USBC, Inc 10-Q, filed Feb 16, 2021

USBC, Inc. (USBC)

10-Q 2021-02-16 For: 2020-12-31

Added on April 10, 2026

About this 10-Q

USBC, Inc filed this 10-Q on February 16, 2021, covering the quarter ended December 31, 2020.

Headline figures

Quarter ended December 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $0; compared with $117.39K a year earlier
Net loss: $5.3M; compared with a net loss of $3.02M a year earlier

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Nevada	90-0273142
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)


500 Union Street, Suite 810, Seattle, Washington USA	98101
(Address of principal executive offices)	(Zip Code)

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer (Do not check if a smaller reporting company)	☐	Smaller reporting company	☒
Emerging growth company	☐

TABLE OF CONTENTS
		Page Number

PART I	FINANCIAL INFORMATION

ITEM 1	Financial Statements (unaudited except as noted)	3

	Consolidated Balance Sheets as of December 31, 2020 and September 30, 2020 (audited)	3

	Consolidated Statements of Operations for the three months ended December 31, 2020 and 2019	4

	Consolidated Statements of Changes in Stockholders’ Deficit	5

	Consolidated Statements of Cash Flows for the three months ended December 31, 2020 and 2019	6

	Notes to the Financial Statements	7

ITEM 2	Management's Discussion and Analysis of Financial Condition and Results of Operation	23

ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	31

ITEM 4	Controls and Procedures	32

PART II	OTHER INFORMATION

ITEM 1A.	Risk Factors	33

ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	44

ITEM 6	Exhibits	45

	SIGNATURES	48

	December 31, 2020	September 30, 2020
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$2,927,234	$4,298,179
Total current assets	2,927,234	4,298,179

PROPERTY AND EQUIPMENT, NET	117,004	128,671

OTHER ASSETS
Intangible assets	57,781	101,114
Other assets	25,181	25,180
Operating lease right of use asset	96,672	129,003

TOTAL ASSETS	$3,223,872	$4,682,147

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
Accounts payable - trade	$573,224	$487,810
Accounts payable - related parties	7,559	5,687
Accrued expenses	480,403	401,178
Accrued expenses - related parties	613,641	591,600
Convertible notes payable	5,044,558	3,967,578
Note payable	226,170	226,170
Simple Agreements for Future Equity	840,000	785,000
Current portion of operating lease right of use liability	84,537	108,779
Total current liabilities	7,870,092	6,573,802

NON-CURRENT LIABILITIES:
Operating lease right of use liability, net of current portion	14,602	23,256
Total non-current liabilities	14,602	23,256

COMMITMENTS AND CONTINGENCIES (Note 14)	-	-

STOCKHOLDERS' DEFICIT
Preferred stock - $0.001 par value, 5,000,000 shares authorized, 0 shares issued and
outstanding at 12/31/2020 and 9/30/2020 respectively	-	-
Series C Convertible Preferred stock - $0.001 par value, 1,785,715 shares authorized,
1,785,715 shares issued and outstanding at 12/31/2020 and 9/30/2020, respectively	1,790	1,790
Series D Convertible Preferred stock - $0.001 par value, 1,016,014 shares authorized,
1,016,004 shares issued and outstanding at 12/31/2020 and 9/30/2020, respectively	1,015	1,015
Common stock - $0.001 par value, 100,000,000 shares authorized, 25,370,224 and 24,804,874
shares issued and outstanding at 12/31/2020 and 9/30/2020, respectively	25,372	24,807
Additional paid in capital	56,576,613	54,023,758
Accumulated deficit	(61,265,612)	(55,966,281)
Total stockholders' deficit	(4,660,822)	(1,914,911)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$3,223,872	$4,682,147

	Three Months Ended,
	December 31, 2020	December 31, 2019

REVENUE	$-	$117,393
COST OF SALES	-	65,935
GROSS PROFIT	-	51,458
RESEARCH AND DEVELOPMENT EXPENSES	966,861	491,138
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	2,598,732	920,551
OPERATING LOSS	(3,565,593)	(1,360,231)

