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What changed in USBC, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of USBC, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+503 added−385 removedSource: 10-K (2023-12-19) vs 10-K (2022-12-20)

Top changes in USBC, Inc.'s 2023 10-K

503 paragraphs added · 385 removed · 238 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

74 edited+82 added−38 removed10 unchanged
Biggest changeOf note, we believe few, if any, of the competitors in the blood glucose monitoring space possess a platform technology competitive with our Bio-RFID technology and our ability to identify a multitude of analytes in the human body. 6 Table of Contents Competitive Advantages We believe our key competitive strengths include: · Through first principles, Bio-RFID’s ability to not only identify a wide range of organic and inorganic materials and analytes, but to do so concurrently, and in real time, which potentially enables new multivariate models of clinical diagnostics, and health and wellness monitoring. · Our Bio-RFID technology is non-invasive, using radio waves to identify and measure what is going on inside the body in real-time · Our Bio-RFID technology platform can be integrated into a variety of wearable, mobile or counter-top form factors, as well as interoperability with existing products from current market leaders. · No needles nor invasive transmitters in your body, making Bio-RFID sensors convenient and pain-free. · No expensive supplies, such as test strips and lancets, are required to operate Bio-RFID devices.
Biggest changeThere are also several academic and other institutions involved in various phases of technology development regarding blood glucose monitoring devices. 7 Table of Contents Competitive Advantages We believe our key competitive strengths include: · Through first principles, our sensor technology’s ability to not only identify a wide range of organic and inorganic materials and analytes, but to do so non-invasively, accurately, and in real time, which potentially enables new multivariate models of clinical diagnostics, and health and wellness monitoring. · Our sensor technology is non-invasive, using radio waves to identify and measure what is going on inside the body in real-time. · Our sensor technology platform can be integrated into a variety of wearable, mobile, or counter-top form factors, and we believe eventual interoperability with existing products from current market leaders. · No needles nor invasive transmitters in your body, making our sensor convenient and pain-free. · No expensive supplies, such as test strips and lancets, are required to operate our device. · A core focus on accessibility and affordability for the populations we will serve around the globe. · The current prototype sensor collects approximately 1.5 million data points per hour, which allows us to potentially build a deep understanding of health and wellness that other sensors may not be able to. · Know Labs is the world intellectual property leader in non-invasive blood glucose monitoring, according to ipCG Capital and PatSnap.
The FDA regulates the design, development, research, testing, manufacturing, safety, labeling, storage, recordkeeping, promotion, distribution, sale and advertising of medical devices in the United States to ensure that medical products distributed domestically are safe and effective for their intended uses. The FDA also regulates the export of medical devices manufactured in the United States to international markets.
FDA regulates the design, development, research, testing, manufacturing, safety, labeling, storage, recordkeeping, promotion, distribution, sale and advertising of medical devices in the United States to ensure that medical products distributed domestically are safe and effective for their intended uses. FDA also regulates the export of medical devices manufactured in the United States to international markets.
Premarket review and clearance by the FDA for Class II devices is accomplished through the 510(k) premarket notification procedure, though certain Class II devices are exempt from this premarket review process.
Premarket review and clearance by FDA for Class II devices is accomplished through the 510(k) premarket notification procedure, though certain Class II devices are exempt from this premarket review process.
However, the FDA may review such letters to file to evaluate the regulatory status of the modified product at any time and may require the manufacturer to cease marketing and recall the modified device until 510(k) clearance or PMA approval is obtained.
However, FDA may review such letters to file to evaluate the regulatory status of the modified product at any time and may require the manufacturer to cease marketing and recall the modified device until 510(k) clearance or PMA approval is obtained.
The PMA must also contain a full description of the device and its components, a full description of the methods, facilities, and controls used for manufacturing, and proposed labeling. Following receipt of a PMA application, once the FDA determines that the application is sufficiently complete to permit a substantive review, the FDA will formally accept the application for review.
The PMA must also contain a full description of the device and its components, a full description of the methods, facilities, and controls used for manufacturing, and proposed labeling. Following receipt of a PMA application, once FDA determines that the application is sufficiently complete to permit a substantive review, FDA will formally accept the application for review.
The FDA, by statute and by regulation, has 180-days to review an “accepted” PMA application, although the review of an application more often occurs over a significantly longer period of time, and can take up to several years. During the review period, the FDA will typically request additional information or clarification of the information already provided.
FDA, by statute and by regulation, has 180-days to review an “accepted” PMA application, although the review of an application more often occurs over a significantly longer period of time, and can take up to several years. During the review period, FDA will typically request additional information or clarification of the information already provided.
If the FDA evaluations of both the PMA application and the manufacturing facilities are favorable, the FDA will either issue an approval letter or an approvable letter, which usually contains a number of conditions that must be met in order to secure final approval of the PMA.
If FDA evaluations of both the PMA application and the manufacturing facilities are favorable, FDA will either issue an approval letter or an approvable letter, which usually contains a number of conditions that must be met in order to secure final approval of the PMA.
If the FDA’s evaluation of the PMA or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. A not approvable letter will outline the deficiencies in the application and, where practical, will identify what is necessary to make the PMA approvable.
If FDA’s evaluation of the PMA or manufacturing facilities is not favorable, FDA will deny approval of the PMA or issue a not approvable letter. A not approvable letter will outline the deficiencies in the application and, where practical, will identify what is necessary to make the PMA approvable.
In approving a PMA, the FDA may also require some form of post-market surveillance when necessary to protect the public health or to provide additional safety and effectiveness data for the device.
In approving a PMA, FDA may also require some form of post-market surveillance when necessary to protect the public health or to provide additional safety and effectiveness data for the device.
In such cases, the manufacturer might be required to follow certain patient groups for a number of years and makes periodic reports to the FDA on the clinical status of those patients.
In such cases, the manufacturer might be required to follow certain patient groups for a number of years and makes periodic reports to FDA on the clinical status of those patients.
De Novo Classification Medical device types that the FDA has not previously classified as Class I, II or III are automatically classified into Class III regardless of the level of risk they pose.
De Novo Classification Medical device types that FDA has not previously classified as Class I, II or III are automatically classified into Class III regardless of the level of risk they pose.
In addition, the FDA may reject the reclassification petition if it identifies a legally marketed predicate device that would be appropriate for a 510(k) or determines that the device is not low to moderate risk or that general controls would be inadequate to control the risks and special controls cannot be developed.
In addition, FDA may reject the reclassification petition if it identifies a legally marketed predicate device that would be appropriate for a 510(k) or determines that the device is not low to moderate risk or that general controls would be inadequate to control the risks and special controls cannot be developed.
In addition, under the federal Lanham Act and similar state laws, competitors and others can initiate litigation relating to advertising claims. If the FDA determines that our promotional materials or training constitutes promotion of an unapproved or uncleared use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions.
In addition, under the federal Lanham Act and similar state laws, competitors and others can initiate litigation relating to advertising claims. If FDA determines that our promotional materials or training constitutes promotion of an unapproved or uncleared use, then it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions.
If the FDA determines that the 510(k) submission is incomplete, the FDA will issue a “Refuse to Accept” letter which generally outlines the information the FDA believes is necessary to permit a substantive review and to reach a determination regarding substantial equivalence. An applicant must submit the requested information before the FDA will proceed with additional review of the submission.
If FDA determines that the 510(k) submission is incomplete, then FDA will issue a “Refuse to Accept” letter which generally outlines the information FDA believes is necessary to permit a substantive review and to reach a determination regarding substantial equivalence. An applicant must submit the requested information before FDA will proceed with additional review of the submission.
Those are (i) large global technology companies who may enter the blood glucose monitoring and other medical diagnostic markets, (ii) legacy providers of blood glucose monitoring technology, and (iii) new entrants working to achieve a non-invasive solution or more acceptable blood glucose monitoring solution which may or may not be similar to our technology.
Those are (i) large global technology companies who may enter the blood glucose monitoring and other medical diagnostic markets, (ii) legacy providers of blood glucose monitoring technology, and (iii) new entrants working to achieve a non-invasive solution or more acceptable blood glucose monitoring solutions which may or may not be similar to our technology.
Once the 510(k) submission is accepted for review, by regulation, the FDA has 90 days to review and issue a determination. As a practical matter, clearance often takes longer. The FDA may require additional information, including clinical data, to make a determination regarding substantial equivalence.
Once the 510(k) submission is accepted for review, by regulation, FDA has 90 days to review and issue a determination. As a practical matter, clearance often takes longer. FDA may require additional information, including additional clinical and non‑clinical data, to make a determination regarding substantial equivalence.
Clinical Studies When FDA clearance or approval of a Class I, Class II or Class III device requires human clinical trials, and if the device presents a “significant risk” to human health, the device sponsor is required to file an IDE application with the FDA and obtain IDE approval prior to commencing the human clinical trial.
Clinical Studies When FDA clearance or approval of a Class I, Class II or Class III device requires human clinical trials, and if the device presents a “significant risk” to human health, then the device sponsor is required to file an IDE application with FDA and obtain IDE approval prior to commencing the human clinical trial.
If the FDA agrees that the device is substantially equivalent to a predicate device currently on the market, it will grant 510(k) clearance to commercially market the device. If the FDA determines that the device is “not substantially equivalent” to a previously cleared device, the device is automatically designated as a Class III device.
If FDA agrees that the device is substantially equivalent to a predicate device currently on the market, then it will grant 510(k) clearance to commercially market the device. If FDA determines that the device is “not substantially equivalent” to a previously cleared device, the device is automatically designated as a Class III device.
The manufacturer may also be subject to significant regulatory fines or penalties. 9 Table of Contents PMA Approval A PMA must be submitted to the FDA for any device that is classified in Class III or otherwise cannot be cleared through the 510(k) process (although the FDA has discretion to continue to allow certain pre-amendment Class III devices to use the 510(k) process).
The manufacturer may also be subject to significant regulatory fines or penalties. 11 Table of Contents PMA Approval A PMA must be submitted to FDA for any device that is classified in Class III or otherwise cannot be cleared through the 510(k) process (although FDA has discretion to continue to allow certain pre-amendment Class III devices to use the 510(k) process).
A device is substantially equivalent if, with respect to the predicate device, it has the same intended use and has either (i) the same technological characteristics, or (ii) different technological characteristics, but the information provided in the 510(k) submission demonstrates that the device does not raise new questions of safety and effectiveness and is at least as safe and effective as the predicate device.
A device is substantially equivalent if, with respect to the predicate device, it has the same intended use and has either (i) the same technological characteristics, or (ii) different technological characteristics, but the information provided in the 510(k) submission demonstrates that the device does not raise new questions of safety and effectiveness and is at least as safe and effective as the legally marketed predicate device.
Under the FFDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent of control needed to ensure safety and effectiveness.
Under the FFDCA, medical devices are generally classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk to the patient and/or the user associated with each medical device and the extent of control needed to ensure safety and effectiveness.
The technologies are foundational and, as such, the basis upon which we believe significant businesses can be built. While we are pursuing our core focus on commercializing our glucose monitor, we believe non-core clinical and non-clinical applications represent a multitude of opportunities for strategic collaboration, joint development and licensing agreements with leading companies in their respective industries.
The technology is foundational and, as such, the basis upon which we believe significant businesses can be built. While we are pursuing our core focus on commercializing our glucose monitor, we believe non-core clinical, non-clinical and medical research applications represent a multitude of opportunities for strategic collaboration, joint development, and licensing agreements with leading companies in their respective industries.
Growth Strategy The key elements of our strategy to grow our business include: · Initially, entering the diabetes continuous glucose monitoring market with our non-invasive continuous glucose monitoring products. · Following our entry into the continuous glucose monitoring market, entering other clinical monitoring markets for continuous, non-invasive hormone, medication metabolite, endocrinology components and biomolecular monitoring. · Applying our Bio-RFID platform technology to lifestyle analysis, clinical trials and chronic illnesses.
Growth Strategy The key elements of our strategy to grow our business include: · Initially, entering the diabetes glucose monitoring market with our non-invasive glucose monitoring device. · Following our entry into the glucose monitoring market, entering other clinical monitoring markets for continuous, non-invasive hormone, medication metabolites, endocrinology components, and biomolecular monitoring. · Applying our platform technology to lifestyle analysis, clinical trials, and chronic illnesses.
Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacy of the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Continuing Regulation After a device is placed on the market, numerous regulatory requirements apply.
Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacy of the device or may otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States. Post-Marketing Restrictions and Enforcement After a device is placed on the market, numerous regulatory requirements apply.
Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the Federal Trade Commission and by state regulatory and enforcement authorities. Recently, promotional activities for FDA-regulated products of other companies have been the subject of enforcement action brought under healthcare reimbursement laws and consumer protection statutes.
Advertising and promotion of medical devices, in addition to being regulated by FDA, are also regulated by the Federal Trade Commission (the “FTC”) as well as comparable state consumer protection laws. Recently, promotional activities for FDA-regulated products of other companies have been the subject of enforcement action brought under healthcare reimbursement laws and consumer protection statutes.
Class II devices are subject to FDA’s general controls, and any other “special controls” deemed necessary by FDA to ensure the safety and effectiveness of the device, such as performance standards, product-specific guidance documents, special labeling requirements, patient registries or post-market surveillance.
Class II devices are moderate risk devices that present a higher risk than Class I devices. Class II devices subject to FDA’s general controls, and any other “special controls” deemed necessary by FDA to ensure the safety and effectiveness of the device, such as performance standards, product-specific guidance documents, special labeling requirements, patient registries or post-market surveillance.
These include: · product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action; · QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; · labeling regulations and FDA prohibitions against the promotion of products for uncleared or unapproved “off-label” uses; · clearance of product modifications that could significantly affect safety or efficacy or that would constitute a major change in intended use of one of our cleared devices; · approval of product modifications that affect the safety or effectiveness of one of our approved devices; · medical device reporting regulations, which require that manufacturers comply with FDA requirements to report if their device may have caused or contributed to a death or serious injury, or has malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction of the device or a similar device were to recur; · post-approval restrictions or conditions, including post-approval study commitments; · post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device; · the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation of governing laws and regulations; · regulations pertaining to voluntary recalls; and · notices of corrections or removals.
These include, but are not limited to: · Product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action; · Reporting of potential device shortages in some circumstances, including during a public health emergency; · Compliance with QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; · unannounced routine or for-cause device facility inspections by FDA, which may include our suppliers’ facilities; · labeling regulations and FDA prohibitions against the promotion of products for uncleared or unapproved “off-label” uses; · clearance of product modifications that could significantly affect safety or efficacy or that would constitute a major change in intended use of one of our cleared devices; · corrections and removal reporting regulations, which require that manufacturers report to FDA field corrections or removals if undertaken to reduce a risk to health posed by a device or to remedy a violation of the FFDCA that may present a risk to health; · medical device reporting regulations, which require that manufacturers comply with FDA requirements to report if their device may have caused or contributed to a death or serious injury, or has malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction of the device or a similar device were to recur; · post-approval restrictions or conditions, including post-approval study commitments; · post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device; · FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and · regulations pertaining to voluntary recalls.
The goal of the Breakthrough Devices Program is to provide patients and health care providers with timely access to these medical devices by speeding up their development, assessment, and review, while preserving the statutory standards for premarket approval, 510(k) clearance, and De Novo marketing authorization, consistent with the FDA’s mission to protect and promote public health. 10 Table of Contents The Breakthrough Devices Program replaces the Expedited Access Pathway and Priority Review for medical devices.
The goal of the Breakthrough Devices Program is to provide patients and health care providers with timely access to these medical devices by speeding up their development, assessment, and review, while preserving the statutory standards for premarket approval, 510(k) clearance, and De Novo marketing authorization, consistent with the Agency’s mission to protect and promote public health.
Sales and Marketing While we continue with our internal development efforts and the move toward FDA approved clinical trials and expected (but not guaranteed) clearance of our first product, a non-invasive blood glucose monitoring device, we will explore the several potential avenues for moving our first product and potential follow on products into the marketplace.
Sales and Marketing While we continue with our internal development efforts and the move toward clinical trials for FDA clearance of our non-invasive blood glucose monitor, we will explore the several potential avenues for moving our first product and potential follow-on products into the marketplace.
When a 510(k) is required, the manufacturer must submit to the FDA a premarket notification submission demonstrating that the device is “substantially equivalent” to a legally marketed device, which in some cases may require submission of clinical data. Unless a specific exemption applies, 510(k) premarket notification submissions are subject to user fees.
When a 510(k) is required, the manufacturer must submit to FDA a premarket notification submission demonstrating that the device is “substantially equivalent” to a legally marketed device, which in some cases may require submission of clinical data.
AI Mind is focused on monetizing the AI deep learning platform. The Know Labs Technology We have internally and under contract with third parties developed proprietary platform technologies to uniquely identify and measure almost any organic and inorganic material or analyte.
The Know Labs Technology We have internally and under contract with third parties developed proprietary platform technology to uniquely identify and measure almost any organic and inorganic material or analyte.
Since 2007, our company has been focused primarily on research and development of proprietary spectroscopic technologies spanning the electromagnetic spectrum. On April 30, 2020, we incorporated Particle, Inc., or Particle, as a wholly-owned subsidiary in the State of Nevada.
Corporate History and Structure Know Labs, Inc. was incorporated under the laws of the State of Nevada in 1998. Since 2007, our company has been focused primarily on research and development of proprietary spectroscopic technologies spanning the electromagnetic spectrum. Know Labs has one wholly owned subsidiary, Particle, Inc. incorporated on April 30, 2020.
