UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

 

Filed by the Registrant ☒

Filed by a Party other than the Registrant ☐

 

Check the appropriate box:

☐	Preliminary Proxy Statement
☐	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
☒	Definitive Proxy Statement
☐	Definitive Additional Materials
☐	Soliciting Material Pursuant to Rule 14a-12

 

KNOW LABS, INC.

(Name of Registrant as Specified in Its Charter) 

 

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Copies of all communications to:

 

Lockett + Horwitz, A Professional Law Corporation

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Lake Forest, CA 92630

(949) 540-6540, (949) 540-6578 (fax)

_______________________________________________________

 

 

 

KNOW LABS, INC.

500 Union Street, Suite 810

Seattle, WA 98101

206-903-1351

 

September 1, 2021

 

Dear Stockholders:

  

You are cordially invited to attend the 2021 Annual Meeting of Shareholders of Know Labs, Inc. (the “Company”) and any adjournments or postponements thereof (the “Annual Meeting”). The Annual Meeting will be held on Friday, October 15, 2021 at 1:00 p.m., Pacific time. In light of the ongoing COVID-19 pandemic, this year’s Annual Meeting will be a completely virtual meeting, which will be conducted via live webcast on the Internet, providing a consistent experience to all shareholders regardless of location. You will be able to attend the meeting online, vote your shares electronically and submit your questions during the Annual Meeting by visiting www.virtualshareholdermeeting.com/knwn2021. There will not be a physical meeting and you will not be able to attend the Annual Meeting in person. Details regarding how to participate in the meeting online and the business to be conducted at the Annual Meeting are more fully described in the accompanying proxy statement.

Shareholders of record at the close of Business on August 20, 2021 are entitled to notice of and are cordially invented to, attend this virtual Annual Meeting, or any adjournments or postponements thereof.

 

YOUR VOTE IS IMPORTANT.  Whether or not you plan to attend the virtual Annual Meeting, we request that you submit your vote via the Internet, telephone or mail. To ensure that your vote is recorded promptly, please vote as soon as possible, even if you plan to attend the meeting, by submitting your proxy by telephone, via the Internet at the address listed on the Internet Notice or proxy card or, if you received paper copies of these materials, by signing, dating and returning the proxy card, which requires no postage if mailed in the United States. Note that in light of possible disruptions in mail service related to the COVID-19 pandemic, we encourage stockholders to submit their proxy via the Internet or telephone. 

 

This notice, the attached proxy statement, and the Company’s Annual Report on Form 10-K for the fiscal year ending September 30, 2020 will be first transmitted to shareholders on or about  September 1, 2021.

 

	By order of the Board of Directors,
	/s/ Ronald P. Erickson
	Ronald P. Erickson
	Chairman and Interim Chief Financial Officer

 

Seattle, Washington

September 1, 2021

 

 

 

KNOW LABS, INC.

500 Union Street, Suite 810

Seattle, WA 98101

206-903-1351

 

Notice of the 2021 Annual Meeting of Stockholders

 

Date:	October 15, 2021
Time:	1:00 p.m. Pacific
Location:	www.virtualshareholdermeeting.com/knwn2021
Proposals:	1.          To elect five nominees to serve on the Board until the 2022 Annual Meeting of Stockholders;   2.         To approve an amendment to the Company’s Articles of Incorporation to increase the authorized shares of common stock (“Common Stock”) from 100,000,000 to 200,000,000 shares;   3. To authorize and approve that the Company’s current Bylaws, as amended to date (the “Current Bylaws”), be amended, restated, and replaced in its entirety by the Second Amended and Restated Bylaws in the form attached hereto as Appendix A (the “Amended and Restated Bylaws”);   4. To adopt and approve the 2021 Equity Incentive Plan, as described in the accompanying proxy statement and set forth in Appendix B thereto;   5. To ratify the appointment of BPM, LLP of Walnut Creek, CA as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2020 and 2021;   6. To transact such other business that may properly come before the Annual Meeting and at any adjournments thereof.
Who Can Vote:	Stockholders of record at the close of business on August 20, 2021.
How You Can Vote:	IMPORTANT NOTICE REGARDING INTERNET AVAILABILITY OF PROXY MATERIALS   This proxy statement and our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, are available on the Internet at www.virtualshareholdermeeting.com/knwn2021.  The Annual Report includes our audited consolidated financial statements for the fiscal year ended September 30, 2020.
	It is important that your shares be represented and voted at the meeting. You can vote your shares via the Internet or telephone or by mail by completing and returning the accompanying proxy card in the accompanying self-addressed envelope. Voting instructions are printed on the proxy card. You may revoke a proxy at any time before its exercise at the meeting by following the instructions in the accompanying proxy statement.

By authorization of the Board of Directors,

 

Ronald P. Erickson

Chairman

Seattle, WA

September 1, 2021

Your Vote Is Important. Whether You Own One Share or Many, Your Prompt Cooperation in Voting Your Proxy is Greatly Appreciated.

 

 

PROXY STATEMENT

FOR THE

2021 ANNUAL MEETING OF STOCKHOLDERS

OF

KNOW LABS, INC.

 

Our Board of Directors (the “Board of Directors” or “Board”) has made this Proxy Statement and related materials available to you on the Internet, or at your request has delivered printed versions to you by mail, in connection with the Board of Directors’ solicitation of proxies for our 2021 Annual Meeting of Stockholders (the “Annual Meeting”), and any adjournment of the Annual Meeting. If you requested printed versions of these materials by mail, they will also include a proxy card for the Annual Meeting. This Proxy Statement and related materials will be released on or about September 1, 2021 to our stockholders on the Record Date. 

Pursuant to rules adopted by the Securities and Exchange Commission (“SEC”), we are providing access to our proxy materials over the Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials (the “Notice”) to our stockholders of record and beneficial owners as of the record date identified below. The mailing of the Notice to our stockholders is scheduled to begin by September 1, 2021. 

IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL STOCKHOLDERS MEETING TO BE HELD ON October 15, 2021: This proxy statement, the accompanying proxy card or voting instruction card and our 2020 Annual Report on Form 10-K are available www.proxyvote.com and on our website at www.knowlabs.co/investors

In this Proxy Statement, the terms the “Company,” “Know Labs,” “we,” “us,” and “our” refer to Know Labs, Inc. and our wholly owned subsidiary. The mailing address of our principal executive offices is 500 Union Street, Suite 810, Seattle, WA 98101.

 

 

What is a proxy?

 

A proxy is your legal designation of another person or persons (the “proxy”) to vote on your behalf. By completing and returning the enclosed proxy card, you are giving the Company the authority to vote your shares in the manner you indicate on your proxy card.

 

Why did I receive more than one proxy card?

 

You will receive multiple proxy cards if you hold your shares in different ways (e.g., joint tenancy, trusts, and custodial accounts) or in multiple accounts. If your shares are held by a broker (i.e., in “street name”), you will receive your proxy card or other voting information from your broker, and you will return your proxy card or cards to your broker. You should vote on and sign each proxy card you receive.

 How to Attend the Virtual Annual Meeting 

You may attend the Annual Meeting online only if you are a Know Labs’ stockholder who is entitled to vote at the Annual Meeting, or if you hold a valid proxy for the Annual Meeting. The Annual Meeting will be a completely virtual meeting and is scheduled to be held on October 15, 2021 at 1:00 Pacific time, via live webcast through the following link: www.virtualshareholdermeeting.com/knwn2021. You will need the 16-digit control number provided on the Notice of Internet Availability of Proxy Materials, on your proxy card (if applicable) or on the instructions that accompanied your proxy materials. You may attend the Annual Meeting, vote, and submit a question during the Annual Meeting by visiting www.virtualshareholdermeeting.com/knwn2021 and using our 16-digit control number. If you are not a stockholder of record but hold shares as a beneficial owner in “street name”, you should contact your bank or broker to obtain your 16-digit control number or otherwise vote through the bank or broker. If you lose your 16-digit control number, you may join the Annual Meeting as a “Guest” but you will be not able to vote, ask questions or access the list of stockholders as of the Record Date. The meeting webcast will begin promptly at 1:00 p.m., Pacific time. Online check-in will begin at 12:45 p.m. Pacific time, and you should allow ample time for check-in procedures.

 

 

Reasons for Virtual Annual Meeting 

In light of the ongoing COVID-19 pandemic, and as part of our effort to maintain a safe and healthy environment for our directors, members of management and stockholders who wish to attend the Annual Meeting, we believe that hosting a virtual meeting this year is in the best interest of the Company and its stockholders. A virtual meeting also enables increased stockholder attendance and participation because stockholders can participate from any location around the world. There will not be a physical meeting location and you will not be able to attend the meeting in person. 

 

Technical Difficulties 

We will have technicians ready to assist you with any technical difficulties you may have accessing the virtual meeting website. If you encounter any technical difficulties with the virtual meeting platform on the meeting date, please call the technical support number to be provided on the website portal used to access the virtual meeting. 

Question and Answer Session 

As part of the Annual Meeting, we will hold a live Q&A session, during which we intend to answer appropriate questions submitted by stockholders during the meeting that are pertinent to the Company and the meeting matters. The Company will endeavor to answer as many questions submitted by stockholders as time permits. Only stockholders that have accessed the Annual Meeting as a stockholder (rather than a “Guest”) by following the procedures outlined above in “How to Attend the Virtual Meeting” will be permitted to submit questions during the Annual Meeting. Each stockholder is limited to no more than two questions. Questions should be succinct and only cover a single topic. We will not address questions that are, among other things: 

 

 

 

 

 

 

 

 

 

Additional information regarding the Q&A session will be available in the “Rules of Conduct” available on the Annual Meeting webpage for stockholders that have accessed the Annual Meeting as a stockholder (rather than a “Guest”) by following the procedures outlined above in “How to Attend the Virtual Meeting”.

 

Voting Information

 

Who is qualified to vote?

 

You are qualified to receive notice of and to vote at the Annual Meeting if you own shares of common stock of the Company at the close of business on our record date of August 20, 2021.

 

 

What is the difference between a “stockholder of record” and a “street name” holder?

 

These terms describe how your shares are held. If your shares are registered directly in your name with American Stock Transfer and Trust Company, the Company’s transfer agent, you are a “stockholder of record.” If your shares are held in the name of a brokerage, bank, trust or other nominee as a custodian, you are a “street name” holder.

 

How do I vote my shares?

 

If you are a “stockholder of record,” you can vote your proxy by mailing in the enclosed proxy card. Please refer to the specific instructions set forth in the enclosed proxy card. If you hold your shares in “street name,” your broker/bank/trustee/nominee will provide you with materials and instructions for voting your shares.

Electronically At the Meeting 

This year’s Annual Meeting will be held entirely online to allow greater participation. Stockholders may participate in the Annual Meeting by visiting the following website at the time of the Annual Meeting: www.virtualshareholdermeeting.com/knwn2021. To participate in the Annual Meeting, you will need the 16-digit control number included on your Notice, on your proxy card or on the instructions that accompanied your proxy materials. Shares held in your name as the stockholder of record may be voted electronically during the Annual Meeting. Shares for which you are the beneficial owner but not the stockholder of record also may be voted electronically during the Annual Meeting. However, even if you plan to attend the Annual Meeting online, the Company recommends that you vote your shares as promptly as possible and in advance over the Internet (www.proxyvote.com) or telephone [(●)] so that your vote will be counted if you later decide not to attend the Annual Meeting. 