OTHER INCOME (EXPENSE):
Interest expense	(1,733,738)	(1,679,490)
Other income	-	24,708
Total other (expense), net	(1,733,738)	(1,654,782)

LOSS BEFORE INCOME TAXES	(5,299,331)	(3,015,013)

Income tax expense	-	-

NET LOSS	$(5,299,331)	$(3,015,013)

Basic and diluted loss per share	$(0.21)	$(0.16)

Weighted average shares of common stock outstanding- basic and diluted	25,208,726	18,409,902

	206-903-1351
	(Registrant's telephone number, including area code)



	(Former name, address, and fiscal year, if changed since last report)

	Series C Convertible		Series D Convertible				Additional		Total
	Preferred Stock		Preferred Stock		Common Stock		Paid in	Accumulated	Stockholders'
	Shares	$	Shares	$	Shares	$	Capital	Deficit	Deficit
Balance as of October 1, 2019	1,785,715	$1,790	1,016,004	$1,015	18,366,178	$18,366	$39,085,179	$(42,403,640)	$(3,297,290)
Stock compensation expense - employee options	-	-	-	-	-	-	175,442	-	175,442
Stock option exercise	-	-	-	-	73,191	73	(73)	-	-
Beneficial conversion feature	-	-	-	-	-	-	330,082	-	330,082
Issuance of warrants to debt holders	-	-	-	-	-	-	168,270	-	168,270
Issuance of warrants for services related to debt offering	-	-	-	-	-	-	160,427	-	160,427
Issuance of common stock for exercise of warrants	-	-	-	-	28,688	29	(29)	-	-
Net loss	-	-	-	-	-	-	-	(3,015,013)	(3,015,013)
Balance as of December 31, 2019	1,785,715	1,790	1,016,004	1,015	18,468,057	18,468	39,919,298	(45,418,653)	(5,478,082)

Balance as of October 1, 2020	1,785,715	1,790	1,016,004	1,015	24,804,874	24,807	54,023,758	(55,966,281)	(1,914,911)
Stock compensation expense - employee options	-	-	-	-	-	-	175,442	-	175,442
Conversion of debt offering and accrued interest (Note 9 and 11)	-	-	-	-	561,600	562	561,038	-	561,600
Issuance of warrant for services to related party	-	-	-	-	-	-	1,811,691	-	1,811,691
Issuance of common stock for exercise of warrants	-	-	-	-	3,750	4	4,684	-	4,688
Net loss	-	-	-	-	-	-	-	(5,299,331)	(5,299,331)
Balance as of December 31, 2020	1,785,715	$1,790	1,016,004	$1,015	25,370,224	$25,372	$56,576,613	$(61,265,612)	$(4,660,822)

	Three Months Ended,
	December 31, 2020	December 31, 2019

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$(5,299,331)	$(3,015,013)
Adjustments to reconcile net loss to net cash (used in)
operating activities
Depreciation and amortization	64,633	60,316
Stock based compensation- warrants	1,811,691	-
Stock based compensation- stock option grants	175,442	399,897
Amortization of debt discount	1,596,980	1,567,047
Right of use, net	(565)	458
Provision on loss on accounts receivable	-	40,000
Changes in operating assets and liabilities:
Accounts receivable	-	23,049
Prepaid expenses	-	1,243
Inventory	-	7,103
Accounts payable - trade and accrued expenses	230,150	91,575
NET CASH (USED IN) OPERATING ACTIVITIES	(1,421,000)	(824,325)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of research and development equipment	(9,633)	(15,357)
NET CASH (USED IN) INVESTING ACTIVITIES:	(9,633)	(15,357)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes payable	-	520,000
Proceeds from Simple Agreements for Future Equity	55,000	-
Payments for issuance costs from notes payable	-	(78,845)
Proceeds from issuance of common stock for warrant exercise	4,688	-
NET CASH PROVIDED BY FINANCING ACTIVITIES	59,688	441,155

