USBC, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited consolidated financial statements have been prepared by Know Labs, Inc, (“the Company,” “us,” “we,” or “our”) in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of our management, all adjustments, consisting of only normal recurring accruals, necessary for a fair presentation of the financial position, results of operations, and cash flows for the fiscal periods presented have been included.

These unaudited financial statements should be read in conjunction with the audited financial statements and related notes included in our Annual Report filed on Form 10-K for the year ended September 30, 2024, filed with the Securities and Exchange Commission on November 14, 2024 and as amended on December 10, 2024. The results of operations for the six months ended March 31, 2025 are not necessarily indicative of the results expected for the full fiscal year, or for any other fiscal period.

1.** ORGANIZATION**

Know Labs, Inc. (the “Company”) was incorporated under the laws of the State of Nevada in 1998. The Company currently has authorized 12,500,000 shares of capital stock, of which 7,500,000 are shares of voting common stock, par value $0.001 per share, and 5,000,000 are shares of 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 focus for our first application of our platform sensor technology has been 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 year ended September 30, 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. While we continue working on this device, we have recently initiated formal activities to license our platform technology in other fields of use. This activity, the Know Labs Technology Licensing (KTL) program, was recently announced and formalized in response to external demand for access to our platform technology.

2. LIQUIDITY AND GOING CONCERN

The Company has cash and cash equivalents of $443,913 and a net working capital deficit of $6,189,548 as of March 31, 2025. 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 June 30, 2025.

On December 12, 2024, the Company entered into subscription agreements with certain investors for a registered direct offering of 31,250 units consisting of one share of the Company’s common stock, and one warrant to purchase one share of Common Stock at an exercise price equal to $9.60 per share of Common Stock at an offering price of $9.60 per Unit, for an aggregate purchase price of $300,000. The aggregate gross proceeds to the Company from the Offering were approximately $300,000, before deducting fees payable to the placement agent and advisors and other estimated offering expenses payable by the Company, and excluding the proceeds from any exercise of the warrants. The offer and sale of the units was made pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-276246) (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (“SEC”) on December 22, 2023 and declared effective by the SEC on January 11, 2024, as supplemented by a prospectus supplement dated December 13, 2024 and filed with the SEC pursuant to Rule 424(b) (the “Prospectus Supplement”) under the Securities Act of 1933, as amended (the “Securities Act”).

On December 31, 2024, the Company entered into a Capital on Demand Sales Agreement (“Sales Agreement”) with JonesTrading Institutional Services LLC, as sales agent, pursuant to which the Company may, from time to time, offer and sell shares of its common stock, through or to JonesTrading as its sales agent or manager.

The offer and sale of the Shares will be made pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-276246) (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (“SEC”) on December 22, 2023 and declared effective by the SEC on January 11, 2024, as supplemented by a prospectus supplement dated December 31, 2024 and filed with the SEC pursuant to Rule 424(b) (the “Prospectus Supplement”) under the Securities Act of 1933, as amended (the “Securities Act”). Pursuant to the Prospectus Supplement, the Company may offer and sell up to a maximum of $5,000,000 of Shares under the Sales Agreement. The Company issued 379,451 shares and received proceeds of $510,705 during the six months ended March 31, 2025.

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 unaudited 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 $418,207 and $2,175,245 for the three months ended March 31, 2025 and 2024, respectively, on development activities. The Company incurred expenses of $1,220,309 and $3,661,633 for the six months ended March 31, 2025 and 2024, respectively, on development activities.

Advertising** **– Advertising costs are charged to selling, general and administrative expenses as incurred. Advertising and marketing costs were $10,000 and $58,866 for the three months ended March 31, 2025 and 2024, respectively. Advertising and marketing costs were $10,000 and $104,365 for the six months ended March 31, 2025 and 2024, 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 March 31, 2025 and September 30, 2024 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 balances as of March 31, 2025 and September 30, 2024 were $58,266 and $2,941,616, 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 March 31, 2025 and September 30, 2024.

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 March 31, 2025, the Company had 3,541,707 shares of common stock issued and outstanding. As of March 31, 2025, there were options outstanding for the purchase of 613,466 shares of our common stock (including unearned stock option grants totaling 108,409 shares related to performance targets), warrants for the purchase of 1,267,047 shares of the Company’s common stock,202,709 shares of our common stock issuable, collectively, upon the conversion of the Company’s Series C and D Convertible Preferred Stock, and approximately 20,822 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 596,871 shares of the Company’s common stock are issuable upon conversion of convertible debentures of $5,493,066. 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 20,822 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 March 31, 2025, calculation of net loss per share because their impact is antidilutive.

