of our common stock After deducting underwriting commissions and other offering expenses the Company received net proceeds of 1 515 million from the direct offering
Net cash used in operating activities for the years ended September 30 2024 and 2023 was 12 829 000 and 10 354 000 respectively The net cash used in operating activities for the year ended September 30 2024 was primarily related to i a net loss of 16 582 000 ii working capital changes of 1 177 000 and offset by iii non cash expenses of 4 930 000 The non cash items include iv depreciation and amortization of 81 000 v stock based compensation stock options of 2 958 000 vi issuance of common stock for services of 277 000 vii amortization of operating lease right of use asset of 189 000 amortization of debt issuance costs of 831 000 and viii interest expense for extension of notes and warrants of 594 000
The net cash used in operating activities for the year ended September 30 2023 was primarily related to i a net loss of 15 289 000 offset by ii working capital changes of 167 000 and iii non cash expenses of 4 768 000 The non cash items include iv depreciation and amortization of 313 000 v loss on disposal assets of 550 000 vi loss on debt extinguishment of 507 000 vii modification of notes and warrants interest expense of 350 000 viii stock based compensation stock options of 2 956 000 and ix amortization of operating lease right of use asset of 142 000
Net cash provided by financing activities for the for the years ended September 30 2024 and 2023 was 7 983 000 and 5 865 000 respectively The net cash provided by financing activities for the year ended September 30 2024 was primarily related to i the proceeds from debt offering net of expenses of 3 764 000 ii and proceeds from common stock offering net of expenses of 5 193 000 iii proceeds from the issuance of common stock for the exercise of warrants of 8 000 offset by iv repayment of note payable of 720 000 and v payments of debt offering of 262 000 The debt and equity offerings were previously discussed
The net cash provided by financing activities for the year ended September 30 2023 was primarily related to i proceeds from the issuance of common stock for the exercise of warrants of 387 000 ii proceeds from the issuance of common stock for the exercise of stock option grants of 5 000 proceeds from issuance common stock offering net of expenses of 5 473 000 On September 29 2023 we closed an offering of our common stock pursuant to which we sold 28 000 000 shares of common stock at a purchase price of 0 25 per share After deducting underwriting commissions and other offering expenses we received net proceeds of 5 473 000
Convertible notes payable reflects 6 095 066 4 723 506 after adjustments for debt extinguishment accounting and debt issuance costs that can be converted into common stock upon demand We expect to incur capital expenditures related to the development of the Bio RFID and ChromaID technologies None of the expenditures are contractual obligations as of September 30 2024
The following discussion relates to critical accounting policies for our company which involve significant estimates The preparation of financial statements in conformity with United States generally accepted accounting principles or GAAP requires our management to make assumptions estimates and judgments that affect the amounts reported including the notes thereto and related disclosures of commitments and contingencies if any We have identified certain accounting policies that are significant to the preparation of our financial statements These accounting policies are important for an understanding of our financial condition and results of operation Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management s difficult subjective or complex judgment often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management s current judgments We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements
Fair Value Measurements and Financial Instruments ASC Topic 820 Fair Value Measurement and Disclosures defines fair value as the exchange price that would be received for an asset or paid to transfer a liability an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value The fair value hierarchy distinguishes between assumptions based on market data observable inputs and an entity s own assumptions unobservable inputs The hierarchy consists of six levels
The recorded value of other financial assets and liabilities which consist primarily of cash and cash equivalents accounts receivable other current assets and accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities as of September 30 2024 and 2023 are based upon the short term nature of the assets and liabilities
Derivative Financial Instruments Pursuant to ASC 815 Derivatives and Hedging we evaluate all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives We then determine if embedded derivative must be bifurcated and separately accounted for For derivative financial instruments that are accounted for as liabilities the derivative instrument is initially recorded at its fair value and is then re valued at each reporting date with changes in the fair value reported in the consolidated statements of operations For stock based derivative financial instruments we use a Black Scholes Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates The classification of derivative instruments including whether such instruments should be recorded as liabilities or as equity is evaluated at the end of each reporting period Derivative instrument liabilities are classified in the balance sheet as current or non current based on whether or not net cash settlement of the derivative instrument could be required within twelve months of the balance sheet date We determined that the conversion features for purposes of bifurcation within convertible notes payable issued during 2020 and 2021 were immaterial and as of September 30 2024 all such convertible notes have been converted to common stock
Stock Based Compensation We have share based compensation plans under which employees consultants suppliers and directors may be granted restricted stock as well as options and warrants to purchase shares of common stock at the fair market value at the time of grant Stock based compensation cost to employees is measured by us at the grant date based on the fair value of the award over the requisite service period under ASC 718 For options issued to employees we recognize stock compensation costs utilizing the fair value methodology over the related period of benefit
We conducted an evaluation under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures The term disclosure controls and procedures as defined in Rules 13a 15 e and 15d 15 e under the Securities and Exchange Act of 1934 as amended Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded processed summarized and reported within the time periods specified in the Securities and Exchange Commission s rules and forms Disclosure controls and procedures also include without limitation controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company s management including its principal executive and principal financial officers or persons performing similar functions as appropriate to allow timely decisions regarding required disclosure Based on that evaluation our Chief Executive Officer and Chief Financial Officer concluded that as of September 30 2024 our disclosure controls and procedures are effective at the reasonable assurance level
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a 15 f and 15d 15 f under the Securities Exchange Act of 1934 Our internal control over financial reporting is a process designed by or under the supervision of our CEO and CFO or persons performing similar functions and effected by our board of directors management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America GAAP Our internal control over financial reporting includes those policies and procedures that i pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of the assets of our company ii provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of our company are being made only in accordance with authorization of management and directors of our company and iii provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of our assets that could have a material effect on the financial statements
Management assessed the effectiveness of our internal control over financial reporting as of September 30 2024 In making this assessment management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 Internal Control Integrated Framework Based on its evaluation management has concluded that our internal control over financial reporting was effective as of September 30 2024
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate A control system no matter how well designed and operated can provide only reasonable but not absolute assurance that the control system s objectives will be met The design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their cost
During the year ended September 30 2024 there were no other changes in our internal controls over financial reporting which were identified in connection with our management s evaluation required by paragraph d of rules 13a 15 and 15d 15 under the Exchange Act that materially affected or is reasonably likely to have a material effect on our internal control over financial reporting
Ronald P Erickson Mr Erickson was appointed as Chief Executive Officer in January 2023 Mr Erickson previously served as our Chief Executive Officer from November 2009 to April 2018 He has served as Chairman of the Board from 2004 to 2011 and from 2015 to the present A senior executive with more than 30 years of experience in the technology telecommunications software and digital media industries Mr Erickson was the founder of our company He is formerly Chairman CEO and Co Founder of Blue Frog Media a mobile media and entertainment company Chairman and CEO of eCharge Corporation an Internet based transaction procession company Chairman CEO and Co founder of GlobalTel Resources a provider of telecommunications services Chairman Interim President and CEO of Egghead Software Inc a software reseller where he was an original investor Chairman and CEO of NBI Inc and Co founder of MicroRim Inc the database software developer Earlier Mr Erickson practiced law in Seattle and worked in public policy in Washington DC and New York NY Additionally Mr Erickson has been an angel investor and board member of a number of public and private technology companies In addition to his business activities Mr Erickson was Chairman and a member of the Board of Trustees from 2010 to 2021 of Central Washington University where he received his BA degree He also holds an MA from the University of Wyoming and a JD from the University of California Davis He is licensed to practice law in the State of Washington Mr Erickson is our founder and was appointed as a director because of his extensive experience in developing technology companies
Peter J Conley Mr Conley has served as our Chief Financial Officer and SVP Intellectual Property since May 2022 In addition Mr Conley currently serves as Senior Managing Director and Head of Intellectual Property Banking at Boustead Securities LLC a position he has held since October 2014 where he provides equity financing and M A advisory services to small cap public companies Prior to that from 2012 to 2016 Mr Conley was a cofounder and Chief Operating Officer of ipCreate a global IP development and innovation services company serving large multinational companies He also served as managing director of ipCapital Venture Group where he provided IP strategy and venture advisory services During his career spanning more than 35 years Mr Conley has held leadership roles at MDB Capital Group The Analytiq Group RDEX Research Roth Capital Partners and Lehman Brothers He was on the founding team and Head of Equity Capital Markets at E Offering the investment bank of E Trade Mr Conley attended the University of Hawaii at Manoa and the University of London Center for Financial Management Studies SOAS
John Cronin Mr Cronin served as a director between November 2023 and September 2024 when he was appointed our Interim Chief Technology Officer Mr Cronin is an experienced inventor and intellectual property strategist Mr Cronin is Chairman and CEO of ipCapital Group Inc ipCG a globally recognized IP strategy consulting firm founded in 1998 offering more than 45 different services Mr Cronin has authored greater than 1 600 patents and applications across hundreds of technology spaces leveraging the ipCapital Methodology Before forming ipCG Mr Cronin spent over 17 years at IBM and became its top inventor with over 100 patents and 150 patent publications He created and ran the IBM Patent Factory which was essential in helping IBM become number one in US patents and led the team that contributed to the startup and success of IBM s licensing program Mr Cronin is also the Chair of the Board of Directors of AdrenalineIP Chairman of IX Innovations and is the Founder of HarvestWeb a 501 c 3 charitable organization that provides an easy online way to make donations to food pantries Mr Cronin previously served on the board of directors of HopTo Inc OTC HPTO from 2014 to September 2018 and ImageWare Systems Inc OTCQB IWSY from 2012 until April 2020 Mr Cronin has a B S E E an M S E E and a B A degree in Psychology from the University of Vermont As of the year ended September 30 2024 and 2023 we have paid ipCG approximately 390 000 and 713 000 respectively in professional fees Mr Cronin currently serves as Interim Chief Technology Officer and is not considered an independent director Mr Cronin was appointed as a director based on his domain expertise and extensive experience in patent strategy development and monetization