NET DECREASE IN CASH AND CASH EQUIVALENTS	(1,370,945)	(398,527)

CASH AND CASH EQUIVALENTS, beginning of period	4,298,179	1,900,836

CASH AND CASH EQUIVALENTS, end of period	$2,927,234	$1,502,309

Supplemental disclosures of cash flow information:
Interest paid	$-	$-
Taxes paid	$-	$-

Non-cash investing and financing activities:
Beneficial conversion feature	$-	$330,082
Issuance of warrants to debt holders	$-	$168,270
Issuance of warrants for services related to debt offering	$-	$160,427
Cashless warrant exercise (fair value)	$-	$7,172
Cashless stock options exercise (fair value)	$-	$18,298
Conversion of debt offering	$520,000	$-
Conversion of accrued interest	$41,599	$-

Balance as of October 1, 2019	$-
Proceeds from issuance of SAFE	785,000
Fair value adjustment	-
Balance as of September 30, 2020	$785,000
Proceeds from issuance of SAFE	55,000
Fair value adjustment	-
Balance as of December 31, 2020	$840,000

	Estimated	December 31,	September 30,
KNWN-	Useful Lives	2020	2020
Machinery and equipment	2-3 years	$361,020	$355,272
Leasehold improvements	5 years	3,612	3,612
Furniture and fixtures	5 years	26,855	26,855
Software and websites		-	-
Less: accumulated depreciation		(278,044)	(257,068)
		$113,443	$128,671

Year	$
2021	$87,463
2022	17,917
Imputed interest	(6,241)
Total lease liability	$99,139

	December 31, 2020	September 30, 2020
Convertible note- Clayton A. Struve	$1,071,000	$1,071,000
Convertible note- Ronald P. Erickson and affiliates	1,184,066	1,184,066
2019 Convertible notes	4,242,490	4,242,490
Q1 2020 Convertible notes	520,000	520,000
Q2 2020 Convertible notes	195,000	195,000
Q3 2020 Convertible notes	4,924,500	4,924,500
Boustead fee refund (originally booked as contra debt)	50,000	50,000
Less conversions of 2019 and 2020 notes	(4,762,490)	(4,242,490)
Less debt discount - BCF	(1,237,832)	(2,127,894)
Less debt discount - warrants	(595,743)	(1,025,512)
Less debt discount - warrants issued for services	(546,433)	(823,582)
	$5,044,558	$3,967,578

	December 31, 2020
		Weighted
		Average
		Exercise
	Shares	Price
Outstanding at beginning of period	20,016,367	$0.556
Issued	2,000,000	1.530
Exercised	-	-
Forfeited	-	-
Expired	-	-
Outstanding at end of period	22,016,367	$0.644
Exerciseable at end of period	22,016,367

Dividend yield	0%
Expected life	3 years
Expected volatility	140%
Risk free interest rate	0.4%

	Weighted Average
	Options	Exercise Price	$
Outstanding as of September 30, 2018	2,182,668	$1.698	$3,706,519
Granted	2,870,000	2.615	7,504,850
Exercised	-	-	-
Forfeitures	(520,000)	(3.906)	(2,031,000)
Outstanding as of September 30, 2019	4,532,668	2.025	9,180,369
Granted	3,085,000	1.142	3,522,400
Exercised	(73,191)	(0.250)	(18,298)
Forfeitures	(2,739,477)	(2.593)	(7,103,921)
Outstanding as of September 30, 2020	4,805,000	1.161	5,580,550
Granted	8,135,745	1.525	12,407,090
Exercised	(3,750)	(1.250)	(4,688)
Forfeitures	-	-	-
Outstanding as of December 31, 2020	12,936,995	$1.390	$17,982,952

	December 31, 2020
	Weighted	Weighted		Weighted
	Average	Average		Average
Number of	Remaining	Exercise	Shares	Exercise
Warrants	Life ( In Years)	Price	Exerciseable	Price
13,133,286	1.52	$0.250	13,133,286	$0.250
714,286	0.58	0.700	714,286	0.700
882,159	0.87	1.000	882,159	1.000
7,191,636	4.25	1.20-1.50	7,191,636	1.20-1.50
95,000	3.94	2.00-4.08	95,000	2.34-4.08