By Proxy 

If you do not wish to vote at the Annual Meeting or will not be participating in the online meeting, you may vote by proxy. You can vote by proxy over the Internet (www.proxyvote.com) or telephone [(●)] and by following the instructions provided in the Notice, or, if you requested printed copies of the proxy materials by mail, you can vote by mailing your proxy as described in the proxy materials. Internet and telephone voting facilities for stockholders of record will close at 11:59 p.m., eastern time, on October 14, 2021. If you complete and submit your proxy before the meeting, the persons named as proxies will vote the shares represented by your proxy in accordance with your instructions. If you submit a proxy without giving voting instructions, your shares will be voted in the manner recommended by the Board of Directors on all matters presented in this Proxy Statement, and as the persons named as proxies may determine in their discretion with respect to any other matters properly presented at the meeting. 

If any other matters are properly presented for consideration at the Annual Meeting, including, among other things, consideration of a motion to adjourn the Annual Meeting to another time or place (including, without limitation, for the purpose of soliciting additional proxies), the persons named in the enclosed proxy card and acting thereunder will have discretion to vote on those matters in accordance with their best judgment. We do not currently anticipate that any other matters will be raised at the Annual Meeting.

Revocability of Proxy 

You may revoke your proxy by (1) following the instructions on the Notice and entering a new vote by mail, over the Internet or via telephone before the Annual Meeting or (2) electronically attending the Annual Meeting and voting (although attendance at the Annual Meeting will not in and of itself revoke a proxy). Any written notice of revocation or subsequent proxy card must be received by our Secretary prior to the taking of the vote at the Annual Meeting. Such written notice of revocation or subsequent proxy card should be sent to our principal executive offices at Know Labs, Inc., 500 Union Street, Suite 810, Seattle, WA 98101, Attention: Corporate Secretary. 

 

 

If a broker, bank, or other nominee holds your shares, you must contact them in order to find out how to change your vote, or you may vote at the Annual Meeting by following the procedures described above.

 

What are the Board’s recommendations on how I should vote my shares?

The Board recommends that you vote your shares as follows:

	Proposal 1 —	FOR the election of all five nominees to serve on the Board until the 2022 Annual Meeting of Stockholders.
	Proposal 2 —	FOR amendment to the Company’s Articles of Incorporation to increase the authorized shares of Common Stock from 100,000,000 to 200,000,000 shares.
	Proposal 3 —	FOR adoption of the Second Amended and Restated Bylaws;
	Proposal 4 —	FOR approval and adoption of the 2021 Equity Incentive Plan;
	Proposal 5 —	FOR ratifying the appointment of BPM, LLP of Walnut Creek, CA as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2020 and 2021

 

How many votes are required to approve each proposal?

 

The table below summarizes the proposals that will be voted on, the vote required to approve each item and how votes are counted:

 

Proposal		Votes Required		Voting Options		Impact of “Withhold” or “Abstain” Votes		Broker Discretionary Voting Allowed / Impact of Broker Non-Votes
Proposal No. 1: To elect five directors to hold office until the next annual meeting of stockholders or until their successors are duly elected and qualified, subject to prior death, resignation, or removal.		The plurality of the votes cast. This means that the nominees receiving the highest number of affirmative (“FOR”) votes (among votes properly cast virtually or by proxy) will be elected as directors.		“FOR ALL” “WITHHOLD ALL” “FOR ALL EXCEPT”		None(1)		No(2) / None
Proposal No. 2: Increase in the authorized shares of common stock.		The affirmative vote of the holders of a majority of the total number of shares issued and outstanding as of the Record Date.		“FOR” “AGAINST” “ABSTAIN”		Against(4)		No (2) /Against )
Proposal No. 3: To authorize and approve that the Company’s current Bylaws, as amended to date, be amended, restated, and replaced in their entirety by the Second Amended and Restated Bylaws		The affirmative (“FOR”) vote of a majority of the votes cast by the stockholders present in person or represented by proxy at the 2021 Annual Meeting.		“FOR” “AGAINST” “ABSTAIN”		Against(4)		No(2) /None
Proposal No. 4: Adoption of 2021 Equity Incentive Plan		The affirmative (“FOR”) vote of a majority of the votes cast by the stockholders present in person or represented by proxy at the 2021 Annual Meeting.		“FOR” “AGAINST” “ABSTAIN”		Against(4)		No(2) /None
Proposal No. 5: Ratification of Appointment of Independent Registered Public Accounting Firm		The affirmative vote of the holders of a majority in voting power of the votes cast affirmatively or negatively (excluding abstentions) at the Annual Meeting by the holders entitled to vote thereon.		“FOR” “AGAINST” “ABSTAIN”		Against(4)		Yes(3) /N/A (as a routine matter there are no broker non-votes)

 

(1)	Votes that are “withheld” will have the same effect as an abstention and will not count as a vote “FOR” or “AGAINST” a director.
(2)	As this proposal is not considered a discretionary matter, brokers lack authority to exercise their discretion to vote uninstructed shares on this proposal.
(3)	As this proposal is considered a discretionary matter, brokers are permitted to exercise their discretion to vote uninstructed shares on this proposal.
(4)	A “Withhold” or “ABSTAIN” vote will have the effect of a vote “AGAINST” Proposals 2, 3, 4, and 5,

 

What if I do not specify how my shares are to be voted?

 

If you submit a proxy but do not indicate any voting instructions, the persons named as proxies will vote in accordance with the recommendations of the Board. The Board’s recommendations are set forth above, as well as with the description of each proposal in this Proxy Statement.

 

How are votes withheld, abstentions and broker non-votes treated?

 

Votes withheld and abstentions are deemed as “present” at the Annual Meeting, are counted for quorum purposes, and other than for Proposal 1, will have the same effect as a vote against the matter. Broker non-votes are possible with regard to Proposals 1, 2, 3, and 4, (all of which are considered routine by New York Stock Exchange (“NYSE”) interpretations that govern broker non-votes) and, while counted for general quorum purposes, are not deemed to be “present” with respect to any matter for which a broker does not have authority to vote. Broker non-votes will have no impact with regard to Proposals 1, 3, and 4. Broker non-votes will have the same impact as an “against” vote with regard to Proposal 2. Brokers have discretion to vote on Proposal 5 (as it is considered a routine matter by NYSE interpretations) so there will not be any broker non-votes with regard to that proposal.

 

What are “broker non-votes?”

 

A “broker non-vote” occurs when shares held by a broker in “street name” for a beneficial owner are not voted with respect to a proposal because (1) the broker has not received voting instructions from the stockholder who beneficially owns the shares and (2) the broker lacks the authority to vote the shares at their discretion.

 

Can I change my vote after I have mailed in my proxy card?

 

You may revoke your proxy by doing one of the following:

	●	By sending a written notice of revocation to the Secretary of the Company that is received prior to the Annual Meeting, stating that you revoke your proxy;
	●	By signing a later-dated proxy card and submitting it so that it is received prior to the Annual Meeting in accordance with the instructions included in the proxy card(s); or
	●	By attending the Annual Meeting and voting your shares in person.

 

Who will count the votes?

 

Representatives from the Company will count the votes and serve as our Inspector of Election. The Inspector of Election will be present at the Annual Meeting.

 

Who pays the cost of this proxy solicitation?

 

Proxies will be solicited by mail, and we will pay all expenses of preparing and soliciting such proxies. We have also arranged for reimbursement, at the rates suggested by brokerage houses, nominees, custodians and fiduciaries for the forwarding of proxy materials to the beneficial owners of shares held of record.

 

Is this Proxy Statement the only way that proxies are being solicited?

 

No. We have also arranged for brokerage houses, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of shares held of record. Our directors, officers and employees may also solicit proxies but such persons will not be specifically compensated for such services.

 

If you have any further questions about voting your shares or attending the Annual Meeting, please call the Company’s Investor Relations department at (206) 903-1351.

 

 

DIRECTORS AND EXECUTIVE OFFICERS

 

The following table sets forth, as of August 17, 2021, the name, age, and position of each executive officer and director and the tenure in office of each director of the Company.  

 

Identification of Directors and Executive Officers

 

The following table sets forth certain information about our current directors and executive officers:

 

Name	Age	Director/ Executive Officer
Directors-
Ronald P. Erickson	77	Chairman and Interim Chief Financial Officer (1)
Phillip A. Bosua	47	Chief Executive Officer and Director
Jon Pepper	69	Director (2)
Ichiro Takesako	62	Director
William A. Owens	81	Director (3)

 

(1) Chairman of the Nominating and Corporate Governance Committee.

(2) Chairman of the Audit Committee

(3) Chairman of the Compensation Committee

 

All directors hold office until their successors are duly appointed or until their earlier resignation or removal.

 

Background and Business Experience

 

Ronald P. Erickson has been a director and officer of Know Labs since April 2003. He was appointed as our CEO and President in November 2009 and as Chairman of the Board in February 2015. Previously, Mr. Erickson was our President and Chief Executive Officer from September 2003 through August 2004 and was Chairman of the Board from August 2004 until May 2011. Mr. Erickson stepped down as Chief Executive Officer on April 10, 2018.

 

A senior executive with more than 30 years of experience in the high technology, telecommunications, micro-computer, and digital media industries, Mr. Erickson was the founder of Know Labs. He is formerly Chairman, CEO and Co-Founder of Blue Frog Media, a mobile media and entertainment company; Chairman and CEO of eCharge Corporation, an Internet-based transaction procession company,  Chairman, CEO and Co-founder of GlobalTel Resources, a provider of telecommunications services; Chairman, Interim President and CEO of Egghead Software, Inc. a software reseller where he was an original investor; Chairman and CEO of NBI, Inc.; and Co-founder of MicroRim, Inc. the database software developer. Earlier, Mr. Erickson practiced law in Seattle and worked in public policy in Washington, DC and New York, NY. Additionally, Mr. Erickson has been an angel investor and board member of a number of public and private technology companies.  In addition to his business activities, Mr. Erickson is Chairman of the Board of Trustees of Central Washington University where he received his BA degree. He also holds a MA from the University of Wyoming and a JD from the University of California, Davis. He is licensed to practice law in the State of Washington.

 

Mr. Erickson is our founder and was appointed as a director because of his extensive experience in developing technology companies.

 

Phillip A. Bosua was appointed a director and Chief Executive Officer of the Company on April 10, 2018. Previously, Mr. Bosua served as our Chief Product Officer since August 2017 and we entered into a Consulting Agreement on July 7, 2017. From September 2012 to February 2015, he was the founder and Chief Executive Officer of LIFX Inc. (where he developed and marketed an innovative “smart” light bulb) and from August 2015 until February 2016 was Vice President Consumer Products at Soraa (which markets specialty LED light bulbs). From February 2016 to July 2017, Mr. Bosua was the founder and CEO of RAAI, Inc. (where he continued the development of his smart lighting technology).  From May 2008 to February 2013 he was the Founder and CEO of LimeMouse Apps, a leading developer of applications for the Apple App Store.

  

Mr. Bosua was appointed as a director because of his extensive experience in developing technology companies.

 

 

Ichiro Takesako has served as a director since December 28, 2012. Mr. Takesako has held executive positions with Sumitomo Precision Products Co., Ltd or Sumitomo since 1983. Mr. Takesako graduated from Waseda University, Tokyo, Japan where he majored in Social Science and graduated with a Degree of Bachelor of Social Science.

