10-Q: Know Labs Faces Going Concern Doubt Amidst Funding Push

Know Labs, Inc. reports significant losses and a working capital deficit, raising substantial doubt about its ability to continue as a going concern, despite efforts to secure new capital and reduce operating expenses.

Summary

• Reported a net loss of $1,528,601 for the three months ended June 30, 2025, a decrease from $4,103,460 in the prior year period.
• Net loss for the nine months ended June 30, 2025, was $9,773,145, down from $12,947,748 in the same period last year.
• Cash and cash equivalents stood at $172,503 as of June 30, 2025, a sharp decline from $3,110,755 on September 30, 2024.
• The company has a net working capital deficit of $4,959,519 as of June 30, 2025.
• Research and Development expenses decreased significantly to $238,612 for the three months ended June 30, 2025, from $1,348,985 in the prior year.
• Selling, General and Administrative expenses also decreased to $1,015,733 for the three months ended June 30, 2025, from $2,486,846 in the prior year.
• Interest expense for the nine months ended June 30, 2025, increased to $2,833,509 from $1,038,499 in the prior year, partly due to default fees and repricing of notes and warrants.
• Incurred a loss on debt settlements of $728,298 for the nine months ended June 30, 2025.
• Deemed dividends on Series C, D, and H Preferred Stock totaled $2,214,375 for the nine months ended June 30, 2025, a substantial increase from $262,283 in the prior year.
• Basic and diluted loss per share improved to $(0.55) for the three months and $(2.92) for the nine months ended June 30, 2025, compared to $(2.02) and $(6.42) respectively in the prior year.
• Net cash used in operating activities decreased to $4,488,875 for the nine months ended June 30, 2025, from $9,573,764 in the prior year.
• The company exhausted its authorized common stock as of June 30, 2025, with 7,497,948 shares outstanding against 7,500,000 authorized.
• Stockholders approved an increase in authorized common stock to 750,000,000 shares and an increase of 48,950,000 shares for the 2021 Equity Incentive Plan on July 31, 2025.
• Entered into a Securities Purchase Agreement with Goldeneye 1995 LLC on June 5, 2025, for a private placement of 1,000 Bitcoin plus $12 million to $15 million cash, subject to numerous closing conditions.
• Received a bridge loan of up to $350,000 from Goldeneye 1995 LLC on July 28, 2025, with an initial $90,000, accruing interest at 12% per annum.
• Issued 1,708,124 shares through an At The Market (ATM) common stock offering, generating $1,269,212 in proceeds during the nine months ended June 30, 2025.

Sentiment

Score: 2

Explanation: The company faces severe liquidity issues and explicitly states 'substantial doubt about our ability to continue as a going concern.' While operating expenses were cut and a potential large capital raise is in progress, its highly conditional nature and the company's history of significant losses and dilutive financing make the financial outlook very precarious. The resolution of the NYSE delisting is a positive, but the underlying financial health remains critical.

Positives

• Net loss significantly decreased for both the three-month and nine-month periods ended June 30, 2025, indicating improved cost control.
• Research and Development expenses and Selling, General and Administrative expenses were substantially reduced, reflecting successful efforts to cut operating costs.
• Net cash used in operating activities decreased by over 50% for the nine months ended June 30, 2025, indicating a slower cash burn rate.
• Successfully resolved the NYSE American delisting issue and resumed trading on March 5, 2025, by implementing a 1-for-40 reverse stock split.
• Stockholders approved a significant increase in authorized common stock to 750 million shares, addressing a critical limitation on future capital raises and contractual obligations.
• Secured a Securities Purchase Agreement with Goldeneye 1995 LLC for a substantial private placement, which, if closed, would provide significant capital.
• Obtained a bridge loan of up to $350,000 from Goldeneye 1995 LLC to support operations until the private placement closes.

Negatives

• Cash and cash equivalents plummeted to $172,503 as of June 30, 2025, from over $3.1 million nine months prior, indicating severe liquidity constraints.
• The company has a substantial net working capital deficit of $4,959,519, highlighting immediate financial challenges.
• Management explicitly states 'substantial doubt about our ability to continue as a going concern has not been alleviated,' indicating high financial risk.
• Accumulated deficit increased to $150.7 million, reflecting a history of significant losses.
• Interest expense more than doubled for the nine-month period, partly due to default fees and repricing of convertible notes and warrants.
• Significant deemed dividends on preferred stock ($2.2 million) indicate substantial non-cash dilution and financial strain from past financing arrangements.
• The Securities Purchase Agreement with Goldeneye 1995 LLC is subject to numerous closing conditions, including stockholder approval, conversion of preferred stock, and termination of contracts, making its completion uncertain.
• The company exhausted its authorized common stock as of June 30, 2025, temporarily hindering its ability to issue new shares for capital or obligations, though this was addressed post-period end.

Risks

• Inability to continue as a going concern due to recurring net losses and insufficient cash flow.
• Failure to raise additional capital through equity or debt offerings on acceptable terms, or at all, which would materially and adversely affect business operations.
• The Securities Purchase Agreement with Goldeneye 1995 LLC may not close due to unfulfilled conditions, leaving the company without anticipated funding.
• Potential for further default on convertible notes, such as the Lind Global Fund II, LP note, if the company fails to meet payment obligations or other terms.
• The exercise and conversion prices of securities (warrants, convertible notes, preferred stock) are subject to further downward adjustments if common stock is sold below $0.335 per share, leading to significant dilution.
• Inability to achieve FDA clearance for the non-invasive blood glucose monitoring product (KnowU), which requires significant human clinical testing and capital.
• Failure to maintain listing on the NYSE American if compliance with continued listing standards is not met by March 27, 2026.
• Intense competition in the sensor technology industry from established players and new entrants, requiring continuous innovation and differentiation.

