8-K/A: Know Labs Secures $12 Million in Funding Through Convertible Note Offering

Know Labs has entered into a securities purchase agreement with Lind Global Fund II, LP, securing up to $12 million through a convertible note offering, with an initial $4 million tranche already funded.

Summary

• Know Labs has secured a financing agreement with Lind Global Fund II, LP, for up to $14.4 million in convertible notes, with an initial tranche of $4.8 million issued for $4 million.
• The notes are convertible into common stock at an initial price of $1.00 per share and include warrants to purchase up to 6,000,000 shares at $0.80 per share.
• The notes do not accrue interest, but require monthly payments starting 120 days after issuance, with the payment amount being the greater of 5% of the principal or $240,000.
• Monthly payments can be made in cash, shares, or a combination, with share payments based on 90% of the average of the 3 lowest daily VWAPs during the 20 trading days prior to the payment date.
• Lind has the option to increase up to two monthly payments to $750,000, payable only in shares, which will be deducted from the final payment.
• The issuance of shares is subject to ownership limitations of 4.99%, which can increase to 9.99% if Lind's ownership exceeds 4.99%.
• Events of default trigger immediate payment of 120% of the outstanding principal, and include failure to make payments, defaults on other debts, and the company's market cap falling below $15 million for 10 consecutive days.
• The company has granted Lind a first-priority security interest in all of its assets and a subsidiary has guaranteed the obligations.
• The Benchmark Company, LLC, acted as the placement agent and received $200,000 in cash and 102,302 shares of common stock.
• The company is obligated to register all shares issued to Lind and the placement agent.

Sentiment

Score: 4

Explanation: The financing provides necessary capital, but the terms are unfavorable, including high monthly payments, restrictive covenants, and a first-priority security interest. This suggests a weaker negotiating position for the company.

Positives

• The company has successfully secured a significant funding commitment of up to $14.4 million.
• The initial tranche of $4 million provides immediate capital for operations.
• The convertible notes offer flexibility in repayment, allowing for cash, shares, or a combination.
• The agreement includes a potential for Lind to increase their investment through increased monthly payments.

Negatives

• The notes do not bear interest, but the monthly payments are significant, with a minimum of $240,000 or 5% of the principal.
• The company is restricted by negative covenants, including limitations on distributions, stock repurchases, and borrowing.
• Events of default trigger immediate payment of 120% of the outstanding principal, which could be detrimental to the company.
• The company's obligations are secured by a first-priority security interest in all assets, which could limit future financing options.

Risks

• The company's market capitalization falling below $15 million for 10 consecutive days is an event of default.
• The company is subject to ownership limitations on the issuance of shares to Lind.
• The company is obligated to register all shares issued to Lind and the placement agent, which could be costly and time-consuming.
• The company is restricted by negative covenants, which could limit its operational flexibility.

Future Outlook

The company may issue additional notes up to the aggregate principal amount of $14.4 million. The company is also obligated to register all shares issued to Lind and the placement agent.

Industry Context

This type of financing is common for companies seeking growth capital, particularly those in the development stage. The use of convertible notes allows for flexibility in repayment and potential future equity participation for the investor.

Comparison to Industry Standards

• The terms of the convertible note, including the conversion price and warrant coverage, are within the typical range for similar financings in the small-cap market.
• The monthly payment structure, while not standard, is not uncommon for high-risk investments.
• The security interest granted to Lind is a common practice in such financings to protect the investor's capital.
• The placement agent fees are also within the typical range for similar transactions.

Stakeholder Impact

• Shareholders may experience dilution due to the issuance of shares upon conversion of the notes and exercise of warrants.
• Creditors may be impacted by the first-priority security interest granted to Lind.
• Employees may be impacted by the company's financial stability and future growth prospects.

Next Steps

• The company will need to make monthly payments to Lind starting 120 days after the issuance of each note.
• The company will need to register all shares issued to Lind and the placement agent.
• The company may need to seek additional financing in the future.

Key Dates

Keywords

convertible notes, financing, warrants, securities purchase agreement, placement agent, Lind Global Fund II, common stock, security agreement, monthly payments, default