William A Owens Admiral Owens has served as an independent director since May 2018 William A Owens is the co founder and executive chairman of Red Bison Technology Group a company which installs and operates high speed telecoms networks and technology in large office buildings He is the Chairman of Visionary Vehicles which is building a series of automobiles focused on electric and hydrogen powered cars Kyrrex which is a successful and growing Crypto Currency Exchange operating in Europe and Massif an electric bicycle company Owens serves on the board of directors of the public companies Siply Know Labs and Compass and is a director of the private companies TruU Tethr ViruSight Prism Steel Grove JennyCo Axxess Capital Versium and Viome Owens was the chairman of the board of CenturyLink Telecom now Lumen the third largest telecommunications company in the United States and SAP USA Owens is on the board of trustees of Seattle University and the Fiscal Responsibility Amendment CFFRA Association which aims to establish a balanced budget amendment to the US Constitution He is a member of the Council of Foreign Relations He is the Founder and senior General on a China US forum to bring 4star generals together for China US cooperation He is a Senior Fellow at Stimson Institute From 2007 to 2015 Owens was the Chairman and Senior Partner of AEA Investors Asia a private equity firm located in Hong Kong and Vice Chairman of the NYSE for Asia Owens also served as the Chairman of Eastern Airlines He has served on over 25 public boards including Daimler British American Tobacco Telstra Nortel Networks and Polycom
Owens was the CEO of Nortel a fortune 500 company the CEO Chairman of Teledesic a Bill Gates Craig McCaw company bringing worldwide broadband through an extensive satellite network and was the President of Science Applications International Corporation SAIC He also served on the boards of the not for profit organizations Fred Hutchinson Cancer Research Center Carnegie Corporation of New York Brookings Institution East West Institute and RAND Corporation
Owens is a retired four star US Navy Admiral He was Vice Chairman of the Joint Chiefs of Staff the second ranking United States military officer in the US with responsibility for reorganizing and restructuring the armed forces in the post Cold War era He is widely recognized for bringing commercial high grade technology into the Department of Defense for military applications Owens was the architect of the Revolution in Military Affairs RMA an advanced systems technology approach to military operations the most significant change in the system of requirements budgets and technology for the four armed forces since World War II Owens was Commander of the U S Sixth Fleet from 1990 to 1992 which included Operation Desert Storm Owens also served as the deputy Chief of Naval Operations for Resources and Requirements Owens was the Senior Military Assistant to two Secretaries of Defense Cheney and Carlucci and served in the Office of Program Appraisal for the Secretary of the Navy He began his military career as a nuclear submariner He served on four strategic nuclear powered submarines and three nuclear attack submarines including tours as Commanding Officer of the USS Sam Houston USS Michigan and USS City of Corpus Christi
Owens is a 1962 honor graduate of the United States Naval Academy in mathematics holds bachelors and masters degrees in politics philosophy and economics from Oxford University and a master s degree in management from George Washington University He has written more than 50 articles on national security and authored the book High Seas His book Lifting the Fog of War was published in April 2000 with a revision published in Mandarin in 2009 And his book China US 2039 The Endgame was published in 2019 in both English and Mandarin
Owens has received numerous recognitions and awards the Légion d Honneur by France and the highest awards given to foreigners by the countries of Indonesia and Sweden He was named as one of The 50 Most Powerful People in Networking by Network World one of the 100 Best Board Members in the United States for 2011 and again in 2016 awarded by NACD and the Intrepid Salute Award in recognition of his business achievements and support of important philanthropic activities Owens is active in philanthropy to foster Chinese American relations including dialogues between the most senior retired officers in the United States and Chinese militaries He is a North Dakota s Roughriders recipients the award given annually to the most prominent North Dakotans Admiral Owens was appointed as a director of Know Labs because of his financials and governance skills
Jon Pepper Mr Pepper has served as an independent director since April 2006 Mr Pepper founded Pepcom a company that become the industry leader at producing press only technology showcase events around the country and internationally in 1980 He sold his stake in the corporation and retired as a partner at the end of 2018 Prior to that Mr Pepper started the DigitalFocus newsletter a ground breaking newsletter on digital imaging that was distributed to leading influencers worldwide Mr Pepper has been closely involved with the high technology revolution since the beginning of the personal computer era He was formerly a well regarded journalist and columnist His work on technology subjects appeared in The New York Times Fortune PC Magazine Men s Journal Working Woman PC Week Popular Science and many other well known publications Mr Pepper was educated at Union College in Schenectady New York and the Royal Academy of Fine Arts in Copenhagen He continues to be active in non profit work and private company boards and in 2017 founded Mulberry Tree Films a non profit that supports independent high quality documentary films and other publishing and creative projects that are oriented toward increasing the understanding of human potential and creativity Mulberry Tree funded and produced the acclaimed documentary The Gates of Shinto and is currently at work on additional projects Mr Pepper was appointed as a director because of his marketing skills with technology companies Mr Pepper was appointed as a director because of his marketing skills with technology companies
Ichiro Takesako Mr Takesako has served as an independent director since December 2012 Mr Takesako has held executive positions with Sumitomo Precision Products Co Ltd or Sumitomo and its affiliates since 1983 In the past few years Mr Takesako has held the following executive position in Sumitomo and its affiliates in June 2008 he was appointed as General Manager of Sales and Marketing Department of Micro Technology Division in April 2009 he was appointed as General Manager of Overseas Business Department of Micro Technology Division in charge of M A activity of certain business segment and assets of Aviza Technology Inc in July 2010 he was appointed as Executive Director of SPP Process Technology Systems a 100 owned subsidiary of Sumitomo Precision Products at the time in August 2011 he was appointed as General Manager Corporate Strategic Planning Group in January 2013 he was appointed as Chief Executive Officer of M2M Technologies Inc a company invested by Sumitomo Precision products in April 2013 has was appointed as General Manager of Business Development Department in parallel of CEO of M2M Technologies Inc in April 2014 he was relieved from General Manager of Business Development Department and is responsible for M2M Technologies Inc as its CEO in March 2017 he established At Signal Inc which took over the entire business operation from M2M Technologies Inc and in April 2017 he was appointed as Chief Executive Officer of At Signal Inc Mr Takesako graduated from Waseda University Tokyo Japan where he majored in Social Science and graduated with a Degree of Bachelor of Social Science Mr Takesako was appointed as a director based on his previous position with Sumitomo and Sumitomo s previous significant partnership with our company Mr Takesako was appointed as a director based on his previous position with Sumitomo and Sumitomo s previous significant partnership with our company
Larry K Ellingson Mr Ellingson has served as an independent director since November 2023 Mr Ellingson holds a BS Pharmacy from North Dakota State University NDSU Fargo North Dakota and an Executive MBA from Babson College Babson Park Massachusetts From April 23 2019 to present Mr Ellingson has served as a member of Know Labs advisory board From 2013 to present Mr Ellingson is Co Founder of the Diabetes Leadership Council and Vice Chair Global initiatives Since 2006 to present Mr Ellingson has been President of Global Diabetes Consulting LTD
Mr Ellingson retired from Eli Lilly and Company in May 2001 after having been involved as a leader of global diabetes for Lilly for more than half of his career He has held several other positions at Lilly including Director of Pharmaceutical New Product Planning for gastrointestinal skeletal endocrine and infectious diseases along with responsibility for marketed products in those areas in the late 1980s
Mr Ellingson continues to remain active with committee work and board positions for a multitude of organizations among them are NDSU Research Park International Diabetes Federation Academy of Nutrition and Dietetics Nurse Practitioners Healthcare Foundation and the American Diabetes Association His contributions to the Association have been abundant and far reaching and have spanned over 20 years He has held numerous positions within the Association such as member of the Industry Advisory Strategic Marketing Task Force Strategic Planning Task Force Big Ticket Task Force Pinnacle Society and the Income Development Committee He has been Chair or Vice Chair for an equally extensive list of bodies within the Association including the Board of Directors Fundraising Committee Executive Committee and Nominating Committee He has unquestionably been a positive force and an integral part of mission delivery
Mr Ellingson has been honored several times for his achievements in his field He was honored by being the first and only non scientist to receive Eli Lilly s President s Award and the Lilly Research Award for contributions to diabetes research In 2001 Eli Lilly created the Ellingson Legacy Award to honor those who provide outstanding service to the customer Ellingson was the first recipient of the award The ADA Indiana affiliate awarded Mr Ellingson the J K Lilly Award in 2004 for his contributions service to the field of diabetes NDSU awarded him the highest honor in 2007 naming him An Outstanding Alumni of the Year for his contributions to the field and to the University The American Diabetes Association recognized Mr Ellingson in 2006 with the Charles H Best Medal for Outstanding Service for his exceptional contributions as Chair of the Board The ADA recognized Mr Ellingson with the prestigious Wendell Mayes Jr Award in 2013 for his long term service in diabetes Mr Ellingson received an Honorary Membership in 2020 to the Academy of Nutrition and Dietetics for his contributions to the Academy He continues to be engaged in diabetes programs and projects through the Diabetes Leadership Council which he cofounded in 2013 He continues to be engaged in diabetes programs and projects through the Diabetes Leadership Council which he cofounded in 2013 Mr Ellingson was appointed as a director based on his substantial experience in the diabetes industry and his global thought leadership in the field of diabetes
We are not aware of any of our directors or officers being involved in any legal proceedings in the past ten years relating to any matters in bankruptcy insolvency criminal proceedings other than traffic and other minor offenses or being subject to any of the items set forth under Item 401 f of Regulation S K
Our Board oversees that the assets of our company are properly safeguarded that the appropriate financial and other controls are maintained and that our business is conducted wisely and in compliance with applicable laws and regulations and proper governance Included in these responsibilities is the Board s oversight of the various risks facing our company In this regard our Board seeks to understand and oversee critical business risks Our Board does not view risk in isolation Risks are considered in virtually every business decision and as part of our business strategy Our Board recognizes that it is neither possible nor prudent to eliminate all risk Indeed purposeful and appropriate risk taking is essential for our company to be competitive on a global basis and to achieve our objectives
While the Board oversees risk management company management is charged with managing risk Management communicates routinely with the Board and individual directors on the significant risks identified and how they are being managed Directors are free to and indeed often do communicate directly with senior management
Our Board administers its risk oversight function as a whole by making risk oversight a matter of collective consideration however much of the work is delegated to committees which will meet regularly and report back to the full Board The audit committee oversees risks related to our financial statements the financial reporting process accounting and legal matters the compensation committee evaluates the risks and rewards associated with our compensation philosophy and programs and the nominating and corporate governance committee evaluates risks associated with management decisions and strategic direction
NYSE American s rules generally require that a majority of an issuer s board of directors must consist of independent directors Our board of directors currently consists of six 6 directors four 4 of whom Messrs Owens Pepper Takesako and Ellingson are independent within the meaning of NYSE American rules
Our Board has established an audit committee a compensation committee and a nominating and corporate governance committee each comprised only of members who meet the independence requirements of the Exchange Act and NYSE American rules and each with its own charter approved by the Board Each committee s charter is available on our website at www knowlabs co In addition our Board may from time to time designate one or more additional committees which shall have the duties and powers granted to it by our Board
William A Owens Jon Pepper and Ichiro Takesako serve on our audit committee with Mr Pepper serving as the chairman Our Board has determined that Mr Owens qualifies as an audit committee financial expert as defined in Item 407 d 5 of Regulation S K The audit committee oversees our accounting and financial reporting processes and the audits of our financial statements
The audit committee is responsible for among other things i retaining and overseeing our independent accountants ii assisting the Board in its oversight of the integrity of our financial statements the qualifications independence and performance of our independent auditors and our compliance with legal and regulatory requirements iii reviewing and approving the plan and scope of the internal and external audit iv pre approving any audit and non audit services provided by our independent auditors v approving the fees to be paid to our independent auditors vi reviewing with our chief executive officer and principal financial officer and independent auditors the adequacy and effectiveness of our internal controls vii reviewing hedging transactions and viii reviewing and assessing annually the audit committee s performance and the adequacy of its charter The audit committee is also responsible for preparing a report to be included with this Proxy Statement Our audit committee met 4 times during the last fiscal year