Future Outlook

The company anticipates recording losses from operations for the foreseeable future and believes its ability to transition to profitable operations depends on achieving adequate revenues to support its cost structure. It expects to operate under the Promissory Note until the anticipated closing of the Goldeneye private placement in August 2025. The company intends to raise additional funds through equity or debt issuances and is actively pursuing capital fundraising transactions. Future success hinges on producing FDA-clearance quality technology, recruiting and retaining talent, market acceptance of its non-invasive glucose monitoring technology, and securing sufficient capital.

Management Comments

• "The Company believes that it has enough available cash and flexibility with its operating expenses to operate under the Promissory Note until the expected closing of the private placement discussed in Note 1."
• "The private placement is expected to close in August 2025."
• "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 including the Securities Purchase Agreement described in Note 1."
• "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."
• "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."
• "We have recently initiated formal activities to license our platform technology across all fields of use. This activity, the Know Labs Technology Licensing (KTL) program, was announced earlier this calendar year."
• "We continue to focus on building the world’s most robust patent portfolio in our space."

Industry Context

Know Labs operates in the highly competitive and dynamic sensor technology industry, driven by advancements in IoT, AI, automation, and increasing demand across sectors like healthcare, automotive, and consumer electronics. Its primary focus is on non-invasive medical diagnostics, specifically blood glucose monitoring, a field dominated by established players like Abbott Labs (Freestyle Libre) and Dexcom (G6, G7). The company aims to differentiate itself through its proprietary radio and microwave spectroscopy technology, which offers non-invasive, real-time measurement capabilities. The launch of its Know Labs Technology Licensing (KTL) program signifies a strategic shift towards leveraging its extensive intellectual property portfolio for broader industrial and academic applications, potentially diversifying revenue streams beyond direct product commercialization in medical diagnostics, which requires significant capital and FDA clearance.

Corporate Governance

Legal Proceedings

• The company is currently not a party to any pending legal proceeding that is not ordinary routine litigation incidental to its business.

Related Party Transactions

• Convertible Promissory Notes with Clayton A. Struve, a significant stockholder, totaling $1,603,828 as of June 30, 2025. Due dates were extended to September 30, 2025, incurring a loss on debt extinguishment of $302,823.
• Convertible Redeemable Promissory Notes with Ronald P. Erickson and J3E2A2Z (an entity affiliated and controlled by Ronald P. Erickson, CEO). On June 2, 2025, $1,184,066 in principal was exchanged for 16,916 shares of Series H Convertible Preferred Stock, resulting in a deemed dividend of $679,020.
• Accrued expenses related parties of $130,607 as of June 30, 2025.
• Expenses with ipCapital Group, Inc. (where Mr. Cronin, Interim CTO, is Chairman and CEO) of $238,954 for the nine months ended June 30, 2025.

Stakeholder Impact

• **Shareholders**: Face significant dilution from past and potential future equity issuances and repricing events. The substantial doubt about going concern poses a high risk to investment value. The increase in authorized shares and potential Goldeneye private placement offer a path to continued operations but at the cost of significant dilution.
• **Employees**: The company has reduced headcount and increased reliance on consultants to cut fixed expenses, potentially impacting job security for some employees. Stock-based compensation is a significant component of compensation.
• **Creditors**: Convertible noteholders, particularly related parties, have seen their notes extended and converted into preferred stock, indicating ongoing financial restructuring and potential delays in repayment. The company's going concern risk directly impacts its ability to repay debt.
• **Customers/Partners**: The focus on FDA clearance and commercialization of the non-invasive glucose monitor, along with the new KTL program, suggests potential future products and licensing opportunities, but current financial instability could impact development timelines and partnerships.

Next Steps

• Close the Securities Purchase Agreement with Goldeneye 1995 LLC, expected in August 2025.
• Continue human clinical testing and pursue FDA clearance for the non-invasive blood glucose monitoring device.
• Refine the Generation 2 working prototype device.
• Implement the Know Labs Technology Licensing (KTL) program to generate revenues through patent licensing.
• Regain full compliance with NYSE American continued listing standards by March 27, 2026.
• Continue efforts to raise additional funds through equity securities or debt.

Key Dates

Recommendation

The company explicitly states 'substantial doubt about our ability to continue as a going concern has not been alleviated,' which is the most critical factor. Despite reduced operating losses, the cash position is critically low, and the working capital deficit is substantial. While a large potential capital raise is in progress, it is highly conditional and not guaranteed. The history of significant deemed dividends and repricing events indicates a pattern of highly dilutive financing. The company's long path to commercialization (FDA clearance) requires significant, uncertain capital. The current financial instability and high reliance on future, dilutive funding make the stock an extremely high-risk investment with a strong likelihood of further value erosion.

Keywords

Non-invasive glucose monitoring, RF spectroscopy, Medical diagnostics, Biotechnology, Sensor technology, SEC filing, 10-Q, Going concern, Capital raise, Convertible debt, Preferred stock, Patent licensing, Know Labs Technology Licensing, FDA clearance, NYSE American