Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Mar. 31, 2019 | May 15, 2019 | |
Document And Entity Information | ||
Entity Registrant Name | KNOW LABS, INC. | |
Entity Central Index Key | 0001074828 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2019 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --09-30 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Common Stock, Shares Outstanding | 22,285,439 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2019 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Mar. 31, 2019 | Sep. 30, 2018 |
CURRENT ASSETS: | ||
Cash and cash equivalents | $ 3,061,901 | $ 934,407 |
Accounts receivable, net of allowance of $60,000 and $60,000, respectively | 193,372 | 320,538 |
Prepaid expenses | 12,844 | 20,140 |
Inventories, net | 100,989 | 203,582 |
Total current assets | 3,369,106 | 1,478,667 |
EQUIPMENT, NET | 197,536 | 169,333 |
OTHER ASSETS | ||
Intangible assets | 361,112 | 447,778 |
Other assets | 15,867 | 7,170 |
TOTAL ASSETS | 3,943,621 | 2,102,948 |
CURRENT LIABILITIES: | ||
Accounts payable - trade | 1,298,278 | 1,512,617 |
Accounts payable - related parties | 7,395 | 12,019 |
Accrued expenses | 81,339 | 72,140 |
Accrued expenses - related parties | 644,099 | 657,551 |
Deferred revenue | 0 | 55,959 |
Convertible notes payable | 2,255,065 | 2,255,066 |
Notes payable - current portion of long term debt | 0 | 145,186 |
Total current liabilities | 4,286,176 | 4,710,538 |
COMMITMENTS AND CONTINGENCIES | ||
STOCKHOLDERS' DEFICIT | ||
Preferred stock - $0.001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding at 3/31/2019 and 9/30/2018, respectively | 0 | 0 |
Common stock - $0.001 par value, 100,000,000 shares authorized, 22,002,904 and 17,531,502 shares issued and outstanding at 3/31/2019 and 9/30/2018, respectively | 22,003 | 17,532 |
Additional paid in capital | 36,917,782 | 32,163,386 |
Accumulated deficit | (37,285,145) | (34,791,324) |
Total stockholders' deficit | (342,555) | (2,607,590) |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | 3,943,621 | 2,102,948 |
Series A Convertible Preferred stock [Member] | ||
STOCKHOLDERS' DEFICIT | ||
Preferred stock - $0.001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding at 3/31/2019 and 9/30/2018, respectively | 0 | 11 |
Series C Convertible Preferred stock [Member] | ||
STOCKHOLDERS' DEFICIT | ||
Preferred stock - $0.001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding at 3/31/2019 and 9/30/2018, respectively | 1,790 | 1,790 |
Series D Convertible Preferred stock [Member] | ||
STOCKHOLDERS' DEFICIT | ||
Preferred stock - $0.001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding at 3/31/2019 and 9/30/2018, respectively | $ 1,015 | $ 1,015 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Mar. 31, 2019 | Sep. 30, 2018 |
CURRENT ASSETS: | ||
Allowance for accounts receivable | $ 60,000 | $ 60,000 |
EQUITY (DEFICIT) | ||
Preferred stock par value | $ 0.001 | $ 0.001 |
Preferred stock shares authorized | 5,000,000 | 5,000,000 |
Preferred stock shares issued | 0 | 0 |
Preferred stock shares outstanding | 0 | 0 |
Common stock par value | $ 0.001 | $ 0.001 |
Common stock shares authorized | 100,000,000 | 100,000,000 |
Common stock shares issued | 22,002,904 | 17,531,502 |
Common stock shares outstanding | 22,002,904 | 17,531,502 |
Series A Convertible Preferred stock [Member] | ||
EQUITY (DEFICIT) | ||
Preferred stock par value | $ 0.001 | $ 0.001 |
Preferred stock shares authorized | 23,334 | 23,334 |
Preferred stock shares issued | 0 | 20,000 |
Preferred stock shares outstanding | 0 | 20,000 |
Series C Convertible Preferred stock [Member] | ||
EQUITY (DEFICIT) | ||
Preferred stock par value | $ 0.001 | $ 0.001 |
Preferred stock shares authorized | 1,785,715 | 1,785,715 |
Preferred stock shares issued | 1,785,715 | 1,785,715 |
Preferred stock shares outstanding | 1,785,715 | 1,785,715 |
Series D Convertible Preferred stock [Member] | ||
EQUITY (DEFICIT) | ||
Preferred stock par value | $ 0.001 | $ 0.001 |
Preferred stock shares authorized | 1,016,014 | 1,016,014 |
Preferred stock shares issued | 1,016,014 | 1,016,014 |
Preferred stock shares outstanding | 1,016,014 | 1,016,014 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | Mar. 31, 2019 | Mar. 31, 2018 | |
Income Statement [Abstract] | ||||
REVENUE | $ 593,712 | $ 1,092,228 | $ 1,195,921 | $ 2,325,085 |
COST OF SALES | 454,839 | 865,571 | 927,125 | 1,850,594 |
GROSS PROFIT | 138,873 | 226,657 | 268,796 | 474,491 |
RESEARCH AND DEVELOPMENT EXPENSES | 184,024 | 153,300 | 391,014 | 241,020 |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | 1,678,335 | 578,097 | 2,367,781 | 992,462 |
OPERATING LOSS | (1,723,486) | (504,740) | (2,489,999) | (758,991) |
OTHER INCOME (EXPENSE): | ||||
Interest expense | (7,750) | (793,837) | (16,876) | (1,087,039) |
Other income | 6,618 | (577) | 13,054 | 18,611 |
Total other income (expense) | (1,132) | (794,414) | (3,822) | (1,068,428) |
(LOSS) BEFORE INCOME TAXES | (1,724,618) | (1,299,154) | (2,493,821) | (1,827,419) |
Income taxes - current provision | 0 | 0 | 0 | 0 |
NET (LOSS) | $ (1,724,618) | $ (1,299,154) | $ (2,493,821) | $ (1,827,419) |
Basic and diluted loss per common share attributable to Know Labs,, Inc. and subsidiaries common shareholders | ||||
Basic and diluted loss per share | $ (0.09) | $ (0.25) | $ (0.14) | $ (0.37) |
Weighted average shares of common stock outstanding- basic and diluted | 19,297,126 | 5,128,144 | 18,424,608 | 4,889,218 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 6 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net loss | $ (2,493,821) | $ (1,827,419) |
Adjustments to reconcile net loss to net cash (used in) operating activities | ||
Depreciation and amortization | 133,019 | 30,462 |
Issuance of capital stock for services and expenses | 348,900 | 70,641 |
Stock based compensation- warrants | 336,835 | 0 |
Conversion of interest | 0 | 64,233 |
Stock based compensation- stock option grants | 263,147 | 7,334 |
Amortization of debt discount | 0 | 475,174 |
Conversion of accrued liabilities- related parties to notes payable | 0 | (491,802) |
Provision on loss on accounts receivable | 8,728 | 21,406 |
Impairment of goodwill | 0 | 110,545 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 118,438 | 114,918 |
Prepaid expenses | 7,296 | 4,292 |
Inventory | 102,593 | 21,616 |
Other assets | (8,697) | (2,100) |
Accounts payable - trade and accrued expenses | (223,216) | 33,193 |
Deferred revenue | (55,959) | (58,615) |
NET CASH (USED IN) OPERATING ACTIVITIES | (1,462,737) | (442,518) |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Investment in research and development equipment | (74,556) | 0 |
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES: | (74,556) | 0 |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Issuance of common stock for cash | 3,809,975 | 0 |
(Repayments) proceeds from line of credit | (145,188) | (190,663) |
Proceeds from convertible notes payable | 0 | 530,000 |
NET CASH PROVIDED BY FINANCING ACTIVITIES | 3,664,787 | 339,337 |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 2,127,494 | (103,181) |
CASH AND CASH EQUIVALENTS, beginning of period | 934,407 | 103,181 |
CASH AND CASH EQUIVALENTS, end of period | 3,061,901 | 0 |
Supplemental disclosures of cash flow information: | ||
Interest paid | 7,750 | 20,243 |
Taxes paid | 0 | 0 |
Non-cash investing and financing activities: | ||
Benificial conversion feature | 0 | 482,014 |
Conversion of accrued liabilities - related parties to notes payable | $ 0 | $ 482,014 |
1. ORGANIZATION
1. ORGANIZATION | 6 Months Ended |
Mar. 31, 2019 | |
Notes to Financial Statements | |
ORGANIZATION | Know Labs, Inc. (the “Company”) was incorporated under the laws of the State of Nevada in 1998. The Company has authorized 105,000,000 shares of capital stock, of which 100,000,000 are shares of voting common stock, par value $0.001 per share, and 5,000,000 are shares preferred stock, par value $0.001 per share. The Company is focused on the development, marketing and sales of a proprietary technologies which are capable of uniquely authenticating or diagnosing almost any substance or material using electromagnetic energy to create, record and detect the unique “signature” of the substance. The Company’s call these our “ChromaID™” and “Bio-RFID™” technologies. Overview Historically, the Company focused on the development of our proprietary ChromaID technology. Using light from low-cost LEDs (light emitting diodes) the Company’s map the color of substances, fluids and materials and with our proprietary processes we can authenticate, identify and diagnose based upon the color that is present. The color is both visible to us as humans but also outside of the humanly visible color spectrum in the near infra-red and near ultra-violet and beyond. The Company’s ChromaID scanner sees what we like to call “Nature’s Color Fingerprint.” Everything in nature has a unique color identifier and with ChromaID the Company can see it, and identify, authenticate and diagnose based