As of March 31, 2024, the Company had 2,062,804 shares of common stock issued and outstanding. As of March 31, 2024, there were options outstanding for the purchase of 725,550 shares of the Company’s common stock (including unearned stock option grants totaling 104,496 shares related to performance targets), warrants for the purchase of 574,624 shares of the Company’s common stock,202,709 shares of the Company’s common stock issuable, collectively, upon the conversion of our Series C and D Convertible Preferred Stock, and approximately 84,027 shares of the Company’s common stock, collectively, reserved to pay accrued dividends on our Series C Convertible Preferred Stock and Series D Convertible Preferred Stock. In addition, the Company currently has 225,507 shares of its common stock at the current price of $10.00 per share reserved and are issuable upon conversion of convertible debentures of $2,761,939 and 120,000 shares of its common stock at the current price of $40.00 per share reserved and are issuable upon conversion of convertible debentures of $4,800,000. 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 4,000 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 March 31, 2024, calculation of net loss per share because the 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 three and six months ended March 31, 2025 and 2024 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 not expected to have a significant impact on the Company’s consolidated financial statements.

**4.**PROPERTY AND EQUIPMENT

Property and equipment as of March 31, 2025 and September 30, 2024 was comprised of the following:

Total depreciation expense was $7,162 and $19,643 for the three months ended March 31, 2025 and 2024, respectively. Total depreciation expense was $17,045 and $38,367 for the six months ended March 31, 2025 and 2024, respectively.

5.** LEASES**

Lease agreements are evaluated to determine whether an arrangement is or contains a lease in accordance with ASC 842,Leases. Right of use lease assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The incremental borrowing taking into consideration the Company’s credit quality and borrowing rate for similar assets is used in determining the present value of future payments. Lease expense is recorded as general and administrative expenses on the Company’s consolidated statements of operations. We elected the package of transitional practical expedients, under which we (1) did not reassess whether any expired or existing contracts are or contain leases, (2) we did not reassess the lease classification for any expired or existing leases and (3) we did not reassess initial direct costs for any existing leases. Additionally, we elected the short-term lease recognition exemption for all leases that qualify, meaning it does not recognize right-of use assets or lease liabilities for those leases. We also elected the practical expedient to not separate lease and non-lease components for all asset classes. The Company adopted ASC 842 effective October 1, 2022 and the adoption did not have any impact on previously reported stockholders’ deficit

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 March 31, 2025 and September 30, 2024 total operating lease liabilities were $287,214 and $358,288, respectively. Right of use assets totaled approximately $281,347 and $337,703 at March 31, 2025 and September 30, 2024, respectively. In the three months ended March 31, 2025 and 2024 the Company recognized $33,037 and $50,860, respectively in total lease costs for the leases. In the six months ended March 31, 2025 and 2024, the Company recognized $66,074 and $113,305, respectively in total lease costs for the leases. Cash paid for amounts included in the measurement of lease liabilities were $68,954 and $75,884, respectively, for the six months ended March 31, 2025 and 2024. 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 28 months at March 31, 2025 and the weighted average discount rate was 7% as of March 31, 2025 and September 30, 2024.

The minimum future lease payments as of March 31, 2025 are as follows:

6. CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE

Convertible notes payable as of March 31, 2025 and September 30, 2024 are summarized below:

Convertible Promissory Notes with Clayton A. Struve

The Company owes Clayton A. Struve, a significant stockholder, $1,595,000 under convertible promissory or OID notes. The Company recorded accrued interest of $105,322 and $101,852 as of March 31, 2025 and September 30, 2024, respectively. On September 15, 2023, the due dates on the notes were extended to September 30, 2024. The Company expensed $230,005 as loss on debt extinguishment during the three months ended December 31, 2023 related to the extension of the notes. On December 17, 2024, the due dates on the notes were further extended to September 30, 2025. The Company expensed $302,823 as loss on debt extinguishment during the six months ended March 31, 2025 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 owed $1,879,515 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 47,367 shares of our common stock for a period of five years. The initial exercise price of the warrants described above was $20.00 per share, also subject to certain adjustments. The Company recorded accrued interest of $113,443 as of March 31, 2025.