As part of this effort, we conduct on-going laboratory testing to ensure that application methods are compatible with the end-user and regulatory requirements, and that they can be implemented in a cost-effective manner. We are also actively involved in identifying new applications.
As part of this effort, we continuously perform clinical testing of our devices following IRB-approved protocols, and we conduct on-going laboratory testing to ensure that application methods are compatible with the end-user and regulatory requirements, and that they can be implemented in a cost-effective manner.
If the device is considered a “non-significant risk,” IDE submission to FDA is not required. Instead, only approval from the Institutional Review Board overseeing the investigation at each clinical trial site is required. Human clinical studies are generally required in connection with approval of Class III devices and may be required for Class I and II devices.
Instead, only approval from the Institutional Review Board, or IRB, overseeing the investigation at each clinical trial site is required. Human clinical studies are generally required in connection with approval of Class III devices and may be required for Class I and II devices.
It can also provide the data recognition for blood alcohol and blood oxygen levels which we have also identified in preliminary tests. It will provide the analytics for the long list of other analytes in the human body that we will pursue non-invasive detection of, many of which are set forth in our issued patent USPTO 11,033,208 B1.
We believe our algorithms can also provide accurate measurements for blood alcohol and blood oxygen levels, which we have identified in preliminary tests. We expect them to provide the analytics for the long list of other potential analytes in the human body many of which are set forth in our issued patent USPTO 11,033,208 B1.
International International sales are subject to regulatory requirements in the countries in which our products may be sold. The regulatory review process varies from country to country and may in some cases require the submission of clinical data. We are not currently actively pursuing approval of our product outside of the United States.
International Any future international sales are subject to regulatory requirements in the countries in which our products are sold. The regulatory review process varies from country to country and may in some cases require the submission of clinical data.
We believe an important competitive differentiator for Bio-RFID to be its ability to not only identify a wide range of organic and inorganic materials and analytes, but to do so concurrently, and in real time, which potentially enables new multivariate models of clinical diagnostics, and health and wellness monitoring.
We believe an important competitive differentiator for our sensor technology to be its ability to not only identify a wide range of organic and inorganic materials and analytes, but to do so non-invasively, and in real-time, which potentially enables new multivariate models of clinical diagnostics, and health and wellness monitoring. 4 Table of Contents Know Labs Sensor Technology: Hardware and Software Our sensor technology embodies two key components: hardware and software.
Under FDASIA, the FDA is required to classify the device within 120 days following receipt of the de novo application. If the manufacturer seeks reclassification into Class II, the manufacturer must include a draft proposal for special controls that are necessary to provide a reasonable assurance of the safety and effectiveness of the medical device.
If the manufacturer seeks reclassification into Class II, the manufacturer must include a draft proposal for special controls that are necessary to provide a reasonable assurance of the safety and effectiveness of the medical device.
As platform technologies, they are analogous to a smartphone, upon which an enormous number of previously unforeseen applications have been developed. Bio-RFID and ChromaID technologies are “enabling” technologies that bring the science of electromagnetic energy to low-cost, real-world commercialization opportunities across multiple industries.
As a platform technology, it is analogous to a smartphone, upon which an enormous number of previously unforeseen applications have been developed. Our radio frequency spectroscopy technology is an “enabling” technology that brings the science of electromagnetic energy to low-cost, real-world commercialization opportunities across multiple industries.
If the FDA determines that the device, or its intended use, is not substantially equivalent to a legally marketed device, the FDA will place the device, or the particular use of the device, into Class III, and the device sponsor must then fulfill much more rigorous premarketing requirements. 8 Table of Contents Class III devices, consisting of devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a predicate device.
If FDA determines that the device, or its intended use, is not substantially equivalent to a legally marketed device, then FDA will place the device, or the particular use of the device, into Class III, and the device sponsor must then fulfill much more rigorous premarketing requirements.
A PMA application, which is intended to demonstrate that the device is safe and effective, must be supported by extensive data, typically including data from preclinical studies and human clinical trials. 510(k) Clearance To obtain 510(k) clearance for a medical device, an applicant must submit to the FDA a premarket notification submission demonstrating that the proposed device is “substantially equivalent” to a legally marketed device, known as a “predicate device.” A legally marketed predicate device may include a device that was legally marketed prior to May 28, 1976 for which a PMA is not required (known as a “pre-amendments device” based on the date of enactment of the Medical Device Amendments of 1976), a device that has been reclassified from Class III to Class II or Class I, or a device that was found substantially equivalent through the 510(k) process.
Devices classified into Class I or Class II through a De Novo request may be marketed and used as predicates for other future submissions, where applicable. 510(k) Clearance To obtain 510(k) clearance for a medical device, an applicant must submit to FDA a premarket notification submission demonstrating that the proposed device is “substantially equivalent” (i.e., as safe and effective) to a legally marketed device, known as a “predicate device.” A legally marketed predicate device may include a device that was legally marketed prior to May 28, 1976 for which a PMA is not required (known as a “pre-amendments device” based on the date of enactment of the Medical Device Amendments of 1976), a device that has been reclassified from Class III to Class II or Class I, a device that was found substantially equivalent through the 510(k) process or a device that was granted marketing authorization via the De Novo classification process that is not exempt from premarket notification requirement.
Once granted, PMA approval may be withdrawn by the FDA if compliance with post-approval requirements, conditions of approval or other regulatory standards is not maintained or problems are identified following initial marketing.
FDA may also determine that additional clinical trials are necessary, in which case the PMA approval may be delayed for several months or years while the trials are conducted. Once granted, PMA approval may be withdrawn by FDA if compliance with post-approval requirements, conditions of approval or other regulatory standards is not maintained or problems are identified following initial marketing.
Also, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not accept the panel’s recommendation.
Also, an advisory panel of experts from outside FDA may be convened to review and evaluate the application and provide recommendations to FDA as to the approvability of the device. FDA may or may not accept the panel’s recommendation. In addition, FDA will generally conduct a pre-approval inspection of the manufacturing facility or facilities to ensure compliance with the QSR.
We have also announced the results of internal laboratory-based comparison testing between our Bio-RFID technology and the leading continuous glucose monitors from Abbott Labs (Freestyle Libre) and DexCom (G6). These results provide evidence of a high degree of correlation between our Bio-RFID technology and the current industry leaders and their continuous glucose monitors.
Early Results We previously announced the results of an internal exploratory study comparing tests between our sensor technology and the leading continuous glucose monitors from Abbott Labs (Freestyle Libre®) and DexCom (G6®). These results provided evidence of a high degree of correlation between our technology and the current industry leaders and their continuous glucose monitors.
The FDA or the Institutional Review Board at each institution at which a clinical trial is being performed may suspend a clinical trial at any time for various reasons, including a belief that the subjects are being exposed to an unacceptable health risk.
Additionally, after a trial begins, we, FDA, or the IRB could suspend or terminate a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits. 13 Table of Contents FDA or the IRB at each institution at which a clinical trial is being performed may suspend a clinical trial at any time for various reasons, including a belief that the subjects are being exposed to an unacceptable health risk.
We do not expect future activity or revenue from that source. Product Strategy We are currently undertaking internal development work on potential products for the commercial marketplace. We have announced the development of our non-invasive glucose monitor and our desire to obtain FDA clearance for the marketing of this product.
We are unable to estimate the time necessary for FDA approval or the likelihood of success in that endeavor. Product Strategy We have announced the development of our non-invasive glucose monitor and our desire to obtain FDA clearance for the marketing of this product. We are currently undertaking internal development work of this product for the commercial marketplace.
We focus on human health and wellness with a first focus on the non-invasive monitoring of blood glucose. We will pursue the identification of a multitude of analytes in the human body important to diagnostics over time. We will also identify, over time, opportunities for our intellectual property to be deployed in areas outside human health and wellness.
We plan to pursue the identification of a multitude of analytes in the human body that are important to diagnostics over time. We also plan to identify, over time, opportunities for our intellectual property to be deployed in areas outside of human health and wellness. We may, although we cannot guarantee that we will, create other such subsidiaries over time.
Our patented technology utilizes electromagnetic energy along a wide range of the electromagnetic spectrum from visible light and infrared to radio and microwave wavelengths to perform analytics which allow the user to accurately identify and measure materials and analytes depending upon the specified targets or endpoints and field of use. Our proprietary platform technologies are called Bio-RFID and ChromaID.
Our patented technology utilizes electromagnetic energy along a wide range of the electromagnetic spectrum from visible light and infrared to radio wave and microwave wavelengths to perform analytics which allow the user to accurately identify and measure materials and analytes. Our technology provides a unique platform upon which a myriad of applications can be developed.
Government Regulation United States Our medical diagnostic products and operations, initially the KnowU and UBand glucose monitoring products, are subject to extensive and rigorous regulation by the FDA under the Federal Food, Drug, and Cosmetic Act, or FFDCA, and its implementing regulations, guidance documentation, and standards. Our KnowU and UBand products will be regulated by the FDA as medical devices.
Food and Drug Administration, or FDA, under the Federal Food, Drug, and Cosmetic Act, or FFDCA, and its implementing regulations, guidance documentation, and standards. Our products will be regulated by FDA as medical devices.
A showing of substantial equivalence sometimes, but not always, requires clinical data. Before the FDA will accept a 510(k) submission for substantive review, the FDA will first assess whether the submission satisfies a minimum threshold of acceptability.
A showing of substantial equivalence sometimes, but not always, can require clinical data and non-clinical bench performance data, including engineering performance testing, sterility, electromagnetic compatibility, software validation, biocompatibility evaluation, among other data. Before FDA will accept a 510(k) submission for substantive review, FDA will first assess whether the submission satisfies a minimum threshold of acceptability.
Our current internal team along with outside consultants have considerable experience working with the application of our technologies and their application. We engage third party experts as required to supplement our internal team. We believe that continued development of new and enhanced technologies is essential to our future success.
As resources permit, we plan to focus on extending the capacity of our sensor technology to identify new analytes and applications. Our current internal team along with outside consultants have considerable experience working with the application of our technologies. We engage third party experts as required to supplement our internal team.
It is our current belief that our initial product is appropriate for a de novo classification request. Breakthrough Devices Program The Breakthrough Devices Program is a voluntary program for certain medical devices and device-led combination products that provide for more effective treatment or diagnosis of life-threatening or irreversibly debilitating diseases or conditions.
This will be further refined as we continue working closely with our regulatory consultants. 12 Table of Contents Breakthrough Devices Program The Breakthrough Devices Program is a voluntary program for certain medical devices and device-led combination products that provide for more effective treatment or diagnosis of life-threatening or irreversibly debilitating diseases or conditions.
Examples are Particle and AI Mind. We expect although we cannot guarantee that we will create other such subsidiaries over time. Additionally, we may license our intellectual property to third parties so that they may pursue activities that are not a part of our core focus. Employees As of September 30, 2022, we had 16 full-time and part employees.
Additionally, we may license our intellectual property to third parties so that they may pursue activities that are not a part of our core focus. Employees As of September 30, 2023, we had eleven full-time and part-time employees. Our senior management and other personnel are co-located in our Seattle, Washington offices and remote.
Intellectual Property The cornerstone of our foundational platform technology is our intellectual property portfolio. We have pursued an active intellectual property strategy which includes focus on patents where appropriate and a diligent protection of trade secrets. To date, we have been granted 27 patents and 19 design patents.
We incurred expenses of $7,727,000 and $5,386,000 for the years ended September 30, 2023 and 2022, respectively, on development activities. 8 Table of Contents Intellectual Property The cornerstone of our foundational platform technology is our intellectual property portfolio. We have pursued an active intellectual property strategy which includes focus on patents where appropriate and a diligent protection of trade secrets.
The device sponsor must then fulfill more rigorous PMA requirements, or can request a risk-based classification determination for the device in accordance with the “de novo” process, which is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device.
The device sponsor must then fulfill more rigorous PMA requirements, or can request a risk-based classification determination for the device in accordance with the De Novo process.
Class I devices are those for which safety and effectiveness can be assured by adherence to FDA’s “general controls” for medical devices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting of adverse medical events, and appropriate, truthful and non-misleading labeling, advertising, and promotional materials.
This includes compliance with the applicable portions of FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting of adverse medical events, and appropriate, truthful and non-misleading labeling, advertising, and promotional materials. Some Class I devices require premarket clearance by FDA through the 510(k) premarket notification process described below but most are exempt from 510(k) premarket notification requirements.
The issued patents cover the fundamental aspects of our ChromaID and Bio-RFID technology and a number of unique applications. We have filed patents on the fundamental aspects of our Bio-RFID technology and growing number of unique applications. We will continue, over time, to expand our patent portfolio.
We have filed patents, which are pending, on the additional fundamental aspects of our technology and growing number of unique applications. We will continue, over time, to expand our patent portfolio. Additionally, significant aspects of our technology are maintained as trade secrets which may not be disclosed through the patent filing process.
To guide us in that undertaking, we previously announced the hiring of a Chief Medical Officer and formed a medical and regulatory advisory board to guide us through the FDA process. Additionally, we have retained third party quality assurance and documentation consultants to ensure that the rigorous requirements of the FDA are met.
We have also begun the internal and external process to pursue FDA clearance for our non-invasive blood glucose monitor. Our Chief Medical Officer, medical and regulatory advisory board, our entire executive team along with external advisors guide us in this process. Additionally, our third-party quality assurance and documentation consultants help ensure that the rigorous requirements of FDA are met.
ITEM 1. BUSINESS. Overview We are focused on the development and commercialization of proprietary sensor technologies which, when paired with our artificial intelligence, or AI, deep learning platform, are 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.
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.
At this point in our development cycle the sensor hardware is completed, the product form factor is nearing completion, and the algorithms which provide accurate results from the data collected by our sensor are in the final development stages.
At this point in our development cycle, the hardware continues to be miniaturized and optimized, the product form factor is moving in the direction of a final product that will be used for FDA clinical trials and the algorithms which provide results from the data collected by our sensor are being refined to improve accuracy.
Pending patents, if and when issued, may have expiration dates that extend further in time. The duration of our trademark registrations varies from country to country. However, trademarks are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations are properly maintained.
However, trademarks are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations are properly maintained. The issued patents cover the fundamental aspects of our radio frequency spectroscopy technology and a number of unique applications.
Significantly, we believe Bio-RFID successfully addresses the limiting qualities of optical technologies whose diagnostic capacities may be inhibited by skin tones, skin thickness and other factors.
Our patented technology is fundamentally differentiated from these industry leaders as our technology completely non-invasively monitors blood glucose levels. We also believe our technology successfully addresses the limiting qualities of non-invasive optical technologies whose diagnostic capacities may be inhibited by skin tones and other factors.
Additionally, significant aspects of our technology are maintained as trade secrets which may not be disclosed through the patent filing process. We are diligent in maintaining and securing our trade secrets. Related Patent Assets Inherent in a platform technology is the ability to develop or license technology in diverse fields of use apart from our core focus.
Related Patent Assets Inherent in a platform technology is the ability to develop or license technology in diverse fields of use apart from our core focus. We focus on human health and wellness with a first focus on the non-invasive monitoring of blood glucose.
PMA applications must be supported by, among other things, valid scientific evidence demonstrating the safety and effectiveness of the device, which typically requires extensive data, including technical, preclinical, clinical and manufacturing data.
PMA applications must be supported by, among other things, valid scientific evidence demonstrating the safety and effectiveness of the device, which typically requires extensive data, including technical, preclinical, clinical and manufacturing data (e.g., study protocols, adverse reactions and complications, device failures and replacements, patient information, patient complaints, tabulations of data from all individual subjects, results of statistical analyses), and non-clinical laboratory or safety studies (e.g., microbiology, toxicology, immunology, biocompatibility, stress, wear, shelf life, and other laboratory or animal tests).
We have also announced the engagement of a manufacturing partner we will work with to bring this product to market. We will make further announcements regarding this product as development, testing, manufacturing, and regulatory approval work progresses.
We have also announced the work being done on the Generation 2 prototype device, which is a wearable format and we expect to be a potential final format that would be presented to the FDA for market clearance. We will make further announcements regarding the product as development, testing, manufacturing, and regulatory approval work progresses.
The safety and effectiveness of Class III devices cannot be assured solely by general or special controls. Submission and FDA approval of a premarket approval, or PMA, application is required before marketing of a Class III device can proceed. As with 510(k) submissions, unless subject to an exemption, PMA submissions are subject to user fees.
Submission and FDA approval of a premarket approval, or PMA, application is generally required before marketing of a Class III device can proceed. The PMA process is much more demanding than the 510(k) premarket notification process.
Failure by us or by our suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDA or other regulatory authorities, which may result in sanctions including, but not limited to: · untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; · unanticipated expenditures to address or defend such actions; · customer notifications for repair, replacement, refunds; · recall, detention or seizure of our products; · operating restrictions or partial suspension or total shutdown of production; · refusing or delaying our requests for 510(k) clearance or PMA approval of new products or modified products; · withdrawing 510(k) clearances or PMA approvals that have already been granted; · refusal to grant export approval for our products; or · criminal prosecution.
The failure to comply with applicable regulatory requirements can result in enforcement action by FDA, which may include any of the following sanctions: · warning letters, fines, injunctions or civil penalties; · recalls, detentions or seizures of products; · operating restrictions; · delays in the introduction of products into the market; · total or partial suspension of production; · delay or refusal of the FDA or other regulators to grant 510(k) clearance, PMA approvals, or other marketing authorization to new products; · withdrawals of marketing authorizations; or · in the most serious cases, criminal prosecution.