22,016,367	3.27	$0.644	22,016,367	$0.644

		Weighted	Weighted		Weighted
		Average	Average		Average
Range of	Number	Remaining Life	Exercise Price	Number	Exercise Price
Exercise Prices	Outstanding	In Years	Outstanding	Exerciseable	Exerciseable
$0.25	230,000	2.45	$0.250	129,375	$0.250
1.10-1.25	3,076,250	3.89	1.05	340,729	1.104
1.28-1.52	9,495,745	3.89	1.50	773,646	1.310
1.79-2.25	135,000	3.01	2.13	71,875	2.145
	12,936,995	3.84	$1.390	1,315,625	$1.294

		Weighted			Weighted
		Average	Weighted		Average
Range of	Number	Remaining Life	Average	Number	Exercise Price
Exercise Prices	Outstanding	In Years	Exercise Price	Exerciseable	Exerciseable
$0.10	5,100,000	4.51	$0.10	1,000,000	$0.10
0.80	200,000	4.77	$0.80	-	-

	5,300,000	4.52	$4.52	1,000,000	$0.10

			Segment
		Gross	Operating	Segment
Segment	Revenue	Margin	Profit (Loss)	Assets
Three Months Ended December 31, 2020
Development of the Bio-RFID™” and “ChromaID™” technologies	$-	$-	$(3,190)	$3,158
Particle, Inc. technology	-	-	(375)	66
TransTech distribution business	-	-	-	-
Total segments	$-	$-	$(3,565)	$3,224

Three Months Ended December 31, 2019
Development of the Bio-RFID™” and “ChromaID™” technologies	$-	$-	$(1,393)	$2,077
TransTech distribution business	117	51	32	18
Total segments	$117	$51	$(1,361)	$2,095

Warrant No./Class	Issue Date	No. Warrant Shares	Exercise Price	Original Expiration Date	Amended Expiration Date
Clayton Struve Warrant Series C Warrant W98	08-04-2016	1,785,715	$0.25	08-04-2021	08-04-2023
Clayton Struve Warrant Series F Warrant F-1	11-14-2016	187,500	$0.25	11-13-2021	11-13-2023
Clayton Struve Warrant Series F Warrant F-2	12-19-2016	187,500	$0.25	12-18-2021	12-18-2023

	Three Months Ended December 31,
	2020	2019	$ Variance	% Variance

Revenue	$-	$117	$(117)	-100.0%
Cost of sales	-	66	(66)	100.0%
Gross profit	-	51	(51)	-100.0%
Research and development expenses	967	491	476	-96.9%
Selling, general and administrative expenses	2,598	921	1,677	-182.1%
Operating loss	(3,565)	(1,361)	(2,204)	-161.9%
Other (expense) income:
Interest expense	(1,734)	(1,679)	(55)	-3.3%
Other income (expense)	-	25	(25)	-100.0%
Total other income (expense)	(1,734)	(1,654)	(80)	-4.8%
(Loss) before income taxes	(5,299)	(3,015)	(2,284)	-75.8%
Income taxes - current (benefit)	-	-	-	0.0%
Net (loss)	$(5,299)	$(3,015)	$(2,284)	-75.8%

		Less Than			Greater Than
Contractual Cash Obligations (1)	Total	1 Year	1-3 Years	3-5 Years	5 Years
Operating leases	$99,038	$84,437	$14,601	$-	$-
Convertible notes payable	7,424,566	7,424,566	-	-	-
	$7,523,604	$7,509,003	$14,601	$-	$-

●	any of our existing patents will continue to be held valid, if challenged;
●	patents will be issued for any of our pending applications;
●	any claims allowed from existing or pending patents will have sufficient scope or strength to protect us;
●	our patents will be issued in the primary countries where our products are sold in order to protect our rights and potential commercial advantage; or
●	any of our products or technologies will not infringe on the patents of other companies.

