Form 4: KNOW LABS CEO Converts $1.18 Million Debt into Preferred Stock, Adjusts Equity Holdings

KNOW LABS, INC. CEO and Chairman Ronald P. Erickson has converted $1,184,066 in promissory notes held by an affiliated entity into Series H Convertible Preferred Stock, alongside other changes in his beneficial ownership of company securities.

Summary

• Ronald P. Erickson, CEO and Chairman of KNOW LABS, INC., reported changes in his beneficial ownership of the company's securities via a Form 4 filing.
• An entity affiliated with Mr. Erickson, J3E2A2Z Limited Partnership, converted $1,184,066 in debt from two convertible redeemable promissory notes into 16,916 shares of Series H Convertible Preferred Stock.
• This conversion occurred on June 2, 2025, with each share of Series H Preferred Stock issued for every $70 in principal converted.
• The Series H Convertible Preferred Stock is convertible into common stock at an initial conversion price of $0.335 per share, subject to potential future adjustment.
• Mr. Erickson directly owns 137,202 shares of Common Stock.
• He also holds direct and indirect warrants to purchase common stock, including 21,375 direct warrants and 25,992 indirect warrants (via J3E2A2Z LP) with a $9.6 exercise price expiring January 31, 2026, and 50,000 direct warrants with a $61.2 exercise price expiring December 15, 2025.

Sentiment

Score: 6

Explanation: The conversion of debt to equity is generally positive for a company's balance sheet, reducing liabilities. However, the low conversion price of the preferred stock compared to other outstanding warrants could imply a lower current valuation or significant dilution risk for common shareholders, balancing the sentiment.

Positives

• The conversion of $1,184,066 in debt into equity strengthens the company's balance sheet by reducing liabilities.
• The CEO's continued significant direct and indirect holdings, including common stock and warrants, indicate ongoing alignment with shareholder interests.

Negatives

• The conversion price of $0.335 per share for the Series H Preferred Stock is significantly lower than the exercise prices of some existing warrants ($9.6 and $61.2), potentially indicating a lower valuation for the converted equity compared to previous equity-linked instruments.
• The conversion of debt into preferred stock, while reducing debt, could lead to dilution for existing common shareholders upon conversion of the preferred stock.

Risks

• Potential future dilution for common shareholders if the Series H Convertible Preferred Stock is converted into common stock.
• The conversion price of $0.335 per share for the Series H Preferred Stock is subject to potential future adjustment, which could further impact dilution or valuation.
• The existence of warrants with significantly higher exercise prices ($9.6 and $61.2) compared to the preferred stock conversion price ($0.335) suggests a potential disconnect in valuation expectations or a significant decline in the company's stock price since those warrants were issued.

Future Outlook

The Series H Convertible Preferred Stock's conversion price is subject to potential future adjustment, indicating that the final conversion terms may change based on future events or company performance.

Management Comments

• Ronald P. Erickson, CEO and Chairman, signed the filing, indicating his acknowledgment of the reported transactions.

Industry Context

NA

Related Party Transactions

• Ronald P. Erickson, CEO and Chairman, is the reporting person, and J3E2A2Z Limited Partnership, which executed the debt conversion, is explicitly stated as an entity affiliated with him.
• The conversion of $1,184,066 in promissory notes from J3E2A2Z LP into Series H Convertible Preferred Stock constitutes a related party transaction.

Stakeholder Impact

• Shareholders: Potential for future dilution if the Series H Convertible Preferred Stock is converted into common stock at the stated conversion price of $0.335 per share. However, the reduction of debt could be seen as a positive for the company's financial stability.
• Creditors: The conversion of promissory notes into equity reduces the company's outstanding debt, potentially improving its credit profile.

Next Steps

• Monitoring of potential future adjustments to the Series H Convertible Preferred Stock's conversion price.
• Observation of any subsequent conversions of the Series H Preferred Stock into common stock and their impact on share dilution.

Key Dates

Recommendation

Keywords

KNOW LABS, KNW, SEC Form 4, Beneficial Ownership, Ronald P. Erickson, Debt Conversion, Preferred Stock, Convertible Securities, Warrants, Equity Holdings, Insider Trading, Corporate Governance, Financial Reporting