We currently have a number of patents pending and continue, on a regular basis, with the filing of new patents. We possess all rights, title and interest to the issued patents. 7 Table of Contents Our issued patents will expire at various times between 2027 and 2041.
We possess all rights, title and interest to the issued patents. Our issued patents will expire at various times between 2027 and 2047. Pending patents, if and when issued, may have expiration dates that extend further in time. The duration of our trademark registrations varies from country to country.
We believe that potential use cases include real time wearable medication monitoring and detection of, for example, ovulation and hormone deficiency. · Significantly, every new application will function utilizing the same sensor. You will not need a new device, simply a new software algorithm. · Each new application provides new opportunities for monetization of the Bio-RFID platform technology.
We believe that potential use cases include real-time wearable medication monitoring and detection of, for example, ovulation and hormone deficiency. · With an ever-growing body of non-invasively determined analytes available from individuals utilizing our technology we believe, over time, with longitudinal data we will be able to engage in so-called “predictive health” and provide early warnings of the onset of disease. · Significantly, every new application will function utilizing the same sensor.
The avenues being explored include direct to consumer, initial launch partners, broad distribution partners, licensing partners and private label approaches to the market among others. We have begun to build our internal sales and marketing team in preparation for detailed strategic thinking about the optimal approach to the marketplace. Competition We group the competition into three large categories.
The avenues being explored include direct to consumer, initial launch partners, broad distribution partners, licensing partners and private label approaches to the market, among others. As part of our growth strategy, we have begun discussions around joint development agreements with potential biopharma, medical device, and consumer electronics partners.
The FDA considers devices granted designation under the Expedited Access Pathway to be part of the Breakthrough Devices Program. We may pursue the Breakthrough Devices Program.
The Breakthrough Devices Program replaces the Expedited Access Pathway and Priority Review for medical devices and offers manufacturers an opportunity to interact with FDA to efficiently address topics as they arise during the premarket review phase. FDA considers devices granted designation under the Expedited Access Pathway to be part of the Breakthrough Devices Program.
Research and Development Our current research and development efforts are primarily focused on improving our Bio-RFID technology, extending its capacity, and developing new and unique applications for this technology and the AI deep learning platform that drives its analytics.
Research and Development Our current research and development efforts are primarily focused on improving our radio frequency spectroscopy technology for the monitoring of blood glucose.
Currently, we are focusing our efforts on productizing our Bio-RFID technology as we move it out of our research laboratory, through third party validation studies, appropriate and required clinical trials and into the marketplace.
Our efforts are entirely focused on productizing our sensor technology and collecting high quality data for validation purposes, including third-party studies, and appropriate and required clinical trials.
In that event, our reputation could be damaged, and adoption of the products would be impaired. 11 Table of Contents Furthermore, our products could be subject to voluntary recall if we or the FDA determine, for any reason, that our products pose a risk of injury or are otherwise defective.
In that event, our reputation could be damaged, and adoption of the products would be impaired. 14 Table of Contents In addition, under FDA medical device reporting (“MDR”) regulations, medical device manufacturers are required to report to FDA information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury if the malfunction of the device or a similar device of such manufacturer were to recur.
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We call this our “Bio-RFID” technology platform, when pertaining to radio and microwave spectroscopy, and our “ChromaID” technology platform, when pertaining to optical spectroscopy. The data obtained with our sensor technology is analyzed with our trade secret algorithms which are driven by our AI deep learning platform. ChromaID was the first technology developed and patented by our company.
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ITEM 1. BUSINESS. Overview Know Labs is an emerging leader in non-invasive medical diagnostics. We are focused on the development and commercialization of our proprietary sensor technology utilizing radio and microwave spectroscopy.
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For the past several years, we have focused on extensions and new patentable inventions that are derived from and extend beyond our ChromaID technology and intellectual property.
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Our device will provide the user with real-time information on their blood glucose levels. We recently announced our Generation 1 working prototype device. This device embodies the sensor which has been used in internal clinical testing.
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The rapid advances made with our Bio-RFID technology in our laboratory have caused us to move quickly into the commercialization phase of our company as we work to create revenue generating products for the marketplace. Today, the primary focus of our company is on our Bio-RFID technology and our commercialization and development of related patent assets.
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We have also announced the work our R&D team is doing on the Generation 2 of our device, which is a wearable format and could be a final form factor, ready for commercial application. We are expanding our testing, both internally and externally, and will refine the device over time, which will require FDA clearance before entering the market.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe or our manufacturers may be unable to obtain or maintain international regulatory clearances or approvals for our current or future products, or our distributors may be unable to obtain necessary qualifications, which could harm our business. Sales of our products internationally are subject to foreign regulatory requirements that vary widely from country to country.
Biggest changeAny delay in, or failure to receive or maintain, approval or clearance for our products could prevent us from generating revenue from these products or achieving profitability. 29 Table of Contents We or our manufacturers may be unable to obtain or maintain international regulatory clearances or approvals for our current or future products, or our distributors may be unable to obtain necessary qualifications, which could harm our business thus limited sales to the U.S .
There is no assurance that such regulatory approval would be obtained for a glucose monitoring medical diagnostic device or other applications requiring such approval. The FDA can refuse to grant, delay, and limit or deny approval of an application for clearance of marketing a glucose monitoring device for many reasons.
There is no assurance that such regulatory approval would be obtained for a glucose monitoring medical diagnostic device or other applications requiring such approval. FDA can refuse to grant, delay, and limit or deny approval of an application for clearance of marketing a glucose monitoring device for many reasons.
If we are unable to obtain additional financing when it is needed, we will need to restructure our operations and/or divest all or a portion of our business. We are each seeking additional capital through a combination of private and public equity offerings, debt financings and strategic collaborations.
If we are unable to obtain additional financing when it is needed, we will need to restructure our operations and/or divest all or a portion of our business. We are seeking additional capital through a combination of private and public equity offerings, debt financings and strategic collaborations.
If our distributors experience delays in receiving necessary qualifications, clearances or approvals to market our products outside the U.S., or if they fail to receive those qualifications, clearances or approvals, we may be unable to market our products or enhancements in international markets effectively, or at all.
If our distributors experience delays in receiving necessary qualifications, clearances or approvals to market our products outside the U.S., or if they fail to receive those qualifications, clearances or approvals, then we may be unable to market our products or enhancements in international markets effectively, or at all.
If we are enjoined from selling our products, or if we are required to develop new technologies or pay significant monetary damages or are required to make substantial royalty payments, our business and results of operations would be harmed. Obtaining and maintaining a patent portfolio entails significant expense and resources.
If we are prevented from selling our products, or if we are required to develop new technologies or pay significant monetary damages or are required to make substantial royalty payments, our business and results of operations would be harmed. Obtaining and maintaining a patent portfolio entails significant expense and resources.
Government regulatory approval may be necessary before some of our products can be sold and there is no assurance such approval will be granted. Our technology may have a number of potential applications in fields of use which will require prior governmental regulatory approval before the technology can be introduced to the marketplace.
Government regulatory approval may be necessary before some of our products can be sold and there is no assurance such approval will be granted. Our technology will have a number of potential applications in fields of use that will require prior governmental regulatory approval before the technology can be introduced to the marketplace.
In addition, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company. Although we have no present intention to issue any shares of authorized preferred stock, there can be no assurance that we will not do so in the future.
In addition, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company. Although we have no present intention to designate or issue any shares of our authorized blank check preferred stock, there can be no assurance that we will not do so in the future.
These options, warrants, convertible notes payable and convertible preferred stock could result in further dilution to common stockholders and may affect the market price of the common stock. 20 Table of Contents Future capital raises or other issuances of equity or debt securities may dilute our existing stockholders’ ownership and/or have other adverse effects on our operations.
These options, warrants, convertible notes payable and convertible preferred stock could result in further dilution to common stockholders and may affect the market price of the common stock. Future capital raises or other issuances of equity or debt securities may dilute our existing stockholders’ ownership and/or have other adverse effects on our operations.
If we choose to forgo patent protection or allow a patent application or patent to lapse purposefully or inadvertently, our competitive position could suffer. Legal actions to enforce our patent rights can be expensive and may involve the diversion of significant management time.
If we choose to forgo patent protection or allow a patent application or patent to lapse purposefully or inadvertently, our competitive position could suffer. 27 Table of Contents Legal actions to enforce our patent rights can be expensive and may involve the diversion of significant management time.
Warrants totaling 4,439,707 would adjust below $1.20 per share and warrants totaling 4,465,294 would adjust below $2.40 per share, in each case pursuant to the documents governing such instruments. If our company were to dissolve or wind-up operations, holders of our common stock would not receive a liquidation preference.
Warrants totaling 4,439,707 would adjust below $1.20 per share and warrants totaling 4,484,725 would adjust below $2.40 per share, in each case pursuant to the documents governing such instruments. If our company were to dissolve or wind-up operations, holders of our common stock would not receive a liquidation preference.
You must consider our business and prospects in light of the risks and difficulties we will encounter as business with an early-stage technology in a new and rapidly evolving industry. We may not be able to successfully address these risks and difficulties, which could significantly harm our business, operating results and financial condition.
You must consider our business and prospects in light of the risks and difficulties we will encounter as business with an early-stage technology in a new and rapidly evolving industry. We may not be able to successfully address these risks and difficulties, which could significantly harm our business, operating results, financial condition and common stock price per share.
In addition, the conversion price of the convertible promissory notes referred to above and the exercise price of certain outstanding warrants to purchase 10,154,381 shares of common stock would adjust below $0.25 per share pursuant to the documents governing such instruments.
In addition, the conversion price of the convertible promissory notes referred to above and the exercise price of certain outstanding warrants to purchase 7,684,381 shares of common stock would adjust below $0.25 per share pursuant to the documents governing such instruments.
Any failure of our technology or related products to meet customer expectations could result in customers choosing to retain their existing testing methods or to adopt systems other than ours. 14 Table of Contents Many factors influence the perception of a system including its use by leaders in the industry.
Any failure of our technology or related products to meet customer expectations could result in customers choosing to retain their existing methods or to adopt systems other than ours. 25 Table of Contents Many factors influence the perception of a new technology including its use by leaders in the industry.
In addition, if our products fail to gain significant acceptance in the marketplace and we are unable to expand our customer base, we may never generate sufficient revenue to achieve or sustain profitability. Our subsidiaries have limited operating histories.
In addition, if our products fail to gain significant acceptance in the marketplace and we are unable to expand our customer base, we may never generate sufficient revenue to achieve or sustain profitability.
If we do not realize the expected benefits of any acquisition or divestiture transaction, our financial position, results of operations, cash flows and stock price could be negatively impacted. 17 Table of Contents We have made strategic acquisitions in the past and may do so in the future, and if the acquired companies do not perform as expected, this could adversely affect our operating results, financial condition and existing business.
If we do not realize the expected benefits of any acquisition or divestiture transaction, our financial position, results of operations, cash flows and stock price could be negatively impacted. We may make strategic acquisitions in the future, and if the acquired companies do not perform as expected, this could adversely affect our operating results, financial condition and existing business.
Such transactions are accompanied by a number of risks, including the use of significant amounts of cash, potentially dilutive issuances of equity securities, incurrence of debt on potentially unfavorable terms as well as impairment expenses related to goodwill and amortization expenses related to other intangible assets, the possibility that we may pay too much cash or issue too many of our shares as the purchase price for an acquisition relative to the economic benefits that we ultimately derive from such acquisition, and various potential difficulties involved in integrating acquired businesses into our operations.
Such transactions are accompanied by a number of risks, including the use of significant amounts of cash, potentially dilutive issuances of equity securities, incurrence of debt on potentially unfavorable terms as well as impairment expenses related to goodwill and amortization expenses related to other intangible assets, the possibility that we may pay too much cash or issue too many of our shares as the purchase price for an acquisition relative to the economic benefits that we ultimately derive from such acquisition, and various potential difficulties involved in integrating acquired businesses into our operations. 28 Table of Contents From time to time, we have also engaged in discussions with candidates regarding the potential acquisitions of our product lines, technologies and businesses.
In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. ITEM 1B. UNRESOLVED STAFF COMMENTS. Not applicable.
There can be no assurance that we will achieve or maintain profitability. If we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Failure to become and remain profitable would impair our ability to sustain operations and adversely affect the price of our common stock and our ability to raise capital.
If we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Failure to become and remain profitable would impair our ability to sustain operations and adversely affect the price of our common stock and our ability to raise capital.
If in the future, if we sell our common stock at a price below $0.25 per share, the conversion price of our outstanding shares of series C convertible preferred stock and series D convertible preferred stock would adjust below $0.25 per share pursuant to the documents governing such instruments.
If in the future, we sell our common stock at a price below $0.25 per share, the conversion price of our outstanding shares of Series C Convertible Preferred Stock and Series D Convertible Preferred Stock would adjust below $0.25 per share pursuant to their respective certificates of designation.
These broad market and industry factors may have a material adverse effect on the market price of our common stock, regardless of our actual operating performance. These factors could have a material adverse effect on our business, financial condition, and results of operations.
These broad market and industry factors may have a material adverse effect on the market price of our common stock, regardless of our actual operating performance.
Our success depends on our ability to develop and market products that are recognized as accurate and cost-effective. Many of our potential customers may be reluctant to use our new technology. Market acceptance will depend on many factors, including our ability to convince potential customers that our technology and related products are an attractive alternative to existing technologies.
Many of our potential customers may be reluctant to use our new technology. Market acceptance will depend on many factors, including our ability to convince potential customers that our technology and related products are an attractive alternative to existing technologies. We will need to demonstrate that our products provide accurate and cost-effective alternatives to existing technologies.
We have not historically had sufficient internal resources which can work on engineering and product development matters. We have used third parties in the past and will continue to do so. These resources are not always readily available, and the absence of their availability could inhibit our research and development efforts and our responsiveness to our customers.
We have used third parties in the past and will continue to do so. These resources are not always readily available, and the absence of their availability could inhibit our research and development efforts and our responsiveness to our customers.
In addition, the FDA regulates exports of medical devices from the U.S. Complying with international regulatory requirements can be an expensive and time-consuming process, and marketing approval or clearance is not certain.
Sales of our products internationally are subject to foreign regulatory requirements that vary widely from country to country. In addition, FDA regulates exports of medical devices from the U.S. Complying with international regulatory requirements can be an expensive and time-consuming process, and marketing approval or clearance is not certain.
As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any cybersecurity vulnerabilities.
As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any cybersecurity vulnerabilities. Additionally, the U.S. may institute additional cybersecurity requirements especially for medical devices.
In the future, we may also attempt to increase our capital resources by offering debt securities. These debt securities would have rights senior to those of our common stock and the terms of the debt securities issued could impose significant restrictions on our operations, including liens on our assets.
These debt securities would have rights senior to those of our common stock and the terms of the debt securities issued could impose significant restrictions on our operations, including liens on our assets.
Our success will depend on the performance of our officers, our ability to retain and motivate our officers, our ability to integrate new officers into our operations, and the ability of all personnel to work together effectively as a team.
While our continued operation and ultimate success is not dependent upon one individual, our success does depend on the performance of our officers, our ability to retain and motivate our officers, our ability to integrate new officers into our operations, and the ability of all personnel to work together effectively as a team.
If we were to be successful in developing glucose monitoring medical applications of our technology, prior clearance by the FDA and other governmental regulatory bodies will be required before the technology could be introduced into the marketplace.
If we were to be successful in developing glucose monitoring medical applications of our technology, prior clearance by FDA and other governmental regulatory bodies will be required before the technology could be introduced into the marketplace. Our devices leverage Machine Learning (ML) and Artificial Intelligence (AI) to process the massive data collected through the Bio-RFID sensor.
The delisting of our common stock could significantly impair our ability to raise capital and the value of your investment. 19 Table of Contents The price of our common stock is volatile, which may cause investment losses for our stockholders . The market price of our common stock has been and is likely in the future to be volatile.
The price of our common stock is volatile, which may cause investment losses for our stockholders. The market price of our common stock has been and is likely in the future to be volatile.
In these circumstances, we would be required to rely on our foreign independent distributors to comply with the varying regulations, and any failures on their part could result in restrictions on the sale of our product in foreign countries. 18 Table of Contents Cybersecurity risks and cyber incidents could result in the compromise of confidential data or critical data systems and give rise to potential harm to customers, remediation and other expenses, expose us to liability under consumer protection laws, or other common law theories, subject us to litigation and federal and state governmental inquiries, damage our reputation, and otherwise be disruptive to our business and operations.
Cybersecurity risks and cyber incidents could result in the compromise of confidential data or critical data systems and give rise to potential harm to customers, remediation and other expenses, expose us to liability under consumer protection laws, or other common law theories, subject us to litigation and federal and state governmental inquiries, damage our reputation, and otherwise be disruptive to our business and operations.
We believe that our commercialization success is dependent upon our ability to significantly increase the number of customers that are using our products . In addition, demand for our products may not materialize, or increase as quickly as planned, and we may therefore be unable to increase our revenue levels as expected. We are currently not profitable .
In addition, demand for our products may not materialize, or increase as quickly as planned, and we may therefore be unable to increase our revenue levels as expected. We are currently not profitable .
There can be no assurance that we will not be subject to cybersecurity incidents that bypass our security measures, impact the integrity, availability or privacy of personal health information or other data subject to privacy laws or disrupt our information systems, devices or business, including our ability to deliver services to our customers.