	●	Announcements by us regarding liquidity, significant acquisitions, equity investments and divestitures, strategic relationships, addition or loss of significant customers and contracts, capital expenditure commitments and litigation;
	●	Issuance of convertible or equity securities and related warrants for general or merger and acquisition purposes;
	●	Issuance or repayment of debt, accounts payable or convertible debt for general or merger and acquisition purposes;
	●	Sale of a significant number of shares of our common stock by stockholders;
	●	General market and economic conditions;
	●	Quarterly variations in our operating results;
	●	Investor and public relation activities;
	●	Announcements of technological innovations;
	●	New product introductions by us or our competitors;
	● ●	Competitive activities; Low liquidity; and
	●	Additions or departures of key personnel.

Exhibit No.	Description

3.1	Restatement of the Articles of Incorporation dated September 13, 2013 (incorporated by reference to the Company’s Current Report on Form 8-K/A2, filed September 17, 2013)

3.2	Amended and Restated Bylaws (incorporated by reference to the Company’s Form 8-K, filed August 17, 2012)

3.3	Certificate of Amendment to the Restatement of the Articles of Incorporation dated June 11, 2015 (incorporated by reference to the Company’s Current Report on Form 8-K, filed June 17, 2015)

3.4	Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock (incorporated by reference to the Company’s Current Report on Form 8-K, filed August 11, 2016)

3.5	Form of Series C Convertible Preferred Stock 2016 (incorporated by reference to the Company’s Registration Statement on Form S-1, filed September 1, 2016)

3.6	Certificate of Correction and Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock (incorporated by reference to the Company’s Amended Current Report on Form 8-K/A, filed January 9, 2017)

3.7	Certificate of Designations, Preferences and Rights of Series D Convertible Preferred Stock (incorporated by reference to the Company’s Current Report on Form 8-K, filed on February 10, 2017)

3.8	Amended and Restated Certificate of Designations, Preferences and Rights of Series D Convertible Preferred Stock. (incorporated by reference to the Company’s Current Report on Form 8-K, filed May 5, 2017)

3.9	Second Amended and Restated Certificate of Designations, Preferences and Rights of Series D Convertible Preferred Stock (incorporated by reference to the Company’s Current Report on Form 8-K, filed July 19, 2018)

3.10	Articles of Merger (incorporated by reference to the Company’s Current Report on Form 8-K, filed May 3, 2018)

3.11	Second Amended and Restated Certificate of Designations, Preferences and Rights of Series D Convertible Preferred Stock (incorporated by reference to the Company’s Current Report on Form 8-K, filed July 20, 2018)

3.12	Certificate of Designation of Series F Preferred Stock (incorporated by reference to the Company’s Current Report on Form 8-K, filed August 3, 2018)

4.1	2011 Stock Incentive Plan (incorporated by reference to the Company’s Definitive Proxy Statement on Schedule 14A, filed January 11, 2013)

10.1	Form of Preferred Stock and Warrant Purchase Agreement, Form of Amended and Restated Registration Rights Agreement. and Form of Series F Warrant to Purchase Common Stock by and between Visualant, Incorporated and Clayton A. Struve (incorporated by reference to the Company’s Current Report on Form 8-K, filed May 5, 2017)

10.2	Securities Purchase Agreement dated August 14, 2017 by and between Visualant, Incorporated and accredited investor (incorporated by reference to the Company’s Current Report on Form 8-K, filed August 18, 2017)

10.3	Senior Secured Convertible Redeemable Debenture dated December 12, 2017 by and between Visualant, Incorporated and accredited investor. (incorporated by reference to the Company’s Current Report on Form 8-K, filed December 22, 2017)

10.4	Senior Secured Convertible Redeemable Debenture dated February 28, 2018 by and between Visualant, Incorporated and accredited investor. (incorporated by reference to the Company’s Current Report on Form 8-K, filed March 7, 2018)