 

In the past few years, Mr. Takesako has held the following executive position in Sumitomo and its affiliates:

 

June 2008:	appointed as General Manager of Sales and Marketing Department of Micro Technology Division
April 2009:	appointed as General Manager of Overseas Business Department of Micro Technology Division in charge of M&A activity of certain business segment and assets of Aviza Technology, Inc.
July 2010:	appointed as Executive Director of SPP Process Technology Systems, 100% owned subsidiary of Sumitomo Precision Products then, stationed in Newport, Wales
August 2011:	appointed as General Manager, Corporate Strategic Planning Group
January 2013:	appointed as Chief Executive Officer of M2M Technologies, Inc., a company invested by Sumitomo Precision products
April 2013:	appointed as General Manager of Business Development Department, in parallel of CEO of M2M Technologies, Inc.
April 2014:	relieved from General Manager of Business Development Department and is responsible for M2M Technologies Inc. as its CEO

Mr. Takesako was appointed as a Director based on his previous position with Sumitomo and Sumitomo's previous significant partnership with the Company.

 

Jon Pepper has served as an independent director since April 2006. Mr. Pepper founded Pepcom in 1980, a company that become the industry leader at producing press-only technology showcase events around the country and internationally. He sold his stake in the corporation and retired as a partner at the end of 2018. Prior to that, Mr. Pepper started the DigitalFocus newsletter, a ground-breaking newsletter on digital imaging that was distributed to leading influencers worldwide. Mr. Pepper has been closely involved with the high technology revolution since the beginning of the personal computer era. He was formerly a well-regarded journalist and columnist; his work on technology subjects appeared in The New York Times, Fortune, PC Magazine, Men's Journal, Working Woman, PC Week, Popular Science and many other well-known publications. Pepper was educated at Union College in Schenectady, New York and the Royal Academy of Fine Arts in Copenhagen. He continues to be active in non-profit work and boards, and last year founded Mulberry Tree Films, a non-profit that supports independent high-quality documentary films.

 

Mr. Pepper was appointed as a director because of his marketing skills with technology companies. 

 

William A. Owens has served as an independent director since May 24, 2018. Mr. Owens is currently the co-founder and executive chairman of Red Bison Advisory Group, a company which identifies opportunities with proven enterprises in China, the Middle East, and the United States and creates dynamic partnerships focusing on natural resources (oil, gas and fertilizer plants), real estate, and information and communication technology. Most recently, he was the chairman of the board of CenturyLink Telecom, the third largest telecommunications company in the United States and was on the advisory board of SAP USA. Mr. Owens serves on the board of directors at Wipro Technologies and is a director of the following private companies: Humm Kombucha, a beverage company and Versium. Mr. Owens is on the advisory board of the following private companies: Healthmine, Platform Science, Sarcos, Sierra Nevada Corporation, and Vodi. Mr. Owens is on the board of trustees at EastWest Institute, Seattle University, and an advisor to the Fiscal Responsibility Amendment (CFFRA) Association which aims to establish a balanced budget amendment to the US Constitution. He is also a member of the Council of Foreign Relations.

 

From 2007 to 2015, Mr. Owens was the Chairman and Senior Partner of AEA Investors Asia, a private equity firm located in Hong Kong, and Vice Chairman of the NYSE for Asia. Mr. Owens also served as the Chairman of Eastern Airlines. He has served on over 20 public boards including Daimler, British American Tobacco, Telstra, Nortel Networks, and Polycom. Mr. Owens was the CEO/Chairman of Teledesic LLC, a Bill Gates/Craig McCaw company bringing worldwide broadband through an extensive satellite network and prior, was the President, COO/Vice Chairman of Science Applications International Corporation (SAIC). Mr. Owens has also served on the boards of the non-for-profit organizations; Fred Hutchinson Cancer Research Center, Carnegie Corporation of New York, Brookings Institution, and RAND Corporation.

 

 

Family Relationship

 

There are no family relationships between any of our directors or executive officers.

 

Board of Directors Committee Composition

 

The Board has three standing committees to facilitate and assist the Board in the execution of its responsibilities. The committees are currently the Audit Committee, the Nominating and Corporate Governance Committee, and the Compensation Committee. The Committees were formed in July 2010. The Audit and Compensation Committees are comprised solely of non-employee, independent directors. The Nominating and Corporate Governance Committee has two management directors, Ronald P. Erickson as Chairman and Phillip A. Bosua as a member. Charters for each committee are available on our website at www.knowlabs.co. The discussion below describes current membership for each of the standing Board committees.

 

				Nominations and
Audit		Compensation		Corporate Governance
Jon Pepper (Chairman)		William A. Owens (Chairman)		Ron Erickson (Chairman)
William A. Owens		Jon Pepper		Phillip A. Bosua
Ichiro Takesako		Ichiro Takesako		William A. Owens
				Jon Pepper

 

Related Party Transaction Approval Policy

 

While the Company does not current have a written policy regarding approval of transactions between the Company and a related party, our Board of Directors, as matter of appropriate corporate governance, reviews and approves all such transactions, to the extent required by applicable rules and regulations. Generally, management would present to the Board of Directors for approval at the next regularly scheduled Board of Directors meeting any related party transactions proposed to be entered into by us. The Board of Directors may approve the transaction if it is deemed to be in the best interests of our Shareholders and the Company.

 

CORPORATE GOVERNANCE

 

Code of Ethics

 

We have adopted conduct and ethics standards titled the code of ethics, which is available at www.knowlabs.co. These standards were adopted by our Board of Directors to promote transparency and integrity. The standards apply to our Board of Directors, executives and employees. Waivers of the requirements of our code of ethics or associated polices with respect to members of our Board of Directors or executive officers are subject to approval of the full board.

 

Audit Committee

 

Our Board of Directors established an audit committee in July 2010. Our audit committee provides assistance to the Board in fulfilling its responsibilities to our stockholders relating to: (1) maintaining the integrity of our financial reports, including our compliance with legal and regulatory requirements, (2) the independent auditor's qualifications and independence, (3) the performance of our internal audit function in cooperation with the independent auditors, and (4) the preparation of the report required by the rules of the SEC to be included in our annual proxy statement. Our audit committee is directly responsible for the appointment, compensation and oversight of the independent auditors (including the resolution of any disagreements between management and the independent auditors regarding financial reporting), approving in advance all auditing services, and approving in advance all non-audit services provided by the independent auditors. The independent auditors report directly to the committee. In addition, our audit committee is to review our annual and quarterly financial reports in conjunction with the independent auditors and financial management.

 

Our Board of Directors has adopted a written charter for the audit committee, a copy of which is available on our website at www.knowlabs.co.

 

 

Compensation Committee

 

Our Board of Directors established a compensation committee in July 2010. Our compensation committee is responsible for: (1) reviewing and approving goals and objectives underlying the compensation of our Chief Executive Officer, evaluating the CEO's performance in accordance with those goals and objectives, and determining and approving the CEO's compensation; (2) recommending to the board the compensation of executive officers other than the CEO, subject to board approval; (3) administering any incentive compensation and equity-based plans, subject to board approval; (4) preparing the compensation report required by the rules and regulations of the SEC for inclusion in our annual proxy statement; and (5) periodically reviewing the results of our executive compensation and perquisite programs and making recommendations to the board with respect to annual compensation (salaries, fees and equity) for our executive officers and non-employee directors.

 

Our Board of Directors has adopted a written charter for the compensation committee, a copy of which is available on our website at www.knowlabs.co.

 

Nominations and Governance Committee

 

Our Board of Directors established the nominations and governance committee in July 2010 for the purpose of: (1) assisting the board in identifying individuals qualified to become board members and recommending to the board the nominees for election as directors at the next annual meeting of stockholders; (2) assist the board in determining the size and composition of the board committees; (3) develop and recommend to the board the corporate governance principles applicable to us; and (4) serve in an advisory capacity to the board and the Chairman of the Board on matters of organization, management succession planning, major changes in our organizational and the conduct of board activities.

 

Our Board of Directors has adopted a written charter for the nominations and governance committee, a copy of which is available on our website at www.knowlabs.co.

 

Communication with our Board of Directors

 

Our stockholders and other interested parties may communicate with our Board of Directors by sending written communication in an envelope addressed to "Board of Directors" in care of the Secretary, 500 Union Street, Suite 810, Seattle, Washington 98101.

 

Director Independence

 

The Board has affirmatively determined that Mr. Pepper, Mr. Takesako and William A. Owens are each an independent director.  For purposes of making that determination, the Board used NASDAQ’s Listing Rules even though the Company is not currently listed on NASDAQ.

 

Board’s Role in Risk Oversight

 

Risk is inherent in every business. As is the case in virtually all businesses, we face a number of risks, including operational, economic, financial, legal, regulatory, and competitive risks. Our management is responsible for the day-to-day management of the risks we face. Our Board of Directors, as a whole and through its committees, has responsibility for the oversight of risk management.

 

In its oversight role, our Board of Directors’ involvement in our business strategy and strategic plans plays a key role in its oversight of risk management, its assessment of management’s risk appetite, and its determination of the appropriate level of enterprise risk. Our Board of Directors receives updates at least quarterly from senior management and periodically from outside advisors regarding the various risks we face, including operational, economic, financial, legal, regulatory, and competitive risks. Our Board of Directors also reviews the various risks we identify in our filings with the SEC and risks relating to various specific developments, such as acquisitions, debt and equity placements, and new service offerings.

 

 

 

 

Our board committees assist our Board of Directors in fulfilling its oversight role in certain areas of risk. Pursuant to its charter, the Audit Committee oversees the financial and reporting processes of our company and the audit of the financial statements of our company and provides assistance to our Board of Directors with respect to the oversight and integrity of the financial statements of our company, our company’s compliance with legal and regulatory requirements, the independent registered public accountant’s qualification and independence, and the performance of our independent registered public accountant. The Compensation Committee considers the risk of our compensation policies and practices and endeavors to assure that it is not reasonably likely that our compensation plans and policies would have a material adverse effect on our company. Our Nominations and Corporate Governance Committee oversees governance related risk, such as board independence, conflicts of interests, and management and succession planning.

 

Involvement in Certain Legal Proceedings

 

None of our directors or executive officers has, during the past ten years:

 

●

Had any petition under the federal bankruptcy laws or any state insolvency law filed by or against, or had a receiver, fiscal agent, or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

 

	●	Been convicted in a criminal proceeding or a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
	●	Been the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

 

	◦	Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
	◦	Engaging in any type of business practice; or
	◦	Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;

 

	●	Been the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any federal or state authority barring, suspending, or otherwise limiting for more than 60 days the right of such person to engage in any activity described in (i) above, or to be associated with persons engaged in any such activity;
	●	Been found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state securities law, where the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated; or
	●	Been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, where the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended, or vacated.

 

Compliance with Section 16(a) of the Exchange Act

 

Our executive officers, directors and 10% stockholders are required under Section 16(a) of the Exchange Act to file reports of ownership and changes in ownership with the SEC. Copies of these reports must also be furnished to us.

 

Based solely on a review of copies of reports furnished to us, as of September 30, 2020 our executive officers, directors and 10% holders complied with all filing requirements except as follows:

 

 

 

Jon Pepper filed a Form 4 on January 23, 2020 that was required to be filed on January 3, 2020.

Ichiro Takesako filed a Form 4 on January 23, 2020 that was required to be filed on January 3, 2020.

William A. Owens filed a Form 4 on January 23, 2020 that was required to be filed on January 3, 2020.

Phillip A. Bosua filed a Form 4 on January 23, 2020 that was required to be filed on January 3, 2020.

Ronald P. Erickson filed a Form 4 on January 23, 2020 that was required to be filed on January 3, 2020.

