KNOW LABS INC

1. ORGANIZATION

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.

2. LIQUIDITY AND GOING CONCERN

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.

The proceeds of warrants currently outstanding, to the extent not exercised on a cashless basis, may generate potential proceeds. We cannot provide assurance that any of these warrants will be exercised.

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.

3. SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS

Basis of Presentation –These consolidated financial statements were prepared in conformity with U.S. generally accepted accounting principles (“GAAP”).

Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Particle. Intercompany items and transactions have been eliminated in consolidation.

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).

Revenue Recognition** **– The Company determines revenue recognition from contracts with customers through the following steps:

Revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

Research and Development Expenses – Research and development expenses consist of the cost of officers, employees, consultants and contractors who design, engineer and develop new products and processes as well as materials, supplies and facilities used in producing prototypes.

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.

Advertising** **– Advertising costs are charged to selling, general and administrative expenses as incurred. Advertising and marketing costs for the years ended September 30, 2024 and 2023 were $605,830 and $307,638, respectively.

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:

Level 1 – Quoted prices in active markets for identical assets and liabilities;

Level 2 – Inputs other than level one inputs that are either directly or indirectly observable; and

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

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.

The Company has a money market account which is considered a Level 1 asset. The balance as of September 30, 2024 and 2023 was $2,941,616 and $7,836,393, respectively. No other assets or liabilities are required to be recorded at fair value on a recurring nature.

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.

The Company determined that the conversion features for purposes of bifurcation within its currently outstanding convertible notes payable were immaterial and there was no derivative liability to be recorded as of September 30, 2024 and 2023.

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.

Comprehensive loss – Comprehensive loss is defined as the change in equity of a business during a period from non-owner sources. There were no differences between net loss for the years ended September 30, 2024 and 2023 and comprehensive loss for those periods.

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.

Recent Accounting Pronouncements

Based on the Company’s review of accounting standard updates recently issued, those standards not yet required to be adopted and proposed standards for the future, the Company does believe such items are expected to have a significant impact on the Company’s consolidated financial statements.

4. PROPERTY AND EQUIPMENT

Property and equipment as of September 30, 2024 and 2023 was comprised of the following:

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.

5. LEASES

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 weighted average remaining lease term for the operating leases was 34 months at September 30, 2024 and the weighted average discount rate was 7%.

The minimum future lease payments as of September 30, 2024 are as follows:

6. CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE

Convertible notes payable as of September 30, 2024 and 2023 consisted of the following:

Convertible Promissory Notes with Clayton A. Struve

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.

Convertible Redeemable Promissory Notes with J3E2A2Z – Related Party

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%.

Senior Convertible Note with Lind Global Fund II, LP

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.

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.

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.

The Company recorded $830,948 of amortization of debt issuance costs during the year ended September 30, 2024 related to this security purchase agreement.

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.

7. EQUITY

Authorized Capital Stock

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.

Authorized Capital Stock. The Company’s authorized capital stock currently consists of:

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:

Securities Subject to Price Adjustments

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.

Series C and D Convertible Preferred Stock, Warrants and Dividends

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.

Common Stock

Each share of common stock entitles its holder to one vote on each matter submitted to the stockholders for a vote, and no cumulative voting for directors is permitted. Stockholders do not have any preemptive rights to acquire additional securities issued by the Company.

During the year ended September 30, 2024, the Company issued 453,492 shares of our common stock total to six directors at $0.434 per share for director services for a total value of $197,010 which was expensed during the quarter ended March 31, 2024.

On October 26, 2023, the Company closed an offering of its common stock pursuant to which we sold 883,061 shares of common stock, at a purchase price of $0.25 per share. After deducting underwriting commissions and other offering expenses, the Company received net proceeds of $203,105.

On March 7, 2024, the Company issued 102,302 shares of the Company’s common stock at $0.782 with a total value of $80,000 related to a debt offering. The $80,000 was recorded as debt issuance costs and is being amortized over the two-year term of the debt.