upon the color that is present. The Company’s ChromaID scanner is capable of uniquely identifying and authenticating almost any substance or liquid using light to create, record and detect its unique color signature. The Company will continue to develop and enhance its ChromaID technology and extend its capacity. More recently, the Company has focused upon extensions and new inventions that are derived from and extend beyond our ChromaID technology. The Company’s call this technology Bio-RFID. The rapid advances made with our Bio-RFID technology in our laboratory have caused us to move quickly in to the commercialization phase of our Company as we work to create revenue generating products for the marketplace. The Company will also, as resources permit, pursue licensing opportunities with third parties who have ready applications for our technologies. In 2010, the Company acquired TransTech Systems, Inc. as an adjunct to its business. TransTech is a distributor of products for employee and personnel identification. TransTech has provided all of the Company’s revenues. The Company is in the process of commercializing its technology. To date, the Company has entered into License Agreements with Sumitomo Precision Products Co., Ltd. In addition, it has a technology license agreement with Allied Inventors, formerly Xinova and Invention Development Management Company, a subsidiary of Intellectual Ventures. The Company believes that its commercialization success is dependent upon its ability to significantly increase the number of customers that are purchasing and using its products. To date the Company has generated minimal revenue from sales of its ChromaID and Bio-RFID products. The Company is currently not profitable. Even if the Company succeeds in introducing the ChromaID and Bio-RFID technology and related products to its target markets, the Company may not be able to generate sufficient revenue to achieve or sustain profitability. ChromaID was invented by scientists under contract with the Company. Bio-RFID was invented by individuals working for the Company. The Company actively pursues a robust intellectual property strategy and has been granted twelve patents. The Company also has 20 patents pending. The Company possesses all right, title and interest to the issued patents. Ten of the pending patents are licensed exclusively to the Company in perpetuity by the Company’s strategic partner, Allied Inventors. Merger with RAAI Lighting, Inc. On April 10, 2018, the Company entered into an Agreement and Plan of Merger with 500 Union Corporation, a Delaware corporation and a wholly owned subsidiary of the Company, and RAAI Lighting, Inc., a Delaware corporation. Pursuant to the Merger Agreement, we have acquired all the outstanding shares of RAAI’s capital stock through a merger of Merger Sub with and into RAAI (the “Merger”), with RAAI surviving the Merger as a wholly owned subsidiary of the Company. Under the terms of the Merger Agreement, each share of RAAI common stock issued and outstanding immediately before the Merger (1,000 shares) were cancelled and we issued 2,000,000 shares of our common stock. As a result, we issued 2,000,000 shares of its common stock to Phillip A. Bosua, formerly the sole stockholder of RAAI. The consideration for the Merger was determined through arms-length bargaining by the Company and RAAI. The Merger was structured to qualify as a tax-free reorganization for U.S. federal income tax purposes. As a result of the Merger, the Company received certain intellectual property, related to RAAI. Merger with Know Labs, Inc. On May 1, 2018, Know Labs, Inc., a Nevada corporation incorporated on April 3, 2018, and our wholly-owned subsidiary, merged with and into the Company pursuant to an Agreement and Plan of Merger dated May 1, 2018. In connection with the merger, our Articles of Incorporation were effectively amended to change our name to Know Labs, Inc. by and through the filing of Articles of Merger. This parent-subsidiary merger was approved by us, the parent, in accordance with Nevada Revised Statutes Section 92A.180. Stockholder approval was not required. This amendment was filed with the Nevada Secretary of State and became effective on May 1, 2018. Corporate Name Change and Symbol Change On May 24, 2018, the Financial Industry Regulatory Authority (“FINRA”) announced the effectiveness of a change in our name from Visualant Incorporated to Know Labs, Inc. and a change in our ticker symbol from VSUL to the new trading symbol KNWN which became effective on the opening of trading as of May 25, 2018. In addition, in connection with the name change and symbol change, we were assigned the CUSIP number of 499238103. |
2. GOING CONCERN
2. GOING CONCERN | 6 Months Ended |
Mar. 31, 2019 | |
Notes to Financial Statements | |
GOING CONCERN | The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred net losses of $2,493,821, $3,257,597 and $3,901,232 for the six months ended March 31, 2019 and the years ended September 30, 2018 and 2017, respectively. Net cash used in operating activities was $1,462,737, $1,117,131 and $1,264,324 for the three months ended March 31, 2019 and for the years ended September 30, 2018 and 2017, respectively. The Company anticipates that it will record losses from operations for the foreseeable future. As of March 31, 2019, the Company’s accumulated deficit was $37,285,145. The Company has limited capital resources, and operations to date have been funded with the proceeds from private equity and debt financings and loans from Ronald P. Erickson, the Company’s Chief Executive Officer, or entities with which he is affiliated. These conditions raise substantial doubt about our ability to continue as a going concern. The audit report prepared by the Company’s independent registered public accounting firm relating to our financial statements for the year ended September 30, 2018 includes an explanatory paragraph expressing the substantial doubt about the Company’s ability to continue as a going concern. The Company believe that its cash on hand will be sufficient to fund our operations until December 31, 2019. We need additional financing to implement our business plan and to service our ongoing operations and pay our current debts. There can be no assurance that we will be able to secure any needed funding, or that if such funding is available, the terms or conditions would be acceptable to us. If we are unable to obtain additional financing when it is needed, we will need to restructure our operations, and divest all or a portion of our business. We may seek additional capital through a combination of private and public equity offerings, debt financings and strategic collaborations. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, and could increase our expenses and require that our assets secure such debt. Equity financing, if obtained, could result in dilution to the Company’s then-existing stockholders and/or require such stockholders to waive certain rights and preferences. If such financing is not available on satisfactory terms, or is not available at all, the Company may be required to delay, scale back, eliminate the development of business opportunities or file for bankruptcy and our operations and financial condition may be materially adversely affected. |
3. SIGNIFICANT ACCOUNTING POLIC
3. SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS | 6 Months Ended |
Mar. 31, 2019 | |
Notes to Financial Statements | |
SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS | Basis of Presentation Principles of Consolidation Cash and Cash Equivalents Accounts Receivable and Allowance for Doubtful Accounts Inventories Equipment Long-Lived Assets Intangible Assets Research, Development and Engineering Expenses The Company’s research and development efforts are primarily focused improving the core foundational ChromaID technology and developing new and unique applications for the technology. As part of this effort, the Company typically conduct testing to ensure that ChromaID application methods are compatible with the customer’s requirements, and that they can be implemented in a cost effective manner. The Company is also actively involved in identifying new application methods. Know Lab’s team has considerable experience working with the application of light-based technologies and their application to various industries. The Company believes that its continued development of new and enhanced technologies relating to our core business is essential to its future success. The Company spent $391,014, $570,514 and $79,405 during the six months ended March 31, 2019 and the years ended September 30, 2018 and 2017, respectively, on research and development activities. Fair Value Measurements and Financial Instruments Fair Value Measurement and Disclosures Level 1 – Quoted prices in active markets for identical assets and liabilities; Level 2 – Inputs other than level one inputs that are either directly or indirectly observable; and. Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, and accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities as of March 31, 2019 and September 30, 2018 are based upon the short-term nature of the assets and liabilities. Derivative Financial Instruments - Revenue Recognition Stock Based Compensation Convertible Securities Net Loss per Share As of March 31, 2018, there were options outstanding for the purchase of 4,736 common shares, warrants for the purchase of 11,837,422 common shares, 2,825,053 shares of the Company’s common stock issuable upon the conversion of Series A, Series C and Series D Convertible Preferred Stock. In addition, the Company has an unknown number of shares issuable upon conversion of convertible debentures of $2,390,066. All of which could potentially dilute future earnings per share. Dividend Policy Use of Estimates Recent Accounting Pronouncements A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to the Company’s consolidated financial statements. |