Unauthorized parties may also attempt to gain access to our systems or facilities through fraud, trickery or other forms of deceiving our employees, contractors and temporary staff. 30 Table of Contents There can be no assurance that we will not be subject to cybersecurity incidents that bypass our security measures, impact the integrity, availability or privacy of personal health information or other data subject to privacy laws or disrupt our information systems, devices or business, including our ability to deliver services to our customers.
Pursuant to our articles of incorporation, we are also authorized to issue 5,000,000 shares of blank check preferred stock. Any preferred stock that we issue in the future may rank ahead of our common stock in terms of dividend priority or liquidation premiums and may have greater voting rights than our common stock.
Such preferred stock is senior to our common stock in terms of dividend priority and liquidation preference. Any preferred stock that we issue in the future may rank ahead of our common stock in terms of dividend priority or liquidation preference and may have greater voting rights than our common stock.
We cannot provide assurance that any of these warrants will be exercised. 13 Table of Contents As of September 30, 2022, we owed approximately $2,550,484 and if we do not satisfy these obligations, the lenders may have the right to demand payment in full or exercise other remedies.
As of September 30, 2023, we owed approximately $2,980,000 and if we do not satisfy these obligations, the lenders may have the right to demand payment in full or exercise other remedies.
We are subject to corporate governance and internal control requirements, and our costs related to compliance with, or our failure to comply with existing and future requirements could adversely affect our business.
FDA has stated that failure to comply with these requirements will result in FDA denying approval of the cyber device application. We are subject to corporate governance and internal control requirements, and our costs related to compliance with, or our failure to comply with existing and future requirements could adversely affect our business.
If we fail to protect or to enforce our intellectual property rights successfully, our competitive position could suffer, which could have a material adverse effect on our results of operations and business. 16 Table of Contents Claims by others that our products infringe their patents or other intellectual property rights could prevent us from manufacturing and selling some of our products or require us to pay royalties or incur substantial costs from litigation or development of non-infringing technology.
Claims by others that our products infringe their patents or other intellectual property rights could prevent us from manufacturing and selling some of our products or require us to pay royalties or incur substantial costs from litigation or development of non-infringing technology.
We may not be able to generate sufficient revenue from the commercialization of our technology and related products to achieve or sustain profitability. We are in the early stages of commercializing our technology.
We may not be able to generate sufficient revenue from the commercialization of our technology and related products to achieve or sustain profitability. We are in the early stages of commercializing our technology. Failure to develop and sell products based upon our technology could have a material adverse effect on our business, financial condition and results of operations.
As of September 30, 2022, there were options outstanding for the purchase of 20,792,370 common shares (including unearned stock option grants totaling 9,704,620 shares related to performance targets), warrants for the purchase of 21,786,313 common shares, and 8,108,356 shares of our common stock issuable upon the conversion of Series C and Series D Convertible Preferred Stock.
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 our common stock issuable, collectively, upon the conversion of our Series C Convertible Preferred Stock and Series D Convertible Preferred Stock, and approximately 3,040,219 shares of our common stock, collectively, reserved to pay accrued dividends on our Series C Convertible Preferred Stock and Series D Convertible Preferred Stock.
If we are unable to secure an engineering or product development partner or establish satisfactory engineering and product development capabilities, we may not be able to successfully commercialize our technology . Our success depends upon our ability to develop products that are accurate and provide solutions for our customers.
We currently rely in part upon external resources for engineering and product development services. If we are unable to secure an engineering or product development partner or establish satisfactory engineering and product development capabilities, we may not be able to successfully commercialize our technology .
Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future. Thus, you will bear the risk of our future offerings reducing the value of your shares and diluting your interest in us.
Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future.
We have a history of operating losses and there can be no assurance that we can achieve or maintain profitability. We have experienced net losses since inception. As of September 30, 2022, we had an accumulated deficit of $101,397,738 and net losses in the amount of $20,071,244 and $25,360,213 for the years ended September 30, 2022 and 2021, respectively.
As of September 30, 2023, we had an accumulated deficit of $121,841,000 and net losses in the amount of $15,289,000 and $20,071,000 for the years ended September 30, 2023 and 2022, respectively. There can be no assurance that we will achieve or maintain profitability.
We rely on a combination of patent, trademark, and trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. Obtaining and maintaining a strong patent position is important to our business.
Our inability to effectively protect our intellectual property would adversely affect our ability to compete effectively, our revenue, our financial condition and our results of operations. We rely on a combination of patent, trademark, and trade secret laws, and confidentiality procedures to protect our intellectual property rights. Creating and maintaining a strong patent portfolio is important to our business.
The inability to attract and retain necessary technical, managerial, manufacturing, administrative and sales and marketing personnel could harm our ability to obtain new customers and develop new products and could adversely affect our business and operating results. 15 Table of Contents We have limited insurance which may not cover claims by third parties against us or our officers and directors.
The inability to attract and retain necessary technical, managerial, manufacturing, administrative and sales and marketing personnel could harm our ability to obtain new customers and develop new products and could adversely affect our business and operating results.
We have limited directors’ and officers’ liability insurance and commercial liability insurance policies. Claims by third parties against us may exceed policy amounts and we may not have amounts to cover these claims. Any significant claims would have a material adverse effect on our business, financial condition and results of operations.
We have limited insurance which may not cover claims by third parties against us or our officers and directors. We have directors’ and officers’ liability insurance and commercial liability insurance policies. Claims, however, by third parties against us may exceed policy amounts and we may not have amounts to cover these claims.
From time to time, we have also engaged in discussions with candidates regarding the potential acquisitions of our product lines, technologies and businesses. If a divestiture such as this does occur, we cannot be certain that our business, operating results and financial condition will not be materially and adversely affected.
If a divestiture such as this does occur, we cannot be certain that our business, operating results and financial condition will not be materially and adversely affected.
We believe that we have enough available cash to operate until December 31, 2023. As of September 30, 2022, our accumulated deficit was $101,397,738. We intend to seek additional cash via equity and debt offerings.
We anticipate that we will record losses from operations for the foreseeable future. We believe that we have enough available cash to operate until June 30, 2024. As of September 30, 2023, our accumulated deficit was $121,841,000. We intend to seek additional cash via equity and debt offerings.
In addition, our limited directors’ and officers’ liability insurance may affect our ability to attract and retain directors and officers. Our inability to effectively protect our intellectual property would adversely affect our ability to compete effectively, our revenue, our financial condition and our results of operations.
Any significant claims would have a material adverse effect on our business, financial condition and results of operations. In addition, our limited directors’ and officers’ liability insurance may affect our ability to attract and retain directors and officers.
In addition, hardware, software or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Unauthorized parties may also attempt to gain access to our systems or facilities through fraud, trickery or other forms of deceiving our employees, contractors and temporary staff.
In addition, hardware, software or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security.
We need additional financing to support our technology development and ongoing operations, pay our debts and maintain ownership of our intellectual properties. We are currently operating at a loss and using substantial cash to fund our operation. We believe that our cash on hand will be sufficient to fund our operations through December 31, 2023.
We are currently operating at a loss and using substantial cash to fund our operation. We believe that our cash on hand will be sufficient to fund our operations through June 30, 2024.
We may not obtain the necessary regulatory approvals or clearances to market these glucose monitoring systems in the United States or outside of the United States. Any delay in, or failure to receive or maintain, approval or clearance for our products could prevent us from generating revenue from these products or achieving profitability.
We may not obtain the necessary regulatory approvals or clearances to market these glucose monitoring systems in the United States or outside of the United States.
The exercise prices of certain warrants, and the conversion prices of our outstanding convertible notes payable and our preferred stock may require further adjustment.
Thus, you will bear the risk of our future offerings reducing the value of your shares and diluting your interest in us. 33 Table of Contents The exercise prices of certain warrants, and the conversion prices of our outstanding convertible notes payable and our preferred stock may require further adjustment.
In addition, we currently have 9,020,264 common shares at the current price of $0.25 per share reserved and are issuable upon conversion of convertible debentures of $2,255,066. All of which could potentially dilute future earnings per share but are excluded from the September 30, 2022, calculation of net loss per share because their impact is antidilutive.
In addition, we currently have 9,020,264 shares of our common stock at the current price of $0.25 per share reserved and are issuable upon conversion of convertible debentures.
Achieving the desired results for our customers requires solving engineering issues in concert with them. Any failure of our technology or related products to meet customer expectations could result in customers choosing to retain their existing methods or to adopt systems other than ours.
Any failure of our technology or related products to meet customer expectations could result in customers choosing to retain their existing methods or to adopt systems other than ours. Historically, we have not had sufficient internal resources to work on all necessary engineering and product development matters.
The sale of a significant number of our shares of common stock could depress the price of our common stock. As of September 30, 2022, we had 48,156,062 shares of common stock issued and outstanding.
These factors could have a material adverse effect on our business, financial condition, and results of operations. 32 Table of Contents The sale of a significant number of our shares of common stock could depress the price of our common stock. As of September 30, 2023, we had 80,358,463 shares of common stock issued and outstanding.
We will need to demonstrate that our products provide accurate and cost-effective alternatives to existing technologies. Compared to most competing technologies, our technology is relatively new, and most potential customers have limited knowledge of, or experience with, our products.
Compared to most competing technologies, our technology is new, and most potential customers will have limited knowledge of, or experience with, our products. Prior to implementing our technology and related products, some potential customers may be required to devote significant time and effort to testing and validating our products.
The proceeds of warrants currently outstanding, which could be exercised on a cash basis, may generate potential proceeds of up to $15,694,288.
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.
Our success depends to a significant degree upon the continued contributions of key management and other personnel, some of whom could be difficult to replace, including Ronald P. Erickson, our Chairman, and Phil Bosua, our Chief Executive Officer. We maintain key person life insurance for Mr. Bosua.
Ultimately, the investment required for expansion into foreign markets could exceed the results of operations generated from this expansion. We are dependent on key personnel. Our success depends to a significant degree upon the continued contributions of key management and other personnel, some of whom could be difficult to replace.
Even if Particle succeeds in introducing its technology and related products to its target markets, it may not be able to generate sufficient revenue to achieve or sustain profitability.
Even if we succeed in introducing our technology and related products to our target markets, we may not be able to generate sufficient revenue to achieve or sustain profitability. We are subject to extensive regulation by the U.S. Food and Drug Administration, which could require us to take significant time and could cause us to incur significant costs.
Our inability to secure those resources could impact our ability to provide engineering and product development services and could have an impact on our customers’ willingness to use our technology. We are in the early stages of commercialization and our technology and related products may never achieve significant commercial market acceptance.
Our inability to secure those resources could impact our ability to provide engineering and product development services and could have an impact on our customers’ willingness to use our technology. Moreover, third parties have their own internal demands on time and resources which may not always align with ours.
We may need additional financing, to service and/or repay these debt obligations. If we raise additional capital through borrowing or other debt financing, we may incur substantial interest expense. If and when we raise more equity capital in the future, it will result in substantial dilution to our current stockholders.
Erickson and/or entities with which he is affiliated also have accounts payable and accrued liabilities $218,000 as of September 30, 2023 related to accrued interest. We may need additional financing, to service and/or repay these debt obligations. If we raise additional capital through borrowing or other debt financing, we may incur substantial interest expense.
We need to continue as a going concern if our business is to succeed. We have cash and cash equivalents of $12,593,692 and net working capital of approximately $11,040,123 (exclusive of convertible notes payable) as of September 30, 2022. We anticipate that we will record losses from operations for the foreseeable future.
There can be no assurance that financing sufficient to enable us to continue our operations will be available to us in the future. We have cash and cash equivalents of $8,024,000 and net working capital of approximately $6,264,000 (exclusive of convertible notes payable) as of September 30, 2023.
We owe $2,550,066 under various convertible promissory notes as of September 30, 2022 including $1,184,044 owed to entities controlled by Ronald P. Erickson, our Chairman. Mr. Erickson and/or entities with which he is affiliated also have accounts payable and accrued liabilities $295,418 of as of September 30, 2022 related to accrued compensation, accrued interest and expenses.
We owe $2,762,000 under various convertible promissory notes as of September 30, 2023, including $1,301,000 to Clayton Struve who owns 100% of outstanding Series C and D Preferred stock, and $1,461,000 owed to entities controlled by Ronald P. Erickson, our CEO and Chairman. Mr.
Risks Related to Ownership of Our Common Stock We may not be able to maintain a listing of our common stock on NYSE American. Our common stock is currently listed on NYSE American. We must meet certain financial and liquidity criteria to maintain the listing of our common stock on NYSE American.
Our common stock is currently listed on the NYSE American and the continued listing of our common stock on the NYSE American is contingent on our continued compliance with a number of listing requirements.
Removed
Risks Related to Our Business and Industry The near-term effects of the recent COVID-19 pandemic are known, as they adversely affected our business. Some longer term effects, such as supply chain issues and inflation, are becoming known and may adversely affect our business, results of operations, financial condition, liquidity and cash flow.
Added
SUMMARY OF RISK FACTORS An investment in our common stock involves a high degree of risk. You should carefully consider the risks summarized below. These risks are discussed more fully in the “ Risk Factors ” section immediately following this summary.
Removed
On January 30, 2020, the World Health Organization announced a global health emergency caused by a new strain of the coronavirus, or COVID-19, and advised of the risks to the international community as the virus spread globally. In March 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally.
Added
These risks include, but are not limited to, the following: Risks Related to Our Business and Industry · We might not be able to continue as a going concern.
Removed
The spread of COVID-19 caused public health officials to recommend precautions to mitigate the spread of the virus, especially as to travel and congregating in large numbers. Over time, the incidence of COVID-19 and its variants has diminished although periodic spikes in incidence occur. Consequently, restrictions imposed by various governmental health organizations may change over time.
Added
We believe that our cash on hand will be sufficient to fund our operations at least through June 30, 2024; · We are still in the early stages of commercialization, refining our technology.
Removed
Several states have lifted restrictions only to reimpose such restrictions as the number of cases rise and new variants arise. 12 Table of Contents Over the past two years, the impact of COVID-19 has had adverse effects on our business by slowing down our ability to work with third parties outside of Seattle on testing and validation.
Added
Our success depends on our ability to conclude development and market devices that are recognized as accurate, safe, and cost-effective as other options currently available in the market and cleared by FDA. · We are subject to extensive regulation by FDA, which could restrict the sales and marketing of our products and could cause us to incur significant costs; Risks Related to Ownership of Our Common Stock · The market price of our common stock may fluctuate, and you could lose all or part of your investment. · We may not be able to maintain a listing of our common stock on the NYSE American. · We do not expect to declare or pay dividends in the foreseeable future. · Future issuances of our common stock or securities convertible into, or exercisable or exchangeable for, our common stock, or the expiration of lock-up agreements that restrict the issuance of new common stock or the trading of outstanding common stock, could cause the market price of our securities to decline and would result in the dilution of your holdings. · Future issuances of debt securities, which would rank senior to our common stock upon our bankruptcy or liquidation, and future issuances of preferred stock, which could rank senior to our common stock for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able to achieve from an investment in our common stock. 16 Table of Contents Risks Related to Our Business and Industry We need additional financing to support our technology development and ongoing operations, pay our debts and maintain ownership of our intellectual properties.
Removed
We have witnessed supply chain related delays and increasing costs due to inflation. It is difficult to predict what other adverse effects, if any, COVID-19 and related matters can have on our business, or against the various aspects of same.
Added
We need to continue as a going concern if our business is to succeed. Because we have generated limited revenues and currently operate at a loss, we are completely dependent on the continued availability of financing in order to continue our business.
Removed
We may experience long-term disruptions to our operations resulting from changes in government policy or guidance; quarantines of employees, customers and suppliers in areas affected by the pandemic and the presence of new variants of COVID-19; and closures of businesses or manufacturing facilities critical to its business or supply chains.
Added
As a result of not having at least twelve months of cash available and not having any firm commitment for debt or equity financing, substantial doubt about the Company’s ability to continue on a going concern exists.
Removed
We are actively monitoring, and will continue to actively monitor, the pandemic and the potential impact on its operations, financial condition, liquidity, suppliers, industry and workforce. We are subject to general securities market uncertainties resulting from the COVID-19 pandemic and geo-political and economic considerations.
Added
We have financed our corporate operations and our technology development through the issuance of convertible debentures, the issuance of preferred stock, the sale of common stock and the exercise of warrants. During the remainder of 2024, we expect to raise additional funds through the issuance of preferred stock, convertible debentures or equity.
Removed
National securities markets in the United States and worldwide have undergone unprecedented stress in recent years due to, among other things, uncertainties surrounding the COVID-19 pandemic, uncertainties surrounding the military conflict in Ukraine, uncertainties regarding the economy and increasing inflation, and the resulting reactions and outcomes of governments, businesses and the general population.
Added
If and when we raise more equity capital in the future, it will result in substantial dilution to our current stockholders. 17 Table of Contents We have a history of operating losses and there can be no assurance that we can achieve or maintain profitability. We have experienced net losses since inception.
Removed
These uncertainties have resulted in declines in all market sectors and governmental actions to support the markets. As a result, until these matters have stabilized, the markets may not be available to us for purposes of raising required capital.
Added
To date, we have not generated revenue from sales of our technology or products. We believe that our commercialization success is dependent upon our ability to significantly increase the number of customers that will use our products .