On March 8, 2024, the Company issued 714,828 shares of the Company’s common stock in a cashless warrant exercise.

On May 24, 2024, the Company issued 108,500 shares of its common stock related to 108,500 warrants exercised at $0.25 per share.

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 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.

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 August 28, 2024, the Company issued 30,000 shares of the Company’s common stock at $0.26 per share and received $7,800 related to a warrant exercise.

The Company issued 2,632,727 shares of common stock related to warrant exercises and received $387,334.

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.

The Company issued 3,750 shares related to the exercise of stock option grants and received $4,687.

On September 29, 2023, the Company closed an offering of our common stock pursuant to which the Company 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, the Company received net proceeds of $5,472,791.

Warrants to Purchase Common Stock

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 March 8, 2024, the Company issued 714,828 shares of the Company’s common stock in a cashless warrant exercise.

On May 24, 2024, the Company issued 108,500 shares of the Company’s common stock in a cashless warrant exercise.

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.

On August 28, 2024, the Company issued 30,000 shares of the Company’s common stock at $0.26 per share and received $7,800 related to a warrant exercise.

During the year ended September 30, 2024, warrants to purchase 350,157 shares of common stock at $0.42 per share were forfeited.

On December 7, 2022, the Company signed an Extension of Warrant Agreement with Clayton Struve, extending the exercise dates as follows:

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 January 19, 2023, the Company signed an Extension of Warrant Agreements with Ronald P. Erickson and an entity controlled by Mr. Erickson, extending the exercise dates from January 30, 2023 to January 30, 2024.

The Company issued 2,632,727 shares of common stock related to warrant exercises and received $387,334.

Warrants to purchase 297,273 shares of common stock at $0.250 per share expired.

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.

A summary of the warrants outstanding as of September 30, 2024 were as follows:

The following table summarizes information about warrants outstanding and exercisable as of September 30, 2024:

The significant weighted average assumptions relating to the valuation of the Company’s warrants for the year ended September 30, 2024 were as follows:

There were vested warrants of 49,341,861 with an aggregate intrinsic value of $1,035,393.

8. EQUITY INCENTIVE PLANS

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, 2024, stock option grants for 4,970,412 shares at an average exercise price of $1.13 per share were forfeited.

During the year ended September 30, 2024, stock option grants for 439,563 were exercised in exchange for 96,154 shares of common stock on a cashless basis at an average exercise price of $0.81 per share.

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.

During the year ended September 30, 2023, stock option grants for 10,277,655 shares at an average exercise price of $1.647 per share were forfeited.

During the year ended September 30, 2023, stock option grants for 166,890 shares at an average exercise price of $0.272 per share were exercised.

Stock option activity for the years ended September 30, 2024 and 2023 was as follows:

The following table summarizes information about stock options outstanding and exercisable as of September 30, 2024:

The significant weighted average assumptions relating to the valuation of the Company’s stock option grants issued for the year ended September 30, 2024 were as follows:

There were stock option grants of 27,506,731 with an aggregate intrinsic value of $306,899.

9. OTHER SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES

Transactions with Clayton Struve

See Notes 6 and 7 for related party transactions with Clayton A. Struve, a significant stockholder.

Related Party Transactions with Ronald P. Erickson

See Notes 6, 7 and 10 for related party transactions with Ronald P. Erickson, the Company’s Chairman and Chief Executive Officer and affiliated entities.

On December 14, 2022, the Company issued a stock option grant to Ronald P. Erickson for 1,000,000 shares at an exercise price of $1.41 per share. The stock option grant expires in five years. The stock option grant vests quarterly over four years.

On January 19, 2023, the Company signed an Extension of Warrant Agreement with Ronald P. Erickson and an entity controlled by Mr. Erickson, extending the exercise dates from January 30, 2023 to January 30, 2024.

