DEF: Know Labs Seeks Shareholder Approval for Massive Capital Raise and Equity Plan Expansion to Avert Liquidation

Know Labs, Inc. is calling a special shareholder meeting to approve a significant increase in authorized common stock, a private placement of up to $119.9 million, and an expansion of its equity incentive plan, all critical to avoid potential cessation of operations and bankruptcy.

Summary

• A Special Meeting of Stockholders will be held virtually on Thursday, July 24, 2025, at 1:30 P.M. Pacific Time, for stockholders of record as of June 20, 2025.
• Shareholders are asked to approve an amendment to the Articles of Incorporation to increase authorized common stock from 7,500,000 to 750,000,000 shares.
• Shareholders are asked to approve a private placement with Goldeneye 1995 LLC, involving the issuance of shares representing more than 19.99% of common stock outstanding as of June 6, 2025, and the resulting change of control.
• The private placement is for a purchase price of 1,000 Bitcoin plus a cash amount of $12 million to $15 million, estimated to generate gross proceeds of $116.9 million to $119.9 million.
• The per share purchase price for the private placement is $0.335.
• Shareholders are asked to approve an amendment to the Know Labs, Inc. 2021 Equity Incentive Plan to increase the number of shares authorized for issuance by 48,950,000 shares, bringing the total to 50,000,000 shares.
• Shareholders are asked to approve the adjournment of the meeting if insufficient votes are received for the other proposals.
• The Board of Directors unanimously recommends voting FOR all proposals.
• Stockholders holding approximately 47% of the total voting power of the common stock have already agreed to vote in favor of all proposals through Support Agreements.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative. While the capital raise is a critical lifeline preventing immediate bankruptcy, the terms involve extreme dilution for existing shareholders and a loss of independent corporate governance. The underlying financial distress necessitating such a drastic measure is a significant negative, even if the proposed solution offers a path to continued operation.

Positives

• The proposed private placement is expected to secure significant capital, estimated between $116.9 million and $119.9 million, which is crucial for the Company's financial condition and liquidity needs.
• The capital raise is presented as a necessary measure to avoid the significant likelihood of the Company pursuing liquidation and dissolution, which would likely result in stockholders receiving little to no value.
• The Board determined that the terms and conditions of the Purchase Agreement for the private placement are more favorable to the Company and its stockholders compared to other potential financing alternatives.
• The expansion of the 2021 Equity Incentive Plan aims to enhance the Company's ability to attract and retain key employees, directors, consultants, and independent contractors.
• Stockholders representing approximately 47% of the total voting power have already committed to vote in favor of all proposals, indicating strong insider support for the proposed actions.

Negatives

• Existing stockholders will suffer significant dilution in their ownership interests, as the Buyer (Goldeneye 1995 LLC) is expected to own approximately 91.7% of the common stock on a fully diluted basis post-closing.
• The private placement will result in a change of control, leading to Know Labs being treated as a 'controlled company' under NYSE American rules, which means it will not be required to have a majority independent Board or solely independent compensation and nominating/corporate governance committees.
• The Company explicitly states that failure to approve the Private Placement Proposal will likely lead to an inability to sustain operations, cessation of operations, and potential filing for bankruptcy protection.

Risks

• If the Authorized Common Stock Increase Proposal is not approved, the Company may not have enough authorized shares to issue for the Private Placement, potentially delaying or preventing its consummation.
• Issuance of additional shares will dilute the ownership interests of current holders of common stock.
• The increase in authorized shares could, under certain circumstances, be construed as having an anti-takeover effect, potentially making mergers or changes in control more difficult.
• Failure to approve the Private Placement Proposal carries a high likelihood of the Company being unable to sustain operations, leading to cessation of operations and potential filing for relief under the United States Bankruptcy Code.
• Payments contingent on a change in control could trigger a 20% excise tax for recipients and disallow a deduction for the Company if they exceed certain limits under the Code.
• Failure to comply with or qualify for an exemption from Section 409A of the Code regarding nonqualified deferred compensation plans could result in significant adverse tax results for award recipients.

Future Outlook

The Company's future outlook is heavily dependent on the approval and consummation of the proposed private placement. Without this capital infusion, the Company anticipates being unable to sustain operations, leading to a likely cessation of business and potential bankruptcy filing. If approved, the capital raise is expected to provide the necessary funding to execute the business plan and avoid losing important business opportunities, while also enabling the Company to attract and retain talent through an expanded equity incentive plan.