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 six months ended December 31, 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 were further extended to September 30, 2025 and increased the interest rate from 6% to 8%. The Company expensed $425,475 as interest during the six months ended March 31, 2025 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 December 12, 2024, the Company sold units consisting of shares of common stock and warrants at $9.60 per unit, resulting in a down round triggering event lowering the conversion price of the Convertible Promissory Notes with Clayton A. Struve, Ronald P. Erickson and J3E2A2Z to that value. Upon the occurrence of the triggering event that resulted in a reduction of the strike price, the Company measured the value of the effect of the conversion feature as the difference between the fair value of the convertible promissory notes without the down round feature or before the strike price reduction and the fair value of the convertible promissory notes with a strike price corresponding to the reduced strike price upon the down round feature being triggered. Accordingly, the Company recognized a debt discount of $29,683 during the six months ended March 31, 2025 with a corresponding increase to additional paid in capital. The debt discount will be amortized over the remaining term of the convertible promissory notes.

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 $9.60 per share, subject to adjustment, and an initial five year warrant to purchase up to 150,000 shares of our common stock at an adjusted exercise price of $9.60 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,

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. On January 29, 2025, NYSE American publicly announced and provided a notice to the Company that the NYSE Regulation has suspended trading of, and determined to commence proceedings to delist, the Company’s common stock from NYSE American. NYSE Regulation has determined that the Company is no longer suitable for listing pursuant to Section 1003(f)(v) of the Company Guide due to the low selling price of the Common Stock. The Company recorded a one-time default penalty of $624,000 and $124,600 of interest expense during the six months ended March 31, 2025.

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 150,000 shares of our common stock. The relative fair value of the 150,000 warrant shares was $2,110,731 on the date of issuance of which $1,673,502 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 $665,123 and $100,029 of amortization of debt issuance costs during the six months ended March 31, 2025 and 2024 related to this security purchase agreement.

During the six months ended March 31, 2025, the Company issued 428,573 shares of our common stock at $1.74 per share related to a principal payment of convertible debt settled with a common stock issuance for a total value of $746,001. During the six months ended March 31, 2025, the Company made principal payments of $480,000 and interest payments of $24,000.

On December 12, 2024, the Company sold units consisting of shares of common stock and warrants at $9.60 per unit, resulting in a down-round triggering event lowering the conversion price of the Senior Convertible Note with Lind to that value. Upon the occurrence of the triggering event that resulted in a reduction of the strike price, the Company measured the value of the effect of the conversion feature as the difference between the fair value of the convertible promissory notes without the down round feature or before the strike price reduction and the fair value of the convertible promissory notes with a strike price corresponding to the reduced strike price upon the down round feature being triggered. Accordingly, the Company recognized a debt discount of $1,039,281 during the six months ended March 31, 2025 with a corresponding increase to additional paid in capital. The debt discount will be amortized over the remaining term of the convertible promissory notes. The Company recorded $274,015 as interest expense during the six months ended March 31, 2025 related to the amortization of the debt discount.

The warrants issued to Lind had similar down-round protection features as the Senior Convertible Note. Upon the occurrence of the triggering event that resulted in a reduction of the strike price, the Company measured the value of the effect of the feature as the difference between the fair value of the warrants without the down round feature or before the strike price reduction and the fair value of the warrants with a strike price corresponding to the reduced strike price upon the down round feature being triggered. Accordingly, the Company recognized interest expense of $233,644 during the six months ended March 31, 2025.

Promissory Note with 1800 Diagonal Lending LLC

On February 28, 2025, the Company entered into a Promissory Note with 1800 Diagonal Lending LLC, pursuant to which the Company issued a Promissory Note for $236,900 and received $200,000. The Note has a payoff balance of $265,328 The Company incurred expenses of $6,000, incurred an original interest discount of $30,000 and an interest expense of $28,428. The Promissory Note in unsecured and matures in December 2025.

7. EQUITY

Authorized Capital Stock

The following description summarizes important terms of the classes of our capital stock as of March 31, 2025. 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 the Company Annual Report on Form 10-K filed with the SEC on November 14, 2024 and as amended on December 10, 2024.

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 March 31, 2025, there were:

Reverse Stock Split

The Board of Directors the Company approved a reverse stock split of the Company’s authorized and issued and outstanding shares of common stock, par value $0.001 per share at a ratio of 1-for-40 (the “Reverse Stock Split”). The Company filed a Certificate of Change (the “Certificate of Change”) pursuant to Nevada Revised Statutes Section 78.209 with the Secretary of State of the State of Nevada on February 10, 2025. The reverse stock split was processed and announced by FINRA on February 18, 2025 and became effective on February 19, 2025.