4. ACCOUNTS RECEIVABLE_CUSTOMER
4. ACCOUNTS RECEIVABLE/CUSTOMER CONCENTRATION | 6 Months Ended |
Mar. 31, 2019 | |
Notes to Financial Statements | |
ACCOUNTS RECEIVABLE/CUSTOMER CONCENTRATION | Accounts receivable were $193,372 and $320,538, net of allowance, as of March 31, 2019 and September 30, 2018, respectively. The Company had two customers in excess of 10% (14.8% and 10.1%) of the Company’s consolidated revenues for the three months ended March 31, 2019. The Company had two customers in excess of 10% (21.7%,and 20.7%) with accounts receivable in excess of 10% as of March 31, 2019. The Company has a total allowance for bad debt in the amount of $60,000 as of March 31, 2019. The decrease in accounts receivable related to lower sales and purchases at TransTech. |
5. INVENTORIES
5. INVENTORIES | 6 Months Ended |
Mar. 31, 2019 | |
Notes to Financial Statements | |
INVENTORIES | Inventories were and $100,989 and $203,582 as of March 31, 2019 and September 30, 2018, respectively. Inventories consist primarily of printers and consumable supplies, including ribbons and cards, badge accessories, capture devices, and access control components held for resale. There was a $35,000 reserve for impaired inventory as of September 30, 2018 and 2017, respectively. The decrease in inventory related to lower sales at TransTech. |
6. FIXED ASSETS
6. FIXED ASSETS | 6 Months Ended |
Mar. 31, 2019 | |
Notes to Financial Statements | |
FIXED ASSETS | Fixed assets, net of accumulated depreciation, was $197,536 and $169,333 as of March 31, 2019 and September 30, 2018, respectively. Accumulated depreciation was $717,019 and $670,666 as of March 31, 2019 and September 30, 2018, respectively. Total depreciation expense was $46,354 and $30,462 for the six months ended March 31, 2019 and 2017, respectively. All equipment is used for selling, general and administrative purposes and accordingly all depreciation is classified in selling, general and administrative expenses. Property and equipment as of March 31, 2019 was comprised of the following: March 31, 2019 Estimated Useful Lives Purchased Capital Leases Total Machinery and equipment 2-10 years $ 406,861 $ 42,681 $ 449,542 Leasehold improvements 2-3 years 276,112 — 276,112 Furniture and fixtures 2-3 years 58,051 95,020 153,071 Software and websites 3- 7 years 35,830 — 35,830 Less: accumulated depreciation (579,318 ) (137,701 ) (717,019 ) $ 197,536 $ — $ 197,536 |
7. INTANGIBLE ASSETS
7. INTANGIBLE ASSETS | 6 Months Ended |
Mar. 31, 2019 | |
Finite-Lived Intangible Assets, Net [Abstract] | |
INTANGIBLE ASSETS | Intangible assets as of March 31, 2019 and September 30, 2018 consisted of the following: Estimated March 31, September 30, Useful Lives 2019 2018 Technology 3 years $ 520,000 $ 520,000 Less: accumulated amortization (158,888 ) (72,222 ) Intangible assets, net $ 361,112 $ 447,778 Total amortization expense was $86,666 and $0 for the six months ended March 31, 2019 and 2018, respectively. Merger with RAAI Lighting, Inc. On April 10, 2018, the Company entered into an Agreement and Plan of Merger with 500 Union Corporation, a Delaware corporation and a wholly owned subsidiary of the Company, and RAAI Lighting, Inc., a Delaware corporation. Pursuant to the Merger Agreement, we have acquired all the outstanding shares of RAAI’s capital stock through a merger of Merger Sub with and into RAAI (the “Merger”), with RAAI surviving the Merger as a wholly owned subsidiary of the Company. Under the terms of the Merger Agreement, each share of RAAI common stock issued and outstanding immediately before the Merger (1,000 shares) were cancelled and converted into the right to receive 2,000 shares of the Company’s common stock. As a result, the Company issued 2,000,000 shares of its common stock to Phillip A. Bosua, formerly the sole stockholder of RAAI. The consideration for the Merger was determined through arms-length bargaining by the Company and RAAI. The Merger was structured to qualify as a tax-free reorganization for U.S. federal income tax purposes. As a result of the Merger, the Company received certain intellectual property, related to RAAI. Merger with Know Labs, Inc. On May 1, 2018, Know Labs, Inc., a Nevada corporation incorporated on April 3, 2018, and our wholly-owned subsidiary, merged with and into the Company pursuant to an Agreement and Plan of Merger dated May 1, 2018. In connection with the merger, our Articles of Incorporation were effectively amended to change our name to Know Labs, Inc. by and through the filing of Articles of Merger. This parent-subsidiary merger was approved by us, the parent, in accordance with Nevada Revised Statutes Section 92A.180. Stockholder approval was not required. This amendment was filed with the Nevada Secretary of State and became effective on May 1, 2018. RAAI had no outstanding indebtedness or assets at the closing of the Merger. The 2,000,000 shares of the Company’s common stock issued for RAAI’s shares were recorded at the fair value at the date of the merger at $520,000 and the value assigned to the patent acquired with RAAI. The fair value of the intellectual property associated with the assets acquired was $520,000 estimated by using a discounted cash flow approach based on future economic benefits. In summary, the estimate was based on a projected income approach and related discounted cash flows over five years, with applicable risk factors assigned to assumptions in the forecasted results. |
8. ACCOUNTS PAYABLE
8. ACCOUNTS PAYABLE | 6 Months Ended |
Mar. 31, 2019 | |
Accounts Payable [Abstract] | |
ACCOUNTS PAYABLE | Accounts payable were $1,298,278 and $1,517,617 as of March 31, 2019 and September 30, 2018, respectively. Such liabilities consisted of amounts due to vendors for inventory purchases and technology development, external audit, legal and other expenses incurred by the Company. The Company had two vendors (12.3% and 10.0%) with accounts payable in excess of 10% of its accounts payable as of March 31, 2019. The Company does expect to have vendors with accounts payable balances of 10% of total accounts payable in the foreseeable future. |
9. DERIVATIVE INSTRUMENTS
9. DERIVATIVE INSTRUMENTS | 6 Months Ended |
Mar. 31, 2019 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
DERIVATIVE INSTRUMENTS | In April 2008, the FASB issued a pronouncement that provides guidance on determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in the pronouncement on accounting for derivatives. This pronouncement was effective for financial statements issued for fiscal years beginning after December 15, 2008. The adoption of these requirements can affect the accounting for warrants and many convertible instruments with provisions that protect holders from a decline in the stock price (or “down-round” provisions). For example, warrants or conversion features with such provisions are no longer recorded in equity. Down-round provisions reduce the exercise price of a warrant or convertible instrument if a company either issues equity shares for a price that is lower than the exercise price of those instruments or issues new warrants or convertible instruments that have a lower exercise price. There was no derivative liability as of March 31, 2019 and September 30, 2018. |
10. CONVERTIBLE NOTES PAYABLE
10. CONVERTIBLE NOTES PAYABLE | 6 Months Ended |
Mar. 31, 2019 | |
Convertible Notes Payable | |