 

EXECUTIVE AND DIRECTOR COMPENSATION

  

The following table provides information concerning remuneration of the chief executive officer, the chief financial officer and another named executive officer for the fiscal years ended September 30, 2020 and 2019:

 

Summary Compensation Table

 

The following table provides information concerning remuneration of the chief executive officer, the chief financial officer and another named executive officer for the fiscal years ended September 30, 2020 and 2019:

     

							All
					Stock	Option	Other
			Salary	Bonus	Awards	Awards	Compensation	Total
Name	Principal Position		($)	($)	($) (3)	($)	($)	($)
Salary-
Ronald P. Erickson (1)	Chairman of the Board and Interim Chief Financial Officer	9/30/20	$243,333	$-	$190,000	$394,000	$-	$827,333
		9/30/19	$188,750	$-	$102,000	$-	$-	$290,750
Phillip A. Bosua (2)	Chief Executive Officer	9/30/20	$288,333	$-	$285,000	$394,000	$-	$967,333
		9/30/19	$233,750	$-	$-	$-	$-	$233,750

 

(1) Mr. Erickson’s annual compensation from October 1, 2018 to March 4, 2019 was $180,000, from March 5, 2019 to May 1, 2020, the annual compensation was $195,000, and from May 5, 2020 to September 30, 2020, the annual compensation was $215,000. The Compensation Committee and the Board of Particle, Inc. compensated Ronald P. Erickson with an annual salary of $120,000 from June 1, 2020. The 100,000 shares of restricted common stock issued on January 2, 2019 to Mr. Erickson were valued at the grant date market value of $1.02 per share. The 100,000 shares of restricted common stock issued on January 1, 2020 to Mr. Erickson were valued at the grant date market value of $1.90 per share. The stock grant was authorized at $0.17 per share. Mr. Erickson received a vested stock option grant from Particle for 500,000 Particle shares valued at $0.788 per share or $394,000. On August 15, 2021, in connection with the conversion of investor SAFE’s in Particle in exchange for shares of KNWN, Mr. Erickson voluntarily agreed to cancel all vested and non-vested option grants for Particle shares previously granted and to forego all rights to the Particle salary on a go forward basis.

 

(2)  Mr. Bosua’s annual compensation from October 1, 2018 to March 4, 2019 was $225,000, the annual compensation was $225,000, from March 5, 2019 to May 1, 2020, the annual compensation was $240,000, and from May 5, 2020 to September 30, 2020, the annual compensation was $260,000. The Compensation Committee and the Board of Particle, Inc. compensated Phillip A. Bosua with an annual salary of $120,000 from June 1, 2020. The 150,000 shares of restricted common stock issued on January 1, 2020 to Mr. Bosua were valued at the grant date market value of $1.90 per share. Mr. Bosua received a vested stock option grant from Particle for 500,000 Particle shares valued at $0.788 per share or $394,000.   On August 15, 2021, in connection with the conversion of investor SAFE’s in Particle in exchange for shares of KNWN, Mr. Bosua voluntarily agreed to cancel all vested and non-vested option grants for Particle shares previously granted and to forego all rights to the Particle salary on a go forward basis.

 

 

 

Grants of Stock Based Awards in Fiscal Year Then Ended September 30, 2020

 

The Compensation Committee approved the following performance-based incentive compensation to the Named Executive Officers during the year ended September 30, 2020.

 

										All Other
									All Other	Option Awards;
			Estimated Future Payouts Under			Estimated Future Payouts Under			Stock Awards;	Number of	Exercise or
			Non-Equity Incentive Plan			Equity Incentive Plan			Number of	Securities	Exercise or	Grant Date
			Awards			Awards			Shares of	Underlying	Base Price of	Fair Value of
		Grant	Threshold	Target	Maximum	Threshold	Target	Maximum	Stock or Units	Options	Option Awards	Stock and
Name		Date	($)	($)	($)	(#)	(#)	(#)	(#)	(#)	($/Sh) (3)	Option Awards
Ronald P. Erickson (1)		11/4/19	$-	$-	$-	-	-	-	-	1,200,000	$1.100	$-
		7/2/20	$-	$-	$-	-	-	-	-	1,500,000	$0.100	0.788
Phillip A. Bosua (2)		11/4/19	$-	$-	$-	-	-	-	-	1,200,000	$1.100	$-
		7/2/20	$-	$-	$-	-	-	-	-	1,500,000	$0.100	0.788

  

 

 

 

 

Outstanding Equity Awards as of Fiscal Year Then Ended September 30, 2020

 

Our Named Executive Officers have the following outstanding equity awards as of September 30, 2020.

 

   

 

 

 

 

Option Exercises and Stock Vested

 

Our Named Executive Officers did not have any option exercises during the year ended September 30, 2020.

 

Pension Benefits

 

We do not provide any pension benefits. 

 

Nonqualified Deferred Compensation

 

We do not have a nonqualified deferral program. 

 

Employment Agreements

 

We have an employment agreement with each of Ronald P. Erickson and Phillip A. Bosua, which are summarized in tabular format below.

 

Potential Payments upon Termination or Change in Control

 

We have the following potential payments upon termination or change in control with Ronald P. Erickson:

 

We have the following potential payments upon termination or change in control with Phillip A. Bosua:

 

 

We do not have any potential payments upon termination or change in control with our other Named Executive Officers.

 

 

DIRECTOR COMPENSATION

 

We primarily use stock options grants to incentive compensation to attract and retain qualified candidates to serve on the Board. This compensation reflected the financial condition of the Company. In setting director compensation, we consider the significant amount of time that Directors expend in fulfilling their duties to the Company as well as the skill-level required by our members of the Board. During the year ended September 30, 2020, Ronald P. Erickson and Phillip A. Bosua did not receive any compensation for his service as a director.  The compensation disclosed in the Summary Compensation Table on page 14 represents the total compensation for Mr. Erickson and Mr. Bosua.

 

Compensation Paid to Board Members

 

Our independent non-employee directors are not compensated in cash.   The only compensation generally has been in the form of stock awards. There is no formal stock compensation plan for independent non-employee directors. Our non-employee directors received the following compensation during the year ended September 30, 2020.

 

 

 

 

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

Since October 1, 2018, we have engaged in the following reportable transactions with our directors, executive officers, holders of more than 5% of our voting securities and affiliates, or immediately family members of our directors, executive officers and holders of more than 5% of our voting securities.

 

Other than the following transactions, none of the directors or executive officers of the Company, nor any person who owned of record or was known to own beneficially more than 5% of the Company’s outstanding shares of its Common Stock, nor any associate or affiliate of such persons or companies, has any material interest, direct or indirect, in any transaction that has occurred during the past fiscal year, or in any proposed transaction, which has materially affected or will affect the Company.

 

With regard to any future related party transaction, we plan to fully disclose any and all related party transactions in the following manner:

 

●

Disclosing such transactions in reports where required;

 

●

Disclosing in any and all filings with the SEC, where required;

 

●

Obtaining disinterested director’s consent; and

 

●

Obtaining shareholder consent where required.

 

 

Policies and Procedures for Related Person Transactions

 

We have operated under a Code of Conduct and Ethics since December 28, 2012. Our Code of Conduct and Ethics requires all employees, officers and directors, without exception, to avoid the engagement in activities or relationships that conflict, or would be perceived to conflict, with our interests.

 

Prior to the adoption of our related person transaction policy, there was a legitimate business reason for all the related person transactions described above and we believe that, where applicable, the terms of the transactions are no less favorable to us than could be obtained from an unrelated person.

 

Our Audit Committee reviews all relationships and transactions in which we and our directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest.

 

As required under SEC rules, transactions that are determined to be directly or indirectly material to us or a related person are disclosed.

 

Transactions with Clayton Struve

 

Convertible Promissory Notes with Clayton A. Struve

 

The Company owes Clayton A. Struve $1,071,000 under convertible promissory or OID notes. The Company recorded accrued interest of $77,171and $71,562 as of June 30, 2021 and September 30, 2020, respectively. On December 23, 2020, the Company signed Amendments to the convertible promissory or OID notes, extending the due dates to March 31, 2021. On April 29, 2021, the Company signed Amendments to the convertible promissory or OID notes, extending the due dates to September 30, 2021. 

 

Mr. Struve also invested $1,000,000 in the May 2019 Convertible Debt Offering and such note was converted to common stock in May 2020.

 

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. On June 30, 2021 and September 30, 2020 there are 1,785,715 Series C Preferred shares outstanding. On January 5, 2021, the Company extended the warrant expiration date to August 4, 2023. 

 

As of June 30, 2021 and September 30, 2020, the Company has $750,000 of Series D Preferred Stock outstanding with Clayton A. Struve, an accredited investor. 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. The Series D Preferred Stock is convertible into shares of common stock at a price of $0.25 per share or by multiplying the number of Series D Preferred Stock shares by the stated value and dividing by the conversion price then in effect, subject to certain diluted events, and has the right to vote the number of shares of common stock the Series D Preferred Stock would be issuable on conversion, subject to a 4.99% blocker. The Preferred Series D has an annual yield of 8% The Series D Preferred Stock is convertible into shares of common stock at a price of $0.25 per share or by multiplying the number of Series D Preferred Stock shares by the stated value and dividing by the conversion price then in effect, subject to certain diluted events, and has the right to vote the number of shares of common stock the Series D Preferred Stock would be issuable on conversion, subject to a 4.99% blocker. The Preferred Series D has an annual yield of 8% if and when dividends are declared.

 

 

Amendments to Warrants

 

On January 5, 2021, the Company extended the warrant expiration date to August 4, 2023 with Clayton A. Struve, a major investor in the Company:

 

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

 

On January 28, 2021, Clayton A. Struve exercised warrants on a cashless basis for 889,880 shares of common stock at $0.25 per share, including warrants for 187,500 and 187,500 that were just extended as discussed above.

 

The Company owes Clayton A. Struve $1,071,000 under convertible promissory or OID notes. On April 29, 2021, the Company signed Amendments to the convertible promissory or OID notes, extending the due dates to September 30, 2021.

 

Related Party Transactions with Ronald P. Erickson

 

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 $519,833together 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 $198,359 and $145,202 as of June 30, 2021 and September 30, 2020, respectively. On December 8, 2020, the Company signed Amendment 4 to the convertible promissory or OID notes, extending the due dates to March 31, 2021.  On April 29, 2021, the Company signed Amendment 5 to the convertible promissory or OID notes, extending the due dates to September 30, 2021.

 

On January 2, 2019, Mr. Erickson was issued 100,000 shares of restricted common stock at the grant date market value of $1.02 per share.

 

On October 4, 2019, Ronald P. Erickson voluntarily cancelled a stock option grant for 1,000,000 shares with an exercise price of $3.03 per share. The grant was related to performance and was not vested.

 

On November 4, 2019, we granted a stock option grant to Ronald P. Erickson for 1,200,000 shares with an exercise price of $1.10 per share. The performance grant expires November 4, 2024 and vests upon uplisting to the NASDAQ or NYSE exchanges.

 

On January 1, 2020, we issued 100,000 shares of restricted common stock to Ronald P. Erickson. The shares were issued in accordance with the 2011 Stock Incentive Plan and were valued at $1.90 per share, the market price of our common stock, or $190,000.

 

On June 1, 2020, Mr. Erickson received a salary of $10,000 per month for work on Particle, Inc.

 

Mr. Erickson and/or entities with which he is affiliated also have accounts payable and accrued liabilities $451,525 and $597,177 of as of June 30, 2021 and September 30, 2020, respectively, related to accrued compensation, accrued interest and expenses. 