As a result of the reverse stock split on the effective date, the number of shares of the Company’s authorized common stock was reduced from 300,000,000 shares to 7,500,000 shares and each forty (40) shares of common stock outstanding was automatically combined into one (1) new share of common stock without any action on the part of the holders, and the number of outstanding shares common stock was reduced from 112,423,912 shares to approximately 2,810,598 shares (subject to rounding of fractional shares and fractional shares were issued).

The reverse stock split has no effect on the par value of the Company’s common stock or authorized or outstanding shares of preferred stock, and did not modify any voting rights or other terms of the common stock or preferred stock.

Securities Subject to Price Adjustments

If in the future, the Company sells its common stock at a price below $9.60 per share, the conversion price of the outstanding shares of Series C and D Convertible Preferred Stock; (ii) promissory notes convertible into shares of our common stock; and (iii) warrants to purchase shares of common stock would adjust below $9.60 per share. The Company has the option to repay Lind in cash or common stock. Should we make our 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 $28.00 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 44,643 shares of common stock at $28.00 per share. The price of the Series C Convertible Preferred Stock and warrant and its conversion price, is currently $9.60 per share pursuant to the documents governing such instruments. As of March 31, 2025, 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 March 31, 2025, 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. The price of the Series D Convertible Preferred Stock is currently to $9.60 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 March 31, 2025, the Company has recorded $1,350,970 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 35,070 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 80,038 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 3,945 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. Pursuant to their terms, both Series C and Series D Convertible Preferred instruments are subject to repricing.

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.

On December 12, 2024, the Company entered into subscription agreements with certain investors (for a registered direct offering of 31,250 units consisting of one share of the Company’s common stock, and one warrant to purchase one share of Common Stock at an exercise price equal to $9.60 per share of Common Stock at an offering price of $9.60 per Unit, for an aggregate purchase price of $300,000. The aggregate gross proceeds to the Company from the Offering was approximately $300,000, before deducting fees payable to the placement agent and advisors and other estimated offering expenses payable by the Company, and excluding the proceeds from any exercise of the Warrants.

On December 31, 2024, the Company entered into a Capital on Demand Sales Agreement (“Sales Agreement”) with JonesTrading Institutional Services LLC, as sales agent, pursuant to which the Company may, from time to time, offer and sell shares of its common stock, through or to JonesTrading as its sales agent or manager.

The offer and sale of the Shares will be made pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-276246) (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (“SEC”) on December 22, 2023 and declared effective by the SEC on January 11, 2024, as supplemented by a prospectus supplement dated December 31, 2024 and filed with the SEC pursuant to Rule 424(b) (the “Prospectus Supplement”) under the Securities Act of 1933, as amended (the “Securities Act”). Pursuant to the Prospectus Supplement, the Company may offer and sell up to a maximum of $5,000,000 of Shares under the Sales Agreement. The Company issued 379,451 shares and received proceeds of $510,705 during the six months ended March 31, 2025.

During the six months ended March 31, 2025, the Company issued 428,573 shares of our common stock at $1.74 per share related to a principal payment of convertible debt settled with a common stock issuance for a total value of $746,001.

Warrants to Purchase Common Stock

On December 12, 2024, the Company closed a registered direct offering and issued 31,250 warrants to purchase common stock at an exercise price equal to $9.60 per share. The five year warrants expires on December 12, 2029. The Company also issued a warrant to purchase 2,188 shares of common stock to the placement agent. The five year warrant expires on December 12, 2029.

The Company issued a warrant to purchase common stock of 1,250 shares at $9.60 per share. The five year warrant expires on December 10, 2029.

Warrants to purchase 1,188 shares of common stock at $87.98 per share were forfeited.

Extension of Warrant with Clayton A. Struve

On December 17, 2024, the Company approved the Extension of Warrant Agreement with Clayton Struve, extending the exercise dates as follows:

We recorded interest expense of $513,499 during the six months ended March 31, 2025 related to the extension of the warrants.

A summary of the warrants outstanding as of March 31, 2025 were as follows:

The following table summarizes information about warrants outstanding and exercisable as of March 31, 2025:

The significant weighted average assumptions relating to the valuation of the Company’s warrants for the six months ended March 31, 2025 were as follows:

The vested warrants of 1,267,047 had no aggregate intrinsic value as of March 31, 2025.

8. STOCK 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. 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 1,000,000 shares.

During the six months ended March 31, 2025, the Company issued a stock option grant to one employee for 7,500 shares at $9.60 per share. The stock option grant expires in five years. The stock option grant vests quarterly over four years.