William A Owens John Cronin and Jon Pepper serve on our compensation committee with Mr Owens serving as the chairman The members of the compensation committee are also non employee directors within the meaning of Section 16 of the Exchange Act The compensation committee assists the Board in reviewing and approving the compensation structure including all forms of compensation relating to our directors and executive officers Mr Cronin will be replaced with an independent director shortly
The compensation committee is responsible for among other things i reviewing and approving the remuneration of our executive officers ii making recommendations to the Board regarding the compensation of our independent directors iii making recommendations to the Board regarding equity based and incentive compensation plans policies and programs and iv reviewing and assessing annually the compensation committee s performance and the adequacy of its charter Our compensation committee met 4 times during the last fiscal year
Larry K Ellingson Jon Pepper and Ichiro Takesako serve on our nominating and corporate governance committee with Mr Ellingson serving as the chairman The nominating and corporate governance committee assists the Board in selecting individuals qualified to become our directors and in determining the composition of the Board and its committees
The nominating and corporate governance committee is responsible for among other things i identifying and evaluating individuals qualified to become members of the Board by reviewing nominees for election to the Board submitted by stockholders and recommending to the Board director nominees for each annual meeting of stockholders and for election to fill any vacancies on the Board ii advising the Board with respect to Board organization desired qualifications of Board members the membership function operation structure and composition of committees including any committee authority to delegate to subcommittees and self evaluation and policies iii advising on matters relating to corporate governance and monitoring developments in the law and practice of corporate governance iv overseeing compliance with our code of ethics and v approving any related party transactions
The nominating and corporate governance committee s methods for identifying candidates for election to our Board other than those proposed by our stockholders as discussed below include the solicitation of ideas for possible candidates from a number of sources members of our Board our executives individuals personally known to the members of our Board and other research The nominating and corporate governance committee may also from time to time retain one or more third party search firms to identify suitable candidates
In making director recommendations the nominating and corporate governance committee may consider some or all of the following factors i the candidate s judgment skill and experience with other organizations of comparable purpose complexity and size and subject to similar legal restrictions and oversight ii the interplay of the candidate s experience with the experience of other Board members iii the extent to which the candidate would be a desirable addition to the Board and any committee thereof iv whether or not the person has any relationships that might impair his or her independence and v the candidate s ability to contribute to the effective management of our company taking into account the needs of our company and such factors as the individual s experience perspective skills and knowledge of the industry in which we operate
A stockholder may nominate one or more persons for election as a director at an annual meeting of stockholders if the stockholder complies with the notice and information provisions contained in our Bylaws Such notice must be received in writing to our company not later than the close of business fourteen 14 days nor earlier than the close of business eighty 80 days prior to the first anniversary of the preceding year s annual meeting provided however that if less than twenty one 21 days notice of the meeting is given to stockholders such writing shall be received by the Secretary of the Corporation not later than the close of the seventh 7th day following the day on which notice of the meeting was mailed to stockholders In addition stockholders furnishing such notice must be a holder of record on both i the date of delivering such notice and ii the record date for the determination of stockholders entitled to vote at such meeting
We have adopted a code of ethics that applies to all of our directors officers and employees including our principal executive officer principal financial officer and principal accounting officer Such code of ethics addresses among other things honesty and ethical conduct conflicts of interest compliance with laws regulations and policies including disclosure requirements under the federal securities laws and reporting of violations of the code
A copy of the code of ethics has been filed as an exhibit to our registration statement on Form S 1 as amended July 29 2022 and is also available on our website as www knowlabs io We are required to disclose any amendment to or waiver from a provision of our code of ethics applicable to our principal executive officer principal financial officer principal accounting officer controller or persons performing similar functions We intend to use our website as a method of disseminating this disclosure as well as by SEC filings as permitted or required by applicable SEC rules Any such disclosure will be posted to our website within four 4 business days following the date of any such amendment to or waiver from a provision of our code of ethics
We have adopted a Compensation Recovery Policy for the recovery of Erroneously Awarded Compensation in order to comply with Section 10D of the Exchange Act Rule 10D 1 promulgated under the Exchange Act and the listing standards of the NYSE American adopted pursuant thereto In the event we are required to prepare an accounting restatement of our financial results as a result of a material noncompliance by us with any financial reporting requirement under the federal securities laws we will have the right to use reasonable efforts to recover from any current or former executive officers who received incentive compensation whether cash or equity from us during the three year period preceding the date on which we were required to prepare the accounting restatement any excess incentive compensation awarded as a result of the misstatement This policy is administered by the Compensation Committee of the Board
We have adopted an insider trading policy governing the purchase sale and or other dispositions of our securities by directors officers and employees that includes restrictions and limitations on the ability of our directors officers and other employees to engage in transactions involving the hedging and pledging of our stock Under the policy hedging or monetization transactions such as collars forward sale contracts equity swaps puts calls collars forwards and other derivative instruments which allow an employee to lock in much of the value of his or her stock holdings often in exchange for all or part of the potential for upside appreciation in the stock and thus to continue to own our stock without the full risks and rewards of ownership are prohibited In addition the policy addresses the practices of holding our stock in a margin account under which the securities may be sold by the broker without the customer s consent if the customer fails to meet a margin call and of pledging our stock as collateral for a loan in which event the securities may be sold in foreclosure if the borrower defaults on the loan Securities held in a margin account or pledged as collateral may not exceed 25 of the total number of shares owned by the employee or director
The following table sets forth information concerning all cash and non cash compensation awarded to earned by or paid to our Chief Executive Officer and two other most highly compensated executive officers our named executive officers for services rendered in all capacities during the fiscal years ended September 30 2024 and September 30 2023 respectively No other executive officers received total annual salary and bonus compensation in excess of 100 000
During the fiscal years ended September 30 2024 and 2023 Ronald P Erickson was compensated with a salary of 325 000 from November 1 2022 to December 22 2022 of 375 000 from December 23 2022 to March 1 2024 and 500 000 from March 1 2024 to September 30 2024 Mr Erickson received a bonus of 100 000 during the fiscal year end September 30 2024 An entity affiliated with and controlled by Mr Erickson J3E2A2Z LP was paid interest of 205 000 and 140 000 and other expenses of 0 and 33 855 during the fiscal years ended September 30 2024 and 2023 respectively See Annual Report on Form 10 K for the fiscal years ended September 30 2024 and 2023 Outstanding Equity Awards at Year End for a discussion of option award compensation
During the fiscal year ended September 30 2022 Mr Conley was compensated with an annual salary of 300 000 from September 30 2022 to December 13 2023 From December 14 2022 Mr Conley has been compensated with an annual salary of 325 000 From March 1 2024 to September 30 2024 Mr Conley was compensated at 400 000 Mr Conley received a bonus of 125 000 during the fiscal year end September 30 2024 See Annual Report on Form 10 K for the fiscal year ended September 30 2024 Outstanding Equity Awards at Year End for a discussion of option award compensation
These amounts reflect the aggregate grant date fair value of awards granted in the fiscal years ended September 30 2024 and 2023 as required by Regulation S K Item 402 n 2 computed in accordance with the FASB Accounting Standards Codification Topic 718 FASB ASC Topic 718 All assumptions made in the valuations are contained and described in footnote 8 to our financial statements for Fiscal 2024 contained in this Annual Report on Form 10 K for the fiscal year ended September 30 2024 The amounts shown in the table reflect the total fair value on the date of the grant
On April 10 2018 we entered into an amended employment agreement with Ronald P Erickson which amends our employment agreement with him dated July 1 2017 The current salary is 500 000 Mr Erickson will be entitled to participate in all group employment benefits that are offered by us to our senior executives and management employees from time to time subject to the terms and conditions of such benefit plans including any eligibility requirements The employment agreement is for an initial term of 12 months subject to earlier termination and will be automatically extended for additional 12 month terms unless either party notifies the other party of its intention to terminate the employment agreement at least ninety 90 days prior to the end of the initial term or renewal term If we terminate Mr Erickson s employment at any time prior to the expiration of the term without cause as defined in the employment agreement or if Mr Erickson terminates his employment at any time for good reason or due to a disability Mr Erickson will be entitled to receive i his base salary amount for one year and ii medical benefits for eighteen months On January 23 2023 the Board appointed Mr Erickson our Chief Executive Officer Mr Erickson was appointed to serve until his successor is duly elected
On May 13 2022 we entered into an employment agreement with Peter J Conley reflecting his appointment as our Chief Financial Officer and Senior Vice President Intellectual Property The current salary is 400 000 Mr Conley may also be entitled to bonuses from time to time as determined by our Board or our compensation committee in their sole discretion Mr Conley is eligible to participate in all our employee benefit plans policies and arrangements that are applicable to other executive officers as such plans policies and arrangements may exist or change from time to time at our discretion We will reimburse Mr Conley for reasonable travel entertainment and other expenses he incurs in the furtherance of his duties under the employment agreement The employment agreement is at will meaning either we or Mr Conley may terminate the employment relationship at any time with or without cause upon written notice to the other party The employment agreement provides for severance pay equal to 12 months of then in effect base salary if Mr Conley is terminated without cause or voluntarily terminates his employment for good reason as defined in the employment agreement
Our independent non employee directors are primarily compensated with stock option grants and stock grants to attract and retain qualified candidates to serve on the Board in addition to a 10 000 cash retainer in consideration of board services In setting director compensation we consider the significant amount of time that directors expend in fulfilling their duties to our company as well as the skill level required by our members of the Board
The table below sets forth the compensation paid to our non employee directors during the fiscal year ended September 30 2024 Ronald P Erickson did not receive any compensation for their services as directors The compensation disclosed in the Summary Compensation Table above represents the total compensation for Mr Erickson
Mr Pepper was issued 135 000 shares of our common stock that were valued at 57 750 In addition Mr Pepper was issued stock option grants for 579 528 shares of common stock that were valued at the Black Scholes value of 130 321 Mr Pepper was paid 10 000 for board services As of September 30 2024 Mr Pepper has stock option grants for 657 028 shares of common stock and warrants to purchase common stock of 40 000 shares
Mr Takesako was issued 135 000 shares of our common stock that were valued at 57 750 In addition Mr Takesako was issued stock option grants for 579 528 shares of common stock that were valued at the Black Scholes value of 130 321 Mr Takesako was paid 10 000 for board services As of September 30 2024 Mr Takesako has stock option grants for 657 028 shares of common stock and warrants to purchase common stock of 40 000 shares