CONVERTIBLE NOTES PAYABLE | Convertible notes payable as of March 31, 2019 and September 30, 2018 consisted of the following: Convertible Promissory Notes with Clayton A. Struve As of March 31, 2019, the Company owes Clayton A. Struve $1,071,000 under convertible promissory or OID notes. The Company recorded accrued interest of $58,411 as of March 31, 2019. On May 8, 2019, the Company signed Amendment 2 to the convertible promissory or OID notes, extending the due dates to September 30, 2019. Convertible Redeemable Promissory Notes with Ronald P. Erickson and J3E2A2Z On March 16, 2018, the Company entered into a Note and Account Payable Conversion Agreement pursuant to which (a) all $664,233 currently owing under the J3E2A2Z Notes was converted to a Convertible Redeemable Promissory Note in the principal amount of $664,233, and (b) all $519,833 of the J3E2A2Z Account Payable was converted into a Convertible Redeemable Promissory Note in the principal amount of $519,833 together with a warrant to purchase up to 1,039,666 shares of common stock of the Company for a period of five years. The initial exercise price of the warrants described above is $0.50 per share, also subject to certain adjustments. The warrants were valued at $110,545. Because the note is immediately convertible, the warrants and beneficial conversion were expensed as interest. The Company recorded accrued interest of $41,361 as of March 31, 2019. On May 8, 2019, the Company signed Amendment 1 to the convertible redeemable promissory notes, extending the due dates to September 30, 2019 and increasing the interest rate to 6%. |
11. NOTES PAYABLE, CAPITALIZED
11. NOTES PAYABLE, CAPITALIZED LEASES AND LONG TERM DEBT | 6 Months Ended |
Mar. 31, 2019 | |
Notes to Financial Statements | |
NOTES PAYABLE, CAPITALIZED LEASES AND LONG TERM DEBT | Notes payable, capitalized leases and long-term debt as of March 31, 2019 and September 30, 2018 consisted of the following: March 31, September 30, 2019 2018 Capital Source Business Finance Group $ — $ 145,186 Total debt — 145,186 Less current portion of long term debt — (145,186 ) Long term debt $ — $ — Capital Source Business Finance Group On March 12, 2019, Capital Source cancelled the Loan and Security Agreement and Capital Source Credit Facility with TransTech. TransTech repaid the remaining $15,165 due on the Secured Credit Facility. On March 27, 2019, the Company received notice that the UCC Financing Statement filed by Capital Source to secure a parent Company guarantee was terminated and cancelled by the State of Nevada. |
12. EQUITY
12. EQUITY | 6 Months Ended |
Mar. 31, 2019 | |
Notes to Financial Statements | |
EQUITY | Authorized Capital Stock The Company authorized 105,000,000 shares of capital stock, of which 100,000,000 are shares of voting common stock, par value $0.001 per share, and 5,000,000 are shares preferred stock, par value $0.001 per share. As of March 31, 2019, the Company had 22,002,904 shares of common stock issued and outstanding, held by 122 stockholders of record. The number of stockholders, including beneficial owners holding shares through nominee names, is approximately 2,300. Each share of common stock entitles its holder to one vote on each matter submitted to the stockholders for a vote, and no cumulative voting for directors is permitted. Stockholders do not have any preemptive rights to acquire additional securities issued by us. As of March 31, 2019, there were options outstanding for the purchase of 2,282,668 common shares, warrants for the purchase of 17,572,583 common shares, and 4,894,071 shares of the Company’s common stock issuable upon the conversion of Series A, Series C and Series D Convertible Preferred Stock. In addition, the Company has an unknown number of shares (9,020,264 common shares at the current price of $0.25 per share) are issuable upon conversion of convertible debentures of $2,255,066. All of which could potentially dilute future earnings per share. Voting Preferred Stock The Company is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $0.001. Series A Preferred Stock On January 29, 2019, a holder of Series A Preferred Stock converted 20,000 shares into 80,000 shares of common stock. There are no Series A Preferred Stock outstanding as of March 31, 2019. Series C and D Preferred Stock and Warrants On August 5, 2016, the Company closed a Series C Preferred Stock and Warrant Purchase Agreement with Clayton A. Struve, an accredited investor for the purchase of $1,250,000 of preferred stock with a conversion price of $0.70 per share. The preferred stock has a yield of 8% and an ownership blocker of 4.99%. In addition, Mr. Struve received a five-year warrant to acquire 1,785,714 shares of common stock at $0.70 per share. On August 14, 2017, the price of the Series C Stock were adjusted to $0.25 per share pursuant to the documents governing such instruments. As of March 31, 2019, the Company has 3,108,356 of Series D Preferred Stock outstanding with Clayton A. Struve, an accredited investor, outstanding. On August 14, 2017, the price of the Series D Stock were adjusted to $0.25 per share pursuant to the documents governing such instruments. Series F Preferred Stock On August 1, 2018, the Company filed with the State of Nevada a Certificate of Designation establishing the Designations, Preferences, Limitations and Relative Rights of Series F Preferred Stock. The Designation authorized 500 shares of Series F Preferred Stock. The Series F Preferred Stock shall only be issued to the current Board of Directors on the date of the Designation’s filing and is not convertible into common stock. As set forth in the Designation, the Series F Preferred Stock has no rights to dividends or liquidation preference and carries rights to vote 100,000 shares of common stock per share of Series F upon a Trigger Event, as defined in the Designation. A Trigger Event includes certain unsolicited bids, tender offers, proxy contests, and significant share purchases, all as described in the Designation. Unless and until a Trigger Event, the Series F shall have no right to vote. The Series F Preferred Stock shall remain issued and outstanding until the date which is 731 days after the issuance of Series F Preferred Stock (“Explosion Date”), unless a Trigger Event occurs, in which case the Explosion Date shall be extended by 183 days. Securities Subject to Price Adjustments In the future, if we sell our common stock at a price below $0.25 per share, the exercise price of 1,785,715 outstanding shares of Series C Preferred Stock, 1,016,004 outstanding shares Series D Preferred Stock that adjust below $0.25 per share pursuant to the documents governing such instruments. In addition, the conversion price of a Convertible Note Payable of $2,255,066 (9,020,264 common shares at the current price of $0.25 per share) and the exercise price of additional outstanding warrants to purchase 12,664,385 shares of common stock would adjust below $0.25 per share pursuant to the documents governing such instruments. Common Stock All of the offerings and sales described below were deemed to be exempt under Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act. No advertising or general solicitation was employed in offering the securities, the offerings and sales were made to a limited number of persons, all of whom were accredited investors and transfer was restricted by the company in accordance with the requirements of Regulation D and the Securities Act. All issuances to accredited and non-accredited investors were structured to comply with the requirements of the safe harbor afforded by Rule 506 of Regulation D, including limiting the number of non-accredited investors to no more than 35 investors who have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of an investment in our securities. The following equity issuances occurred during the six months ended March 31, 2019: During the six months ended March 31, 2019, the Company issued 336,427 shares of common stock and cancelled warrants to purchase 26,573 shares of common stock at $0.25 per share to two consultants and two investors related to the cashless exercise of warrants. During the six months ended March 31, 2019, the Company issued 145,000 shares of common stock for services provided by two consultants. The shares were valued at $246,900 or $1.703 per share. On January 2, 2019, the Company issued 100,000 shares of common stock for services provided to Ronald P. Erickson. The shares were valued at $102,000 or $1.02 per share. On January 29, 2019, a holder of Series A Preferred Stock converted 20,000 shares into 80,000 shares of common stock. Private Placements On March 4, 2019, the Company closed rounds one and two of a private placement and received gross proceeds of $2,409,975 in exchange for issuing Subordinated Convertible Notes and Warrants in a private placement to 26 accredited investors, pursuant to a series of substantially identical Securities Purchase Agreements, Common Stock Warrants, and related documents. On March 18, 2019, Company closed round three of a private placement and received gross proceeds of $1,400,000 in exchange for issuing Subordinated Convertible Notes and Warrants in a private placement to 8 accredited investors, pursuant to a series of substantially identical Securities Purchase Agreements, Common Stock Warrants, and related documents. The Convertible Notes have a principal amount of $3,809,975 and bear annual interest of 8%. Both the principal amount of and the interest are payable on a payment-in-kind basis in shares of Common Stock of the Company. They are due and payable in common stock on the earlier of (a) mandatory and automatic