 

 

On December 15, 2020, the Company issued a fully vested warrant to Ronald P. Erickson for 2,000,000 shares of common stock. The five year warrant is exercisable for cash or non-cash at $1.53 per share and was valued using a Black-Scholes model at $1,811,691.

 

On December 15, 2020, the Company issued two stock option grants to Ronald P. Erickson, one for 1,865,675 shares and one for 1,865,675 shares at an exercise price of $1.53 per share. The stock option grants expire in five years. The stock option grants vest when earned based on certain performance criteria. 

 

On February 9, 2021, Particle approved a stock option grant to Mr. Erickson totaling 500,000 shares at an average of $0.80 per share. The stock option grant vests (i) 33.3% with the first shipment; (ii) 33.3% with $50 million in sales are achieved; and (iii) 33.4% after $200 million in sales are achieved.

 

On April 29, 2021, the Company signed Amendment 5 to the convertible promissory or OID notes with J3E2A2Z, extending the due dates to September 30, 2021.

 

Related Party Transaction with Phillip A. Bosua

 

On October 4, 2019, Philip A. Bosua voluntarily cancelled a stock option grant for 1,000,000 shares with an exercise price of $3.03 per share. The grants was related to performance and was not vested.

 

On November 4, 2019, we granted a stock option grant to Philip A. Bosua for 1,200,000 shares with an exercise price of $1.10 per share. The performance grant expires November 4, 2024 and vests upon FDA approval of the UBAND blood glucose monitor.

 

On January 1, 2020, we issued 150,000 shares of restricted common stock to Phillip A. Bosua. The shares were issued in accordance with the 2011 Stock Incentive Plan and were valued at $1.90 per share, the market price of our common stock, or $285,000.

 

On June 1, 2020, Mr. Bosua received a salary of $10,000 per month for work on Particle, Inc.

 

On July 2, 2020, Particle issued a stock option grant for 1,500,000 shares at $0.10 per share to Philip A. Bosua. The stock option grant vests (i) 33.3% upon issuance; (ii) 33.3% after the first sale; and (iii) 33.4% after one million in sales are achieved.

 

On December 15, 2020, the Company issued two stock option grant to Phillip A. Bosua, one for 2,132,195 shares and one for 2,132,200 shares at an exercise price of $1.53 per share. The stock option grants expire in five years. The stock option grants vest when earned based on certain performance criteria. 

 

On February 9, 2021, Particle approved a stock option grant to Mr. Bosua totaling 500,000 shares at an average of $0.80 per share. The stock option grant vests (i) 33.3% with the first shipment; (ii) 33.3% with $50 million in sales are achieved; and (iii) 33.4% after $200 million in sales are achieved.

 

On March 18, 2021, the Company approved a $250,000 bonus for Mr. Bosua. The bonus was recorded in accrued liabilities – related party as of June 30, 2021 and was paid during April 2021.

 

Related Party Transactions with Directors

 

On January 15, 2021, the Company issued 30,000 shares each to three directors shares at an exercise price of $2.00 per share.

 

On January 15, 2021, the Company issued 20,000 warrants to purchase common stock each to three directors shares at $2.00 per share. The warrants expire on January 15, 2026.

 

 

Indemnification

Our articles of incorporation provide that we will indemnify our directors and officers to the fullest extent permitted by Nevada law. In addition, we have an Indemnification Agreements with the current Board of Directors.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information regarding the ownership of our common stock as of August 17, 2021 by: 

 

	●	each director and nominee for director;
	●	each person known by us to own beneficially 5% or more of our common stock;
	●	each executive officer named in the summary compensation table elsewhere in this report; and
	●	all of our current directors and executive officers as a group.

 

The amounts and percentages of common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares voting power,” which includes the power to vote or to direct the voting of such security, or has or shares “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has the right to acquire beneficial ownership within 60 days. Under these rules more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest.

 

Unless otherwise indicated below, each beneficial owner named in the table has sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. The address for each person shown in the table is c/o Know Labs, Inc. 500 Union Street, Suite 810, Seattle Washington, unless otherwise indicated.

 

	Shares Beneficially Owned
	Amount	Percentage
Directors and Officers-
Ronald P. Erickson (1)	10,089,015	23.2%
Phillip A. Bosua (2)	3,755,000	10.5%
Jon Pepper (3)	455,500	1.3%
Ichiro Takesako (4)	242,500	0.7%
William A. Owens (5)	833,750	2.4%
Total Directors and Officers (5 in total)	15,375,765	44.0%

 

* Less than 1%.

 

(1) Reflects 1,458,085 shares of shares of common stock beneficially owned by Ronald P. Erickson or entities controlled by Mr. Erickson and warrants to purchase 3,894,666 shares of our common stock that are exercisable within 60 days, and also includes 4,736,264 shares of our common stock related to convertible debt that are exercisable within 60 days. The address of Mr. Erickson is 500 Union Street, Suite 810, Seattle, WA 98101.

(2) Reflects 3,005,000 shares of shares of common stock beneficially owned by Phillip A. Bosua and vested stock option grants to purchase 750,000 shares of our common stock that are exercisable within 60 days.

 

(3) Reflects 358,000 shares of shares of common stock beneficially owned by Jon Pepper, vested stock option grants to purchase 52,500 shares of our common stock that are exercisable within 60 days, and warrants to purchase 45,000 shares of our common stock that are exercisable within 60 days.

 

(4) Reflects 170,000 shares of shares of common stock beneficially owned Ichiro Takesako, vested stock option grants to purchase 52,500 shares of our common stock that are exercisable within 60 days, and warrants to purchase 20,000 shares of our common stock that are exercisable within 60 days.

 

(5) Reflects 582,500 shares of shares of common stock beneficially owned by William A. Owens and warrants to purchase 251,250 shares of our common stock that are exercisable within 60 days.

 

 

	Shares Beneficially Owned
	Actual	Percent
Clayton Struve(1)	19,511,071	36.4%
Dale Broderick(2)	1,825,508	5.1%
	21,336,579

 

(1) Reflects 849,000 shares beneficially owned by Clayton A. Struve. This total also includes 6,269,715 warrants to purchase shares of our common stock, 8,108,356 shares related to the conversion of preferred stock into our common stock and 4,284,000 shares related to the conversion of debt into our common stock. The 6,785,719 of warrants and all of the preferred stock and convertible debt are currently priced at $0.25 per share, subject to adjustment. Mr. Struve is subject to a 4.99% blocker. The address of Mr. Struve is 175 West Jackson Blvd., Suite 440, Chicago, IL 60604.   

 

(2) Reflects the shares beneficially owned by Dale Broadrick. This total includes 1,239,286 shares and a total of 436,222 warrants to purchase shares of our common stock that are exercisable within 60 days, and 150,000 shares related to the conversion of debt into our common stock. The address of Dale Broadrick is 3003 Brick Church Pike, Nashville, Tennessee.

 

 

PROPOSAL 1

Election of Directors

 

Composition of the Board

 

Currently, the Board consists of five directors.  If elected, each of the director nominees will serve on the Board until the 2022 Annual Meeting of Stockholders, or until their successors are duly elected and qualified in accordance with the Company’s Bylaws. If any of the five (5) nominees should become unable to serve upon his election, the persons named on the proxy card as proxies may vote for other person(s) nominated by the Board. Management has no reason to believe that any of the five nominees for election named below will be unable to serve.

 

The Company’s Bylaws provide that the size of the Board may be between three and nine directors, and that the Board may appoint a director to fill a vacancy created by an increase in the size of the Board.

 

Nominations and Governance Committee

 

Our Board of Directors established the nominations and governance committee in July 2010 for the purpose of: (1) assisting the board in identifying individuals qualified to become board members and recommending to the board the nominees for election as directors at the next annual meeting of stockholders; (2) assist the board in determining the size and composition of the board committees; (3) develop and recommend to the board the corporate governance principles applicable to us; and (4) serve in an advisory capacity to the board and the Chairman of the Board on matters of organization, management succession planning, major changes in our organizational and the conduct of board activities.

 

The Nominating Committee identifies nominees by first evaluating the current members of the Board willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination, but the Nominating Committee at all times seeks to balance the value of continuity of service by existing members of the Board with that of obtaining a new perspective. If any member of the Board does not wish to continue in service, the Nominating Committee’s policy is to not re-nominate that member for reelection. The Nominating Committee identifies the desired skills and experience of a new nominee, and then uses its network and external resources to solicit and compile a list of eligible candidates.

We do not have a formal policy concerning stockholder recommendations of nominees for director to the Nominating Committee as, to-date, we have not received any recommendations from stockholders requesting the Nominating Committee to consider a candidate for inclusion among the Nominating Committee’s slate of nominees in our proxy statement. The absence of such a policy does not mean, however, that such recommendations will not be considered. Stockholders wishing to recommend a candidate may do so by sending a written notice to the Nominating Committee, Attn: Chairman, 500 Union Street, Suite 810, Seattle, WA 98101, naming the proposed candidate and providing detailed biographical and contact information for such proposed candidate.

There are no arrangements or understandings between any of our directors, nominees for directors or officers, and any other person pursuant to which any director, nominee for director, or officer was or is to be selected as a director, nominee or officer, as applicable. There currently are no legal proceedings, and during the past ten years there have been no legal proceedings, that are material to the evaluation of the ability or integrity of any of our directors or director nominees. There are no material proceedings to which any director, officer, affiliate, or owner of record or beneficially of more than 5% of any class of voting securities of the Company, or any associates of any such persons, is a party adverse to the Company or any of our subsidiaries, and none of such persons has a material interest adverse to the Company or any of its subsidiaries. Other than as disclosed below, during the last five years, none of our directors held any other directorships in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940.

 

 

The Nominating Committee has recommended, and the Board has nominated, Ronald P. Erickson, Phillip A. Bosua, Jon Pepper, Ichiro Takesako, and William A. Owens as nominees for election as members of our Board at the 2021 Annual Meeting for a period of one year or until such director’s successor is elected and qualified or until such director’s earlier death, resignation, or removal. Each of the nominees is currently a director of the Company. At the 2021 Annual Meeting, five directors will be elected to the Board.

 

The nominees for Director are:

Name	Age
Directors-
Ronald P. Erickson	77
Phillip A. Bosua	47
Jon Pepper	69
Ichiro Takesako	62
William A. Owens	81

 

The sections titled “Directors and Executive Officers” beginning on page 9 of this proxy statement contain information about the experience and qualifications that caused the Nominations and Governance Committee and the Board to determine that these nominees should serve as directors of the Company.

 

 We believe that each director nominee possesses attributes that qualify him to serve as a member of our Board, as set forth in their biographies. Each has extensive experience in the technology industry, including but not limited to developing technology companies, strategic partnership relationships, and marketing and general business skills in the technology industry.

 

If, for any reason, any Director Nominee becomes unavailable for election, the proxies will be voted for such substitute nominee(s) as the Board may propose.

 

Vote Required

 

In the election of directors, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy at the Annual Meeting shall be sufficient to elect each Director Nominee.

 

 

Your Board Recommends That Stockholders Vote   FOR   All Five Nominees Listed Above

 

 

PROPOSAL 2

Approval of an Amendment to the Company’s Articles of Incorporation to increase the authorized Common

Stock from 100,000,000 to 200,000,000

 

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 of preferred stock, par value $0.001 per share. The following is a summary of the proposal.