Mr Owens was issued 135 000 shares of our common stock that were valued at 57 750 In addition Mr Owens was issued stock option grants for 579 528 shares of common stock that were valued at the Black Scholes value of 130 321 Mr Owens was paid 10 000 for board services As of September 30 2024 Mr Owens has stock option grants for 579 528 shares of common stock and warrants to purchase common stock of 40 000 shares
Mr Cronin was issued 16 164 shares of our common stock that were valued at 7 920 In addition Mr Cronin was issued stock option grants for 1 390 411 shares of common stock that were valued at the Black Scholes value of 70 007 per share Mr Crowin was paid 1 616 for board services As of September 30 2024 Mr Cronin has stock option grants for 1 390 411 shares of common stock Mr Cronin was appointed as a director in November 2023 Mr Cronin was appointed our Interim Chief Technology Officer in September 2024
Mr Ellingson was issued 16 164 shares of our common stock that were valued at 7 920 In addition Mr Ellingson was issued stock option grants for 290 411 shares of common stock that were valued at the Black Scholes value of 50 860 Mr Ellingson was paid 1 616 for board services As of September 30 2024 Mr Ellingson has stock option grants for 290 411 shares of common stock Mr Ellingson was appointed as a director in November 2023
Mr Londergan was issued 16 164 shares of our common stock that were valued at 7 920 In addition Mr Londergan was issued stock option grants for 290 411 shares of common stock that were valued at the Black Scholes value of 50 860 Mr Londergan was paid 1 616 for board services As of September 30 2024 Mr Londergan has stock option grants for 290 411 shares of common stock Mr Londergan resigned on September 6 2024
These amounts reflect the grant date market value as required by Regulation S K Item 402 n 2 computed in accordance with FASB ASC Topic 718 All assumptions made in the valuations are contained and described in footnote 8 to our financial statements for Fiscal 2024 contained in this Annual Report on Form 10 K for the fiscal year ended September 30 2024 The amounts shown in the table reflect the total fair value on the date of grant and do not necessarily reflect the actual value if any that may be realized by the listed executives
On August 12 2021 we established the Know Labs Inc 2021 Equity Incentive Plan the 2021 Plan which was adopted by our stockholders on October 15 2021 On September 11 2024 the Board of Directors approved an amendment to the 2021 Plan subject to stockholder approval which was subsequently approved by our stockholders on October 25 2024 to increase the total number of shares of common stock available for issuance under the 2021 Plan by 18 000 000 shares to 40 000 000 subject to annual increases
Awards that may be granted include a incentive stock options b non qualified stock options c stock appreciation rights d restricted awards e performance share awards and f performance compensation awards These awards offer our officers employees consultants and directors the possibility of future value depending on the long term price appreciation of our common stock and the award holder s continuing service with our company All of the permissible types of awards under the 2021 Plan are described in more detail below
Purposes of 2021 Plan The purposes of the 2021 Plan are to attract and retain officers employees and directors for our company and our subsidiaries motivate them by means of appropriate incentives to achieve long range goals provide incentive compensation opportunities and further align their interests with those of our stockholders through compensation that is based on our common stock
Administration of the 2021 Plan The 2021 Plan is administered by our compensation committee which we refer to as the plan administrator Among other things the plan administrator has the authority to select persons who will receive awards determine the types of awards and the number of shares to be covered by awards and to establish the terms conditions performance criteria restrictions and other provisions of awards The plan administrator has authority to establish amend and rescind rules and regulations relating to the 2021 Plan
Shares Available Under the 2021 Plan 20 000 000 shares of our common stock were originally authorized On August 12 2021 the Company established the Know Labs Inc 2021 Equity Incentive Plan the 2021 Plan which was adopted by our shareholders on October 15 2021 Common stock reserved under the 2021 Plan increased to 22 000 000 shares on January 1 2022 On October 25 2024 shareholders approved a Plan Amendment which increased the maximum number of shares of our common stock that may be delivered to participants under the 2021 Plan to 40 000 000
Shares subject to an award that is settled in cash will not again be made available for grants under the 2021 Plan As of the date of this report all shares remain available for issuance under the 2021 Plan The 2021 Plan also authorizes for issuance the sum of A any shares of our common stock that as of the date of stockholder approval of the 2021 Plan have been reserved but not issued pursuant to any awards granted under our 2011 Stock Incentive Plan and B any shares of our common stock subject to stock options or similar awards granted under our 2011 Stock Incentive Plan that after the date of stockholder approval of the 2021 Plan expire or otherwise terminate without having been exercised in full and shares of our common stock issued pursuant to awards granted under our 2011 Stock Incentive Plan that are forfeited to or repurchased by us with the maximum number of shares of our common stock to be added to the 2021 Plan pursuant to clause B equal to 7 592 825
Automatic Share Reserve Increase Subject to the provisions of Section 14 of the 2021 Plan the number of shares available for issuance under the 2021 Plan will be increased on the first day of each calendar year beginning January 1 2022 and ending on and including January 1 2030 in an amount equal to the least of i 2 000 000 shares of our common stock ii four percent 4 of the outstanding shares of our common stock on the last day of the immediately preceding fiscal year or iii such number of shares of our common stock determined by our board of directors provided that such determination under clause iii will be made no later than the last day of the immediately preceding fiscal year
Stock Options Stock options give the option holder the right to acquire from us a designated number of shares of common stock at a purchase price that is fixed upon the grant of the option The exercise price will not be less than the market price of the common stock on the date of grant Stock options granted may be either tax qualified stock options so called incentive stock options or non qualified stock options
General Subject to the provisions of the 2021 Plan the plan administrator has the authority to determine all grants of stock options That determination will include i the number of shares subject to any option ii the exercise price per share iii the expiration date of the option iv the manner time and date of permitted exercise v other restrictions if any on the option or the shares underlying the option and vi any other terms and conditions as the plan administrator may determine
Option Price The exercise price for stock options will be determined at the time of grant Normally the exercise price will not be less than the fair market value on the date of grant As a matter of tax law the exercise price for any incentive stock option awarded may not be less than the fair market value of the shares on the date of grant However incentive stock option grants to any person owning more than 10 of our voting stock must have an exercise price of not less than 110 of the fair market value on the grant date
Exercise of Options An option may be exercised only in accordance with the terms and conditions for the option agreement as established by the plan administrator at the time of the grant The option must be exercised by notice to us accompanied by payment of the exercise price Payments may be made in cash or at the option of the plan administrator by actual or constructive delivery of shares of common stock to the holder of the option based upon the fair market value of the shares on the date of exercise
Expiration or Termination Options if not previously exercised will expire on the expiration date established by the plan administrator at the time of grant In the case of incentive stock options such term cannot exceed ten years provided that in the case of holders of more than 10 of our voting stock such term cannot exceed five years Options will terminate before their expiration date if the holder s service with our company or a subsidiary terminates before the expiration date The option may remain exercisable for specified periods after certain terminations of employment including terminations as a result of death disability or retirement with the precise period during which the option may be exercised to be established by the plan administrator and reflected in the grant evidencing the award
Incentive and Non Qualified Options As described elsewhere in this summary an incentive stock option is an option that is intended to qualify under certain provisions of the Internal Revenue Code of 1986 as amended or the Code for more favorable tax treatment than applies to non qualified stock options Any option that does not qualify as an incentive stock option will be a non qualified stock option Under the Code certain restrictions apply to incentive stock options For example the exercise price for incentive stock options may not be less than the fair market value of the shares on the grant date and the term of the option may not exceed ten years In addition an incentive stock option may not be transferred other than by will or the laws of descent and distribution and is exercisable during the holder s lifetime only by the holder In addition no incentive stock options may be granted to a holder that is first exercisable in a single year if that option together with all incentive stock options previously granted to the holder that also first become exercisable in that year relate to shares having an aggregate market value in excess of 100 000 measured at the grant date
Stock Appreciation Rights Stock appreciation rights or SARs which may be granted alone or in tandem with options have an economic value similar to that of options When a SAR for a particular number of shares is exercised the holder receives a payment equal to the difference between the market price of the shares on the date of exercise and the exercise price of the shares under the SAR The exercise price for SARs normally is the market price of the shares on the date the SAR is granted Under the 2021 Plan holders of SARs may receive this payment the appreciation value either in cash or shares of common stock valued at the fair market value on the date of exercise The form of payment will be determined by us
Stock Awards Restricted shares are shares of common stock awarded to participants at no cost Restricted shares can take the form of awards of restricted stock which represent issued and outstanding shares of our common stock subject to vesting criteria or restricted stock units which represent the right to receive shares of our common stock subject to satisfaction of the vesting criteria Those may include requirements for continuous service and or the achievement of specified performance goals Restricted shares are forfeitable and non transferable until the shares vest The vesting date or dates and other conditions for vesting are established when the shares are awarded
Section 162 m of the Code Section 162 m of the Code limits publicly held companies to an annual deduction for U S federal income tax purposes of 1 0 million for compensation paid to each of their principal executive officer or principal financial officer and their three highest compensated executive officers other than the principal executive officer or principal financial officer determined at the end of each year referred to as covered employees
Performance Criteria Under the 2021 Plan one or more performance criteria will be used by the plan administrator in establishing performance goals Any one or more of the performance criteria may be used on an absolute or relative basis to measure the performance of our company as the plan administrator may deem appropriate or as compared to the performance of a group of comparable companies or published or special index that the plan administrator deems appropriate In determining the actual size of an individual performance compensation award the plan administrator may reduce or eliminate the amount of the award through the use of negative discretion if in its sole judgment such reduction or elimination is appropriate The plan administrator shall not have the discretion to i grant or provide payment in respect of performance compensation awards if the performance goals have not been attained or ii increase a performance compensation award above the maximum amount payable under the 2021 Plan
Other Material Provisions Awards will be evidenced by a written agreement in such form as may be approved by the plan administrator In the event of various changes to the capitalization of our company such as stock splits stock dividends and similar re capitalizations an appropriate adjustment will be made by the plan administrator to the number of shares covered by outstanding awards or to the exercise price of such awards The plan administrator is also permitted to include in the written agreement provisions that provide for certain changes in the award in the event of a change of control of our company including acceleration of vesting Except as otherwise determined by the plan administrator at the date of grant awards will not be transferable other than by will or the laws of descent and distribution Prior to any award distribution we are permitted to deduct or withhold amounts sufficient to satisfy any employee withholding tax requirements Our board also has the authority at any time to discontinue the granting of awards The board also has the authority to alter or amend the 2021 Plan or any outstanding award or may terminate the 2021 Plan as to further grants provided that no amendment will without the approval of our stockholders to the extent that such approval is required by law or the rules of an applicable exchange increase the number of shares available under the 2021 Plan change the persons eligible for awards under the 2021 Plan extend the time within which awards may be made or amend the provisions of the 2021 Plan related to amendments No amendment that would adversely affect any outstanding award made under the 2021 Plan can be made without the consent of the holder of such award