During the six months ended March 31, 2025, stock option grants for 81,702 shares at an average exercise price of $41.73 per share were forfeited.

Stock option activity for the six months ended March 31, 2025 was as follows:

The following table summarizes information about stock options outstanding and exercisable as of March 31, 2025:

The significant weighted average assumptions relating to the valuation of the Company’s stock option grants for the six months ended March 31, 2025 were as follows:

The stock option grants of 613,466 shares had no aggregate intrinsic value as of March 31, 2025.

There are 613,466 (including unearned stock option grants totaling 108,409 shares related to performance milestones) options to purchase common stock at an average exercise price of $31.04 per share outstanding as of March 31, 2025 under the 2021 Plan. The Company recorded $593,681 and $616,317 of compensation expense, net of related tax effects, relative to stock options for the three months ended March 31, 2025 and 2024, respectively, in accordance with ASC 718. The Company recorded $1,144,384 and $1,315,563 of compensation expense, net of related tax effects, relative to stock options for the six months ended March 31, 2025 and 2024, respectively, in accordance with ASC 718. As of March 31, 2025, there is $3,211,767 of total unrecognized costs related to employee granted stock options that are not vested. These costs are expected to be recognized over a period of approximately 3.31 years.

9. INCOME TAXES

The Company recorded a provision for income taxes of $0 for the three and six months ended March 31, 2025 and 2024.

The Company’s effective tax rate was 0% for the six months ended March 31, 2025 and 2024. The difference between the effective tax rate and the federal statutory tax rate primarily relates to the valuation allowance on the Company’s net operating loss deferred tax asset.

For interim periods, the Company estimates its annual effective income tax rate and applies the estimated rate to the year-to-date income or loss before income taxes. The Company also computes the tax provision or benefit related to items reported separately and recognizes the items net of their related tax effect in the interim periods in which they occur. The Company also recognizes the effect of changes in enacted tax laws or rates in the interim periods in which the changes occur.

As of March 31, 2025 and September 30, 2024, the Company retains a full valuation allowance on its deferred tax assets. The realization of the Company’s deferred tax assets depends primarily on its ability to generate taxable income in future periods. The amount of deferred tax assets considered realizable in future periods may change as management continues to reassess the underlying factors it uses in estimating future taxable income.

10. SIGNIFICANT AND OTHER 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 11 for related party transactions with Ronald P. Erickson, the Company’s Chairman and Chief Executive Officer and affiliated entities.

Related Party Transactions with Directors

Mr. Cronin served as a director between November 2023 and September 2024 when he was appointed our Interim Chief Technology Officer. Mr. Cronin is an experienced inventor and intellectual property strategist. Mr. Cronin is Chairman and CEO of ipCapital Group, Inc. The Company has recorded expenses with ipCapital Group of approximately $50,000 and $163,000, respectively in professional fees during the three months ended March 31, 2025 and 2024. The Company has recorded expenses with ipCapital Group of approximately $238,594 and $264,000, respectively in professional fees during the six months ended March 31, 2025 and 2024.

11. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS

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.

Properties and Operating Leases

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.

12. SEGMENT REPORTING

The Financial Accounting Standards Board, or FASB, Accounting Standard Codification, or ASC, Topic 280, Segment Reporting, requires that an enterprise report selected information about reportable segments in its financial reports issued to its stockholders. Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Chief Executive Officer and Chief Financial Officer are the Company’s CODM. The CODM monitors the expense components of the various products and services we offer, but operations are managed and financial performance is evaluated on a corporation-wide basis in comparison to a business plan which is developed each year. Accordingly, all operations are considered by management to be one operating segment and one reportable segment as contained in the Consolidated Statements of Operations to the consolidated financial statements. The CODM uses consolidated net income (loss) as its required measure of segment profit/loss, as such measure is determined in accordance with the measurement principles most consistent with the consolidated financial statements.

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 March 31, 2025 the Company had the following material transaction that requires disclosure:

The Company issued 1,329,276 shares and received proceeds of $773,917 related to the Demand Sales Agreement with JonesTrading Institutional Services LLC.

The Company issued 1,946,369 shares of our common stock related to principal payments of convertible debt settled with a common stock issuance for a total value of $758,600.

Employees, board members and consultants of the Company voluntarily cancelled stock option grants to purchase 599,715 shares of the Company’s common stock.

The Company issued 720,000 shares of the Company’s common stock to employees, board members and consultants.