 

Description of the Amendment

 

Recently, our Board of Directors approved an amendment to Article 4 of our Articles of Incorporation, subject to stockholder approval, to increase the number of shares of common stock authorized for issuance under the Articles of Incorporation from 100,000,000 to 200,000,000 shares. The proposed amendment is as follows:

 

Resolutions Amending Articles of Incorporation

 

“RESOLVED, that the Corporation is hereby authorized to amend Article IV of the Corporation’s Articles of Incorporation by deleting such Article IV in full and replacing it with the following:

 

“Article IV – Shares.

 

Section 4.1 Authorized Shares.  The Corporation is authorized to issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.”  The total number of shares of capital stock that the Corporation is authorized to issue is Two Hundred Million (200,000,000) shares of Common Stock, par value $0.001 per share, and Five Million (5,000,000) shares of Preferred Stock, par value $0.001 per share.  The Common Stock is subject to the rights and preferences of the Preferred Stock as set forth below.”

 

FURTHER RESOLVED, that the appropriate executive officers of the Corporation are hereby authorized and directed to (i) execute Articles of Amendment attesting to the adoption of the foregoing resolution adopting the amendment, (ii) cause such Articles of Amendment to be filed in the office of the Secretary of State for the State of Nevada, and (iii) pay any fees and take any other action necessary to effect the Articles of Amendment and the foregoing resolution.”

 

The Company shall have the right to make any additional changes to the proposed amendment as required by the Nevada Secretary of State to complete the purpose of such filing.

 

If the Amendment to the Articles of Incorporation is approved by a majority of the voting capital stock, it will become effective upon its filing with the Nevada Secretary of State of the State. The Company expects to file the Amendment to the Articles of Incorporation with the Nevada Secretary of State promptly after its approval by stockholders.

 

Purpose of the Amendment

 

Since inception, we have incurred losses. To fund operations, we may need to rely on additional financings from the sale of our securities. In addition, we have rewarded employees, directors and consultants with stock option grants. We intend in the future to continue this process.

 

As of August 20, 2021, we have 34,927,055 shares of Common Stock issued and outstanding. In addition, as of June 30, 2021, we have options outstanding for the purchase of 14,650,120 common shares (including unearned stock option grants totaling 11,775,745 shares related to performance targets), warrants for the purchase of 23,169,587 common shares, and 8,108,356 shares of the Company’s common stock issuable upon the conversion of Series C and Series D Convertible Preferred Stock. In addition, the Company currently has 16,124,764 common shares (9,020,264 common shares at the current price of $0.25 per share and 7,104,500 common shares at the current price of $2.00 per share) reserved and are issuable upon conversion of convertible debentures of $16,464,066.

 

 

The Company has no current plan, commitment, arrangement, understanding or agreement regarding the issuance of the additional shares of Common Stock that will result from the Company’s adoption of the proposed amendment. In addition to the outstanding and reserved shares described above, we may issue additional shares of Common Stock and/or securities convertible or exercisable into Common Stock, which are necessary to finance our continuing operations. If the Board of Directors elects to issue additional shares of Common Stock, such issuance could have a dilutive effect on the earnings per share, voting power and holdings of current stockholders. Our current amount of authorized and unissued shares of Common Stock is not sufficient for both (i) our current and future financing needs and (ii) our commitments under outstanding options, warrants and convertible notes. Thus, we need to increase the shares of Common Stock authorized by our articles of incorporation.

 

Other Potential Effects of the Amendment

 

Upon filing the Amendment to our Articles of Incorporation, the Board may cause the issuance of additional shares of common stock without further vote of our stockholders, except as provided under applicable Nevada law or any national securities exchange on which shares of our common stock are then listed or traded. In addition, if the Board of Directors elects to issue additional shares of common stock, such issuance could have a dilutive effect on the earnings per share, voting power and holdings of current stockholders.

 

Required Vote

The affirmative (“FOR”) vote of the holders of a majority of the outstanding shares of the Company is required to approve this proposal.

Abstentions and broker non-votes are not counted in determining the number of shares voted for or against this proposal. However, abstentions and broker non-votes will be counted as entitled to vote and will, therefore, have the same effect as a vote “against” this proposal.

 

 

Your Board Recommends That Stockholders Vote   FOR   To amend the Company’s Articles of Incorporation to increase the authorized Common Stock shares from 100,000,000 to 200,000,000

 

 

 

PROPOSAL 3

 

APPROVAL OF AMENDED AND RESTATED BYLAWS

Overview

At the 2021 Annual Meeting, holders of our capital stock will be asked to authorize and approve that the Company’s current Bylaws, as amended to date (the “Current Bylaws”), be amended, restated, and replaced in their entirety by the Second Amended and Restated Bylaws in the form attached hereto as Appendix A (the “Amended and Restated Bylaws”).

Background

 

The Company first adopted its Bylaws in 1998, after which they were amended on in August 2012 to modify the number of directors that may be appointed to our Board and general updates to reflect more recent Nevada General Corporation Law. We have not implemented any changes to our Bylaws since August 2012, as ratified at the 2013 Annual Meeting of Stockholders.

 

On August 12, 2021, the Board unanimously approved the Second Amended and Restated Bylaws, subject to approval by the our stockholders, and directed that the proposal to authorize and approve the Second Amended and Restated Bylaws be submitted to our stockholders for their approval at the 2021 Annual Meeting.

 

Reasons to Approve the Second Amended and Restated Bylaws

 

We believe that the Amended and Restated Bylaws improve the corporate governance of the Company by providing bylaws more appropriate for a publicly reporting company, and will assist the Company in attracting and retaining officers and directors who will contribute to the Company’s ability to provide stockholders with increased value. Below is a brief summary of the material ways in which the Amended and Restated Bylaws, if approved by our stockholders, will modify our Current Bylaws. This summary is qualified in its entirety by reference to the full text of the Second Amended and Restated Bylaws, which you are urged to review carefully and are attached as Appendix A hereto.

 

Location of Change in Amended and Restated Bylaws		Summary of Provision:		Rationale Supporting Change:
Section 2.8 of Article 2		Provides that stockholders holding at least one-third (33 1/3%) of the voting power of the Company’s outstanding and entitled to vote thereat, present in person or represented by proxy, shall be required and shall constitute a quorum at all meetings of the stockholders for the transaction of business. If such quorum shall not be present or represented at any meeting of the stockholders, the presiding officer of the meeting or the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time by the affirmative vote of a majority in voting power thereof, until a quorum shall be present or represented.		The Current Bylaws state that the holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be required and shall constitute a quorum. The proposed change is meant to provide a lower minimum threshold of votes present or represented by proxy for business to be transacted at a meeting of stockholders while still providing an appropriate level of investor participation. Further, the amendment allows a meeting to be adjourned by affirmative vote of a majority in voting power thereof in the event a quorum is not present and represented and if a quorum is present for good reason, by affirmative vote of a majority in voting power. The amendment is permissible under Chapter 78 of the Nevada Revised Statutes (“NRS”).

 

 

Section 2.9 of Article 2		Provides that in all matters other than the election of Directors, the affirmative vote of the holders of a majority of the voting power of the shares of capital stock present in person or represented by proxy and entitled to vote on the matter shall decide any question brought before a meeting unless the question is one upon which by express provision of the Articles of Incorporation or of these Bylaws, or by law, a different vote is required in which case such express provision shall govern and control the decision of such question.  Directors shall be elected, by ballot, by a plurality of the votes of the voting power of the shares of capital stock present in person or represented by proxy and entitled to vote at the election of directors; provided, however, that a stockholder shall not be permitted to cumulate his/her votes with respect to the election of Directors.		The Current Bylaws provide that for matters other than the election of directors shall be by affirmative vote of the holders of a majority of the stock present in person or represented by proxy, and for election of directors by a plurality of the votes of the shares present in person or represented by proxy. The proposed change is meant to provide clarity to address situations where holders of different classes of our capital stock may have different voting rights.

 

Section 2.10 of Article 2

Provides that unless otherwise required by law or provided in the Articles of Incorporation, each stockholder shall have one vote for each share of capital stock having voting power, registered in such stockholder’s name on the books of the Corporation.

The Current Bylaws are silent as to an exception to voting power which may otherwise be different, as required by law or provided for in the Articles of Incorporation. The proposed change is meant to provide clarity with respect to applicable votes per share.

 

 

Section 3.7 of Article 3

Provides that the entire Board or an individual director may be removed from the Company’s Board may be removed from office, with or without cause, prior to the expiration of their or his/her term of office by the holders of not less than two-thirds (66 2/3 %) of the voting power of the shares of capital stock then entitled to vote at an election of Directors.

The Current Bylaws already provide for the two-thirds vote of the shares then entitled to vote at an election of directors for the removal of directors. The proposed change is meant to provide clarity that the vote required for the removal of directors is based upon voting power of the shares of capital stock, not the number of shares.

 

In addition to the amendments described above, the Second Amended and Restated Bylaws reflect updates related to the name of the Company to reflect its current name, Know Labs, Inc.

 

Effective Time of the Second Amended and Restated Bylaws

 

If the Second Amended and Restated Bylaws are approved by stockholders at the 2021 Annual Meeting, they will be effective upon such approval.

Vote Required and Recommendation of the Board

The affirmative (“FOR”) vote of the holders of a majority of the outstanding shares of the Company is required to approve this proposal.

Abstentions and broker non-votes are not counted in determining the number of shares voted for or against this proposal. However, abstentions and broker non-votes will be counted as entitled to vote and will, therefore, have the same effect as a vote “against” this proposal.

 

 

Your Board Recommends That Stockholders Vote   FOR   To adopt the Second Amended and Restated Bylaws

 

 

PROPOSAL 4

 

Approval of the 2021 Equity Incentive Plan

 

General Information

 

Stockholders are being asked to approve the new Know Labs, Inc. 2021 Equity Incentive Plan (the “2021 Equity Incentive Plan” or the “Plan”). The board of directors approved the 2021 Equity Incentive Plan on August 12, 2021, and if approved by the stockholders will become effective on October 15, 2021.

 

The 2021 Equity Incentive Plan will serve as a replacement for the 2011 Plan, which has 14,650,120 common (including unearned stock option grants totaling 11,775,745 share related to performance targets) outstanding as of today.  The approval of the 2021 Equity Incentive Plan will have no effect on the 2011 Plan or any options granted pursuant to the 2011 Plan. No shares will be available for award under the 2011 Plan once the 2021 Equity Incentive Plan becomes effective.

 

The maximum aggregate number of Shares that may be issued under the Equity Incentive Plan is twenty million (20,000,000), plus (i) the number of Shares added to the Plan pursuant to an annual automatic share reserve increase as set forth in Section 4.2 of the Plan and (ii) the sum of (A) any Shares that, as of the date of stockholder approval of this Plan, have been reserved but not issued pursuant to any awards granted under the Company’s 2011 Stock Incentive Plan, as amended (the “2011 Plan”), and (B) any Shares subject to stock options or similar awards granted under the 2011 Plan that, after the date of stockholder approval of this Plan, expire or otherwise terminate without having been exercised in full and Shares issued pursuant to awards granted under the 2011 Plan that are forfeited to or repurchased by the Company, with the maximum number of Shares to be added to the Plan pursuant to clause (ii) equal to 14,650,120. 

 

The adoption of the 2021 Equity Incentive Plan will allow the Company to continue to provide a comprehensive equity incentive program for the Company’s officers, employees and non-employee board members to encourage these individuals to remain in the Company’s service and to more closely align their interests with those of the stockholders. The Company relies significantly on equity incentives in the form of equity grants in order to attract and retain key employees, and it believes that equity incentives are necessary for it to remain competitive in the marketplace for executive talent and other key employees. Option grants made to newly-hired or continuing employees will be based on both competitive market conditions and individual performance.