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of September 30 2024 to the extent known by us or ascertainable from public filings for i each of our named executive officers and directors ii all of our named executive officers and directors as a group and iii each other stockholder known by us to be the beneficial owner of more than 5 of our outstanding common stock Unless otherwise indicated the address of each beneficial owner listed in the table below is c o our company 619 Western Avenue Suite 610 Seattle WA 98104
Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities For purposes of this table a person or group of persons is deemed to have beneficial ownership of any shares that such person or any member of such group has the right to acquire within sixty 60 days For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above any shares that such person or persons has the right to acquire within sixty 60 days of September 30 2024 are deemed to be outstanding for such person but not deemed to be outstanding for the purpose of computing the percentage ownership of any other person The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership by any person
Consists of i 1 488 085 shares of shares of our common stock beneficially owned by Ronald P Erickson or entities controlled by Mr Erickson ii 3 751 736 shares of our common stock issuable upon the exercise of options exercisable within 60 days iii 3 894 666 shares of our common stock issuable upon the exercise of warrants that are exercisable within 60 days and iv 4 736 264 shares of our common stock issuable upon the conversion of convertible notes that are convertible within 60 days
Consists of i 947 703 shares of our common stock held directly by William A Owens ii 579 528 shares of our common stock issuable upon the exercise of options exercisable within 60 days and iii 40 000 shares of our common stock issuable upon the exercise of warrants that are exercisable within 60 days
Consists of i 7 747 688 shares of our common stock ii 10 115 869 shares of our common stock issuable upon the exercise of warrants iii 5 000 000 shares of our common stock issuable upon the conversion of our Series C Convertible Preferred Stock iv 3 108 356 shares of our common stock issuable upon the conversion of our Series D Convertible Preferred Stock and v 4 284 000 shares of our common stock issuable upon the conversion of convertible notes and excludes additional shares of preferred stock issuable as accreted preferred dividends pursuant to terms of the Series C and D Convertible Preferred Stock All of the warrants Series C Convertible Preferred Stock Series D Convertible Preferred Stock and convertible notes held by Mr Struve are subject to a 4 99 blocker pursuant to which shares of our common stock may not be issued to the extent that such issuance would cause Mr Struve to beneficially own more than 4 99 of our common stock The address of Mr Struve is 175 West Jackson Blvd Suite 440 Chicago IL 60604
Consists of i 546 697 shares of our common stock ii 3 840 000 shares of our common stock issuable upon the conversion of convertible notes and iii 6 000 000 shares of our common stock issuable upon the exercise of warrants The address for Lind Global Fund II LP is 444 Madison Street Floor 41 New York NY 10022 care of the Lind Partners LLC
On August 12 2021 we established the 2021 Plan which was adopted by our stockholders on October 15 2021 The maximum number of shares of common stock that may be issued pursuant to awards granted under the 2021 Plan is 22 000 000 shares and all of these shares remained available for issuance as of September 30 2024 See Item 11 Executive Compensation 2021 Equity Incentive Plan for a complete description of the 2021 Plan
The following includes a summary of transactions since the beginning of our 2022 fiscal year or any currently proposed transaction in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of 120 000 or one percent of the average of our total assets at year end for the last three completed fiscal years and in which any related person had or will have a direct or indirect material interest other than compensation described under Executive Compensation above We believe the terms obtained or consideration that we paid or received as applicable in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received as applicable in arm s length transactions
On December 7 2022 we signed an Extension of Warrant Agreement with Clayton Struve extending the exercise dates We recorded interest expense of 194 019 during the year ended September 30 2023 related to the extension of the warrants We recorded the original value of warrants in equity and as such we recorded the extension value as an expense with an offset to additional paid in capital
On June 27 2023 at Mr Struve s request we settled all cash dividends with respect to the Series D Convertible Preferred Stock accrued and accumulated through December 31 2022 in exchange for the issuance to Mr Struve of 1 402 784 shares of our common stock in reliance on the exemption from registration pursuant to Section 4 a 2 of the Securities Act of 1933 as amended In connection with this transaction we recorded 1 627 230 in dividends representing the fair market value of the 1 402 784 shares issued On June 18 2024 Mr Struve converted dividends of 800 384 into 3 201 534 shares of our common stock related to the conversion of Series C and D Convertible Preferred Stock
On November 4 2019 we granted a stock option grant to Ronald P Erickson for 1 200 000 shares with an exercise price of 1 10 per share The performance grant expires November 4 2024 and vests upon uplisting to the NASDAQ or NYSE exchanges Our common stock began trading on NYSE American under the symbol KNW on September 16 2022 and we expensed 1 207 200 during the year ended September 30 2022
On December 15 2020 we issued a stock option grant to Ronald P Erickson for 1 865 675 shares at an exercise price of 1 53 per share The stock option grant expires in five years The grant vests in increments if the market capitalization of our commons stock exceeds for 20 consecutive trading days starting at 100 million to 1 billion We estimated at grant date the fair value of these options at approximately 520 869 which is being amortized over 5 years As of September 30 2024 we recorded a cumulative expense of 384 664 We are valuing this stock option using the Monte Carlo pricing model which included key assumptions of 100 stock volatility five year life and no forfeitures The stock option grant was not vested as of September 30 2024
On December 15 2020 we issued a stock option grant to Ronald P Erickson for 1 865 675 shares at an exercise price of 1 53 per share The stock option grant expires in five years Our common stock began trading on NYSE American under the symbol KNW on September 16 2022 and we expensed 263 593 during the year ended September 30 2022 The stock option grants vest when earned based on certain performance criteria
Mr Cronin has served as an independent director since November 2023 Mr Cronin is an experienced inventor and intellectual property strategist Mr Cronin is Chairman and CEO of ipCapital Group Inc As of the year ended September 30 2024 and 2023 we have paid ipCapital Group approximately 390 000 and 713 000 respectively in professional fees
The Audit Committee has established a pre approval policy and procedures for audit audit related and tax services that can be performed by the independent auditors without specific authorization from the Audit Committee subject to certain restrictions The policy sets out the specific services pre approved by the Audit Committee and the applicable limitations while ensuring the independence of the independent auditors to audit our financial statements is not impaired The pre approval policy does not include a delegation to management of the Audit Committee s responsibilities under the Exchange Act During the year ended September 30 2023 and 2024 the Audit Committee pre approved all audit and permissible non audit services provided by our independent auditors
Form of Preferred Stock and Warrant Purchase Agreement Form of Amended and Restated Registration Rights Agreement and Form of Series F Warrant to Purchase common stock by and between Visualant Incorporated and Clayton A Struve incorporated by reference to the Company s Current Report on Form 8 K filed May 5 2017
We have audited the accompanying consolidated balance sheets of Know Labs Inc and its subsidiaries the Company as of September 30 2024 and 2023 and the related consolidated statements of operations stockholders deficit equity and cash flows for each of the two years in the period ended September 30 2024 and the related notes collectively referred to as the consolidated financial statements In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Company as of September 30 2024 and 2023 and the results of its operations and its cash flows for each of the two years in the period ended September 30 2024 in conformity with the accounting principles generally accepted in the United States of America
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern As discussed in Note 2 to the consolidated financial statements the Company has suffered recurring losses from operations and has an accumulated deficit that raise substantial doubt about its ability to continue as a going concern Management s plans in regard to these matters are also described in Note 2 The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty
These consolidated financial statements are the responsibility of the entity s management Our responsibility is to express an opinion on these consolidated financial statements based on our audits We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud The Company is not required to have nor were we engaged to perform an audit of its internal control over financial reporting As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control over financial reporting Accordingly we express no such opinion
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the consolidated financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the consolidated financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that 1 relate to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matters below providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate
As described in Notes 6 and 7 to the consolidated financial statements on February 27 2024 the Company entered into a securities purchase agreement involving the issuance of senior convertible notes and warrants The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives requiring bifurcation in accordance with ASC Topic 815 Derivatives and Hedging The Company concluded that the warrants issued on February 27 2024 met the requirements for equity classification The Company allocated the face value and the issuance costs to the convertible notes and the warrants based on their relative fair values
The principal considerations for our determination that performing procedures related to the issuance of the convertible debt and warrants is a critical audit matter are due to the complexity of these transactions and the significant estimates involved as well as the nature and extent of audit effort required to obtain sufficient appropriate audit evidence to address the risks of material misstatements related to the classification and valuation of the allocation between the convertible debt and warrants The nature and extent of audit effort required to address the matter includes involvement of more experienced engagement team members and discussions related to the matter
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements These procedures included inspecting the securities purchase agreement to identify relevant terms and conditions that affect whether the warrants are derivatives or contain features that qualify as embedded derivatives evaluating whether the warrants are derivatives or contain features that qualify as embedded derivatives obtaining an understanding of the process of estimating the fair value of the instruments and utilizing personnel with specialized knowledge and skill in the relevant technical accounting guidance to evaluate the appropriateness of the Company s application of the relevant technical guidance Our procedures also included reviewing the calculation of the allocation of the relative fair value of the convertible notes and warrants and amortization of the related issuance costs
Know Labs Inc the Company was incorporated under the laws of the State of Nevada in 1998 The Company currently has authorized 305 000 000 shares of capital stock of which 300 000 000 are shares of voting common stock par value 0 001 per share and 5 000 000 are shares preferred stock par value 0 001 per share
The Company is focused on the development and commercialization of our proprietary sensor technology utilizing radio and microwave spectroscopy When paired with our machine learning platform our technology is capable of uniquely identifying and measuring almost any material or analyte using electromagnetic energy to detect record identify and measure the unique signature of said materials or analytes
The first application of our sensor technology is in a product to non invasively monitor blood glucose levels Our device will provide the user with real time information on their blood glucose levels We launched the Generation 2 working prototype device during the three months ended March 31 2024 This device embodies the sensor which has been used in internal clinical testing The device which is a wearable format and may be a final form factor ready for commercialization That device will be utilized in expanded internal and external testing The device may be refined over time and will require FDA clearance prior to entering the market