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOn September 20, 2022, we entered into the Second Amendment of Lease and added additional space. The expanded space will be utilized for research and testing. The Amendment of Lease expires on December 31, 2023. On September 22, 2022, we leased lab facilities and executive offices at 58969 Carmelita Circle, Yucca Valley, CA 92284 from Phillip Bosua, our CEO.
Biggest changeThe Amendment of Lease expires on December 31, 2023. On September 22, 2022, we leased lab facilities and executive offices in Yucca Valley, CA from Phillip Bosua, our former CEO. We leased 1,700 square feet of the total 2,134 square feet of the premises and the current net monthly payment is $7,000.
ITEM 2. PROPERTIES. Corporate Offices On April 13, 2017, we leased our executive office located at 500 Union Street, Suite 810, Seattle, Washington, USA, 98101. We lease 943 square feet and the current net monthly payment is $3,334. The monthly payment increases approximately 3% each year and the lease expired on May 31, 2022.
ITEM 2. PROPERTIES. Corporate Offices On April 13, 2017, we leased its executive office located at 500 Union Street, Suite 810, Seattle, Washington, USA, 98101. We lease 943 square feet and the current net monthly payment is $3,334. The monthly payment increases approximately 3% each year and the lease expired on May 31, 2022.
On November 22, 2022, we leased additional lab facilities at 123 Boylston Ave, Suite C, Seattle, WA 98102. We lease 1,800 square feet and the current net monthly payment is $2,250. The lease expires November 22, 2023.
Bosua’s resignation. On November 22, 2022, we 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 lease was set to expire on November 21, 2023 and has been extended on a month-to-month basis.
On October 31, 2021, we extended the lease from June 1, 2022 to May 31, 2023 at $2,986 per month. Lab Facilities and Executive Offices On May 18, 2021, we 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.
Lab Facilities and Executive Offices On May 18, 2021, we 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 and increases by 3% annually. The lease expires on June 30, 2024.
The net monthly lease payment was $8,697 and increases by 3% annually. The lease expires on June 30, 2024. The lease can be extended for one additional three year term. On October 11, 2021, we entered into the First Amendment of Lease and added 2,485 square feet for $5,000 per month.
The lease can be extended for one additional three-year term. On October 11, 2021, we entered into the First Amendment of Lease and added 2,485 square feet for $5,000 per month. On September 20, 2022, we entered into the Second Amendment of Lease for additional space. The expanded space will be utilized for research and testing.
We lease 1,700 square feet of the total 2,134 square feet of the premises and the current net monthly payment is $7,000. The lease expires September 30, 2023 and can be extended on a month to month basis. We paid $91,500 in rent on September 28, 2022 for the period September 1, 2021 to September 30, 2022.
The lease was to expire September 30, 2023 and could be extended on a month to month basis. We paid $91,500 in rent on September 28, 2022 for the period September 1, 2021 to September 30, 2022. We paid $28,000 for the year ended September 30, 2023. The lease was terminated on January 23, 2023, the date of Mr.
Added
On October 31, 2021, we extended the lease from June 1, 2022 to May 31, 2023 at $2,986 per month. On April 26, 2023, we extended the lease from June 1, 2023 to May 31, 2024 at $2,908 per month.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results. 22 Table of Contents PART II
Biggest changeWe are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results. 34 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeOur authorized capital stock currently consists of 205,000,000 shares, consisting of 200,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share, of which 1,785,715 shares have been designated as series C convertible preferred stock, or the series C preferred stock, 1,016,014 shares have been designated as series D convertible preferred stock, or the series D preferred stock, and 500 shares have been designated as series F preferred stock As of September 30, 2022, there were 48,156,062 shares of common stock, 1,785,715 shares of series C preferred stock and 1,016,014 shares of series D preferred stock issued and outstanding. 23 Table of Contents Common Stock Voting Rights .
Biggest changeOur authorized capital stock currently consists of: · 200,000,000 shares of common stock, par value $0.001 per share; and · 5,000,000 shares of “blank check” preferred stock, par value $0.001 per share, of which: · 30,000 shares have been designated as our Series C Convertible Preferred Stock, $0.001 par value per share; and · 20,000 shares have been designated as our Series D Convertible Preferred Stock, $0.001 par value per share.
Other Rights . Holders of series C preferred stock have no preemptive or subscription rights and there are no redemption or sinking fund provisions applicable to the series C preferred stock.
Holders of Series C Preferred Stock have no preemptive or subscription rights and there are no redemption or sinking fund provisions applicable to the Series C Preferred Stock.
Other Rights . Holders of series D preferred stock have no preemptive or subscription rights and there are no redemption or sinking fund provisions applicable to the series D preferred stock.
Holders of Series D Preferred Stock have no preemptive or subscription rights and there are no redemption or sinking fund provisions applicable to the Series D Preferred Stock.
Other Rights . Holders of common stock have no preemptive, conversion or subscription rights and there are no redemption or sinking fund provisions applicable to the common stock.
Holders of common stock have no preemptive, conversion or subscription rights and there are no redemption or sinking fund provisions applicable to the common stock.
On March 16, 2018, we 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 our common stock for a period of five years.
Erickson $1,460,926 under convertible promissory notes On March 16, 2018, we 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 rights, preferences and privileges of the holders of series F preferred stock are subject to, and may be adversely affected by, the rights of the holders of shares of any other series of preferred stock.
The rights, preferences and privileges of the holders of Series C Preferred Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any other series of preferred stock.
In addition, the conversion price of the convertible promissory notes referred to above and the exercise price of certain outstanding warrants to purchase 10,154,381 shares of common stock would adjust below $0.25 per share pursuant to the documents governing such instruments.
In addition, the conversion price of the convertible promissory notes referred to above and the exercise price of certain outstanding warrants to purchase 7,684,381 shares of common stock would adjust below $0.25 per share pursuant to the documents governing such instruments.
Conversion Limitation: We shall not effect a conversion of the series C preferred stock, whether voluntary or mandatory, and the holder of any shares of series C preferred stock shall not have the right to voluntarily convert its shares of series C preferred stock, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates) would beneficially own in excess of 4.99% of the shares of our common stock outstanding immediately after giving effect to such conversion.
However, we shall not effect a conversion of the Series C Preferred Stock, whether voluntary or mandatory, and the holder of any shares of Series C Preferred Stock shall not have the right to voluntarily convert such holder’s shares of Series C Preferred Stock, to the extent that after giving effect to such exercise, such holder (together with such holder’s affiliates) would beneficially own in excess of 4.99% of the shares of our common stock outstanding immediately after giving effect to such conversion.
Conversion Limitation: We shall not effect a conversion of the series D preferred stock, whether voluntary or mandatory, and the holder of any shares of series D preferred stock shall not have the right to voluntarily convert its shares of series D preferred stock, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates) would beneficially own in excess of 4.99% of the shares of our common stock outstanding immediately after giving effect to such conversion.
However, we shall not effect a conversion of the Series D Preferred Stock, whether voluntary or mandatory, and the holder of any shares of Series D Preferred Stock shall not have the right to voluntarily convert such holder’s shares of Series D Preferred Stock, to the extent that after giving effect to such exercise, such holder (together with such holder’s affiliates) would beneficially own in excess of 4.99% of the shares of our common stock outstanding immediately after giving effect to such conversion.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock began trading on NYSE American under the symbol “KNW” on September 16, 2022. Number of Holders of our Common Shares As of December 20, 2022, there were approximately 186 stockholders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock began trading on NYSE American under the symbol “KNW” on September 16, 2022. Number of Holders of our Common Shares As of September 30, 2023, there were approximately 190 stockholders of record of our common stock.
Warrants totaling 4,439,707 would adjust below $1.20 per share and warrants totaling 4,465,294 would adjust below $2.40 per share, in each case pursuant to the documents governing such instruments.
Warrants totaling 4,439,707 would adjust below $1.20 per share and warrants totaling 4,424,425 would adjust below $2.40 per share, in each case pursuant to the documents governing such instruments.
In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then-outstanding shares of preferred stock.
In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any preferential rights of any outstanding preferred stock.
Each outstanding share of series C preferred stock will accrue cumulative dividends at a rate equal to 8.0% per annum of the series C preferred stock stated value, $0.70, subject to adjustment as provided in the series C preferred stock certificate of designation.
Each outstanding share of Series C Preferred Stock accrues cumulative dividends at a rate equal to 8.0% per annum of the Series C Preferred Stock stated value (currently $70.00, subject to adjustment as provided in the Series C Preferred Stock certificate of designation).
Each outstanding share of series D preferred stock will accrue cumulative dividends at a rate equal to 8.0% per annum of the series D preferred stock stated value, $0.70, subject to adjustment as provided in the series D preferred stock certificate of designation.
Each outstanding share of Series D Preferred Stock accrues cumulative dividends at a rate equal to 8.0% per annum of the Series D Preferred Stock stated value (currently $70.00, subject to adjustment as provided in the Series D Preferred Stock certificate of designation).
Anti-takeover Provisions Provisions of the Nevada Revised Statutes, our articles of incorporation and our bylaws could have the effect of delaying or preventing a third-party from acquiring us, even if the acquisition would benefit our stockholders.
Anti-takeover Provisions Anti-Takeover Effects of Certain Provisions of Nevada Law and our Governing Documents Provisions of the Nevada Revised Statutes, our articles of incorporation and our bylaws could have the effect of delaying or preventing a third-party from acquiring us, even if the acquisition could benefit our stockholders.
The rights, preferences and privileges of the holders of series C preferred stock are subject to, and may be adversely affected by, the rights of the holders of shares of any other series of preferred stock. Series D Convertible Preferred Stock Ranking .
The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock, including our Series C Convertible Preferred Stock and Series D Convertible Preferred Stock.
Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by the board of directors out of legally available funds. Liquidation Rights .
Subject to any preferential rights of any outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by the board of directors on the common stock out of legally available funds.
With respect to dividend rights and rights on liquidation, winding up and dissolution, our series D preferred stock ranks senior to our common stock but junior to our series C preferred stock. Voting Rights .
With respect to dividend rights and rights on liquidation, winding up and dissolution, shares of our Series D Preferred Stock rank senior to our common stock but junior to our Series C Preferred Stock.
Transfer Agent and Registrar We have appointed American Stock Transfer & Trust Company located at 6201 15th Avenue, Brooklyn, New York 11219, telephone number is (800) 937-5449, as the transfer agent for our common stock. 29 Table of Contents
Transfer Agent and Registrar We have appointed Equiniti Trust Company located at 6201 15th Avenue, Brooklyn, New York 11219, telephone number (800) 937-5449, as the transfer agent for our common stock.
Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant.
Any future determination to declare dividends will be made at the discretion of our board of directors subject to limitations under applicable law (including Nevada Revised Statutes 78.288) and will depend on our financial condition, operating results, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant.
Such provisions of the Nevada Revised Statutes, our articles of incorporation and our bylaws are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by the board of directors and to discourage certain types of transactions that may involve an actual or threatened change of control of our company.
Such provisions of the Nevada Revised Statutes, our articles of incorporation and our bylaws can have the effect of enhancing continuity and stability in the composition of our board of directors and the policies formulated by the board of directors, and can also have the effect of discouraging certain types of transactions that may involve an actual or threatened change of control of our company.
Series C Convertible Preferred Stock Ranking . With respect to dividend rights and rights on liquidation, winding up and dissolution, our series C preferred stock ranks senior to our common stock. Voting Rights .
With respect to dividend rights and rights on liquidation, winding up and dissolution, shares of our Series C Preferred stock rank senior to our common stock and our Series D Convertible Preferred Stock.
These provisions may delay, defer or prevent a tender offer or takeover attempt of the company that a stockholder might consider in his or her best interest, including attempts that might result in a premium over the market price for the shares held by our stockholders.
Our authorized but unissued shares may be used to delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders.
As of December 20, 2022, we had 48,157,937 shares of common stock issued and outstanding, held by 186 stockholders of record. This number does not include approximately 3,600 beneficial owners whose shares are held in the names of various security brokers, dealers and registered clearing agencies.
As of December 15, 2023, we had 81,346,524 shares of common stock issued and outstanding, held by 190 stockholders of record. This number does not include approximately 5,690 beneficial owners whose shares are held in the names of various security brokers, dealers and registered clearing agencies.
Our board of directors could, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of common stock and which could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of our outstanding voting stock.
Our board of directors has the discretion to issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of common stock, or which could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of our outstanding voting stock. 36 Table of Contents Series C Convertible Preferred Stock Of our authorized preferred stock, 30,000 shares have been designated as our Series C Convertible Preferred Stock, or the Series C Preferred Stock.
Equity Incentive Plan As of September 30, 2022, we have issued stock options for the purchase of 20,792,370 shares of common stock at a weighted average price of $1.618. The expiration dates of these stock options range from now to September 20, 2027. There are unearned stock option grants totaling 9,704,620 shares related to performance targets.
Equity Incentive Plan As of September 30, 2023, we have issued stock options for the purchase of 14,506,158 shares of common stock at a weighted average price of $1.546. The expiration dates of these stock options range from now to May 30, 2028. There are unearned stock option grants totaling 3,869,825 shares related to performance targets.
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 registration statement of which this prospectus is a part.
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. 35 Table of Contents Authorized Capital Stock .
Struve $1,071,000 under convertible promissory at 10% or OID notes. We recorded accrued interest of $86,562 and $79,062 as of September 30, 2022 and September 30, 2021, respectively. On December 7, 2022, we signed Amendments to the convertible promissory or OID notes, extending the due dates to September 30, 2023.
We recorded accrued interest of $94,062 and $86,562 as of September 30, 2023 and 2022, respectively. On December 7, 2022, we signed Amendments to the convertible promissory or OID notes, extending the due dates to September 30, 2023. On September 15, 2023, the due dates on the notes was further extended to September 30, 2024.
The existence of our authorized but unissued shares of common stock could render it more difficult or discourage an attempt to obtain control of the company by means of a proxy context, tender offer, merger or other transaction since our board of directors can issue large amounts of capital stock as part of a defense to a take-over challenge.
The existence of our authorized but unissued shares of common stock could render it more difficult or discourage an attempt to obtain control of our company by means of a proxy contest, tender offer, merger or other transaction.
Period Ended High Low Year Ending September 30, 2023 Through December 16, 2022 $ 2.02 $ 1.03 Year Ending September 30, 2022 September 30, 2022 $ 3.44 $ 1.85 June 30, 2022 $ 2.71 $ 1.36 March 31, 2022 $ 2.19 $ 1.22 December 31, 2021 $ 2.60 $ 1.48 Year Ending September 30, 2021 September 30, 2021 $ 3.95 $ 2.06 June 30, 2021 $ 4.24 $ 1.70 March 31, 2021 $ 4.61 $ 1.60 December 31, 2020 $ 2.95 $ 1.10 As of December 16, 2022, the high and low sales price of our common stock was $1.03 per share and $1.45 per share, respectively.
Period Ended High Low Year Ending September 30, 2023 September 30, 2023 $ 1.17 $ 0.23 June 30, 2023 $ 1.39 $ 0.80 March 31, 2023 $ 1.59 $ 0.80 December 31, 2022 $ 2.02 $ 0.92 Year Ending September 30, 2022 September 30, 2022 $ 3.44 $ 1.85 June 30, 2022 $ 2.71 $ 1.36 March 31, 2022 $ 2.19 $ 1.22 December 31, 2021 $ 2.60 $ 1.48 As of December 15, 2023, the high and low sales price of our common stock was $0.94 per share and $0.8375 per share, respectively.
We may use these additional shares for a variety of corporate purposes, including raising additional capital, corporate acquisitions and employee stock plans.
We may use these additional shares for a variety of corporate purposes, including future public or private offerings to raise additional capital, corporate acquisitions and employee benefit plans.
Erickson and J3E2A2Z, extending the due dates to January 30, 2023. 27 Table of Contents Securities Subject to Price Adjustments If in the future, if we sell our common stock at a price below $0.25 per share, the conversion price of our outstanding shares of series C convertible preferred stock and series D convertible preferred stock would adjust below $0.25 per share pursuant to the documents governing such instruments.
Securities Subject to Price Adjustments If in the future, we sell our common stock at a price below $0.25 per share, the conversion price of our outstanding shares of Series C Convertible Preferred Stock and Series D Convertible Preferred Stock would adjust below $0.25 per share pursuant to their respective certificates of designation.
The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders.
Common Stock Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, including the election of directors. Our articles of incorporation do not provide for cumulative voting in the election of directors.
Warrants to Purchase Common Stock As of September 30, 2022, we have issued warrants for the purchase of 21,786,313 shares of common stock at a weighted average exercise price of $1.029. The expiration dates of these warrants range from December 2022 to September 26, 2027. Convertible Promissory Notes We owe Clayton A.
Warrants to Purchase Common Stock As of September 30, 2023, we have issued warrants for the purchase of 20,866,313 shares of common stock at a weighted average exercise price of $1.063. The expiration dates of these warrants range from January 30, 2024 to September 26, 2028.
Preferred Stock Our articles of incorporation authorize our board to issue up to 5,000,000 shares of preferred stock in one or more series, to determine the designations and the powers, preferences and rights and the qualifications, limitations and restrictions thereof, including the dividend rights, conversion or exchange rights, voting rights (including the number of votes per share), redemption rights and terms, liquidation preferences, sinking fund provisions and the number of shares constituting the series.
Preferred Stock Our articles of incorporation authorize our board of directors, without stockholder approval, to issue up to 5,000,000 shares of preferred stock in one or more series, and to determine the designation, preferences, limitations and relative rights thereof, including, without limitation, such matters as dividends, redemption, liquidation, conversion and voting.