conversion of the Convertible Notes into a financing that yields gross proceeds of at least $10,000,000 or (b) on the one-year anniversary of the Convertible Notes. Investors will be required to convert their Convertible Notes into Common Stock in any $10,000,000 financing at a conversion price per share equal to the lower of (i) $1.00 per share or (ii) a 25% discount to the price per share paid by investors in the $10,000,000 Financing. If the Convertible Notes have not been paid or converted prior to the Maturity Date, the outstanding principal amount of the Convertible Notes will be automatically converted into shares of Common Stock at the lesser of (a) $1.00 per share or (b) any adjusted price resulting from the application of a “most favored nations” provision, which requires the issuance of additional shares of Common Stock to investors if the Company issues certain securities at less than the then-current conversion price. The Warrants were granted on a 1:0.5 basis (one-half Warrant for each full share of Common Stock into which the Convertible Notes are convertible). The Warrants have a five-year term and an exercise price equal to 120% of the per share conversion price of the Qualified Financing or other mandatory conversion. The Convertible Notes are initially convertible into 3,809,975 shares of Common Stock, subject to certain adjustments, and the Warrants are initially exercisable for 1,904,988 shares of Common Stock at an exercise price of $1.20 per share of Common Stock, also subject to certain adjustments. In connection with the private placement, the placement agent for the Convertible Notes and the Warrants received a cash fee of $324,798 and warrants to purchase 487,197 shares of the Company’s common stock, all based on 8% of gross proceeds to the Company. The placement agent has also received a $25,000 advisory fee. As part of the Purchase Agreement, the Company entered into a Registration Rights Agreement, which grants the investors “demand” and “piggyback” registration rights to register the shares of Common Stock issuable upon the conversion of the Convertible Notes and the exercise of the Warrants with the Securities and Exchange Commission for resale or other disposition. In addition, the Convertible Notes are subordinated to certain senior debt of the Company pursuant to a Subordination Agreement executed by the investors. The Convertible Notes and Warrants were issued in transactions that were not registered under the Securities Act of 1933, as amended (the “Act”) in reliance upon applicable exemptions from registration under Section 4(a)(2) of the Act and/or Rule 506 of SEC Regulation D under the Act. The Company expects to continue offering additional Convertible Notes and Warrants on substantially the same terms until April 15, 2019 (unless extended at the discretion of the Company) or until the Company has raised a maximum of $5 million in gross proceeds (or such other amount determined by the Company in its discretion). The offering was extended until May 31, 2019. Warrants to Purchase Common Stock The following warrants were issued during the six months ended March 31, 2019: The Company issued 336,427 shares of common stock and cancelled warrants to purchase 26,573 shares of common stock at $0.25 per share to two consultants and two investors related to the cashless exercise of warrants. The Company issued warrants to purchase 70,000 shares of common stock at $1.61 to$2.72 per share to three consultants. The warrants were valued at $30,325 or 0.79 to $1.11 per share. The warrants expire during the first quarter of 2024. Private Placements The Warrants issued for the private placements discussed above were granted on a 1:0.5 basis (one-half Warrant for each full share of Common Stock into which the Convertible Notes are convertible). The Warrants have a five-year term and an exercise price equal to 120% of the per share conversion price of the Qualified Financing or other mandatory conversion. The Warrants are initially exercisable for 1,904,988 shares of Common Stock at an exercise price of $1.20 per share of Common Stock, also subject to certain adjustments. In connection with the private placement, the placement agent for the Convertible Notes and the Warrants received warrants to purchase 487,197 shares of the Company’s common stock, all based on 8% of gross proceeds to the Company. A summary of the warrants outstanding as of March 31, 2019 were as follows: March 31, 2019 Weighted Average Exercise Shares Price Outstanding at beginning of period 15,473,398 $ 0.326 Issued 2,462,185 1.222 Exercised (336,427 ) (0.250 ) Forfeited - - Expired (26,573 ) (0.250 ) Outstanding at end of period 17,572,583 $ 0.453 Exercisable at end of period 17,572,583 A summary of the status of the warrants outstanding as of March 31, 2019 is presented below: March 31, 2019 Weighted Weighted Weighted Average Average Average Number of Remaining Exercise Shares Exercise Warrants Life ( In Years) Price Exercisable Price 13,507,286 3.50 $ 0.250 13,507,286 $ 0.250 714,286 2.33 0.700 714,286 0.700 882,159 2.62 1.000 882,159 1.000 2,442,185 4.93 1.20-1.50 2,442,185 1.20-1.50 20,000 4.92 2.34-4.08 20,000 2.34-4.08 6,667 - 30.000 6,667 30.000 17,572,583 3.78 $ 0.453 17,572,583 $ 0.453 The significant weighted average assumptions relating to the valuation of the Company’s warrants for the six months ended March 31, 2019 were as follows: Assumptions Dividend yield 0% Expected life 1 yr Expected volatility 125% Risk free interest rate 2.0% There were vested warrants of 16,613,757 as of March 31, 2019 with an aggregate intrinsic value of $14,664,327. |
13. STOCK OPTIONS
13. STOCK OPTIONS | 6 Months Ended |
Mar. 31, 2019 | |
Notes to Financial Statements | |
STOCK OPTIONS | On March 21, 2013, an amendment to the Stock Option Plan was approved by the stockholders of the Company, increasing the number of shares reserved for issuance under the Plan to 93,333 shares. Determining Fair Value under ASC 505 The Company records compensation expense associated with stock options and other equity-based compensation using the Black-Scholes-Merton option valuation model for estimating fair value of stock options granted under our plan. The Company amortizes the fair value of stock options on a ratable basis over the requisite service periods, which are generally the vesting periods. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company estimates the volatility of our common stock based on the historical volatility of its own common stock over the most recent period corresponding with the estimated expected life of the award. The Company bases the risk-free interest rate used in the Black Scholes-Merton option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. The Company has not paid any cash dividends on our common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes-Merton option valuation model and adjusts share-based compensation for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. The effect of adjusting the forfeiture rate is recognized in the period the forfeiture estimate is changed. Stock Option Activity The Company had the following stock option transactions during the six months ended March 31, 2019: On October 31, 2018, the Board awarded stock option grants to two directors to acquire 50,000 shares each of the Company’s common stock. The grants were valued at $3.03 per share and expire on October 31, 2013. The grants vested immediately. On October 31, 2018, the Board awarded Phillip A. Bosua a stock option grant to acquire 100,000 shares of the Company’s Common stock for each $1,000,000 raised by the Company in revenue generated in a planned Kickstarter campaign. In addition, Mr. Bosua was granted a stock option grant to acquire 1,000,000 shares of the Company’s common which vests upon approval of the Company’s blood glucose measurement technology by the U.S. Food and Drug Administration. The grants were valued at $3.03 per share and expire on October 31, 2023. On October 31, 2018, the Board awarded Ronald P Erickson a stock option grant to acquire 1,000,000 shares of the Company’s common which vests upon the Company’s successful listing of its Common Stock on Nasdaq or the New York Stock Exchange (including the NYSE American Market). The grant was valued at $3.03 per share and expires on October 31, 2023. On March 26, 2019, the Board awarded an employee a stock option grant to acquire 10,000 shares of the Company’s Common stock for each $1,000,000 raised by the Company in revenue generated in a planned Kickstarter campaign. In addition, the employee was granted a stock option grant to acquire 130,000 shares of the Company’s common which vests upon approval of the Company’s blood glucose measurement technology by the U.S. Food and Drug Administration. The grants were valued at $1.50 per share and expire on March 26, 2024. On March 26, 2019, the Board awarded an employee a stock option grant to acquire 10,000 shares of the Company’s Common stock for each $1,000,000 raised by the Company in