The Company has cash and cash equivalents of 3 110 755 and a net working capital deficit of 2 052 624 of as of September 30 2024 The Company anticipates that it will record losses from operations for the foreseeable future The Company s ability to transition profitable operations is dependent upon achieving a level of revenues adequate to support its cost structure The Company believes that it has enough available cash and flexibility with its operating expenses to operate until February 28 2025
On February 27 2024 the Company a entered into a securities purchase agreement with Lind Global Fund II LP pursuant to which the Company may issue to Lind Global Fund II LP one or more senior convertible notes in the aggregate principal amount of up 14 400 000 for an aggregate purchase price equal to up to 12 000 000 and common stock purchase warrants and b issued a 4 800 000 convertible note and the warrant to Lind Global Fund II LP in exchange for a purchase price of 4 000 000 and net proceeds of 3 805 699 See Note 6
On August 9 2024 the Company completed a registered securities offering the Underwritten Offering of 13 250 000 units consisting of one share of our common stock par value 0 001 per share and one warrant to purchase one share of common stock at an exercise price equal to 0 26 per share of common stock The net proceeds from the Offering were approximately 3 445 million before deducting underwriting discounts and commissions and offering expenses paid by us We expect to use the proceeds of the Underwritten Offering to fund general corporate purposes including working capital capital expenditures or research and development The Company granted the Representatives a 30 day option to purchase up to an additional 1 987 500 shares of common stock and 1 987 500 warrants to cover over allotments if any On August 8 2024 the representatives partially exercised their over allotment option to purchase 1 987 500 warrants Between the closing date and August 21 2024 the representatives fully exercised their over allotment option to purchase 1 987 500 shares The Offering closed on August 9 2024 After deducting underwriting commissions and other offering expenses the Company received net proceeds of 3 468 million from the offering and exercise of over allotment option The warrants are classified as a component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued do not embody an obligation for the Company to repurchase its shares and permit the holders to receive a fixed numbers of shares of common stock upon exercise
On August 16 2024 the Company completed a registered securities offering the Registered Offering of 6 365 385 units consisting of one share of the Company s common stock par value 0 001 per share and one warrant to purchase one share of common stock at an exercise price equal to 0 26 per share of common stock The net proceeds from the Registered Offering were approximately 1 655 million before offering expenses paid by the Company The Company expects to use the proceeds of the Registered Offering to fund general corporate purposes including working capital capital expenditures or research and development After deducting underwriting commissions and other offering expenses the Company received net proceeds of 1 515 million from the direct offering The warrants are classified as a component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued do not embody an obligation for the Company to repurchase its shares and permit the holders to receive a fixed numbers of shares of common stock upon exercise
Management of the Company intends to raise additional funds through the issuance of equity securities or debt The Company is currently working on some capital fund raising transactions There can be no assurance that in the event the Company requires additional financing such financing will be available at terms acceptable to the Company if at all Failure to generate sufficient cash flows from operations raise additional capital and reduce discretionary spending could have a material adverse effect on the Company s ability to achieve its intended business objectives As a result the substantial doubt about the Company s ability to continue as a going concern has not been alleviated The accompanying consolidated financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern
Cash and Cash Equivalents The Company classifies highly liquid temporary investments with an original maturity of three months or less when purchased as cash equivalents The Company maintains cash balances at various financial institutions Balances at US banks are insured by the Federal Deposit Insurance Corporation up to 250 000 The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk for cash on deposit
Property and Equipment Equipment consists of machinery leasehold improvements and furniture and fixtures which are stated at cost less accumulated depreciation and amortization Depreciation is computed by the straight line method over the estimated useful lives or lease period of the relevant asset generally 2 5 years except for leasehold improvements which are depreciated over 5 years
Long Lived Assets The Company reviews its long lived assets for impairment annually or when changes in circumstances indicate that the carrying amount of an asset may not be recoverable Long lived assets under certain circumstances are reported at the lower of carrying amount or fair value Assets to be disposed of and assets not expected to provide any future service potential to the Company are recorded at the lower of carrying amount or fair value less the projected cost associated with selling the asset
The Company s current research and development efforts are primarily focused on improving its radio frequency spectroscopy technology and its first focus on non invasive monitoring of blood glucose levels extending its capacity and developing new and unique applications for this technology The Company believes that continued development of new and enhanced technologies is essential to its future success The Company incurred expenses of 6 114 121 and 7 727 467 for the years ended September 30 2024 and 2023 respectively on development activities Included in the expense for the years ended September 30 2024 and 2023 is approximately 405 000 and 859 000 related to severance and other expenses related staff reductions
Fair Value Measurements and Financial Instruments ASC Topic 820 Fair Value Measurement and Disclosures defines fair value as the exchange price that would be received for an asset or paid to transfer a liability an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value The fair value hierarchy distinguishes between assumptions based on market data observable inputs and an entity s own assumptions unobservable inputs The hierarchy consists of three levels
The recorded value of other financial assets and liabilities which consist primarily of cash and cash equivalents accounts receivable other current assets accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities as of September 30 2024 and 2023 are based upon the short term nature of the assets and liabilities The fair value of the Company s convertible notes payable are not readily available given the terms and conditions including the conversion features are complex
Derivative Financial Instruments Pursuant to ASC 815 Derivatives and Hedging the Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives The Company then determines if an embedded derivative must be bifurcated and separately accounted for For derivative financial instruments that are accounted for as liabilities the derivative instrument is initially recorded at its fair value and is then re valued at each reporting date with changes in the fair value reported in the consolidated statements of operations For stock based derivative financial instruments the Company uses a Black Scholes Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates The classification of derivative instruments including whether such instruments should be recorded as liabilities or as equity is evaluated at the end of each reporting period Derivative instrument liabilities are classified in the balance sheet as current or non current based on whether or not net cash settlement of the derivative instrument could be required within twelve months of the balance sheet date
Stock Based Compensation The Company has share based compensation plans under which employees consultants suppliers and directors may be granted restricted stock as well as options and warrants to purchase shares of Company common stock at the fair market value at the time of grant Stock based compensation is measured by the Company at the grant date based on the fair value of the award over the requisite service period under ASC 718 The Company recognizes stock compensation costs utilizing the fair value methodology over the related period of benefit
Convertible Securities Based upon ASC 815 15 the Company has adopted a sequencing approach regarding the application of ASC 815 40 to convertible securities The Company will evaluate its contracts based upon the earliest issuance date In the event partial reclassification of contracts subject to ASC 815 40 25 is necessary due to the Company s inability to demonstrate it has sufficient shares authorized and unissued shares will be allocated on the basis of issuance date with the earliest issuance date receiving first allocation of shares If a reclassification of an instrument were required it would result in the instrument issued latest being reclassified first
Net Loss per Share Under the provisions of ASC 260 Earnings Per Share basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding for the periods presented Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock Deemed dividends to preferred shareholders increase the net loss available to common shareholders and impact the net loss per share calculation
As of September 30 2024 the Company had 108 097 936 shares of common stock issued and outstanding As of September 30 2024 there were options outstanding for the purchase of 27 506 731 shares of our common stock including unearned stock option grants totaling 3 869 825 shares related to performance targets warrants for the purchase of 49 341 861 shares of the Company s common stock 8 108 356 shares of our common stock issuable collectively upon the conversion of the Company s Series C and D Convertible Preferred Stock and approximately 480 436 shares of our common stock collectively reserved to pay accrued dividends on the Company s Series C Convertible Preferred Stock and Series D Convertible Preferred Stock In addition the Company currently has 9 020 264 shares of the Company s common stock are issuable upon conversion of convertible debentures of 2 761 939 and 3 840 000 shares of the Company s common stock are issuable upon conversion of convertible debentures of 1 961 575 Further under the current terms of the Company s Series C and D Convertible Preferred Stock and assuming no changes in the ownership thereof going forward on a quarterly basis the Company will accrete as a preferred dividend the value of approximately 160 000 shares of common stock which are issuable if such dividends become payable as additional shares of preferred stock and such preferred stock is then converted into common stock All of the foregoing shares could potentially dilute future earnings per share but are excluded from the September 30 2024 calculation of net loss per share because their impact is antidilutive
As of September 30 2023 the Company had 80 358 463 shares of common stock issued and outstanding As of September 30 2023 there were options outstanding for the purchase of 14 506 158 shares of our common stock including unearned stock option grants totaling 3 869 825 shares related to performance targets warrants for the purchase of 20 866 313 shares of our common stock 8 108 356 shares of the Company s common stock issuable collectively upon the conversion of our Series C Stock and D Convertible Preferred Stock and approximately 3 040 219 shares of our common stock collectively reserved to pay accrued dividends on our Series C and D Convertible Preferred Stock In addition the Company currently has 9 020 264 shares of its common stock at the current price of 0 25 per share reserved and are issuable upon conversion of convertible debentures of 2 761 931 Further under the current terms of our Series C Convertible Preferred Stock and Series D Convertible Preferred Stock and assuming no changes in the ownership thereof going forward on a quarterly basis the Company will accrete as a preferred dividend the value of approximately 160 000 shares of common stock which are issuable if such dividends become payable as additional shares of preferred stock and such preferred stock is then converted into common stock All of the foregoing shares could potentially dilute future earnings per share but are excluded from the September 30 2023 calculation of net loss per share because their impact is antidilutive
Dividend Policy The Company has never paid any cash dividends and intends for the foreseeable future to retain any future earnings for the development of its business The Company s future dividend policy will be determined by the board of directors on the basis of various factors including results of operations financial condition capital requirements and investment opportunities
Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period Actual results could differ from those estimates
Total depreciation expense was 80 881 and 313 019 for the years ended September 30 2024 and 2023 respectively All equipment is used primarily for research and development purposes and accordingly 78 964 and 295 260 in depreciation is classified in research and development expenses during the years ending September 30 2024 and 2023 The Company retired assets with a net book value of 549 431 during the year ended September 30 2023 related to the consolidation of leased offices and the reduction on headcount
The Company has entered into operating leases for office and development facilities which range from two to three years and include options to renew The Company determines whether an arrangement is or contains a lease based upon the unique facts and circumstances at the inception of the lease Operating lease liabilities and their corresponding right of use asses are recorded based upon the present value of the lease payments over the expected lease term As of September 30 2024 and 2023 total operating lease liabilities were 358 288 and 154 797 respectively Right of use assets totaled approximately 337 703 and 145 090 at September 30 2024 and 2023 respectively In the year ended September 30 2024 and 2023 the Company recognized 136 000 and 268 000 respectively in total lease costs for the leases Because the rate implicit in each lease is not readily determinable the Company uses its estimated incremental borrowing rate to determine the present value of the lease payments