 

PLAN SUMMARY 

 

The following is a summary of the principal features of the 2021 Equity Incentive Plan. The summary, however, is not a complete description of all the provisions of the 2021 Equity Incentive Plan. The full text of the proposed 2021 Equity Incentive Plan is attached to this proxy statement as Appendix B. Any stockholder who wishes to obtain a copy of the actual plan document may do so upon written request to the Company’s Corporate Secretary, c/o Know Labs, Inc., 500 Union Street Ste 810, Seattle, Washington 98101.

 

Purpose

 

The purpose of the 2021 Equity Incentive Plan is to promote the long-term success of the Company and the creation of Stockholder value by allowing the Company to attract, retain and motivate employees, officers, directors, consultants, agents, advisors and independent contractors of the Company and its related companies by providing them the opportunity to acquire a proprietary interest in the Company and to align their interests and efforts to the long-term interests of the Company’s stockholders.

 

 

Description of the Plan

 

The Plan permits the grant of Stock Options, Stock Awards, Restricted Stock and Restricted Stock Units (“RSUs”), Stock Appreciation Rights (“SAR”), and Other Stock-Based Awards and Cash-based Awards (each, an “Award”). The following summary of the material features of the Plan is entirely qualified by reference to the full text of the 2021 Equity Incentive Plan, a copy of which is attached hereto as Appendix B. Unless otherwise specified, capitalized terms used in this summary have the meanings assigned to them in the Plan.

 

Eligibility

 

All Employees, Officers, Non-Employee Directors, agents, advisors, consultants and independent contractors of the Company and its related companies (“Eligible Persons”) are eligible to receive grants of Awards under the Plan. As of June 30, 2021 the number of employees eligible to participate in the Plan was 9, the number of consultants and independent contractors eligible to participate in the Plan was 10, and the number of non-employee directors eligible to participate in the Plan was 3.  

 

Administration

 

The Plan shall be administered by the Board. Notwithstanding the foregoing, the Board may delegate concurrent responsibility for administering the Plan, including with respect to designated classes of Eligible Persons, to a committee or committees (which term includes subcommittees) consisting of two or more members of the Board, subject to such limitations as the Board deems appropriate. Members of any committee shall serve for such term as the Board may determine, subject to removal by the Board at any time. All references in the Plan to the “Plan Administrator” shall be, as applicable, to the Board or any committee to whom the Board has delegated authority to administer the Plan. The Plan Administrator has plenary authority and discretion to determine the Eligible Persons to whom Awards are granted (each a “Participant”) and the terms of all Awards under the Plan. Subject to the provisions of the Plan, the Plan Administrator has authority to interpret the Plan and agreements under the Plan and to make all other determinations relating to the administration of the Plan.

 

Stock Subject to the Plan

 

The maximum aggregate number of Shares that may be issued under the 2021 Equity Incentive Plan is twenty million (20,000,000), plus (i) the number of Shares added to the Plan pursuant to an annual automatic share reserve increase at set forth in Section 4.2 of the Plan and (ii) the sum of (A) any Shares that, as of the date of stockholder approval of this Plan, have been reserved but not issued pursuant to any awards granted under the Company’s 2011 Stock Incentive Plan, as amended (the “2011 Plan”), and (B) any Shares subject to stock options or similar awards granted under the 2011 Plan that, after the date of stockholder approval of this Plan, expire or otherwise terminate without having been exercised in full and Shares issued pursuant to awards granted under the 2011 Plan that are forfeited to or repurchased by the Company, with the maximum number of Shares to be added to the Plan pursuant to clause (ii) equal to 14,650,120.

Subject to certain adjustments as set forth Section 14 of the Plan, the number of Shares available for issuance under the Plan will be increased on the first day of each calendar year beginning January 1, 2022 and ending on and including January 1, 2030 in an amount equal to the least of (i) 2,000,000 Shares, (ii) four percent (4%) of the outstanding Shares on the last day of the immediately preceding Fiscal Year or (iii) such number of Shares determined by the Board; provided, that such determination under clause (iii) will be made no later than the last day of the immediately preceding Fiscal Year.

 

Shares of Common Stock covered by an Award shall not be counted as used unless and until they are actually issued and delivered to a Participant. If any Award lapses, expires, terminates or is canceled prior to the issuance of shares thereunder or if shares of Common Stock are issued under the Plan to a Participant and thereafter are forfeited to or otherwise reacquired by the Company, the shares subject to such Awards and the forfeited or reacquired shares shall again be available for issuance under the Plan. Any shares of Common Stock (i) tendered by a Participant or retained by the Company as full or partial payment to the Company for the purchase price of an Award or to satisfy tax withholding obligations in connection with an Award, or (ii) covered by an Award that is settled in cash or in a manner such that some or all of the shares covered by the Award are not issued, shall be available for Awards under the Plan. The number of shares of Common Stock available for issuance under the Plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional shares of Common Stock or credited as additional shares of Common Stock subject or paid with respect to an Award.  

 

 

Options

 

The Plan authorizes the grant of Nonqualified Stock Options and Incentive Stock Options. Incentive Stock Options are stock options that satisfy the requirements of Section 422 of the Code and may be granted only to Section 422 Employees. A Section 422 Employee is an Employee who is employed by the Company or a “parent corporation” or “subsidiary corporation” (defined in Sections 424(e) and (f) of the Code) with respect to the Company, including a “parent corporation” or “subsidiary corporation” that becomes such after the adoption of the Plan. Nonqualified Stock Options are stock options that do not satisfy the requirements of Section 422 of the Code. The exercise of an Option permits the Participant to purchase shares of Common Stock from the Company at a specified exercise price per share. Options granted under the Plan are exercisable upon such terms and conditions as the Plan Administrator shall determine. The exercise price per share and manner of payment for shares purchased pursuant to Options are determined by the Plan Administrator, subject to the terms of the Plan. The per share exercise price of Options granted under the Plan may not be less than the fair market value of the common stock (110% of the fair market value in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder) on the date of grant. The Plan provides that the term during which Options may be exercised is determined by the Plan Administrator, except that no Option may be exercised more than ten years (five years in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder) after its date of grant. The Plan Administrator may condition the grant or vesting of an Option on the achievement of one or more performance goals performance goals, as the Plan Administrator shall determine in its sole discretion, which terms, conditions and restrictions shall be set forth in the instrument evidencing the Award.

 

 Grant of Stock Appreciation Rights

 

The Plan Administrator may grant Stock Appreciation Rights to Participants at any time on such terms and conditions as the Plan Administrator shall determine in its sole discretion. A SAR may be granted in tandem with an Option (“tandem SAR”) or alone (“freestanding SAR”). The grant price of a tandem SAR shall be equal to the exercise price of the related Option. The grant price of a freestanding SAR shall be established in accordance with procedures for Options. A SAR may be exercised upon such terms and conditions and for the term as the Plan Administrator determines in its sole discretion; provided, however, that, subject to earlier termination in accordance with the terms of the Plan and the instrument evidencing the SAR, the maximum term of a freestanding SAR shall be ten years, and in the case of a tandem SAR, (a) the term shall not exceed the term of the related Option and (b) the tandem SAR may be exercised for all or part of the shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option, except that the tandem SAR may be exercised only with respect to the shares for which its related Option is then exercisable.

 

Upon the exercise of a SAR, a Participant shall be entitled to receive payment in an amount determined by multiplying: (a) the difference between the Fair Market Value of the Common Stock on the date of exercise over the grant price of the SAR by (b) the number of shares with respect to which the SAR is exercised. At the discretion of the Plan Administrator as set forth in the instrument evidencing the Award, the payment upon exercise of a SAR may be in cash, in shares, in some combination thereof or in any other manner approved by the Plan Administrator in its sole discretion.

 

Grant of Stock Awards, Restricted Stock and Stock Units

 

The Plan authorizes the Plan Administrator to grant Stock Awards, Restricted Stock and Stock Units on such terms and conditions and subject to such repurchase or forfeiture restrictions, if any, which may be based on continuous service with the Company or a Related Company or the achievement of any performance goals, as the Plan Administrator shall determine in its sole discretion, which terms, conditions and restrictions shall be set forth in the instrument evidencing the Award. Such terms and conditions may provide, in the discretion of the Plan Administrator, for the vesting of awards of Restricted Stock to be contingent upon the achievement of one or more performance goals.

 

The Plan authorizes the Plan Administrator to grant Restricted Stock and Stock Units as contingent awards of Common Stock (or the cash equivalent thereof). Pursuant to such Awards, shares of Common Stock are issued subject to such terms and conditions as the Plan Administrator deems appropriate, including terms that condition the issuance of the shares upon the achievement of one or more performance goals. Unlike in the case of awards of Restricted Stock, shares of Common Stock are not issued immediately upon the award of Stock Units, but instead shares of Common Stock (or the case equivalent thereof) are issued upon the satisfaction of such terms and conditions as the Plan Administrator may specify, including the achievement of one or more Performance Goals. 

 

 

Other Stock or Cash-Based Awards

 

The Plan authorizes the grant of Other Stock or Cash-Based Awards. The Plan Administrator may grant other incentives payable in cash or in shares of Common Stock under the Plan as the Plan Administrator shall determine, including terms that condition the payment or vesting of the Other Stock or Cash-Based Award

 

Dividends and Dividend Equivalents

 

The terms of an Award may, at the Plan Administrator ’s discretion, or provide a Participant with the right to receive dividend payments or dividend equivalent payments with respect to shares of Common Stock covered by the Award. Such payments may either be made currently or credited to any account established for the Participant, and may be settled in cash or shares of Common Stock. Unless otherwise provided by the Plan Administrator or in the instrument evidencing the Award or in a written employment, services or other agreement, no Award, other than a Stock Award, shall entitle the Participant to any cash dividend, voting or other right of a stockholder unless and until the date of issuance under the Plan of the shares that are the subject of such Award.

 

Performance Goals

 

The terms and conditions of an Award may provide for the grant, vesting or payment of the Award to be contingent upon the achievement of one or more specified Performance Goals established by the Plan Administrator. For this purpose, “Performance Goals” means performance goals established by the Plan Administrator which may be based on earnings or earnings growth, sales, return on assets, cash flow, total shareholder return, equity or investment, regulatory compliance, satisfactory internal or external audits, improvement of financial ratings, achievement of balance sheet or income statement objectives, implementation or completion of one or more projects or transactions, or any other objective goals established by the Plan Administrator, and may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. Such Performance Goals may be particular to an Eligible Person or the department, branch, Affiliate, or division in which the Eligible Person works, or may be based on the performance of the Company, one or more Affiliates, or the Company and one or more Affiliates, and may cover such period as may be specified by the Plan Administrator.

 

Capital Adjustments

 

If the outstanding Common Stock of the Company changes as a result of a stock dividend, stock split, spin-off, combination or exchange of shares, recapitalization, merger, consolidation, statutory share exchange, distribution to stockholders other than a normal cash dividend, or other change in the Company’s corporate or capital structure, the Plan Administrator shall make proportional adjustments in (i) the maximum number and kind of securities available for issuance under the Plan; (ii) the maximum number and kind of securities issuable as Incentive Stock Options as set forth in Section 4.3(d); and (iii) the number and kind of securities that are subject to any outstanding Award and the per share price of such securities, without any change in the aggregate price to be paid therefor.