These provisions are designed to reduce our vulnerability to an unsolicited proposal for a takeover that does not contemplate the acquisition of all of our outstanding shares, or an unsolicited proposal for the restructuring or sale of all or part of our company.
These provisions also may have the effect of reducing our vulnerability to an unsolicited proposal for a takeover that does not contemplate the acquisition of all of our outstanding shares, or an unsolicited proposal for the restructuring or sale of all or part of our company. 39 Table of Contents Nevada Anti-Takeover Statutes The Nevada Revised Statutes, or NRS, contain provisions governing the acquisition of a controlling interest in certain Nevada corporations.
The initial exercise price of the warrants described above is $0.50 per share, also subject to certain adjustments. The warrants were valued at $110,545. Because the note is immediately convertible, the warrants and beneficial conversion were expensed as interest. We recorded accrued interest of $287,290 and $216,246 as of September 30, 2022 and 2021, respectively.
The initial exercise price of the warrants described above is $0.50 per share, also subject to certain adjustments. We recorded accrued interest of $218,334 and $287,290 as of September 30, 2023 and 2022, respectively. On December 7, 2022, we approved Amendments to the convertible redeemable promissory notes with Ronald P.
Dividends will be payable with respect to any shares of series C preferred stock upon any of the following: (a) upon conversion of such shares in accordance with the provisions of the Series C preferred stock certificate of designation and (b) when, as and if otherwise declared by our board of directors.
Dividends, whether accrued, declared or payable are payable solely in the form of additional shares of Series C Preferred Stock and shall not in any circumstances be accrued or payable in cash. Such dividends are payable only upon conversion of the shares of Series C Preferred Stock, or when, as and if otherwise declared by our board of directors.
Dividends will be payable with respect to any shares of series D preferred stock upon any of the following: (a) upon conversion of such shares in accordance with the provisions of the series D preferred stock certificate of designation and (b) when, as and if otherwise declared by our board of directors.
Dividends, whether accrued, declared or payable are payable solely in the form of additional shares of Series D Preferred Stock and shall not in any circumstances be accrued or payable in cash. Such dividends are payable only upon conversion of the shares of Series D Preferred Stock, or when, as and if otherwise declared by our board of directors.
See also Item 1A “ Risk Factors—Risks Related Ownership of Our Common Stock— We do not anticipate paying any cash dividends on our capital stock in the foreseeable future .” Securities Authorized for Issuance under Equity Compensation Plans See Item 12 “ Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .” Recent Sales of Unregistered Securities During the three months ended September 30, 2022, we had the following sales of unregistered sales of equity securities: We issued 181,738 shares of common stock related to the exercise of warrants and received $44,000.
See “ Description of Securities—Preferred Stock .” Securities Authorized for Issuance under Equity Compensation Plans See Item 12 “ Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .” Recent Sales of Unregistered Securities During the three months ended September 30, 2023, we had the following sales of unregistered sales of equity securities: On September 29, 2023, we closed an offering of our common stock pursuant to which we sold 28,000,000 shares of common stock, at a purchase price of $0.25 per share.
We may also require, upon notice, the conversion of any or all shares of the series C preferred stock into our common stock provided that (i) the shares of our common stock into which the series C preferred stock would convert are eligible to be sold without restriction pursuant to Rule 144 or a registration statement registering the such shares for resale has been declared effective by the SEC and (ii) our common stock has been approved for listing on the Nasdaq Capital Market or the New York Stock Exchange.
Further, we may also require, upon notice, the conversion of any or all shares of the Series C Preferred Stock into our common stock provided that the shares issuable upon such conversion meet certain resale eligibility requirements, and our common stock has been approved for listing on specified stock exchanges, all as set forth in the Series C Preferred Stock certificate of designation.
On December 7, 2022, we approved Amendments to the convertible redeemable promissory notes with Ronald P.
Erickson and J3E2A2Z, extending the due dates to January 30, 2023. On January 25, 2023, we approved Amendments to the convertible redeemable promissory notes with Ronald P. Erickson and J3E2A2Z, extending the due dates to September 30, 2023. On September 15, 2023, the due dates on the notes was further extended to September 30, 2024.
Each holder of any shares of series C preferred stock shall have the right, at its option at any time, to convert any such shares of series C preferred stock into such number of fully paid and nonassessable whole shares of our common stock as is obtained by multiplying the number of shares of series C preferred stock to be converted by $0.70, the series C preferred stock stated value, and dividing the result by $0.25, which conversion price may be adjusted in accordance with the terms of the series C preferred stock certificate of designation, which, among other things, provides for a full ratchet anti-dilution adjustment.
Each holder of any shares of Series C Preferred Stock has the right, at its option at any time, to convert such holder’s shares of Series C Preferred Stock into shares of our common stock in accordance with the terms of the Series C Preferred Stock certificate of designation.
Each holder of any shares of series D preferred stock shall have the right, at its option at any time, to convert any such shares of series D preferred stock into such number of fully paid and nonassessable whole shares of our common stock as is obtained by multiplying the number of shares of series D preferred stock to be converted by $0.70, the series D preferred stock stated value, and dividing the result by $0.25, which conversion price may be adjusted in accordance with the terms of the series D preferred stock certificate of designation, which, among other things, provides for a full ratchet anti-dilution adjustment. 25 Table of Contents Mandatory Conversion Rights .
Each holder of any shares of Series D Preferred Stock has the right, at its option at any time, to convert such holder’s shares of Series D Preferred Stock into shares of our common stock in accordance with the terms of the Series D Preferred Stock certificate of designation.
Our bylaws also contain limitations as to who may call special meetings as well as require advance notice of stockholder matters to be brought at a meeting. Additionally, our bylaws also provide that no director may be removed by less than a two-thirds vote of the issued and outstanding shares entitled to vote on the removal.
The Nevada Revised Statutes also provide that any director may be removed from our board of directors by the vote or written consent of stockholders representing not less than two-thirds of the voting power of the issued and outstanding shares entitled to vote, and this standard is also reflected in our bylaws.
In addition, we have authorized in our articles of incorporation 5,000,000 shares of preferred stock, of which 1,785,715 shares of series C convertible preferred stock and 1,016,014 shares of series D convertible preferred stock are currently designated and outstanding.
Series D Convertible Preferred Stock Of our authorized preferred stock, 20,000 shares have been designated as our Series D Convertible Preferred Stock, or the Series D Preferred Stock.
Removed
We issued 17,543 shares related to the exercise of stock option grants and received $13,000. We issued 14,634 shares to vendors for services which were valued at $2.05 per share. Authorized Capital Stock The following description summarizes important terms of the classes of our capital stock as of September 30, 2022.
Added
See also Item 1A “ Risk Factors—Risks Related Ownership of Our Common Stock— We do not anticipate paying any cash dividends on our capital stock in the foreseeable future .” Our Series C Convertible Preferred Stock and Series D Convertible Preferred Stock do not accrue or pay cash dividends.
Removed
Under our articles of incorporation and bylaws, any corporate action to be taken by vote of stockholders other than for election of directors shall be authorized by the affirmative vote of the majority of votes cast. Directors are elected by a plurality of votes. Stockholders do not have cumulative voting rights. Dividend Rights .
Added
All future dividends will be accrued and paid in Series C Convertible Preferred Stock or Series D Convertible Preferred Stock, as applicable.
Removed
The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock.
Added
After deducting underwriting commissions and other offering expenses, we received net proceeds of $5,472,791. Description of Securities Authorized Capital Stock The following description summarizes important terms of the classes of our capital stock as of September 30, 2023.
Removed
Each holder of series C preferred stock shall have the right to cast one vote per share of our common stock that would be issuable to such holder upon the conversion of all the shares of series C preferred stock and shall be entitled to notice of any stockholders’ meeting in accordance with our bylaws and are entitled to vote upon such matters and in such manner as may be provided by law.
Added
In August 2023, in connection with the Series C and D Convertible Preferred Stock 1 for 100 reverse stock split, the authorized shares of Series C and D Convertible Preferred stock were each reduced to 30,000 and 20,000, respectively. Outstanding Shares of Capital Stock .
Removed
The holders of the series C preferred stock and common stock shall vote together as a single class on all matters. Liquidation Rights .
Added
Our 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 our capital stock are fully paid and nonassessable.
Removed
Upon any liquidation, dissolution or winding-up of our company, whether voluntary or involuntary, after the satisfaction in full of the debts of our company and the payment of any liquidation preference owed to the holders of any securities senior to the series C preferred stock, the holders of our series C preferred stock shall participate pari passu with the holders of our common stock (on an as-converted basis) in the net assets of our company.
Added
As of September 30, 2023, there were: · 80,358,463 shares of common stock issued and outstanding, held by holders of record; · 17,858 shares of Series C Convertible Preferred Stock issued and outstanding, held by one holder of record; and · 10,161 shares of Series D Convertible Preferred Stock issued and outstanding, held by one holder of record.
Removed
Neither the consolidation nor merger of our company into or with any other entity or entities nor the consolidation or merger of any entity or entities into our company shall be deemed to be a liquidation, but the sale, lease or conveyance of all or substantially all our assets shall be deemed a liquidation. Dividend Rights .
Added
In addition to any class voting rights provided by the Nevada Revised Statutes or the certificate of designation for the Series C Preferred Stock, holders of Series C Preferred Stock have the right to vote, on an as-if-converted-to-common-stock basis (but subject to, and after giving effect to, the conversion limitations described below, applied effective as of the record date for determining the stockholders entitled to vote).
Removed
In the event that we shall at any time pay a dividend on our common stock (other than a dividend payable solely in shares of our common stock) or any other class or series of our capital stock, we shall, at the same time, pay to each holder of series C preferred stock a dividend equal to the dividend that would have been payable to such holder if the shares of series C preferred stock held by such holder had been converted into our common stock on the date of determination of holders of our common stock entitled to receive such dividends without regard to the limitations set forth in the series C preferred stock certificate of designation. 24 Table of Contents Voluntary Conversion Rights .
Added
Further, as long as any shares of Series C Preferred are outstanding, the Company shall not, among other things, without the affirmative vote of the holders of at least a majority on voting power of the outstanding shares of Series C Preferred Stock: (a) alter or change adversely the powers, preferences or rights given to the Series C Preferred Stock or alter or amend the Series C Preferred Stock certificate of designation, (b) issue any other class or series of capital stock ranking senior to or on parity the Series C Preferred Stock as to dividends or up liquidation or reclassify any shares of common stock or any series of capital stock into shares having preference or priority as to dividends or upon liquidation superior to or on parity with any such preference or priority of Series C Preferred Stock, or (c) enter into any agreement with respect to any of the foregoing.
Removed
Each holder of series D preferred stock shall have the right to cast one vote per share of our common stock that would be issuable to such holder upon the conversion of all the shares of series D preferred stock and shall be entitled to notice of any stockholders’ meeting in accordance with our bylaws and are entitled to vote upon such matters and in such manner as may be provided by law.
Added
By written notice to the Corporation, a holder may from time to time increase or decrease such percentage to any other percentage not less than 4.99% and not in excess of 9.99% specified in such notice; provided that any such increase or decrease will only be effective for that holder and will not be effective until the 61st day after such notice is delivered to us.
Removed
The holders of the series D preferred stock and common stock shall vote together as a single class on all matters. Liquidation Rights .
Added
The Series C Preferred Stock also has price-based, “full-ratchet,” and proportional anti-dilution rights, based on issuance or deemed issuances of our securities below the current conversion price of $0.25 per share, all as set forth in the Series C Preferred Stock certificate of designation.
Removed
Upon any liquidation, dissolution or winding-up of our company, whether voluntary or involuntary, after the satisfaction in full of the debts of our company and the payment of any liquidation preference owed to the holders of any securities senior to the series D preferred stock, the holders of our series D preferred stock shall participate in the distribution of the net assets of our company on a basis senior to the holders of our common stock and to the holders of any other series of preferred stock created after the series D preferred stock.
Added
The rights, preferences and privileges of the holders of Series D Preferred Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any other series of preferred stock. 37 Table of Contents In addition to any class voting rights provided by the Nevada Revised Statutes or the certificate of designation for the Series D Preferred Stock, holders of Series D Preferred Stock have the right to vote, on an as-if-converted-to-common-stock basis (but subject to, and after giving effect to, the conversion limitations described below, applied effective as of the record date for determining the stockholders entitled to vote).
Removed
Neither the consolidation nor merger of our company into or with any other entity or entities nor the consolidation or merger of any entity or entities into our company shall be deemed to be a liquidation, but the sale, lease or conveyance of all or substantially all our company’s assets shall be deemed a liquidation. Dividend Rights .
Added
Further, as long as any shares of Series D Preferred are outstanding, the Company shall not, among other things, without the affirmative vote of the holders of at least a majority on voting power of the outstanding shares of Series D Preferred Stock: (a) alter or change adversely the powers, preferences or rights given to the Series D Preferred Stock or alter or amend the Series D Preferred Stock certificate of designation, (b) issue any other class or series of capital stock ranking senior to or on parity the Series D Preferred Stock as to dividends or up liquidation or reclassify any shares of common stock or any series of capital stock into shares having preference or priority as to dividends or upon liquidation superior to or on parity with any such preference or priority of Series D Preferred Stock, or (c) enter into any agreement with respect to any of the foregoing.
Removed
In the event that we shall at any time pay a dividend on our common stock (other than a dividend payable solely in shares of our common stock) or any other class or series of our capital stock, we shall, at the same time, pay to each holder of series D preferred stock a dividend equal to the dividend that would have been payable to such holder if the shares of series D preferred stock held by such holder had been converted into our common stock on the date of determination of holders of our common stock entitled to receive such dividends without regard to the limitations set forth in the series D preferred stock certificate of designation.
Added
Further, we may also require, upon notice, the conversion of any or all shares of the Series D Preferred Stock into our common stock provided that the shares issuable upon such conversion meet certain resale eligibility requirements, and our common stock has been approved for listing on specified stock exchanges, all as set forth in the Series D Preferred Stock certificate of designation.
Removed
The series D preferred stock will automatically convert upon (i) the listing of our common stock on the Nasdaq, the New York Stock Exchange, or the NYSE American market; (ii) the shares of our common stock into which the series D preferred stock would convert are eligible to be sold without restriction pursuant to Rule 144 or a registration statement registering the series D conversion shares for resale has been declared effective by the SEC and remains effective at the time of conversion; and (iii) the average Weighted Average Price (as defined in the series D certificate of designation) of our common stock is at least three (3) times the series D conversion price then in effect for 20 consecutive trading days with average daily trading volume during such period, as reported by Bloomberg, equal to or greater than $200,000.
Added
By written notice to the Corporation, a holder may from time to time increase or decrease such percentage to any other percentage not less than 4.99% and not in excess of 9.99% specified in such notice; provided that any such increase or decrease will only be effective for that holder and will not be effective until the 61st day after such notice is delivered to us.
Removed
The rights, preferences and privileges of the holders of series D preferred stock are subject to, and may be adversely affected by, the rights of the holders of shares of any other series of preferred stock. Series F Preferred Stock Issuing Restrictions .
Added
The Series D Preferred Stock also has price-based, “full-ratchet,” and proportional anti-dilution rights, based on issuance or deemed issuances of our securities below the current conversion price of $0.25 per share, all as set forth in the Series D Preferred Stock certificate of designation.
Removed
Shares of series F preferred stock may only be issued to and held of record by members of our board of directors as of August 1, 2018, the date the certificate of designation for the series F preferred stock was filed with the Secretary of State of the State of Nevada. Voting Rights .
Added
If in the future, we sell our common stock at a price below $0.25 per share, the conversion price of our outstanding shares of Series C Convertible Preferred Stock and Series D Convertible Preferred Stock would adjust below $0.25 per share pursuant to their respective certificates of designation.
Removed
For so long as any shares of the series F preferred stock remain issued and outstanding, the holders thereof, voting separately as a class, will not have any right to vote unless and until a Trigger Event occurs (as defined below).
Added
Warrants totaling 4,439,707 would adjust below $1.20 per share and warrants totaling 4,484,725 would adjust below $2.40 per share, in each case pursuant to the documents governing such instruments. 38 Table of Contents Clayton A. Struve has warrants to purchase 6,269,715 shares of common stock that have a beneficial ownership blocker at 4.99%.