The Company owes Clayton A Struve a significant stockholder 1 301 005 under convertible promissory or OID notes The Company recorded accrued interest of 101 852 and 94 062 as of September 30 2024 and 2023 respectively On September 15 2023 the due dates on the notes was further extended to September 30 2024 The Company expensed 230 005 as loss on debt extinguishment during the year ended September 30 2023 related to the extension of the notes The Company recorded in convertible note payable the incremental value related to the conversion feature and as such we recorded the extension value as an expense with an offset to convertible note payable The extension value will be reclassified to equity upon conversion The Company is currently working on a further extension for the notes
The Company owes Ronald P Erickson and J3E2A2Z an entity affiliated and controlled by Ronald P Erickson 1 460 926 under convertible promissory notes On March 16 2018 the Company entered into a Note and Account Payable Conversion Agreement pursuant to which a all 664 233 currently owing under the J3E2A2Z Notes was converted to a Convertible Redeemable Promissory Note in the principal amount of 664 233 and b all 519 833 of the J3E2A2Z Account Payable was converted into a Convertible Redeemable Promissory Note in the principal amount of 519 833 together with a warrant to purchase up to 1 039 666 shares of common stock of our for a period of five years The initial exercise price of the warrants described above is 0 50 per share also subject to certain adjustments The Company recorded accrued interest of 84 573 and 218 334 as of September 30 2024 and 2023 respectively The interest expenses for the years ended 2024 and 2023 were 71 239 and 71 044 respectively
On September 15 2023 the due dates on the notes were extended to September 30 2024 The Company expensed 276 860 as interest during the year ended September 30 2023 related to the extension of the notes The Company recorded in convertible note payable the incremental value related to the conversion feature and as such we recorded the extension value as an expense with an offset to convertible note payable The extension value will be amortized to equity upon conversion On October 22 2024 the due dates on the notes was further extended to September 30 2025 and increased the interest rate from 6 to 8
On February 27 2024 the Company a entered into a securities purchase agreement the Lind Purchase Agreement with Lind Global Fund II LP Lind pursuant to which the Company may issue Lind one or more senior convertible notes the aggregate principal amount of up to 14 400 000 for an aggregate purchase price equal to up to 12 000 000 and warrants to purchase a number of shares equal to the applicable funding amount multiplied by 75 and divided by the volume weighted average price of the common stock on the trading date immediately preceding the issuance date of the warrant and b issued to Lind an initial convertible note with an outstanding principal amount of 4 800 000 in exchange for a purchase price of 4 000 000 that is convertible into shares of our common stock at an adjusted conversion price of 0 26 per share subject to adjustment and an initial five year warrant to purchase up to 6 000 000 shares of our common stock at an adjusted exercise price of 0 26 per share subject to adjustment
The convertible notes issued under the Lind Purchase Agreement bearing an Original Issue Discount the OID equal to 20 of the principal amount of the note and do not accrue interest Beginning on the date that is 120 days from the issuance date of each note and on each one month anniversary thereafter for 20 months the Company is obligated to pay to Lind an amount equal to the greater of x 5 of the aggregate principal amount of such note or y 240 000 until the outstanding principal amount of such note has been paid in full prior to or on its maturity date or if earlier upon acceleration conversion or redemption of such note in accordance with the terms At the Company s discretion the monthly payments may be made in cash in shares of our common stock or in a combination of cash and shares If made in shares the number of shares shall be determined by dividing x the principal amount being paid in shares by y 90 of the average of the 3 lowest daily VWAPs during the 20 trading days prior to the applicable payment date The notes set forth certain conditions that must be satisfied before we may make any monthly payments in shares of common stock If the Company makes a monthly payment in cash we must also pay Lind a cash premium of 5 of such monthly payment Lind may elect with respect to no more than two 2 monthly payments to increase the amount of such monthly payment up to 750 000 which increase would be paid only in shares of our common stock upon notice by us Any such increased payment shall be deducted from the amount of the last monthly payment owed under the note
Issuance of note shares and warrant shares upon repayment or conversion of notes and exercise of warrants is subject to an ownership limitation equal to 4 99 of our outstanding shares of common stock provided that if Lind and its affiliates beneficially own in excess of 4 99 of our outstanding shares of common stock then such limitation shall automatically increase to 9 99 so long as Lind and its affiliates own in excess of 4 99 of such common stock and shall for the avoidance of doubt automatically decrease to 4 99 upon Lind and its affiliates ceasing to own in excess of 4 99 of such common stock
Upon the occurrence of any event of default the notes will become immediately due and payable and the Company must pay Lind an amount equal to 120 of the then outstanding principal amount of each Note in addition to any other remedies under the note or the other transaction documents Events of default include among others the Company s failure to make any note payment when due a default in any indebtedness or adverse judgements in excess of 250 000 our failure to instruct its transfer agent to issue unlegended certificates the Company s shares of common stock no longer being public traded or listed on a national securities exchange any stop order or trading suspension restricting the trading in our common stock and our market capitalization is below 15 million for consecutive 10 days
Pursuant to the terms of the securities purchase agreement if at any time prior to a date that is 24 months following the closing of the offering the Company proposes to offer or sell any additional securities in a subsequent financing the Company shall first offer Lind the opportunity to purchase up to 20 of such new securities
The Company received net proceeds of 3 805 699 in exchange for the issuance of the 4 800 000 notes and a warrant to purchase 6 000 000 shares of our common stock The relative fair value of the 6 000 000 warrant shares was 2 110 731 on the date of issuance of which 1 411 052 was classified in equity after the allocation of issuance costs The value of the warrant shares was recorded as debt discount with an offset to APIC and will be amortized over the two year term of the Note
In connection with this securities purchase agreement the Company incurred approximately 994 000 of issuance costs of which 557 000 were allocated to the note and 437 000 to the warrant shares The amount allocated to the notes was recorded as debt discount with an offset to APIC and will be amortized over the two year term of the notes
On June 27 2024 the Company issued 546 697 shares of our common stock at 0 44 per share related to a principal payment of convertible debt settled with a common stock issuance for a total value of 240 000 During the year ended September 30 2024 the Company made principal payments of 720 000 and interest payments of 36 000
The following description summarizes important terms of the classes of our capital stock as of September 30 2024 This summary does not purport to be complete and is qualified in its entirety by the provisions of our articles of incorporation as amended restated and supplemented to date or our articles of incorporation and our second amended and restated bylaws or our bylaws which have been filed as exhibits to this Annual Report on Form 10 K
Outstanding Shares of Capital Stock The Company s common stock is the only security of the Company registered pursuant to Section 12 of the Securities Exchange Act of 1934 as amended All outstanding shares of the Company s capital stock are fully paid and nonassessable As of September 30 2024 there were
If in the future the Company sells its common stock at a price below 0 25 per share the conversion price of i the outstanding shares of Series C and D Convertible Preferred Stock ii promissory notes convertible into 9 020 264 shares of our common stock and iii warrants to purchase 7 634 381 shares of common stock would adjust below 0 25 per share The Company has the option to repay Lind in cash or common stock Should the Company make it monthly payments in common stock there may be a price adjustment
On August 5 2016 the Company closed a Series C Convertible Preferred Stock and Warrant Purchase Agreement with Clayton A Struve an accredited investor for the purchase of 1 250 000 of preferred stock with a conversion price of 0 70 per share The preferred stock has a cumulative dividend of 8 and an ownership blocker of 4 99 Dividends are due and payable in cash when declared by the Company or when the stock is converted Series C Convertible Preferred stock is senior to Series D Convertible Preferred stock and is entitled to receive equal dividends paid to Series D In addition Mr Struve received a five year warrant to acquire 1 785 714 shares of common stock at 0 70 per share On August 14 2017 the price of the Series C Convertible Preferred Stock and warrant and its conversion price were adjusted to 0 25 per share pursuant to the documents governing such instruments As of September 30 2024 Mr Struve owns all of the 17 858 issued and outstanding shares of Series C Convertible Preferred Stock Each holder of Preferred Series C is allowed to vote as a common shareholder as if the shares were converted to common stock up to the ownership blocker of 4 99
In 2017 the Company closed a 750 000 Series D Convertible Preferred Stock and Warrant offering with Mr Struve As of September 30 2024 Mr Struve owns all of the 10 161 issued and outstanding shares of Series D Convertible Preferred Stock Each outstanding share of Series D Convertible Preferred Stock will accrue cumulative cash dividends at a rate equal to 8 0 per annum subject to adjustment as provided in the Series D Convertible Preferred Stock certificate of designations Dividends are due and payable in cash when declared by the Company or when the stock is converted In addition On August 14 2017 the price of the Series D Convertible Preferred Stock were adjusted to 0 25 per share pursuant to the documents governing such instruments Each holder of Preferred Series D is allowed to vote as a common shareholder as if the shares were converted to common stock up to the ownership blocker of 4 99
Based upon the modified terms and conditions of our Series C and D Convertible Preferred Stock certificates of designations dated August 10 2023 it was determined that Series C and D Convertible Preferred Stock dividends need to be accreted going forward As of September 30 2024 the Company has recorded 121 000 in cumulative deemed dividends related to Series C and D Convertible Preferred Stock which have not been paid net of i 350 696 of accumulated dividends with respect to the Series D Convertible Preferred Stock that were settled for 1 402 784 shares of common stock on June 28 2023 and ii 800 384 of accumulated dividends with respect to the Series C and D Convertible Preferred Stock that were settled for 3 201 534 shares of common stock on June 18 2024 Mr Struve is subject to an ownership blocker limiting his ownership to 4 99 of our outstanding shares of common stock and thus the number of common shares he can receive for dividends Unpaid accreted stock dividends will be issued to Mr Struve if he converts preferred stock or if the Board declares a dividend thereon limited to his 4 99 ownership blocker Assuming no changes in the amount of outstanding Series C or D Convertible Preferred Stock ownership going forward on a quarterly basis the Company will accrete as a preferred dividend the value of approximately 160 000 shares of common stock which are issuable if such dividends become payable as additional shares of preferred stock and such preferred stock is then converted into common stock
On August 9 2024 the Company completed a registered securities offering the Underwritten Offering of 13 250 000 units consisting of one share of our common stock par value 0 001 per share and one warrant to purchase one share of common stock at an exercise price equal to 0 26 per share of common stock The net proceeds from the Offering were approximately 3 445 million before deducting underwriting discounts and commissions and offering expenses paid by us We expect to use the proceeds of the Underwritten Offering to fund general corporate purposes including working capital capital expenditures or research and development The Company granted the Representatives a 30 day option to purchase up to an additional 1 987 500 shares of common stock and 1 987 500 warrants to cover over allotments if any On August 8 2024 the representatives partially exercised their over allotment option to purchase 1 987 500 warrants Between the closing date and August 21 2024 the representatives fully exercised their over allotment option to purchase 1 987 500 shares This offering closed on August 9 2024 After deducting underwriting commissions and other offering expenses the Company received net proceeds of 3 468 million from the offering and exercise of over allotment option The warrants are classified as a component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued do not embody an obligation for the Company to repurchase its shares and permit the holders to receive a fixed numbers of shares of common stock upon exercise
