Greetings. Welcome to the Know Labs Fiscal Year 2023 Third Quarter Earnings Conference Call. Please note, this conference call is being recorded. I will now turn the conference over to Jordyn Hujar, Know Labs’ Chief of Staff. You may begin..

Thank you, operator. Thank you, everyone, for joining us for today's conference call to review Know Labs third quarter of fiscal year 2023 financial results and recent operating highlights. If you have not seen today's financial results, press release and 10-Q filings, please visit the Investors page on the company's website at www.knowlabs.co.

Before turning the call over to Ron Erickson, Know Labs' Chairman and Chief Executive Officer, I would like to remind you that during this conference call, the company will make projections and forward-looking statements regarding future events. Any statements that are not historical facts are forward-looking statements.

We encourage you to review the company's SEC filings, including, without limitation, the company's Forms 10-K and 10-Q, which identify specific risk factors that may cause actual results or events to differ materially from those described in these forward-looking statements.

These factors may include, without limitation, risks inherent in the development and/or commercialization of potential diagnostic products, uncertainty in the results of clinical trials or regulatory approvals, the need to obtain third-party reimbursement for patients' use of any diagnostic products the company commercializes, our need and ability to obtain future capital and maintenance of IP rights.

risks inherent in strategic transactions such as failure to realize anticipated benefits, legal, regulatory or political changes in the applicable jurisdictions, accounting and quality controls, greater than estimated allocations of resources to develop and commercialize technologies or failure to maintain any laboratory accreditation or FDA certification.

Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. Know Labs expressly disclaims any intent or obligation to update these forward-looking statements, except as otherwise may be required under applicable law.

Today's call will be supported by a slide presentation, which will be shared through the webcast portal and can be downloaded from the Investors page on the company's website. This call will be followed by a Q&A session. Your questions can be submitted through the webcast portal, which can be accessed through our website.

We will not be taking questions over the phone during today's call. With that, I'll turn the call over to Ron Erickson, Know Labs' CEO.

Ron?.

data collection, data science and algorithm refinement, sensor and hardware characterization scientific validation. In addition, we will continue the strategic development of our intellectual property portfolio, our patents issued, pending and in development as well as codifying our trade secrets.

You shall also see more market activity from our team with more manuscripts published. As it relates to FDA clearance, shareholders often ask this when we will go to the FDA to commence clinical trials and ultimately obtain FDA clearance for our noninvasive blood glucose monitoring device. It's difficult to set forth exact dates.

We are inventing and developing new technology that has never been done before. As we expand data collection and testing conditions, we will continue to learn more about what needs to be addressed.

We must achieve a repeatable accurate standard of excellence with a market-ready product before undertaking clinical trials for the FDA clearance application. This takes time, but rest assured that as soon as we have high confidence in FDA clearance-related timelines, we'll share them with you.

We are executing the plan to deliver the first FDA-cleared truly noninvasive glucose monitoring device in the market and our broader vision to transform medical diagnostics through noninvasive means. 2023 has thus far been a year of change and significant investment for Know Labs.

Now I'd like to turn the call to Pete Conley, who will review our financials..

Thank you, Ron. We detailed the financial results in today's third quarter earnings release, which as noted by Jordyn, you can find on our website, and I will share a few key line items.

Know Labs reported a net loss of $3.59 million in the third quarter of 2023 compared to a net loss of $3.03 million in the year-ago period, which translates to earnings per share of a loss of $0.07, unchanged from the year-ago period of a loss of $0.07, and this is before preferred stock dividends.

In the third quarter, we also recorded a noncash charge to earnings of $4.96 million related to the fair market value of dividends on our Series C and D preferred stock that were either paid or accrued in shares of common stock in the quarter.

Research and development expense for the third quarter was $1.87 million as compared to $1.27 million in 2022, an increase of 48% year-over-year.

The increase in R&D expense was related to increases in engineering, third-party technical services and expenditures related to the development of our Generation 1 device, which we completed and announced on June 7, as we continue to execute our path to FDA clinical trials and commercialization.

Selling, general and administrative expenses for the third quarter was $1.35 million, which was sequentially lower by $890,000 than the $2.24 million in the second quarter as well as lower than the year-ago period of $1.58 million as we continue our initiatives to reduce our cash burn. Turning now to the balance sheet.