revenue generated in a planned Kickstarter campaign. In addition, the employee was granted a stock option grant to acquire 130,000 shares of the Company’s common which vests upon approval of the Company’s blood glucose measurement technology by the U.S. Food and Drug Administration. The grants were valued at $1.50 per share and expire on March 26, 2024. There are currently 2,282,668 options to purchase common stock at an average exercise price of $1.757 per share outstanding as of March 31, 2019 under the 2011 Stock Incentive Plan. The Company recorded $263,145 and $7,334 of compensation expense, net of related tax effects, relative to stock options for the six months ended March 31, 2019 and 2018 and in accordance with ASC 505. Net loss per share (basic and diluted) associated with this expense was approximately ($0.010) and ($0.000) per share, respectively. As of March 31, 2019, there is approximately $1,606,089, net of forfeitures, of total unrecognized costs related to employee granted stock options that are not vested. These costs are expected to be recognized over a period of approximately 4.69 years. Stock option activity for the three months ended March 31, 2019 was as follows: Weighted Average Options Exercise Price $ Outstanding as of September 30, 2018 2,182,668 $ 1.698 $ 3,706,519 Granted 100,000 3.030 303,000 Exercised - - - Forfeitures - - - Outstanding as of March 31, 2019 2,282,668 $ 1.757 $ 4,009,519 The following table summarizes information about stock options outstanding and exercisable as of March 31, 2019: Weighted Weighted Weighted Average Average Average Range of Number Remaining Life Exercise Price Number Exercise Price Exercise Prices Outstanding In Years Exercisable Exercisable Exercisable 0.25 530,000 4.61 $ 0.250 99,375 $ 0.25 1.28 1,150,000 4.71 1.28 143,750 1.28 3.03 100,000 4.71 3.03 100,000 3.03 4.08-4.20 500,000 4.73 4.08-4.20 31,250 4.08-4.20 13.500 1,334 0.38 13.50 1,334 13.50 15.000 1,334 - 15.00 - 15.00 2,282,668 4.69 $ 1.757 375,709 $ 1.755 There were stock option grants of 530,000 shares as of March 31, 2019 with an aggregate intrinsic value of $535,300. |
14. OTHER SIGNIFICANT TRANSACTI
14. OTHER SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES | 6 Months Ended |
Mar. 31, 2019 | |
Notes to Financial Statements | |
OTHER SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES | Related Party Transactions with Ronald P. Erickson See Notes 10 and 13 for related party transactions with Ronald P. Erickson. Mr. Erickson and/or entities with which he is affiliated also have accrued compensation, travel and interest of approximately $478,861 as of March 31, 2019. Related Party Transaction with Phillip A. Bosua See Note 13 for related party transactions with Phillip A. Bosua. Stock Option Grants to Directors See Note 13 for related party transactions with Directors. |
15. COMMITMENTS, CONTINGENCIES
15. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS | 6 Months Ended |
Mar. 31, 2019 | |
Notes to Financial Statements | |
COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS | Legal Proceedings The Company may from time to time become a party to various legal proceedings arising in the ordinary course of our business. The Company is currently not a party to any pending legal proceeding that is not ordinary routine litigation incidental to our business. Properties and Operating Leases The Company is obligated under the following non-cancelable operating leases for its various facilities and certain equipment. Years Ended March 31, Total 2020 $ 187,652 2021 196,526 2022 5,816 2023 - 2024 - Beyond - Total $ 389,994 Corporate Offices On April 13, 2017, the Company leased its executive office located at 500 Union Street, Suite 810, Seattle, Washington, USA, 98101. The Company leases 943 square feet and the net monthly payment is $2,672. The monthly payment increases approximately 3% each year and the lease expires on May 31, 2022. Lab Facilities and Executive Offices On May 1, 2018, the Company leased its lab facilities and executive offices located at 304 Alaskan Way South, Suite 102, Seattle, Washington, USA, 98101. The Company leases 2,800 square feet and the net monthly payment is $4,000. The lease expired on April 30, 2019. On February 1, 2019, the Company leased its lab facilities and executive offices located at 915 E Pine Street, Suite 212, Seattle, WA 98122. The Company leases 2,642 square feet and the net monthly payment is $8,256. The monthly payment increases approximately 3% on July 1, 2019 and annually thereafter. The lease expires on June 30, 2021 and can be extended. TransTech Facilities TransTech is located at 12142 NE Sky Lane, Suite 130, Aurora, OR 97002. TransTech leases a total of approximately 6,340 square feet of office and warehouse space for its administrative offices, product inventory and shipping operations. Effective December 1, 2017, TransTech leases this office from December 1, 2017 at $4,465 per month. The monthly payment increases approximately 3% each year and the lease expires on January 31, 2020. Until December 1, 2017, TransTech leased this office on a month to month basis at $6,942 per month. TransTech terminated this lease effective May 31, 2019. |
16. SUBSEQUENT EVENTS
16. SUBSEQUENT EVENTS | 6 Months Ended |
Mar. 31, 2019 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | The Company evaluates subsequent events, for the purpose of adjustment or disclosure, up through the date the financial statements are available. Subsequent to March 31, 2019, there were the following material transactions that require disclosure: Convertible Promissory Notes with Clayton A. Struve As of March 31, 2019, the Company owes Clayton A. Struve $1,071,000 under convertible promissory or OID notes. The Company recorded accrued interest of $58,411 as of March 31, 2019. On May 8, 2019, the Company signed Amendment 2 to the convertible promissory or OID notes, extending the due dates to September 30, 2019. Convertible Redeemable Promissory Notes with Ronald P. Erickson and J3E2A2Z On March 16, 2018, the Company entered into a Note and Account Payable Conversion Agreement pursuant to which (a) all $664,233 currently owing under the J3E2A2Z Notes was converted to a Convertible Redeemable Promissory Note in the principal amount of $664,233, and (b) all $519,833 of the J3E2A2Z Account Payable was converted into a Convertible Redeemable Promissory Note in the principal amount of $519,833 together with a warrant to purchase up to 1,039,666 shares of common stock of the Company for a period of five years. The initial exercise price of the warrants described above is $0.50 per share, also subject to certain adjustments. The warrants were valued at $110,545. Because the note is immediately convertible, the warrants and beneficial conversion were expensed as interest. The Company recorded accrued interest of $41,361 as of March 31, 2019. On May 8, 2019, the Company signed Amendment 1 to the convertible redeemable promissory notes, extending the due dates to September 30, 2019 and increasing the interest rate to 6%. |
3. SIGNIFICANT ACCOUNTING POL_2
3. SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS (Policies) | 6 Months Ended |
Mar. 31, 2019 | |
Notes to Financial Statements | |
Basis of Presentation | Basis of Presentation |
Principles of Consolidation | Principles of Consolidation |
Cash and Cash Equivalents | Cash and Cash Equivalents |
Accounts Receivable and Allowance for Doubtful Accounts | Accounts Receivable and Allowance for Doubtful Accounts |
Inventories | Inventories |
Equipment | Equipment |
Long-Lived Assets | Long-Lived Assets |
Intangible Assets | Intangible Assets |
Research, Development and Engineering Expenses | Research, Development and Engineering Expenses The Company’s research and development efforts are primarily focused improving the core foundational ChromaID technology and developing new and unique applications for the technology. As part of this effort, the Company typically conduct testing to ensure that ChromaID application methods are compatible with the customer’s requirements, and that they can be implemented in a cost effective manner. The Company is also actively involved in identifying new application methods. Know Lab’s team has considerable experience working with the application of light-based technologies and their application to various industries. The Company believes that its continued development of new and enhanced technologies relating to our core business is essential to its future success. The Company spent $391,014, $570,514 and $79,405 during the six months ended March 31, 2019 and the years ended September 30, 2018 and 2017, respectively, on research and development activities. |
Fair Value Measurements and Financial Instruments | Fair Value Measurements and Financial Instruments Fair Value Measurement and Disclosures Level 1 – Quoted prices in active markets for identical assets and liabilities; Level 2 – Inputs other than level one inputs that are either directly or indirectly observable; and. Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, and accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities as of March 31, 2019 and September 30, 2018 are based upon the short-term nature of the assets and liabilities. |