On August 16 2024 the Company completed a registered securities offering the Registered Offering of 6 365 385 units consisting of one share of the Company s common stock par value 0 001 per share and one warrant to purchase one share of common stock at an exercise price equal to 0 26 per share of common stock The net proceeds from the Registered Offering were approximately 1 655 million before offering expenses paid by the Company The Company expects to use the proceeds of the Registered Offering to fund general corporate purposes including working capital capital expenditures or research and development After deducting underwriting commissions and other offering expenses the Company received net proceeds of 1 515 million from the direct offering The warrants are classified as a component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued do not embody an obligation for the Company to repurchase its shares and permit the holders to receive a fixed numbers of shares of common stock upon exercise
On June 27 2023 at Mr Struve s request the Company settled all cash dividends with respect to the Series D preferred stock accrued and accumulated through December 31 2022 in exchange for the issuance to Mr Struve of 1 402 784 shares of the Company s common stock in reliance on the exemption from registration pursuant to Section 4 a 2 of the Securities Act of 1933 as amended
On October 26 2023 pursuant to the Underwriting Agreement the Company issued common stock purchase warrants to Boustead Securities LLC and The Benchmark Company LLC to purchase an aggregate of 123 648 shares of Common Stock at an exercise price of 0 25 per share subject to adjustments The Representatives Warrants are immediately exercisable and may be exercised at any time and from time to time in whole or in part until October 26 2028 and may be exercised on a cashless basis The Representatives Warrants also include customary anti dilution provisions and immediate piggyback registration rights with respect to the registration of the shares underlying the Representatives Warrants The warrants were valued at 20 896 and recorded in additional paid in capital as costs from common stock offering
On February 7 2024 the Company extended the term of warrants issued in connection with the 2019 debt offering The Company accounted for the extension of the terms as a modification of the terms and in accordance with ASC 718 20 35 2A the Company recognized 594 761 of interest expense as incremental cost measured as the excess of the fair value of the warrants on the grant date using the Black Scholes Merton option pricing model over the fair value of the warrants at the extension date
On February 27 2024 the Company a entered into a securities purchase agreement with Lind Global Fund II LP Lind issued a five year warrant to purchase up to 6 000 000 shares of the Company s common stock at an initial exercise price of 0 80 per share subject to adjustment The Warrant may be exercised via cashless exercise in the event there is no effective registration statement covering the shares of Common Stock underlying a Warrant exercise The 6 000 000 warrants issued were valued at 2 110 731 of which 1 411 502 after issuance costs was recorded as debt issuance costs with an offset to additional paid in capital and is being amortized over the two year term of the Notes as a component of interest expense
On August 9 2024 the Company completed a registered securities offering the Underwritten Offering of 13 250 000 units consisting of one share of our common stock par value 0 001 per share and one warrant to purchase one share of common stock at an exercise price equal to 0 26 per share of common stock The net proceeds from the Offering were approximately 3 445 million before deducting underwriting discounts and commissions and offering expenses paid by us We expect to use the proceeds of the Underwritten Offering to fund general corporate purposes including working capital capital expenditures or research and development The Company granted the Representatives a 30 day option to purchase up to an additional 1 987 500 shares of common stock and 1 987 500 warrants to cover over allotments if any On August 8 2024 the representatives partially exercised their over allotment option to purchase 1 987 500 warrants Between the closing date and August 21 2024 the representatives fully exercised their over allotment option to purchase 1 987 500 shares The Offering closed on August 9 2024 After deducting underwriting commissions and other offering expenses the Company received net proceeds of 3 468 million from the offering and exercise of over allotment option The warrants are classified as a component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued do not embody an obligation for the Company to repurchase its shares and permit the holders to receive a fixed numbers of shares of common stock upon exercise
On August 16 2024 the Company completed a registered securities offering the Registered Offering of 6 365 385 units consisting of one share of the Company s common stock par value 0 001 per share and one warrant to purchase one share of common stock at an exercise price equal to 0 26 per share of common stock The net proceeds from the Registered Offering were approximately 1 655 million before offering expenses paid by the Company The Company expects to use the proceeds of the Registered Offering to fund general corporate purposes including working capital capital expenditures or research and development After deducting underwriting commissions and other offering expenses the Company received net proceeds of 1 515 million from the direct offering The warrants are classified as a component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued do not embody an obligation for the Company to repurchase its shares and permit the holders to receive a fixed numbers of shares of common stock upon exercise
The Company recorded interest expense of 194 019 during the year ended September 30 2023 related to the extension of the warrants The Company recorded the original value of warrants in equity and as such the Company recorded the extension value as an expense with an offset to additional paid in capital
On September 29 2023 pursuant to the Underwriting Agreement the Company issued common stock purchase warrants to Boustead Securities LLC and The Benchmark Company LLC to purchase an aggregate of 1 960 000 shares of Common Stock at an exercise price of 0 25 per share subject to adjustments The Representatives Warrants are immediately exercisable and may be exercised at any time and from time to time in whole or in part until September 26 2028 and may be exercised on a cashless basis The Representatives Warrants also include customary anti dilution provisions and immediate piggyback registration rights with respect to the registration of the shares underlying the Representatives Warrants The warrants were valued at 486 080 and recorded in additional paid in capital as costs form common stock offering
On August 12 2021 the Company established the Know Labs Inc 2021 Equity Incentive Plan the 2021 Plan which was adopted by the Company s shareholders on October 15 2021 The 2021 Plan was approved for 20 000 000 shares of the Company s common stock Common stock reserved under the 2021 Plan increased to 22 000 000 shares on January 1 2022 On October 25 2024 shareholders approved a Plan Amendment which increased the maximum number of shares of our common stock that may be delivered to participants under the 2021 Plan to 40 000 000
During the year ended September 30 2024 the Company issued stock option grants to 31 directors employees and consultants for 18 410 548 shares at an average exercise price of 0 31 per share The stock option grants expire in five years The stock option grants primarily vest immediately to quarterly over two to four years
During the year ended September 30 2023 the Company issued stock option grants to eighteen employees and consultants for 4 158 333 shares at an average exercise price of 1 381 per share The stock option grants expire in five years The stock option grants primarily vest quarterly over two to four years
Mr Cronin has served as an independent director since November 2023 Mr Cronin is an experienced inventor and intellectual property strategist Mr Cronin is Chairman and CEO of ipCapital Group Inc As of the year ended September 30 2024 and 2023 the Company has paid ipCapital Group approximately 390 000 and 713 000 respectively in professional fees
On April 10 2018 the Company entered into an amended employment agreement with Ronald P Erickson which amends the Company s employment agreement with him dated July 1 2017 The current salary is 500 000 Mr Erickson will be entitled to participate in all group employment benefits that are offered by us to our senior executives and management employees from time to time subject to the terms and conditions of such benefit plans including any eligibility requirements The employment agreement is for an initial term of 12 months subject to earlier termination and will be automatically extended for additional 12 month terms unless either party notifies the other party of its intention to terminate the employment agreement at least ninety 90 days prior to the end of the initial term or renewal term If we terminate Mr Erickson s employment at any time prior to the expiration of the term without cause as defined in the employment agreement or if Mr Erickson terminates his employment at any time for good reason or due to a disability Mr Erickson will be entitled to receive i his base salary amount for one year and ii medical benefits for eighteen months On January 23 2023 the Board appointed Mr Erickson our Chief Executive Officer Mr Erickson was appointed to serve until his successor is duly elected
On May 13 2022 the Company entered into an employment agreement with Peter J Conley reflecting his appointment as the Company s Chief Financial Officer and Senior Vice President Intellectual Property The current salary is 400 000 Mr Conley may also be entitled to bonuses from time to time as determined by our Board or our compensation committee in their sole discretion Mr Conley is eligible to participate in all our employee benefit plans policies and arrangements that are applicable to other executive officers as such plans policies and arrangements may exist or change from time to time at our discretion We will reimburse Mr Conley for reasonable travel entertainment and other expenses he incurs in the furtherance of his duties under the employment agreement The employment agreement is at will meaning either we or Mr Conley may terminate the employment relationship at any time with or without cause upon written notice to the other party The employment agreement provides for severance pay equal to 12 months of then in effect base salary if Mr Conley is terminated without cause or voluntarily terminates his employment for good reason as defined in the employment agreement
On October 11 2021 the Company entered into the First Amendment of Lease and added 2 485 square feet for 5 000 per month On September 20 2022 the Company entered into the Second Amendment of Lease for additional space The expanded space was utilized for research and testing The Amendment of Lease expired on December 31 2023
On March 2 2024 the Company entered into a lease for executive and research and testing facilities at 619 Western Avenue Suite 610 Seattle Washington 98104 The Company leased 5 996 square feet and the current net monthly payment is 11 492 and increases at 3 annually after year one The lease commenced on May 1 2024 and terminates on July 31 2027
The Company has Federal net operating loss carryforwards of approximately 59 million which expire in 2028 2044 Because it is not more likely than not that sufficient tax earnings will be generated to utilize the net operating loss carryforwards a corresponding valuation allowance equal to 100 of the gross deferred tax asset of approximately 17 4 million and 14 2 million was established as of September 30 2024 and 2023 respectively The Company does not recognize the majority of state tax loss operating loss carryforwards as a deferred tax asset given it no longer has any operation in those states
Under the Tax Reform Act of 1986 the amounts of and benefits from net operating losses may be limited in certain circumstances including a change in control Section 382 of the Internal Revenue Code generally imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset taxable income when a corporation has undergone significant changes in its stock ownership There can be no assurance that the Company will be able to utilize any net operating loss carryforwards in the future The Company is subject to possible tax examination for the years 2017 through 2024
A reconciliation of the United States Federal Statutory rate to the Company s effective tax rate for the years ended September 30 2024 and 2023 are as follows For the years ended September 30 2024 and 2023 the Company s effective tax rate differs from the federal statutory rate principally due to nondeductible expenses plus an increase in the deferred tax asset valuation allowance
On October 25 2024 at a special meeting of the stockholders the stockholders of the Company approved the adoption of an amendment to the Know Labs Inc 2021 Equity Incentive and approved an increase in the total number of shares of common stock available for issuance under the 2021 Plan to 40 000 000 shares plus automatic share increases provided for in the 2021 Plan
On October 25 2024 at a special meeting of the stockholders the stockholders of the Company approved an amendment to our Articles of Incorporation to increase the number of authorized shares of Common Stock from 200 million to 300 million The Amendment was filed with the Nevada Secretary of State on October 29 2024 and became effective on that date
On October 27 2024 the Company submitted a plan the Plan to NYSE American of actions the Company has taken or will take to regain compliance with the continued listing standards by March 27 2026 If the NYSE American accepts the Plan we will be able to continue its listing during the Plan period and will be subject to periodic reviews including quarterly monitoring for compliance with the Plan until it has regained compliance If the Plan is not accepted by the NYSE American delisting proceedings will commence We may appeal a staff delisting determination in accordance with Section 1010 and Part 12 of the Company Guide There is no assurance that the Company will be able to maintain compliance with the NYSE American continued listing rules and or continue its listing on the NYSE American in the future

Company Name	KNOW LABS, INC. Vist SEC web-site
Category	MEASURING & CONTROLLING DEVICES, NEC
Trading Symbol	KNW