As of June 30, 2023, we had cash and cash equivalents of $3.93 million as compared to $12.59 million at the end of September 30, 2022. Net cash used in operations for the 9-month period ending June 30, 2023, was $8.97 million compared to $3.69 million in the prior year.

During the quarter that ended June 30, 2023, the company made adjustments to its fixed expenses and the impact of those adjustments has significantly reduced our monthly burn rate.

Given the significant reduction in fixed expenses, the company believes that it has enough available cash and the flexibility with its operating expenses to operate until at least December 2023.

As we have stated in our third quarter 10-Q, during 2023 we expect to raise additional funds through the issuance of preferred stock, convertible debentures and equity. That concludes my review of our financial highlights and I'll return the call to Ron for closing remarks..

Thanks, Pete. We'll now dedicate the next 10 to 15 minutes to questions submitted through the web portal. The first question is what MARD level would be needed to seek FDA approval? How long would the sample take to move forward? As we indicated, we are working on MARD that is under 10%.

And we think when we get into that range, that's a range sufficient to allow us to go forward and seek FDA approval. How long would the sample take to move? I'm not sure exactly what that question means.

Pete?.

Yes, I think it's important to note -- it's important to look at the size of the sample as much as it is what the absolute MARD number is.

And to really reach a degree of clinical accuracy required by the FDA, it requires both a MARD under 10%, combined with a very broad population that's being tested, broad in terms of age, gender, geographic diversity, biological diversity and so forth. And it's the combination that will position us for the FDA..

Now the next question really is sort of a follow-up on that, Pete, and covers some of the same territory. The question is, what's the timeline for additional measures we pointed out, i.e., diverse populations, environmental factors, skin thickness, hair sweat [indiscernible] pigmentation.

These additional measures, these additional, I'm going to say, features of the population are being factored in the [LF 30] study that I referenced in my remarks, the one using venous blood is a gold standard as a comparison or reference.

And this is going to include people with diabetes, pre-diabetes and we're looking at all those other -- as many of those other variables as possible in the [LF 30] study..

We have a question here. Any concerns with being removed from the NYSE due to a sub-$1 share price? The NYSE American continued listing criteria does not specify a minimum share price. What it does specify is a minimum market cap.

And based on the shares outstanding as of our June 30, 2023 10-Q, which is 52.3 million shares, we meet the $50 million minimum market cap at a share price of $0.95. And it's not a single-day criteria. The NYSE looks at the range of our share price over a period of time.

So this is something, obviously, we pay close attention to, and we are committed to ensuring compliance with the continued listing requirement. Market cap is not something we can directly control, but we are very aware of it..

Another question. With the stock at 4-year lows despite all the latest advancements of the technology, what's the company doing to build confidence among outside investors whose confidence is reflected in the stock price? It's interesting. I think we are impacted by broader market forces.

I think one of the things those of you who are shareholders, and we're shareholders here in the room in Seattle, I think we all have seen what's happened in the broader market, especially in the, I'd say, the microcap space, technology-related microcap companies, biotherapeutics, biopharma and med device companies.

That being said, our focus is to just stay the course, keep doing what we're doing, staying focused on what we're doing. We have a very clear road map. As we addressed today, we're making significant progress, and we have over the last 6 months. We're going to continue to do our clinical research under these various IRB protocols.

We're going to continue to report the results as we have been with complete transparency. We're building the IP portfolio, where we've got Gen 1. We're working on Gen 2. Continue to build and further cement our position as a leader in the area of noninvasive blood glucose monitoring.

And at the same time we do everything we can in terms of investor relations, getting the word out. I think one of the things that's noteworthy, since we uplisted on the New York Stock Exchange that we've had somewhere in the neighborhood of 25 institutions begin to accumulate our stock. We had 0 institutions before we did the uplist.

So what we want to do is with results, be results-oriented and continue to do what we're doing. And we believe the stock price will take care of itself. We don't like it where it is to date. No doubt.

Pete, do you want to amplify that?.

Ron, if I could add to your comments to the specific question, what is the company doing to build confidence. And I think if you go visit our website and look at the research and validation section of the website, you will see something that I don't think any of the other companies in our sector do. We publish our clinical studies.

We publish our posters. We publish our manuscripts. When you review these documents, we very clearly educate the market as to what we're doing. And through that education, one can see that what we're doing is quite different from anybody else. And so as Ron indicated earlier, we are committed to education.