On October 10, 2023, the Company issued a stock option grant to Ronald P. Erickson for 4,640,844 shares at an exercise price of $0.25 per share. The stock option grant expires in five years. The stock option grant vests quarterly over four years.

On January 30, 2024, the Company signed an Extension of Warrant Agreement with Ronald P. Erickson and an entity controlled by Mr. Erickson, extending the exercise dates from January 30, 2024 to January 31, 2026.

Related Party Transactions with****Peter J. Conley, Chief Financial Officer and Senior Vice President, Intellectual Property

On May 20, 2022, the Company issued a stock option grant to Mr. Conley for 1,000,000 shares at an exercise price of $1.48 per share. The stock option grant expires in five years. The stock option grant vests quarterly over four years, with no vesting during the first six months.

On October 10, 2023, the Company issued a stock option grant to Peter J. Conley for 3,001,000 shares at an exercise price of $0.25 per share. The stock option grant expires in five years. The stock option grant vests quarterly over four years.

Related Party Transactions with Directors

On February 15, 2023, the Company issued stock option grants to two directors for a total of 50,000 shares at an exercise price of $1.24 per share. The stock option grant expires in five years. The stock option grants vested at issuance.

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.

During the year ended September 30, 2024, the Company issued 453,492 shares of our common stock total to six directors at $0.434 per share for director services for a total value of $197,010 which was expensed during the year ended September 30, 2024.

During the year ended September 30, 2024, the Company issued stock option grants to six directors for a total of 3,809,817 shares at an average exercise price of $0.41 per share. The stock option grant expires in five years. The stock option grants vested at issuance.

10. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS

The Company may from time to time become a party to various legal proceedings arising in the ordinary course of business. The Company is currently not a party to any pending legal proceeding that is not ordinary routine litigation incidental to the Company’s business.

Employment Agreements

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.

Properties and Operating Leases

The Company is obligated under the following leases for its various facilities.

On April 13, 2017, the Company leased its executive office located at 500 Union Street, Suite 810, Seattle, Washington, USA, 98101. The Company leases 943 square feet and the current net monthly payment is $2,908. The Company vacated the office on May 31, 2024.

On May 18, 2021, the Company entered into a lease for its lab facilities located at 914 E Pine Street, Suite 212, Seattle, WA 98122 and leased 2,642 square feet. The net monthly lease payment was $8,697 andthe lease was terminated on February 5, 2024.

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 November 22, 2022, the Company leased an additional 1,800 square feet of lab facilities at 123 Boylston Ave, Suite C, Seattle, WA 98102 with a net monthly payment is $2,250. The Company vacated the office on May 31, 2024.

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 andincreases at 3% annually after year one. The lease commenced on May 1, 2024 and terminates on July 31, 2027.

11. INCOME TAXES

The Company has incurred losses since inception, which have generated net operating loss carryforwards. The net operating loss carryforwards arise from United States sources.

Losses arising from United States taxable operations were approximately $9 million and $4.2 million for the years ended September 30, 2024 and 2023.

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.

The principal components of the Company’s deferred tax assets at September 30, 2024 and 2023 are as follows:

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.

As of September 30, 2024, there were no uncertain tax positions. Management does not anticipate any future adjustments in the next twelve months which would result in a material change to its tax position. For the years ended September 30, 2024 and 2023, the Company did not have any interest and penalties.

12. SEGMENT REPORTING

The Company considers the business to currently have one operating segment; the development of its radio frequency spectroscopy technology with a first focus on non-invasively ascertaining blood glucose levels.

13. SUBSEQUENT EVENTS

The Company evaluated subsequent events, for the purpose of adjustment or disclosure, up through the date the financial statements were issued. Subsequent to September 30, 2024, there were the following material transactions that require disclosure:

On October 22, 2024, the Company approved Amendments to the senior secured convertible redeemable notes with Ronald P. Erickson and/or entities with which he is affiliated, extending the due dates from September 30, 2024 to September 30, 2025 and increasing the interest rate from 6% to 8%.

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.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.