10.5	Note and Account Payable Conversion Agreement and related notes and warrants dated January 31, 2018 by and between Visualant, Incorporated and J3E2A2Z LP (incorporated by reference to the Company’s Current Report on Form 8-K, filed March 21, 2018)

10.6	Employment Agreement dated April 10, 2018 by and between Visualant, Incorporated and Phillip A. Bosua. (incorporated by reference to the Company’s Annual Report on Form 10-K, filed December 21, 2018)

10.7	Amended Employment Agreement dated April 10, 2018 by and between Visualant, Incorporated and Ronald P. Erickson. (incorporated by reference to the Company’s Annual Report on Form 10-K, filed December 21, 2018)

10.8	Agreement and Plan of Merger, dated as of April 10, 2018, by and among Visualant, Incorporated, 500 Union Corporation, and RAAI Lighting, Inc. (incorporated by reference to the Company’s Annual Report on Form 10-K, filed December 21, 2018)

10.9	Certificate of Merger, dated as of April 10, 2018, by 500 Union Corporation (incorporated by reference to the Company’s Current Report on Form 8-K, filed April 17, 2018)

10.10	Form of Securities Purchase Agreement (incorporated by reference to the Company’s Current Report on Form 8-K, filed March 6, 2019)

10.11	Form of Subscription Agreement, Subordinated Convertible Note, Common Stock Purchase Warrant, Subordination and Registration Rights Agreement (incorporated by reference to the Company’s Current Report on Form 8-K, filed March 6, 2019)

10.12	Amendment 3 dated May 12, 2020 to Convertible Redeemable Promissory Note dated January 31, 2018 by and between Know Labs, Inc. and J3E2A2Z LP. (incorporated by reference to the Company’s Current Report on Form 8-K, filed May 13, 2020)

10.13	Amendment 3 dated May 12, 2020 to Convertible Redeemable Promissory Note dated January 31, 2018 by and between Know Labs, Inc. and J3E2A2Z LP. (incorporated by reference to the Company’s Current Report on Form 8-K, filed May 13, 2020)

10.14	Amendment 3 dated May 11, 2020 to Senior Secured Convertible Redeemable Note dated September 30, 2016 by and between Know Labs, Inc. and Clayton A. Struve. (incorporated by reference to the Company’s Current Report on Form 8-K, filed May 15, 2020)

10.15	Amendment 3 dated May 11, 2020 to Senior Secured Convertible Redeemable Note dated August 14, 2017 by and between Know Labs, Inc. and Clayton A. Struve. (incorporated by reference to the Company’s Current Report on Form 8-K, filed May 15, 2020)

10.16	Amendment 3 dated May 11, 2020 to Senior Secured Convertible Redeemable Note dated December 12, 2017 by and between Know Labs, Inc. and Clayton A. Struve. (incorporated by reference to the Company’s Current Report on Form 8-K, filed May 15, 2020)

10.17	Amendment 2 dated May 11, 2020 to Senior Secured Convertible Redeemable Note dated February 28, 2018 by and between Know Labs, Inc. and Clayton A. Struve. (incorporated by reference to the Company’s Current Report on Form 8-K, filed May 15, 2020)

14.1	Code of Ethics dated November 2018 (incorporated by reference to the Company’s Current Report on Form 8-K, filed November 27, 2018)

99.1	Audit Committee Charter dated November 2018 (incorporated by reference to the Company’s Current Report on Form 8-K, filed November 27, 2018)

99.2	Compensation Committee Charter dated November 2018 (incorporated by reference to the Company’s Current Report on Form 8-K, filed November 27, 2018)

99.3	Nominations and Corporate Governance Committee Charter dated November 2018 (incorporated by reference to the Company’s Current Report on Form 8-K, filed November 27, 2018)


Date: February 16, 2021	By:	/s/ Phillip A Bosua
		Phillip A. Bosua
		Chief Executive Officer, and Director
		(Principal Executive Officer)


Date: February 16, 2021	By:	/s/ Ronald P. Erickson
		Ronald P. Erickson
		Interim Chief Financial Officer, and Treasurer
		(Principal Financial and Accounting Officer)