We are committed to transparency and these papers, I think, inform investors. And I think an informed investor can become a confident investor if one studies the differences, and they're quite apparent. Next question, how did the company utilize the Gen 1 device? Well, the Gen 1 device now was announced about 2 months ago.

We are using the device actively in our testing. We are actively conducting testing with the Gen 1 in parallel with ongoing clinical research using our stationery lab system. And the parallel path is the best practice when introducing new environmental and human factors of the testing protocol. And there's a follow-on question.

How many Gen 1 devices have been constructed and sent out for use in the real world? As we sit here and speak now, about a dozen units have been built. We have a component inventory to build 100. We anticipate reaching that number somewhere towards the end of the year or early 2024.

Once we get to what we would consider a characterized sensor with the appropriate algorithms, we will begin to have external testing. We would expect the first external testers at the end of the year, beginning of 2024..

I think I want to just add something about the Gen 1 devices by the way, and you saw a video, you saw the video in June. Those are all hand-built, right? Everyone's hand-built. We're now doing work, as I indicated earlier, on Gen 2. Gen 2 will be designed for manufacturing.

And that will be done in concert with our manufacturing partner, RaySearch technologies that we've spoken of in the past. So that's a very different circumstance.

When you're designing something for manufacturing where they have the opportunity to do significant unit volume, and that's the product Gen 2 that is likely to be the product that would then find its way ultimately the FDA trials and into the marketplace because you could build unit volume. These are hand-built.

And these are really -- the Gen 1, it's about the size of a mouse. You've all seen pictures of it, and you've seen kind of how it relates to the size of a human hand, if you will. That's really a sort of a research lab in your pocket. That real focus is for gathering data. And so they're robust and they're hand-built..

Here we have another question. On the last call, it was suggested you had enough cash through next February 2024. Now it's December of this year. So that's a 2-month delta between the 2 and $800,000 burn. It's $1.6 million.

If you go through our financials in the 10-Q that was released today, you'll see in the quarter just reported that R&D expense increased 48% year-over-year, in dollar terms a $606,000 increase year-over-year. And what that reflects is the accelerated rate of development from Gen 1. As Ron just indicated, we're already working on Gen 2.

And so we believe that accelerating the development of our products, accelerating the filing of our patents, again, as Ron noted, in the first 6 months this year, we have increased our patent portfolio 70%. And so we believe that that's the best use of the capital that we have. There's another related question here.

How will Know Labs fund the operations of the company? In the 10-Q in the liquidity section, we talk about the fact that right now, we are underway on a capital financing plan for the balance of 2023. And we believe that we'll have the funds to execute our plan.

Question, are you in communication with companies in which Know Labs could joint venture with in the future? In other words, any interest by large companies? We have not commented on this specifically nor publicly..

How many employees have been hired or lost since Gen 1 came out in June? We haven't lost any employees. We have 11 full-time employees, 11 FTEs..

Does AI help Know Labs get the MARD lower? When is the MARD of sub 10% projected to be accomplished? We utilize AI and utilize machine learning in developing our algorithms, which will impact MARD. But the biggest determinant of MARD is the size of the data set. And we are increasing our cohorts. Now as Ron indicated, we are underway of LF 30.

We anticipate going to LF 50 and then LF 100. If one wants to get a sense of what kind of data is required to have a FDA-cleared product, you can download Dexcom's G7 summary decision from the FDA. And Dexcom achieved their MARD dreams on a population of LF 430..

We appreciate very much everyone's questions and active engagement. As we indicated earlier, we try to be available both to e-mail inquiries and phone calls. So don't hesitate to stay in touch. We try to be responsive. This will conclude our Q&A. Thank you to everyone for joining us today.

There's a lot to look forward to here in the balance of 2023, and we're excited to report on our progress. We appreciate your support. And I also want to acknowledge the incredible effort of our team of really talented employees. And not just our employees, we have 11 employees, as we indicated.

But we have people working with us, engineering, machine learning, product design and development that are -- they're external to the company, but they are every bit as committed and excited to be part of this journey we're on. I want to thank them as well. Thank all of you who are shareholders and supporters. We appreciate it very much.

Thank you all and have a great day..

The conference call replay will be available on our website in the coming days. Thank you for your participation..

This does conclude today's teleconference. You may disconnect your lines at this time. Enjoy the rest of your day..