Management Comments

• The Board has unanimously approved Proposal 1, Proposal 2, Proposal 3 and Proposal 4, and has determined that they are advisable, fair to and in the best interests of the Company.
• The Board unanimously recommends that stockholders vote FOR the proposals set forth in the accompanying proxy statement.
• We believe that hosting a virtual meeting is in the best interest of the Company. A virtual meeting enables increased stockholder attendance and participation because stockholders can participate from any location around the world.
• The Company determined that the Private Placement was in the best interests of the Company.
• If the number of affirmative votes received from the holders of our common stock are insufficient to approve any of the other Proposals being considered at the Special Meeting, it is in the best interests of the Company to enable the Board to continue to seek to obtain a sufficient number of additional affirmative votes to approve the Proposals.

Industry Context

This announcement reflects a common challenge for smaller, publicly traded companies, particularly those in development or early commercialization phases, to secure sufficient capital for ongoing operations and strategic growth. The reliance on a significant private placement, coupled with the explicit risk of liquidation without it, suggests the Company is operating in a capital-intensive sector or has faced difficulties in securing traditional financing. The proposed expansion of the equity incentive plan is a standard practice to align management and employee incentives with shareholder value, especially in companies requiring long-term development and talent retention.

Comparison to Industry Standards

• The proposed dilution of existing shareholders by approximately 91.7% to a single buyer is an extreme level of dilution, far exceeding typical capital raises in established companies and more akin to a distressed asset sale or a complete change of ownership.
• The per-share price of $0.335 for the private placement, while not explicitly compared to a market price in the document, is a fixed price for a substantial block of shares, which can be a common feature in private placements for companies in need of significant capital, but often comes at a discount to recent trading prices.
• The conversion to a 'controlled company' status under NYSE American rules, waiving requirements for a majority independent board and independent committees, deviates from best practices in corporate governance for most publicly traded companies, though it is permissible under exchange rules for controlled entities. This is a significant departure from the governance structures of well-established, independent public companies like Apple or Microsoft, which prioritize independent oversight.
• The explicit statement of potential liquidation or bankruptcy without the capital raise indicates a severe liquidity crisis, a situation that is worse than industry standards for healthy, ongoing concerns and more aligned with companies facing significant financial distress or restructuring, such as Bed Bath & Beyond prior to its bankruptcy filing.

Corporate Governance

Related Party Transactions

• Ronald P. Erickson, Chief Executive Officer, beneficially owns 3,769,094 shares (33.9%) as of June 20, 2025, including shares from convertible Series H Preferred Stock and warrants.
• Peter J. Conley, Chief Financial Officer, beneficially owns 50,250 shares as of June 20, 2025.
• Contingent stock grants were approved for Ronald P. Erickson (335,000 units) and Peter J. Conley (107,500 units) at an exercise price of $0.50, contingent upon shareholder approval of the Incentive Plan Amendment.

Stakeholder Impact

• **Shareholders**: Will experience significant dilution of their ownership interests if the private placement is approved. However, approval is critical to avoid the potential cessation of operations and bankruptcy, which would likely result in little to no value for their shares. The change of control will also impact corporate governance by reducing independent board oversight.
• **Employees, Directors, Consultants, and Independent Contractors**: The expansion of the 2021 Equity Incentive Plan aims to provide opportunities for them to acquire or increase their proprietary interest in the Company, serving as an incentive for attraction and retention.
• **Creditors**: The capital raise is intended to repay 'Closing Indebtedness' and improve the Company's financial condition, potentially reducing the risk of default or bankruptcy for existing creditors.
• **Goldeneye 1995 LLC (Buyer)**: Will become the majority stockholder, owning approximately 91.7% of the Company on a fully diluted basis, gaining control and significant influence over the Company's future direction.
• **Financial Advisors (Bankers)**: Will receive a transaction fee in the form of common stock equal to 2% of the Company's post-Closing common stock.

Next Steps

• Hold a Special Meeting of Stockholders virtually on July 24, 2025, to vote on the proposed amendments and private placement.
• If approved, file the amendment to the Company Charter to increase authorized common stock.
• If approved, proceed with the closing of the private placement with Goldeneye 1995 LLC.
• If approved, convert all shares of Series C and Series D Convertible Preferred Stock into Common Stock.
• If approved, terminate certain Company contracts and liens, and repay Closing Indebtedness.
• If approved, amend certain employment agreements and ensure consent/waiver from Lind Global Fund II LP remains in effect.
• If approved, amend the terms of the lease in accordance with the Purchase Agreement.
• If approved, file a Registration Statement on Form S-1 with the SEC within thirty (30) days of the Closing to register the Shares and Fee Shares for resale.
• Continue to solicit additional proxies if the initial votes at the Special Meeting are insufficient to approve the proposals.

Key Dates

Recommendation

Keywords

SEC filing, proxy statement, capital raise, private placement, stock dilution, authorized shares, equity incentive plan, corporate governance, change of control, bankruptcy risk, NYSE American, stockholder vote, Know Labs