Derivative Financial Instruments | Derivative Financial Instruments - |
Revenue Recognition | Revenue Recognition |
Stock Based Compensation | Stock Based Compensation |
Convertible Securities | Convertible Securities |
Net Loss per Share | Net Loss per Share As of March 31, 2018, there were options outstanding for the purchase of 4,736 common shares, warrants for the purchase of 11,837,422 common shares, 2,825,053 shares of the Company’s common stock issuable upon the conversion of Series A, Series C and Series D Convertible Preferred Stock. In addition, the Company has an unknown number of shares issuable upon conversion of convertible debentures of $2,390,066. All of which could potentially dilute future earnings per share. |
Dividend Policy | Dividend Policy |
Use of Estimates | Use of Estimates |
Recent Accounting Pronouncements | Recent Accounting Pronouncements A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to the Company’s consolidated financial statements. |
6. FIXED ASSETS (Tables)
6. FIXED ASSETS (Tables) | 6 Months Ended |
Mar. 31, 2019 | |
Notes to Financial Statements | |
Schedule of property and equipment | March 31, 2019 Estimated Useful Lives Purchased Capital Leases Total Machinery and equipment 2-10 years $ 406,861 $ 42,681 $ 449,542 Leasehold improvements 2-3 years 276,112 — 276,112 Furniture and fixtures 2-3 years 58,051 95,020 153,071 Software and websites 3- 7 years 35,830 — 35,830 Less: accumulated depreciation (579,318 ) (137,701 ) (717,019 ) $ 197,536 $ — $ 197,536 |
7. INTANGIBLE ASSETS (Tables)
7. INTANGIBLE ASSETS (Tables) | 6 Months Ended |
Mar. 31, 2019 | |
Finite-Lived Intangible Assets, Net [Abstract] | |
Schedule of intangible assets | Estimated March 31, September 30, Useful Lives 2019 2018 Technology 3 years $ 520,000 $ 520,000 Less: accumulated amortization (158,888 ) (72,222 ) Intangible assets, net $ 361,112 $ 447,778 |
11. NOTES PAYABLE, CAPITALIZE_2
11. NOTES PAYABLE, CAPITALIZED LEASES AND LONG TERM DEBT (Tables) | 6 Months Ended |
Mar. 31, 2019 | |
Notes to Financial Statements | |
Notes payable, capitalized leases and long term debt | March 31, September 30, 2019 2018 Capital Source Business Finance Group $ — $ 145,186 Total debt — 145,186 Less current portion of long term debt — (145,186 ) Long term debt $ — $ — |
12. EQUITY (Tables)
12. EQUITY (Tables) | 6 Months Ended |
Mar. 31, 2019 | |
Notes to Financial Statements | |
Summary of the warrants issued | March 31, 2019 Weighted Average Exercise Shares Price Outstanding at beginning of period 15,473,398 $ 0.326 Issued 2,462,185 1.222 Exercised (336,427 ) (0.250 ) Forfeited - - Expired (26,573 ) (0.250 ) Outstanding at end of period 17,572,583 $ 0.453 Exercisable at end of period 17,572,583 |
Summary of the status of the warrants outstanding | March 31, 2019 Weighted Weighted Weighted Average Average Average Number of Remaining Exercise Shares Exercise Warrants Life ( In Years) Price Exercisable Price 13,507,286 3.50 $ 0.250 13,507,286 $ 0.250 714,286 2.33 0.700 714,286 0.700 882,159 2.62 1.000 882,159 1.000 2,442,185 4.93 1.20-1.50 2,442,185 1.20-1.50 20,000 4.92 2.34-4.08 20,000 2.34-4.08 6,667 - 30.000 6,667 30.000 17,572,583 3.78 $ 0.453 17,572,583 $ 0.453 |
Weighted average assumptions relating to the valuation of the Company's warrants | Dividend yield 0% Expected life 1 yr Expected volatility 125% Risk free interest rate 2.0% |
13. STOCK OPTIONS (Tables)
13. STOCK OPTIONS (Tables) | 6 Months Ended |
Mar. 31, 2019 | |
Notes to Financial Statements | |
Stock option activity | Weighted Average Options Exercise Price $ Outstanding as of September 30, 2018 2,182,668 $ 1.698 $ 3,706,519 Granted 100,000 3.030 303,000 Exercised - - - Forfeitures - - - Outstanding as of March 31, 2019 2,282,668 $ 1.757 $ 4,009,519 |
Stock options outstanding and exercisable | Weighted Weighted Weighted Average Average Average Range of Number Remaining Life Exercise Price Number Exercise Price Exercise Prices Outstanding In Years Exercisable Exercisable Exercisable 0.25 530,000 4.61 $ 0.250 99,375 $ 0.25 1.28 1,150,000 4.71 1.28 143,750 1.28 3.03 100,000 4.71 3.03 100,000 3.03 4.08-4.20 500,000 4.73 4.08-4.20 31,250 4.08-4.20 13.500 1,334 0.38 13.50 1,334 13.50 15.000 1,334 - 15.00 - 15.00 2,282,668 4.69 $ 1.757 375,709 $ 1.755 |
15. COMMITMENTS, CONTINGENCIE_2
15. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS (Tables) | 6 Months Ended |
Mar. 31, 2019 | |
Commitments Contingencies And Legal Proceedings Tables Abstract | |
Properties and operating leases | Years Ended March 31, Total 2020 $ 187,652 2021 196,526 2022 5,816 2023 - 2024 - Beyond - Total $ 389,994 |
2. GOING CONCERN (Details Narra
2. GOING CONCERN (Details Narrative) - USD ($) | 6 Months Ended | 12 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | Sep. 30, 2018 | Sep. 30, 2017 | |
Notes to Financial Statements | ||||
Net loss | $ (2,493,821) | $ (3,257,597) | $ (3,901,232) | |
Net cash used in operating activities | (1,462,737) | $ (442,518) | (1,117,131) | $ (1,264,324) |
Accumulated Deficit | $ (37,285,145) | $ (34,791,324) |
3. SIGNIFICANT ACCOUNTING POL_3
3. SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS (Details Narrative) - USD ($) | 6 Months Ended | |
Mar. 31, 2019 | Sep. 30, 2018 | |
Reserve for impaired inventory | $ 35,000 | $ 35,000 |
Minimum [Member] | ||
Estimated useful lives of assets | 2 years | |
Maximum [Member] | ||
Estimated useful lives of assets | 10 years | |
Leasehold Improvements [Member] | Minimum [Member] | ||
Estimated useful lives of assets | 5 years | |
Leasehold Improvements [Member] | Maximum [Member] | ||
Estimated useful lives of assets | 20 years |
4. ACCOUNTS RECEIVABLE_CUSTOM_2
4. ACCOUNTS RECEIVABLE/CUSTOMER CONCENTRATION (Details Narrative) - USD ($) | Mar. 31, 2019 | Sep. 30, 2018 |
Notes to Financial Statements | ||
Accounts receivable, net of allowance | $ 193,372 | $ 320,538 |
Allowance for bad debt | $ 60,000 | $ 60,000 |
5. INVENTORIES (Details Narrati
5. INVENTORIES (Details Narrative) - USD ($) | Mar. 31, 2019 | Sep. 30, 2018 |
Notes to Financial Statements | ||
Inventories | $ 100,989 | $ 203,582 |
Reserve for impaired inventory | $ 35,000 | $ 35,000 |
6. FIXED ASSETS (Details)
6. FIXED ASSETS (Details) - USD ($) | Mar. 31, 2019 | Sep. 30, 2018 |
Machinery and equipment (2-10 years) | $ 449,542 | |
Leasehold improvements (5-20 years) | 276,112 | |
Furniture and fixtures (3-10 years) | 153,071 | |
Software and websites (3- 7 years) | 35,830 | |
Less: accumulated depreciation | (717,019) | $ (670,666) |
Property and equipment, net | 197,536 | $ 169,333 |
Purchased [Member] | ||
Machinery and equipment (2-10 years) | 406,861 | |
Leasehold improvements (5-20 years) | 276,112 | |
Furniture and fixtures (3-10 years) | 58,051 | |
Software and websites (3- 7 years) | 35,830 | |
Less: accumulated depreciation | (579,318) | |
Property and equipment, net | 197,536 | |
Capital Leases [Member] | ||
Machinery and equipment (2-10 years) | 42,681 | |
Leasehold improvements (5-20 years) | 0 | |
Furniture and fixtures (3-10 years) | 95,020 | |
Software and websites (3- 7 years) | 0 | |
Less: accumulated depreciation | (137,701) | |
Property and equipment, net | $ 0 |
6. FIXED ASSETS (Details Narrat
6. FIXED ASSETS (Details Narrative) - USD ($) | 6 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | Sep. 30, 2018 | |
Notes to Financial Statements | |||
Property and equipment, net | $ 197,536 | $ 169,333 | |
Property and equipment, accumulated depreciation | 717,019 | $ 670,666 | |
Depreciation expense | $ 46,354 | $ 30,462 |
7. INTANGIBLE ASSETS (Details)
7. INTANGIBLE ASSETS (Details) - Technology - USD ($) | Mar. 31, 2019 | Sep. 30, 2018 |
Intangible assets, gross | $ 520,000 | $ 520,000 |
Less: accumulated amortization | (158,888) | (72,222) |
Intangible assets, net | $ 361,112 | $ 447,778 |
7. INTANGIBLE ASSETS (Details N
7. INTANGIBLE ASSETS (Details Narrative) - USD ($) | 6 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Intangible Assets Details Narrative Abstract | ||
Amortization expense | $ 86,666 | $ 0 |
8. ACCOUNTS PAYABLE (Details Na
8. ACCOUNTS PAYABLE (Details Narrative) - USD ($) | Mar. 31, 2019 | Sep. 30, 2018 |
Accounts Payable [Abstract] | ||
Accounts payable - trade | $ 1,298,278 | $ 1,512,617 |
10. CONVERTIBLE NOTES PAYABLE (
10. CONVERTIBLE NOTES PAYABLE (Details Narrative) | Mar. 31, 2019USD ($) |
Convertible Promissory Note [Member] | |
Accrued interest | $ 58,411 |
Convertible Redeemable Promissory Note [Member] | |
Accrued interest | $ 41,361 |
11. NOTES PAYABLE, CAPITALIZE_3
11. NOTES PAYABLE, CAPITALIZED LEASES AND LONG TERM DEBT (Details) - USD ($) | Mar. 31, 2019 | Sep. 30, 2018 |
Notes Payable Capitalized Leases And Long Term Debt Details | ||
Capital Source Business Finance Group | $ 0 | $ 145,186 |
Total debt | 0 | 145,186 |