 

Withholding

 

The Company is generally required to withhold tax on the amount of income recognized by a Participant with respect to the granting, vesting, or exercise of an Award. Withholding requirements may be satisfied, as provided in the agreement evidencing the Award, by (a) tender of a cash payment to the Company, (b) having the Company withhold an amount from any cash amounts otherwise due or to become due from the Company to the Participant (c) withholding of shares of Common Stock otherwise issuable having a Fair Market Value equal to the tax withholding obligation, or (d) delivery to the Company by the Participant of unencumbered shares of Common Stock. The value of the shares so withheld or tendered may not exceed the employer’s minimum required tax withholding rate. Notwithstanding any other provision of the Plan to the contrary, the Company shall not be required to issue any shares of Common Stock or otherwise settle an Award under the Plan until such tax withholding obligations and other obligations are satisfied.

 

 

Termination and Amendment

 

The Board of Directors may amend, suspend, or terminate the Plan at any time. However, after the Plan has been approved by the stockholders of the Company, the Board of Directors may not amend or terminate the Plan without the approval of (a) the Company’s stockholders if stockholder approval of the amendment is required by applicable law, rules or regulations, and (b) each affected Participant if such amendment or termination would adversely affect such Participant’s rights or obligations under any Awards granted prior to the date of the amendment or termination.

 

Term of the Plan

 

Unless sooner terminated by the Board of Directors, the Plan will terminate on August 12, 2031. Once the Plan is terminated, no further Awards may be granted or awarded under the Plan. Termination of the Plan will not affect the validity of any Awards outstanding on the date of termination.

 

Summary of Certain Federal Income Tax Consequences

 

The following discussion briefly summarizes certain United States federal income tax aspects of Awards granted pursuant to the 2021 Equity Incentive Plan. State, local and foreign tax consequences may differ.

 

Incentive Stock Options. The grant of an Option will not be a taxable event for the grantee or for the Company. A grantee will not recognize taxable income upon exercise of an Incentive Stock Option (except that the alternative minimum tax may apply), and any gain realized upon a disposition of our common stock received pursuant to the exercise of an Incentive Stock Option will be taxed as long-term capital gain if the grantee holds the shares of common stock for at least two (2) years after the date of grant and for one (1) year after the date of exercise (the “holding period requirement”). The Company will not be entitled to any business expense deduction with respect to the exercise of an Incentive Stock Option, except as discussed below. For the exercise of an Option to qualify for the foregoing tax treatment, the grantee generally must be an Employee of the Company or a subsidiary from the date the Option is granted through a date within three (3) months before the date of exercise of the Option. If all of the foregoing requirements are met except the holding period requirement mentioned above, the grantee will recognize ordinary income upon the disposition of the common stock in an amount generally equal to the excess of the fair market value of the common stock at the time the Option was exercised over the Option exercise price (but not in excess of the gain realized on the sale). The balance of the realized gain, if any, will be capital gain. We will be allowed a business expense deduction to the extent the grantee recognizes ordinary income, except to the extent the deduction limits of Section 162(m) of the Code apply.

 

Non-Qualified Stock Options. The grant of an Option will not be a taxable event for the grantee or the Company. Upon exercising a Non-Qualified Stock Option, a grantee will recognize ordinary income in an amount equal to the difference between the exercise price and the fair market value of the common stock on the date of exercise. Upon a subsequent sale or exchange of shares acquired pursuant to the exercise of a Non-Qualified Stock Option, the grantee will have taxable capital gain or loss, measured by the difference between the amount realized on the disposition and the tax basis of the shares of common stock (generally, the amount paid for the shares plus the amount treated as ordinary income at the time the Option was exercised). The Company will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income, except to the extent the deduction limits of Section 162(m) of the Code apply.

 

Stock Appreciation Rights. There are no immediate tax consequences of receiving an Award of Stock Appreciation Rights. Upon exercising a Stock Appreciation Right, a grantee will recognize ordinary income in an amount equal to the difference between the exercise price and the fair market value of the common stock on the date of exercise. The Company will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income, except to the extent the deduction limits of Section 162(m) of the Code apply. 

 

 

Restricted Stock and Restricted Stock Units. The grant of Restricted Stock will not be a taxable event in the year of the Award, provided that the shares of common stock are subject to restrictions (that is, the shares of common stock are nontransferable and subject to a substantial risk of forfeiture). The fair market value of the common stock on the date the restrictions lapse (less the purchase price, if any) will be treated as compensation income to the grantee and will be taxable in the year the restrictions lapse and dividends paid while the common stock is subject to restrictions will be subject to withholding taxes. The Company will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income, except to the extent the deduction limits of Section 162(m) of the Code apply.

 

A grantee will not recognize taxable income at the time a Restricted Stock Unit is granted and the Company will not be entitled to a tax deduction at that time. Upon settlement of Restricted Stock Units, the grantee will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) in an amount equal to the fair market value of any shares delivered and the amount of any cash paid by the Company, and the Company will be entitled to a corresponding deduction, except to the extent the deduction limits of Section 162(m) of the Code apply.

 

Other Stock-Based Awards, and Cash-Based Awards. The tax treatment with respect to  other stock-based awards and cash-based awards will depend on the structure of such awards.

 

Withholding. The Company may deduct from any payment to be made pursuant to the Plan, or require before the issuance or delivery of shares of common stock or the payment of any cash hereunder, payment by the Participant of, any federal, state, or local taxes required by law to be withheld. Upon the vesting of Restricted Stock (or other Award that is taxable upon vesting), or upon making an election under Section 83(b) of the Code, a Participant shall pay all required withholding to the Company. Any minimum statutorily required withholding obligation with regard to any Participant may be satisfied, subject to the consent of the Plan Administrator, by reducing the number of shares of common stock deliverable or by delivering shares of common stock already owned. Furthermore, at the discretion of the Plan Administrator, any additional tax obligations of a Participant with respect to an Award may be satisfied by further reducing the number of shares of common stock, deliverable with respect to such Award, to the extent that such reductions do not result in any adverse accounting implications to the Company, as determined by the Plan Administrator. Any fraction of a share of common stock required to satisfy such tax obligations shall be disregarded and the amount due shall be paid instead in cash by the Participant.

 

Parachute Payments. Where payments to certain persons that are contingent on a change in control exceed limits specified in the Code, the person generally is liable for a 20 percent excise tax on, and the corporation or other entity making the payment generally is not entitled to any deduction for, a specified portion of such payments. Under the Plan, the Plan Administrator has plenary authority and discretion to determine the vesting schedule of Awards. Any Award under which vesting is accelerated by a change in control of the Company, would be relevant in determining whether the excise tax and deduction disallowance rules would be triggered.

 

Performance-Based Compensation. Subject to certain exceptions, Section 162(m) of the Code disallows federal income tax deductions for compensation paid by a publicly-held corporation to certain executives to the extent the amount paid to an executive exceeds $1 million for the taxable year. The Plan has been designed to allow the grant of Awards that qualify under an exception to the deduction limit of Section 162(m) for “performance-based compensation.”

 

Tax Rules Affecting Nonqualified Deferred Compensation Plans. Section 409A of the Code imposes tax rules that apply to “nonqualified deferred compensation plans.” Failure to comply with, or to qualify for an exemption from, the new rules with respect to an Award could result in significant adverse tax results to the Award recipient including immediate taxation upon vesting, an additional income tax of 20 percent of the amount of income so recognized, plus a special interest payment. The Plan is intended to comply with Section 409A of the Code to the extent applicable, and the Plan Administrator will administer and interpret the Plan and Awards accordingly.

  

 

 Accounting Treatment

 

The Company accounts for Options using guidance from FASB ASC Topic 718, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

As of June 30, 2021, the Company had the following equity compensation plans in place: 2011 Stock Incentive Plan.

 

	(a)	(b)	(c)
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a))
Equity compensation plan
approved by shareholders	78,333	$1.495	78,333
Equity compensation plans
not approved by shareholders	14,650,120	1.495	(14,728,453)
Total	14,728,453	$1.495	(14,650,120)

 

 

PROPOSAL 5

Ratification of Appointment of Independent Registered Public Accounting Firm

 

The Audit Committee of the Board of Directors has selected BPM LLP, an independent registered accounting firm, to audit the books and financial records of the Company for the year ending September 30, 2020. The Company is asking its stockholders to ratify the appointment of BPM as it’s independent registered public accounting firm for the Company’s fiscal year ending September 30, 2020 and 2021.

 

A representative of BPM is expected to be present either in person or via teleconference at the 2021 Annual Meeting and available to respond to appropriate questions, and will have the opportunity to make a statement if he or she desires to do so.

 

Ratification of the appointment of BPM by our stockholders is not required by law, our bylaws or other governing documents. As a matter of policy, however, the appointment is being submitted to our stockholders for ratification at the 2021 Annual Meeting. If our stockholders fail to ratify the appointment, the Audit Committee will reconsider whether or not to retain that firm. Even if the appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of different independent auditors at any time during the year if they determine that such a change would be in our best interest and the best interests of our stockholders.

 

Vote Required

 

The affirmative vote of a majority of the votes cast at the 2021 Annual Meeting will be required to approve the ratification of the appointment of the Company’s registered public accounting firm. Abstentions are not votes cast and therefore will have no effect on the outcome of this proposal. Broker non-votes are not expected to exist for this matter since this is a routine matter for which brokers may vote in their discretion if beneficial owners of our stock do not provide voting instructions.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR

RATIFICATION OF THE SELECTION OF BPM, LLP AS OUR INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM FOR OUR FISCAL YEAR ENDING ON SEPTEMBER 30, 2020 and 2021.

  

AUDIT COMMITTEE DISCLOSURE

 

The Audit Committee is comprised solely of independent directors and, among other things, is responsible for:

	●	the appointment of independent registered accounting firm;
	●	review the arrangements for and scope of the audit by independent auditors;
	●	review the independence of the independent auditors;
	●	consider the adequacy and effectiveness of the system of internal accounting and financial controls and review any proposed corrective actions;
	●	review and monitor our policies regarding business ethics and conflicts of interest;
	●	discuss with management and the independent auditors our draft quarterly interim and annual financial statements and key accounting and reporting matters; and
	●	review the activities and recommendations of our accounting department.

 

 

Audit Committee Pre-Approval Policy

 

The Audit Committee has established a pre-approval policy and procedures for audit, audit-related and tax services that can be performed by the independent auditors without specific authorization from the Audit Committee subject to certain restrictions. The policy sets out the specific services pre-approved by the Audit Committee and the applicable limitations, while ensuring the independence of the independent auditors to audit the Company's financial statements is not impaired. The pre-approval policy does not include a delegation to management of the Audit Committee’s responsibilities under the Exchange Act. During the year ended September 30, 2020, the Audit Committee pre-approved all audit and permissible non-audit services provided by our independent auditors.

 

Service Fees Paid to the Independent Registered Public Accounting Firm

 

The Audit Committee engaged BPM LLP to perform an annual audit of our financial statements for the fiscal year ended September 30, 2020. BPM did not perform any services prior to September 30, 2019. Previously the Audit Committee engaged SD Mayer and Associates, LLP to perform an annual audit of our financial statements for the fiscal years ended September 30, 2018; SD Mayer was dismissed on October 3, 2019. The following is the breakdown of aggregate fees paid for the last two fiscal years. The audit fees listed below are those billed in the respective fiscal year but generally relate to the prior fiscal year:

 

	Year Ended	Year Ended
	September 30, 2020	September 30, 2019
Audit fees	$178,325	$53,620
Audit related fees	48,150	26,000
Tax fees	14,150	7,500
All other fees	14,615	7,800
	$255,240	$94,920