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Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

3 edited+0 added−0 removed0 unchanged
Biggest change(dollars in thousands) Years Ended September 30, 2022 2021 2020 2019 2017 STATEMENT OF OPERATIONS DATA: Net revenue $ 4,360 $ - $ 122 $ 1,805 $ 4,874 Cost of goods sold - - 70 1,378 3,966 Gross profit 4,360 - 52 427 908 Research and development expenses 5,386 3,970 2,034 1,258 79 General and administrative expenses 8,118 6,476 4,844 4,182 3,088 Selling and transactional costs for digital assets 3,430 - - - - Impairment of goodwill - - - - 984 Total research and development and operating expenses 16,934 10,446 6,878 5,440 4,151 Operating loss (12,574 ) (10,446 ) (6,826 ) (5,013 ) (3,243 ) Other income (expense) (7,497 ) (14,914 ) (6,737 ) (2,599 ) (658 ) Net loss before income taxes (20,071 ) (25,360 ) (13,563 ) (7,612 ) (3,901 ) Income tax expense - - - - - Net loss $ (20,071 ) $ (25,360 ) $ (13,563 ) $ (7,612 ) $ (3,901 ) Net loss per share $ (0.50 ) $ (0.86 ) $ (0.62 ) $ (0.42 ) $ (1.01 ) Weighted average number of shares 40,370,473 29,370,596 21,791,058 18,053,848 3,844,840
Biggest changeManagement's Discussion and Analysis of Financial Condition and Results of Operations. 41 Table of Contents (dollars in thousands 2023 2022 STATEMENT OF OPERATIONS DATA: Revenue $ - $ 4,360 Operating expenses- Research and development expenses 7,727 5,386 General and administrative expenses 6,571 8,118 Selling and transactional costs for digital assets (274 ) 3,430 Total research and development and operating expenses 14,024 16,934 Operating loss (14,024 ) (12,574 ) Total other (expense), net (1,265 ) (7,497 ) Loss before income taxes (15,289 ) (20,071 ) Income tax expense - - Net loss (15,289 ) (20,071 ) Common stock dividends on Series D Preferred Stock (1,627 ) - Deemed dividends on Series C and D Preferred Stock (3,527 ) - Net loss available to common shareholders $ (20,443 ) $ (20,071 ) Basic and diluted loss per share $ (0.41 ) $ (0.50 ) Weighted average shares of common stock outstanding- basic and diluted 49,581,467 40,370,473
ITEM 6. Summary Financial Information In the following table, we provide you with our selected consolidated historical financial and other data. We have prepared the consolidated selected financial information using our consolidated financial statements for the years ended September 30, 2022 through September 30, 2017.
ITEM 6. Summary Financial Information In the following table, we provide you with our selected consolidated historical financial and other data. We have prepared the consolidated selected financial information using our consolidated financial statements for the years ended September 30, 2023 through September 30, 2022.
When you read this selected consolidated historical financial and other data, it is important that you read along with it the historical financial statements and related notes in our consolidated financial statements included in this report and prior 10-K filings, as well as Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
When you read this selected consolidated historical financial and other data, it is important that you read along with it the historical financial statements and related notes in our consolidated financial statements included in this report and prior 10-K filings, as well as Item 7.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

46 edited+21 added−35 removed15 unchanged
Biggest changeYears Ended September 30, 2022 2021 $ Variance % Variance Revenue- digital asset sales $ 4,360 $ - $ 4,360 100.0 % Research and development and operating expenses- Research and development expenses 5,386 3,970 1,416 -35.7 % Selling, general and administrative expenses 8,118 6,476 1,642 -25.4 % Selling and transactional costs for digital assets 3,430 - 3,430 -100.0 % Total research and development and operating expenses 16,934 10,446 6,488 -62.1 % Operating loss (12,574 ) (10,446 ) (2,128 ) -20.4 % Other income (expense): Interest expense (8,019 ) (14,914 ) 6,895 46.2 % Other income 522 - 522 100.0 % Total other (expense), net (7,497 ) (14,914 ) 7,417 49.7 % Loss before income taxes (20,071 ) (25,360 ) 5,289 20.9 % Income tax expense - - - 0.0 % Net loss $ (20,071 ) $ (25,360 ) $ 5,289 20.9 % Revenues .
Biggest changeResults of Operations The following table sets forth key components of our results of operations during the years ended September 30, 2023 and 2022. 44 Table of Contents Years Ended September 30, 2023 2022 $ Variance % Variance Revenue- digital asset sales $ - $ 4,360 $ (4,360 ) -100.0 % Operating expenses- Research and development and operating expenses- Research and development expenses 7,727 5,386 (2,341 ) -43.5 % Selling, general and administrative expenses 6,571 8,118 1,547 19.1 % Selling and transactional costs for digital assets (274 ) 3,430 3,704 108.0 % Total operating erxpenses 14,024 16,934 2,910 17.2 % Operating loss (14,024 ) (12,574 ) (1,450 ) -11.5 % Other expense: Interest income 127 15 112 746.7 % Interest expense (390 ) (8,034 ) 7,644 95.1 % Loss on debt extinguishment (507 ) - (507 ) -100.0 % Other (expense) income (495 ) 522 (1,017 ) -194.8 % Total other (expense), net (1,265 ) (7,497 ) 6,232 83.1 % Loss before income taxes (15,289 ) (20,071 ) 4,782 23.8 % Income tax expense - - - 0.0 % Net loss $ (15,289 ) $ (20,071 ) $ 4,782 23.8 % Revenues .
Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements: 35 Table of Contents Revenue Recognition .
Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements: 47 Table of Contents Revenue Recognition .
The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, and accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities as of September 30, 2022 and 2021 are based upon the short-term nature of the assets and liabilities.
The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, and accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities as of September 30, 2023 and 2022 are based upon the short-term nature of the assets and liabilities.
Stock-based compensation cost to employees is measured by us at the grant date, based on the fair value of the award, over the requisite service period under ASC 718. For options issued to employees, we recognize stock compensation costs utilizing the fair value methodology over the related period of benefit. Convertible Securities .
Stock-based compensation cost to employees is measured by us at the grant date, based on the fair value of the award, over the requisite service period under ASC 718. For options issued to employees, we recognize stock compensation costs utilizing the fair value methodology over the related period of benefit. 48 Table of Contents Convertible Securities .
We expect to incur capital expenditures related to the development of the “Bio-RFID™” and “ChromaID” technologies. None of the expenditures are contractual obligations as of September 30, 2022.
We expect to incur capital expenditures related to the development of the “Bio-RFID™” and “ChromaID” technologies. None of the expenditures are contractual obligations as of September 30, 2023.
The net cash used in operating activities for the year ended September 30, 2022 was primarily related to (i) a net loss of $20,071,000; offset by (ii) working capital changes of $1,009,000 related to Our Artificial Intelligence (AI) Deep Learning Platform has generated initial revenue from Non-Fungible Token (NFT) sales and incurred certain expenses; and (iii) non-cash expenses of $12,142,000.
The net cash used in operating activities for the year ended September 30, 2022 was primarily related to (i) a net loss of $20,071,000; offset by (ii) working capital changes of $987,000 related to Our Artificial Intelligence (AI) Deep Learning Platform has generated initial revenue from Non-Fungible Token (NFT) sales and incurred certain expenses; and (iii) non-cash expenses of $12,164,000.
The non-cash items include (iv) depreciation and amortization of $321,000; (v) issuance of common stock for services of $183,000; (vi) issuance of common stock warrants for services of $452,000; (vii) stock based compensation- stock options of $4,422,000; (viii) amortization of debt discount as interest expense of $7,273,000; (ix) other of $13,000; offset by (x) gain on debt settlement of $269,000; and (xi) gain on forgiveness of note payable- PPP loans of $253,000.
The non-cash items include (i) depreciation and amortization of $321,000; (ii) issuance of common stock for services of $183,000; (iii) issuance of common stock warrants for services of $452,000; (iv) stock based compensation- stock options of $4,422,000; (v) amortization of debt discount as interest expense of $7,273,000; (vi) other of $35,000; offset by (vii) gain on debt settlement of $269,000; and (viii) gain on forgiveness of note payable- PPP loans of $253,000.
We have a money market account which is considered a level 1 asset. The balance as of September 30, 2022 and 2021 was $11,821,931 and $12,217,714, respectively. Derivative Financial Instruments . Pursuant to ASC 815 “Derivatives and Hedging”, we evaluate all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
We have a money market account which is considered a level 1 asset. The balance as of September 30, 2023 and 2022 was $7,836,393 and $11,821,931, respectively. Derivative Financial Instruments . Pursuant to ASC 815 “Derivatives and Hedging”, we evaluate all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
On September 20, 2022, we completed a public offering of our common stock pursuant to which we sold 4,140,000 shares of common stock, at a purchase price of $2.00 per share, for total gross proceeds of $8,280,000. After deducting underwriting commissions and other offering expenses, we received net proceeds of $7,425,000.
On September 20, 2022, we completed a public offering of our common stock pursuant to which we sold 4,140,000 shares of common stock, at a purchase price of $2.00. After deducting underwriting commissions and other offering expenses, we received net proceeds of $7,425,000.
As part of the selling, general and administrative expenses for the year ended September 30, 2022 and 2021, we recorded $380,000 and $613,000, respectively, of investor relationship expenses and business development expenses. Selling and Transactional Costs for Digital Asset Sales . Selling and transactional costs for digital asset sales were $3,430,000 for the year ended September 30, 2022.
As part of the selling, general and administrative expenses for the year ended September 30, 2023 and 2022, we recorded $305,000 and $380,000, respectively, of investor relationship and business development expenses. Selling and Transactional Costs for Digital Asset Sales . Selling and transactional for digital asset sales were ($274,000) as compared $3,430,000 for the year ended September 30, 2022.
The other expense, net for the year ended September 30, 2022 included (i) interest expense of $8,019,000 related to convertible notes payable and the amortization of the beneficial conversion feature and value of warrants issued; and offset by (ii) other income of $522,00 primarily related to the forgiveness of notes payable- PPP loans and other debt.
The other expense, net for the year ended September 30, 2022 included (i) interest expense of $8,034,000 related to convertible notes payable and the amortization of the beneficial conversion feature and value of warrants issued; and offset by (ii) other income of $522,000 primarily related to the forgiveness of notes payable- PPP loans and other debt and (iii) interest income of $15,000. 45 Table of Contents Net Loss .
Revenue- digital asset sales for the year ended September 30, 2022 was $4,360,000 as compared to $0 for the year ended September 30, 2021. Our Artificial Intelligence (AI) deep learning platform has generated revenue- digital asset sales of $4,360,000 from Non-Fungible Token (NFT) sales. Research and Development Expenses .
Revenue- digital asset sales for the year ended September 30, 2023 was $0 as compared to $4,360,000 for the year ended September 30, 2022. We do not expect future activity or revenue from that source. Our Artificial Intelligence (AI) deep learning platform has generated revenue- digital asset sales of $4,360,000 from Non-Fungible Token (NFT) sales. Research and Development Expenses .
Critical Accounting Policies The following discussion relates to critical accounting policies for our company. The preparation of financial statements in conformity with United States generally accepted accounting principles, or GAAP, requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any.
The preparation of financial statements in conformity with United States generally accepted accounting principles, or GAAP, requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements.
There amounts were primarily related to the investment in equipment for research and development. 34 Table of Contents Financing Activities Net cash provided by financing activities for the year ended September 30, 2022 and 2021 was $8,111,000 and $15,110,000, respectively.
There amounts were primarily related to the investment in equipment for research and development. Financing Activities Net cash provided by financing activities for the year ended September 30, 2023 and 2022 was $5,865,000 and $8,111,000, respectively.
Selling, general and administrative expenses for the year ended September 30, 2022 increased $1,642,000 to $8,118,000 as compared to $6,476,000 for the year ended September 30, 2021.
Selling, general and administrative expenses for the year ended September 30, 2023 decreased $1,547,000 to $6,571,000 as compared to $8,118,000 for the year ended September 30, 2022.
Principal Factors Affecting Our Financial Performance Our operating results are primarily affected by the following factors: · the ability of our research and development team to produce an FDA clearance quality technology; · our ability to recruit and maintain quality personnel with the talent to bring our technology to the market; · the production of market ready products which can sustain FDA clearance quality results; · the clearance by the FDA after their rigorous clinical trial process of our products for the marketplace; · the receptivity of the marketplace and the addressable diabetes community to our new non-invasive glucose monitoring technology; and · access to sufficient capital to support us until its products achieve FDA clearance and are accepted in the marketplace.
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. 43 Table of Contents Principal Factors Affecting Our Financial Performance Our operating results are primarily affected by the following factors: · the ability of our research and development team to produce an FDA clearance quality technology; · our ability to recruit and maintain quality personnel with the talent to bring our technology to the market; · the production of market ready products that can sustain FDA clearance quality results; · the clearance by FDA after their rigorous clinical trial process of our products for the marketplace; · the receptivity of the marketplace and the addressable diabetes community to our new non-invasive glucose monitoring technology; and · access to sufficient capital to support us until our products achieve FDA clearance and are accepted in the marketplace.
The non-cash items include (i) depreciation and amortization of $321,000; (ii) issuance of common stock for services of $183,000; (iii) issuance of common stock warrants for services of $452,000; (iv) stock based compensation- stock options of $4,422,000; (v) amortization of debt discount as interest expense of $7,273,000; (vi) other of $13,000; offset by (vii) gain on debt settlement of $269,000; and (viii) gain on forgiveness of note payable- PPP loans of $253,000. 33 Table of Contents The net loss for the year ended September 30, 2021 included non-cash expenses of $17,701,000.
The non-cash items include (iv) depreciation and amortization of $321,000; (v) issuance of common stock for services of $183,000; (vi) issuance of common stock warrants for services of $452,000; (vii) stock based compensation- stock options of $4,422,000; (viii) amortization of debt discount as interest expense of $7,273,000; (ix) other of $13,000; offset by (x) gain on debt settlement of $269,000; and (xi) gain on forgiveness of note payable- PPP loans of $253,000. 46 Table of Contents Investing Activities Net cash used in investing activities for the year ended September 30, 2023 and 2022 was $81,000 and $855,000, respectively.
Net loss for the year ended September 30, 2022 was $20,071,000 as compared to $25,360,000 for the year ended September 30, 2021. The net loss for the year ended September 30, 2022 included non-cash expenses of $12,142,000.
Net loss for the year ended September 30, 2023 was $15,289,000 as compared to $20,071,000 for the year ended September 30, 2022. The net loss for the year ended September 30, 2023 included non-cash expenses of $4,768,000.
Research and development expenses for the year ended September 30, 2022 increased $1,416,000 to $5,386,000 as compared to $3,970,000 for the year ended September 30, 2021. The increase was due increased personnel, use of consultant and expenditures related to the development of our Bio-RFID™ technology. Selling, General and Administrative Expenses .
Research and development expenses for the year ended September 30, 2023 increased $2,341,000 to $7,727,000 as compared to $5,386,000 for the year ended September 30, 2022. The increase was due to increased personnel, use of consultants, expenditures related to the development of our radio frequency spectroscopy Bio-RFID™ technology.
The increase primarily was due to (i) an increase of $3,393,000 in stock based compensation; offset by (ii) $1,051,000 in decreased Particle expenses; (iii) decrease in compensation expense of $2,096,000 related to warrants issued for services and (iv) other decreases of $700,000.
The decrease primarily was due to (i) a decrease of $1,466,000 in stock based compensation; (ii) a decrease in compensation expense of $451,000 related to warrants issued for services; (iii) a decrease in common stock issued for services of $183,000; offset by (iv) an increase in insurance of $420,000; and (v) an increase in other expenses of $133,000.
The net cash used in operating activities for the year ended September 30, 2021 was primarily related to (i) a net loss of $25,360,000; offset by (ii) working capital changes of $810,000; and (ii) non-cash expenses of $13,050,000.
Operating Activities Net cash used in operating activities for the year ended September 30, 2023 and 2022 was $10,354,000 and $6,920,000, respectively. The net cash used in operating activities for the year ended September 30, 2023 was primarily related to (i) a net loss of $15,289,000; offset by (ii) working capital changes of $167,000; and (iii) non-cash expenses of $4,768,000.
Revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. During the year ended September 30, 2022, our artificial intelligence (AI) deep learning platform began generating revenue from digital asset sales of NFT’s.
Revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. During the three months ended December 31, 2021, we generated revenue from digital asset sales of NFTs.
We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation.
These accounting policies are important for an understanding of our financial condition and results of operation.
We determined that the conversion features for purposes of bifurcation within convertible notes payable were immaterial and there was no derivative liability to be recorded as of September 30, 2022 and 2021. Stock Based Compensation .
We determined that the conversion features for purposes of bifurcation within convertible notes payable issued during 2020 and 2021 were immaterial and as of September 30, 2023 all such convertible notes have been converted to common stock. Stock Based Compensation .
Our contractual cash obligations as of September 30, 2022 are summarized in the table below: Less Than Greater Than Contractual Cash Obligations (1) Total 1 Year 1-3 Years 3-5 Years 5 Years Operating leases $ 386,701 $ 275,332 $ 111,369 $ - $ - Convertible notes payable 2,255,066 2,255,066 - - - - - - $ 2,641,767 $ 2,530,398 $ 111,369 $ - $ - (1) Convertible notes payable includes $2,255,066 that can be converted into common stock upon demand.
Our contractual cash obligations as of September 30, 2023 are summarized in the table below: Less Than Contractual Cash Obligations (1) Total 1 Year Operating leases $ 134,633 $ 134,633 Convertible notes payable 2,255,066 2,255,066 $ 2,389,699 $ 2,389,699 (1) Convertible notes payable includes $2,255,066 (excluding $506,865 adjustment for debt extinguishment accounting) that can be converted into common stock upon demand.
As of September 30, 2022, we had an accumulated deficit of $101,398,000 and net losses in the amount of $20,071,000 and $25,360,000 during the years ended September 30, 2022 and 2021, respectively. We incurred non-cash expenses of $12,142,000, and $17,701,000 during the years ended September 30, 2022 and 2021, respectively.
As of September 30, 2023, our accumulated deficit was $121,841,000 and net losses in the amount of $15,289,000 and $20,071,000 during the years ended September 30, 2023 and 2022, respectively. We incurred non-cash expenses of $4,768,000, and $12,164,000 during the years ended September 30, 2023 and 2022, respectively.
Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly in the sections titled “Risk Factors” and “ Special Note Regarding Forward-Looking Statements. ” Overview We are focused on the development and commercialization of proprietary biosensor technologies which, when paired with our AI deep learning platform, are 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.
Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly in the sections titled “Risk Factors” and “ Special Note Regarding Forward-Looking Statements. ” Overview We are focused on the development and commercialization of our proprietary sensor technology utilizing radio and microwave spectroscopy.
On September 20, 2022, we completed a public offering of our common stock pursuant to which we sold 4,140,000 shares of common stock, at a purchase price of $2.00 per share, for total gross proceeds of $8,280,000. After deducting underwriting commissions and other offering expenses, we received net proceeds of $7,425,000.
On September 29, 2023, we closed an offering of our common stock pursuant to which we 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, we received net proceeds of $5,472,791.
On September 20, 2022, we completed a public offering of our common stock pursuant to which we sold 4,140,000 shares of common stock, at a purchase price of $2.00 per share, for total gross proceeds of $8,280,000. After deducting underwriting commissions and other offering expenses, we received net proceeds of $7,424,679.
On September 29, 2023, we closed an offering of our common stock pursuant to which we 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, we received net proceeds of $5,472,791.
Based upon ASC 815-15, we have adopted a sequencing approach regarding the application of ASC 815-40 to convertible securities. We will evaluate our contracts based upon the earliest issuance date.
Based upon ASC 815-15, we have adopted a sequencing approach regarding the application of ASC 815-40 to convertible securities to determine if an instrument should be accounted for as equity or a liability. We will evaluate our contracts based upon the earliest issuance date. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.
Research and development expenses consist of the cost of employees, consultants and contractors who design, engineer and develop new products and processes as well as materials, supplies and facilities used in producing prototypes. Our current research and development efforts are primarily focused on improving our Bio-RFID technology, extending its capacity and developing new and unique applications for this technology.
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. Fair Value Measurements and Financial Instruments .
We believe that our cash on hand will be sufficient to fund our operations through December 31, 2023. We have financed our corporate operations and our technology development through the issuance of convertible debentures, the issuance of preferred stock, the sale of common stock and the exercise of warrants.
We have financed our corporate operations and our technology development through the issuance of convertible debentures, the issuance of preferred stock, the sale of common stock and the exercise of warrants. During the remainder of 2024, we expect to raise additional funds through the issuance of preferred stock, convertible debentures or equity.
Our engineering team, using its research date, AI and proprietary algorithms, produced NFT’s in the form of digital art. The NFT’s produced had no recorded cost basis. Digital Asset Sales . Revenue includes sale of NFT’s in the form of digital art generated from our artificial intelligence deep learning platform.
Our engineering team, using its research data, AI and proprietary algorithms, produced NFTs in the form of digital art. The NFTs produced had no recorded cost basis. The Company does not expect future activity or revenue from that source. Research and Development Expenses .
The first activity undertaken by AI Mind was the creation of graphical images expressed as NFTs utilizing the AI deep learning platform. During the year ended September 30, 2022, AI Mind began generating revenue from digital asset sales of NFT’s and had sales of $4,360,087.
During the year ended September 30, 2022, AI Mind, operating our AI deep learning platform, began generating revenue from digital asset sales of NFT’s and had sales of $4,360,000. AI Mind was dissolved on July 25, 2023. 42 Table of Contents Recent Developments On January 23, 2023, Phillip A.
Particle is focused on the development and commercialization of our extensive intellectual property relating to electromagnetic energy outside of the medical diagnostic arena which remains our company’s singular focus. Since incorporation, Particle has engaged in research and development activities on threaded light bulbs that have a warm white light and can inactivate germs, including bacteria and viruses.
Since incorporation, Particle was engaged in research and development activities on threaded light bulbs that have a warm white light and can inactivate germs, including bacteria and viruses. Particle is now looking for partners to take this product to market.
Particle is now looking for partners to take this product to market. On September 17, 2021 we incorporated our wholly owned subsidiary, AI Mind, for the purpose of identifying and capitalizing on market opportunities for our AI deep learning platform.
On September 17, 2021, we incorporated our wholly owned subsidiary, AI Mind, Inc., for the purpose of identifying and capitalizing on market opportunities for our AI deep learning platform (discussed below). The first activity undertaken by AI Mind was the creation of graphical images expressed as non-fungible tokens, or NFTs, utilizing the AI deep learning platform.
Other expense, net for the year ended September 30, 2022 was $7,497,000 as compared to other expense, net of $14,914,000 for the year ended September 30, 2021.
Such costs for the year ended September 30, 2022 included digital asset conversion loss, consulting, bonus compensation transaction fees, taxes, royalties and other costs. Other (Expense), Net . Other expense, net for the year ended September 30, 2023 was $1,265,000 as compared to other expense, net of $7,497,000 for the year ended September 30, 2022.
The net cash provided by financing activities for the year ended September 30, 2021 was primarily related to (i) issuance of Simple Agreements for future Equity of $340,000; (ii) $14,209,000 related to proceeds from convertible notes payable; (iii) proceeds from notes payable- PPP of $206,000; (iv) proceeds from the issuance of common stock for the exercise of warrants of $1,313,000; (v) proceeds from the issuance of common stock for the exercise of stock option grants of $23,000; and offset by (vi) payment of issuance costs from notes payable of $727,000 and (vii) repayments on Simple Agreements for Future Equity.
The net cash provided by financing activities for the year ended September 30, 2023 was primarily related to (i) proceeds from the issuance of common stock for the exercise of warrants of $387,000; (ii) proceeds from the issuance of common stock for the exercise of stock option grants of $5,000; issuance of common stock for a common stock offering, net of expenses of $5,472,791.
Our management considers our business to currently consist of three operating segments (i) the development of the Bio-RFID™” and “ChromaID” technologies; (ii) Particle, Inc. technology; and (iii) AI sales of NFT products. Particle commenced operations in the year ended September 30, 2020. AI commenced operations during the year ended September 30, 2022.
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. Previous segments included (i) Particle, Inc. technology; and (ii) AI Mind, Inc. sales of NFT products. Particle commenced operations in the year ended September 30, 2020.
The proceeds of warrants currently outstanding, which are not expected to be exercised on a cashless basis, may generate potential proceeds of up to approximately $15,694,000. We cannot provide assurance that any of these warrants will be exercised. Operating Activities Net cash used in operating activities for the year ended September 30, 2022 and 2021 was $6,920,000 and $6,851,000, respectively.
We believe that we have enough available cash to operate until June 30, 2024. 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.
As of September 30, 2022, we had cash and cash equivalents of $12,594,000 and net working capital of approximately $11,040,000 (exclusive of convertible notes payable). We have experienced net losses since inception.
We have cash and cash equivalents of $8,024,000 and net working capital of approximately $6,264,000 (exclusive of convertible notes payable) as of September 30, 2023. We anticipate that we will record losses from operations for the foreseeable future.
Our Artificial Intelligence (AI) deep learning platform has generated revenue- digital asset sales of $4,360,000 from Non-Fungible Token (NFT) sales. Such costs included digital asset conversion loss, consulting, bonus compensation transaction fees, taxes, royalties and other costs. Other (Expense), Net .
During 2022, our Artificial Intelligence (AI) deep learning platform has generated revenue- digital asset sales of $4,360,000 from Non-Fungible Token (NFT) sales. The benefit for the year ended September 30, 2023 included an adjustment of our estimate for sales and use tax related to the sale of digital assets.
The non-cash items include (i) depreciation and amortization of $201,000; (ii) issuance for capital stock for services and expenses of $203,000; (iii) stock based compensation- warrants of $2,547,000; (iv) stock based compensation- stock options of $1,029,000; (v) amortization of debt discount as interest expense of $13,722,000; and offset by (vi) other of $1,000.
The non-cash items include (i) depreciation and amortization of $313,000; (ii) loss on sale of assets of $550,000; (iii) loss on debt extinguishment of $507,000; (iv) modification of notes and warrants- interest expense of $350,000; (v) stock based compensation- stock options of $2,956,000; and (vi) amortization of operating lease right-of-use asset of $142,000.
The non-cash items include (iii) depreciation and amortization of $201,000; (iv) issuance for capital stock for services and expenses of $203,000; (v) stock based compensation- warrants of $2,547,000; (vi) stock based compensation- stock options of $1,029,000; (vii) amortization of debt discount as interest expense of $13,722,000; and offset by (viii) other of $1,000.
The non-cash items include (iv) depreciation and amortization of $313,000; (v) loss on disposal assets of $550,000; (vi) loss on debt extinguishment of $507,000; (vii) modification of notes and warrants- interest expense of $350,000; (viii) stock based compensation- stock options of $2,956,000; and (ix) amortization of operating lease right-of-use asset of $142,000.
Investing Activities Net cash used in investing activities for the year ended September 30, 2022 and 2021 was $855,000 and $300,000, respectively.
The net loss for the year ended September 30, 2022 included non-cash expenses of $12,164,000.
The other expense, net for the year ended September 30, 2021 included interest expense related to convertible notes payable and the amortization of the beneficial conversion feature and value of warrants issued.
The other expense, net for the year ended September 30, 2023 included (i) interest income of $127,000; offset by (ii) interest expense of $390,000 related to convertible notes payable and the modification and extension of terms; (iii) loss on debt extinguishment of $507,000 related to the extension of convertible notes payable; and (iv) other expense of $495,000 related to the write-off of certain equipment. .
Removed
We call this our “Bio-RFID” technology platform, when pertaining to radio and microwave spectroscopy, and our “ChromaID” technology platform, when pertaining to optical spectroscopy. The data obtained with our biosensor technology is analyzed with our trade secret algorithms which are driven by our AI deep learning platform. ChromaID is the first technology developed and patented by our company.
Added
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.
Removed
For the past several years, we have focused on extensions and new patentable inventions that are derived from and extend beyond our ChromaID technology and intellectual property.
Added
This device will require US Food and Drug Administration (FDA) clearance before entering the market. On April 30, 2020, we incorporated our wholly owned subsidiary, Particle, Inc. Particle was focused on the development and commercialization of our extensive intellectual property relating to electromagnetic energy outside of the medical diagnostic arena, which remains our company’s singular focus.
Removed
The rapid advances made with our Bio-RFID technology in our laboratory have caused us to move quickly into the commercialization phase of our company as we work to create revenue generating products for the marketplace. Today, the primary focus of our company is on our Bio-RFID technology and our commercialization and development of related patent assets.
Added
Bosua resigned from the Board of Directors and from his position as our Chief Executive Officer. On January 23, 2023, our Board of Directors appointed Ronald P. Erickson, the current Chairman of the Board, to the position of Chief Executive Officer.
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Through our wholly owned subsidiaries, we work to exploit additional opportunities and markets that our broad intellectual property and trade secret portfolio addresses. 30 Table of Contents On April 30, 2020, we incorporated our wholly owned subsidiary, Particle.
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On January 27, 2023, we announced the following new officers/transitions: Leo Trautwein, Chief Commercial Officer, and Jessica English, Chief Marketing Officer. On April 21, 2023, we announced the publication of a peer-reviewed study in Sensors Journal. The manuscript described the proof-of-principle study of Bio-RFID technology that quantified three different analytes in vitro.
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Recent Developments NYSE Listing Out common stock began trading on the NYSE under the symbol KNW on September 16, 2022 following the pricing (and the entering into the Underwriting Agreement) of the Offering, discussed below.
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In the peer-reviewed publication, it was found Bio-RFID achieved 100% accuracy in quantifying these three different analytes in vitro. This study was conducted in collaboration with Mayo Clinic. On May 5, 2023, we announced the results of a technical feasibility study that was presented at the American Association of Clinical Endocrinology (AACE) Annual Meeting.
Removed
Underwriting Agreement On September 15, 2022, we entered into an underwriting agreement (the “ Underwriting Agreement ”) with Boustead Securities, LLC, as representative (the “ Representative ”) of the underwriters named on Schedule 1 thereto (the “ Underwriters ”), relating to our public offering of common stock (the “ Offering ”).
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The study demonstrated that the Bio-RFID sensor can deliver stable, repeatable results in predicting blood glucose concentrations obtained by a reference device. On June 7, 2023, we revealed the portable Generation 1 prototype for non-invasive glucose monitoring. The Generation 1 prototype is a portable research lab, designed to be a powerful data collection device.
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Pursuant to the Underwriting Agreement, we agreed to sell 3,600,000 shares of common stock to the Underwriters, at a purchase price per share of $1.86 (the offering price to the public of $2.00 per share minus the Underwriters’ discount), and also granted to the Underwriters a 45-day option to purchase up to 540,000 additional shares, solely to cover over-allotments, if any, at the public offering price less the underwriting discounts, pursuant to our registration statement on Form S-1 (File No. 333-266423) under the Securities Act of 1933, as amended (the “ Securities Act ”), and our registration statement on Form S-1MEF (File No. 333-267448) filed pursuant to Rule 424(b)(4) under the Securities Act (together, the “ Registration Statements ”).
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This device should allow Know Labs to scale data collection, including testing across more diverse participant populations and scenarios. In June of 2023, the Company issued 1,402,784 share of common stock as dividends to the holder of Series D Convertible Preferred stock as settlement of cumulative unpaid dividends through December 2022.
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The Underwriting Agreement includes customary representations, warranties and covenants by the Company. It also provides that we will indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or contribute to payments the Underwriters may be required to make because of any of those liabilities.
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On July 26, 2023, we announced the completion of a new study demonstrating that continued algorithm refinement and more high-quality data improved the accuracy of the Bio-RFID sensor technology, resulting in an overall Mean Absolute Relative Difference (MARD) of 11.27%.
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On September 20, 2022, pursuant to the Underwriting Agreement, we issued a common stock purchase warrant to Boustead Securities, LLC for the purchase of 289,800 shares of common stock at an exercise price of $2.40, subject to adjustment.
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On August 9, 2023, the Board authorized the Company to file a series of amendments to the certificates of designation for certain series of our preferred stock, and the restatement of its articles of incorporation, as described below, each of which were filed with the Nevada Secretary of State effective August 11, 2023.
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The Warrant is exercisable at any time and from time to time, in whole or in part, until September 15, 2027 and may be exercised on a cashless basis. The Warrant also includes customary anti-dilution provisions and immediate piggyback registration rights with respect to the registration of the shares underlying the Warrant.
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Based upon the June 2023 issuance of common stock dividends to Series D Convertible Preferred Stock holder and the modified terms and conditions of Series C and D certificates of designation, it was determined that Series C and D preferred dividends need to be accreted for the cumulative unpaid dividends .
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The Warrant and the shares of common stock underlying the Warrant were registered as a part of the Registration Statements.
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As of September 30, 2023, cumulative unpaid Series C and D totaled approximately $770,000 which converts to approximately 3,040,0000 shares of common stock. The value of the 3.0 million shares of common totaled $3,526,653. The Company recorded $3,526,653 in cumulative deemed dividends related to Series C and D Preferred Stock which have not been paid.
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Impact of COVID-19 Pandemic On January 30, 2020, the World Health Organization announced a global health emergency caused by a new strain of the coronavirus, or COVID-19, and advised of the risks to the international community as the virus spread globally.
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In connection with the amendment and restatement of our preferred stock, we effected a reverse split of our outstanding Series C Convertible Preferred Stock and Series D Convertible Preferred Stock by a factor of 1-for-100. No changes were made to the 5 million total shares of “blank-check” preferred stock authorized in our Articles.
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In March 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally. The spread of COVID-19 caused public health officials to recommend precautions to mitigate the spread of the virus, especially as to travel and congregating in large numbers.
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Prior to such reverse split, there were 1,785,715 and 1,016,004 shares of Series C Convertible Preferred Stock and Series D Convertible Preferred Stock designated and outstanding, respectively.
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Over time, the incidence of COVID-19 and its variants has diminished although periodic spikes in incidence occur. Consequently, restrictions imposed by various governmental health organizations may change over time.
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To account for the reverse split, but in order to provide the ability to issue “pay in kind” dividends in lieu of cash dividends, at the time of the reverse split, we designated 30,000 shares of Series C Convertible Preferred Stock and 20,000 shares of Series D Convertible Preferred Stock, of which 17,858 and 10,161 shares were, respectively, outstanding immediately after such reverse split.
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Several states have lifted restrictions only to reimpose such restrictions as the number of cases rise and new variants arise. 31 Table of Contents Over the past two years, the impact of COVID-19 has had adverse effects on our business by slowing down our ability to work with third parties outside of Seattle on testing and validation.
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In order to maintain the economic rights of the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock, the definition of “Stated Value” was multiplied by 100, to offset the reverse split factor. On September 15, 2023, we signed amendments to the convertible promissory or OID notes, held by Clayton A.
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We have witnessed supply chain related delays and increasing costs due to inflation. It is difficult to predict what other adverse effects, if any, COVID-19 and related matters can have on our business, or against the various aspects of same.
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Struve and Ron Erickson, to extend the due dates to September 30, 2024. On September 29, 2023, we closed an offering of our common stock pursuant to which we sold 28,000,000 shares of common stock, at a purchase price of $0.25 per share via an S-1 registration statement.
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We may experience long-term disruptions to our operations resulting from changes in government policy or guidance; quarantines of employees, customers and suppliers in areas affected by the pandemic and the presence of new variants of COVID-19; and closures of businesses or manufacturing facilities critical to its business or supply chains.
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After deducting underwriting commissions and other offering expenses, we received net proceeds of $5,472,791.As part of the offering, the Company issued common stock purchase warrants to the Underwriter Representatives to purchase an aggregate of 1,960,000 shares of Common Stock at an exercise price of $0.25 per share, subject to adjustments.

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