Less current portion of long term debt | 0 | (145,186) |
Long term debt | $ 0 | $ 0 |
12. EQUITY (Details)
12. EQUITY (Details) | 6 Months Ended |
Mar. 31, 2019$ / sharesshares | |
Shares | |
Outstanding at beginning of period | 15,473,398 |
Issued | 2,462,185 |
Exercised | (336,427) |
Forfeited | 0 |
Expired | (26,573) |
Outstanding at end of period | 17,572,583 |
Exercisable at end of period | 17,572,583 |
Weighted Average Exercise Price: | |
Outstanding at beginning of period | $ / shares | $ .326 |
Issued | $ / shares | 1.222 |
Exercised | $ / shares | (.250) |
Forfeited | $ / shares | .000 |
Expired | $ / shares | (.250) |
Outstanding at end of period | $ / shares | $ .453 |
12. EQUITY (Details 1)
12. EQUITY (Details 1) | 6 Months Ended |
Mar. 31, 2019$ / sharesshares | |
Number of Warrants | shares | 17,572,583 |
Weighted Average Remaining Life (years) | 3 years 9 months 11 days |
Weighted Average Exercise Price, outstanding | $ 0.453 |
Shares Exercisable | shares | 17,572,583 |
Weighted Average Exercise Price, exercisable | $ .453 |
Warrant One [Member] | |
Number of Warrants | shares | 13,507,286 |
Weighted Average Remaining Life (years) | 3 years 6 months |
Weighted Average Exercise Price, outstanding | $ .250 |
Shares Exercisable | shares | 13,507,286 |
Weighted Average Exercise Price, exercisable | $ .250 |
Warrant Two [Member] | |
Number of Warrants | shares | 714,286 |
Weighted Average Remaining Life (years) | 2 years 3 months 29 days |
Weighted Average Exercise Price, outstanding | $ .700 |
Shares Exercisable | shares | 714,286 |
Weighted Average Exercise Price, exercisable | $ .700 |
Warrant Three [Member] | |
Number of Warrants | shares | 882,159 |
Weighted Average Remaining Life (years) | 2 years 7 months 13 days |
Weighted Average Exercise Price, outstanding | $ 1 |
Shares Exercisable | shares | 882,159 |
Weighted Average Exercise Price, exercisable | $ 1 |
Warrant Four [Member] | |
Number of Warrants | shares | 2,442,185 |
Weighted Average Remaining Life (years) | 4 years 11 months 5 days |
Shares Exercisable | shares | 2,442,185 |
Warrant Five [Member] | |
Number of Warrants | shares | 20,000 |
Weighted Average Remaining Life (years) | 4 years 11 months 1 day |
Shares Exercisable | shares | 20,000 |
Warrant Six [Member] | |
Number of Warrants | shares | 6,667 |
Weighted Average Exercise Price, outstanding | $ 30 |
Shares Exercisable | shares | 6,667 |
Weighted Average Exercise Price, exercisable | $ 30 |
Minimum [Member] | Warrant Four [Member] | |
Weighted Average Exercise Price, outstanding | 1.200 |
Weighted Average Exercise Price, exercisable | 1.200 |
Minimum [Member] | Warrant Five [Member] | |
Weighted Average Exercise Price, outstanding | 2.340 |
Weighted Average Exercise Price, exercisable | 2.340 |
Maximum [Member] | Warrant Four [Member] | |
Weighted Average Exercise Price, outstanding | 1.500 |
Weighted Average Exercise Price, exercisable | 1.500 |
Maximum [Member] | Warrant Five [Member] | |
Weighted Average Exercise Price, outstanding | 4.080 |
Weighted Average Exercise Price, exercisable | $ 4.080 |
12. EQUITY (Details 2)
12. EQUITY (Details 2) | 6 Months Ended |
Mar. 31, 2019 | |
Dividend yield | 0.00% |
Expected life | 1 year |
Expected volatility | 125.00% |
Risk free interest rate | 2.00% |
12. EQUITY (Details Narrative)
12. EQUITY (Details Narrative) | Mar. 31, 2019USD ($)shares |
Notes to Financial Statements | |
Warrants vested | shares | 16,613,757 |
Intrinsic value | $ | $ 14,664,327 |
13. STOCK OPTIONS (Details)
13. STOCK OPTIONS (Details) | 6 Months Ended |
Mar. 31, 2019USD ($)$ / sharesshares | |
Shares: | |
Outstanding at beginning of period | shares | 15,473,398 |
Shares granted | shares | 2,462,185 |
Shares exercised | shares | 336,427 |
Shares forfeitures | shares | 0 |
Outstanding at end of period | shares | 17,572,583 |
Weighted Average Exercise Price: | |
Outstanding at beginning of period | $ .326 |
Shares granted | 1.222 |
Shares exercised | .250 |
Shares forfeitures | (.000) |
Outstanding at end of period | $ .453 |
Aggregate Intrinsic Value | |
Aggregate Intrinsic Value Outstanding, End | $ | $ 14,664,327 |
Stock Options | |
Shares: | |
Outstanding at beginning of period | shares | 2,182,668 |
Shares granted | shares | 100,000 |
Shares exercised | shares | 0 |
Shares forfeitures | shares | 0 |
Outstanding at end of period | shares | 2,282,668 |
Weighted Average Exercise Price: | |
Outstanding at beginning of period | $ 1.698 |
Shares granted | 3.030 |
Shares exercised | .000 |
Shares forfeitures | (.000) |
Outstanding at end of period | $ 1.757 |
Aggregate Intrinsic Value | |
Aggregate Intrinsic Value Outstanding, Beginning | $ | $ 3,706,519 |
Aggregate Intrinsic Value Outstanding, Granted | $ 303,000 |
Aggregate Intrinsic Value Outstanding, Exercised | $ | $ 0 |
Aggregate Intrinsic Value Outstanding, Forefeitures | $ 0 |
Aggregate Intrinsic Value Outstanding, End | $ | $ 4,009,519 |
13. STOCK OPTIONS (Details 1)
13. STOCK OPTIONS (Details 1) | 6 Months Ended |
Mar. 31, 2019$ / sharesshares | |
Number of Outstanding Stock Options | shares | 17,572,583 |
Weighted Average Remaining Life (years) | 3 years 9 months 11 days |
Weighted Average Exercise Price Exerciseable | $ 0.453 |
Number Exercisable | shares | 17,572,583 |
Exercise Price 0.25 | |
Range of Exercise Prices | $ .250 |
Number of Outstanding Stock Options | shares | 530,000 |
Weighted Average Remaining Life (years) | 4 years 7 months 10 days |
Weighted Average Exercise Price Exerciseable | $ .250 |
Number Exercisable | shares | 99,375 |
Weighted Average Exercise Price Exerciseable | $ .250 |
Exercise Price 1.28 | |
Range of Exercise Prices | $ 1.280 |
Number of Outstanding Stock Options | shares | 1,150,000 |
Weighted Average Remaining Life (years) | 4 years 8 months 16 days |
Weighted Average Exercise Price Exerciseable | $ 1.280 |
Number Exercisable | shares | 143,750 |
Weighted Average Exercise Price Exerciseable | $ 1.280 |
Exercise Price 3.03 | |
Range of Exercise Prices | $ 3.030 |
Number of Outstanding Stock Options | shares | 100,000 |
Weighted Average Remaining Life (years) | 4 years 8 months 16 days |
Weighted Average Exercise Price Exerciseable | $ 3.030 |
Number Exercisable | shares | 100,000 |
Weighted Average Exercise Price Exerciseable | $ 3.030 |
Exercise Price 4.08-4.20 | |
Number of Outstanding Stock Options | shares | 500,000 |
Weighted Average Remaining Life (years) | 4 years 8 months 23 days |
Number Exercisable | shares | 31,250 |
Exercise Price 4.08-4.20 | Minimum [Member] | |
Range of Exercise Prices | $ 4.080 |
Weighted Average Exercise Price Exerciseable | 4.080 |
Weighted Average Exercise Price Exerciseable | 4.080 |
Exercise Price 4.08-4.20 | Maximum [Member] | |
Range of Exercise Prices | 4.200 |
Weighted Average Exercise Price Exerciseable | 4.200 |
Weighted Average Exercise Price Exerciseable | 4.200 |
Exercise Price 13.500 | |
Range of Exercise Prices | $ 13.500 |
Number of Outstanding Stock Options | shares | 1,334 |
Weighted Average Remaining Life (years) | 4 months 17 days |
Weighted Average Exercise Price Exerciseable | $ 13.500 |
Number Exercisable | shares | 1,334 |
Weighted Average Exercise Price Exerciseable | $ 13.500 |
Exercise Price 15.000 | |
Range of Exercise Prices | $ 15 |
Number of Outstanding Stock Options | shares | 1,334 |
Weighted Average Exercise Price Exerciseable | $ 15 |
Number Exercisable | shares | 0 |
Weighted Average Exercise Price Exerciseable | $ 15 |
Exercise Price Total | |
Number of Outstanding Stock Options | shares | 2,282,668 |
Weighted Average Remaining Life (years) | 4 years 8 months 8 days |
Weighted Average Exercise Price Exerciseable | $ 1.757 |
Number Exercisable | shares | 375,709 |
Weighted Average Exercise Price Exerciseable | $ 1.755 |
13. STOCK OPTIONS (Details Narr
13. STOCK OPTIONS (Details Narrative) - USD ($) | 6 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Options to purchase common stock under 2011 Stock Incentive Plan | 17,572,583 | |
Average exercise price under 2011 Stock Incentive Plan | $ .453 | |
Compensation expense | $ 263,145 | $ 7,334 |
Unrecognized compensation costs | $ 1,606,089 | |
Period for recognition | 4 years 8 months 8 days | |
Exercisable at end of period | 17,572,583 | |
Stock options granted | 2,462,185 | |
Aggregate intrinsic value | $ 535,300 | |
2011 Stock Incentive Plan | ||
Options to purchase common stock under 2011 Stock Incentive Plan | 2,282,668 | |
Average exercise price under 2011 Stock Incentive Plan | $ 1.757 |
14. OTHER SIGNIFICANT TRANSAC_2
14. OTHER SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES (Details narrative) | 6 Months Ended |
Mar. 31, 2019USD ($) | |
Chief Executive Officer | |
Accrued liabilities related parties from advances | $ 478,861 |
15. COMMITMENTS, CONTINGENCIE_3
15. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS (Details) | Mar. 31, 2019USD ($) |
Commitments Contingencies And Legal Proceedings Details Abstract | |
2019 | $ 187,652 |
2020 | 196,526 |
2021 | 5,816 |
2022 | 0 |
2023 | 0 |
Beyond | 0 |
Total | $ 389,994 |