Forward-looking statements in this report reflect the good-faith judgment of our
management and the statements are based on facts and factors as we currently
know them. Forward-looking statements are subject to risks and uncertainties and
actual results and outcomes may differ materially from the results and outcomes
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences in results and outcomes include, but are not
limited to, those discussed below as well as those discussed elsewhere in this
report (including in Part II, Item 1A (Risk Factors)). Readers are urged not to
place undue reliance on these forward-looking statements because they speak only
as of the date of this report. We undertake no obligation to revise or update
any forward-looking statements in order to reflect any event or circumstance
that may arise after the date of this report.

BACKGROUND AND CAPITAL STRUCTURE

Know Labs, Inc., formerly Visualant, Incorporated, was incorporated under the
laws of the State of Nevada in 1998. Since 2007, we have been focused primarily
on research and development of proprietary technologies which can be used to
authenticate and diagnose a wide variety of organic and non-organic substances
and materials.Our Common Stock trades on the OTCQB Exchange under the symbol
"KNWN."

                                    BUSINESS

We are focused on the development, marketing and sales of a proprietary
technologies which are capable of uniquely authenticating or diagnosing almost
any substance or material using electromagnetic energy to create, record and
detect the unique "signature" of the substance. We call these our "ChromaID™"
and "Bio-RFID™" technologies.

Overview



Historically, the Company focused on the development of our proprietary ChromaID
technology. Using light from low-cost LEDs (light emitting diodes) we map the
color of substances, fluids and materials and with our proprietary processes we
can authenticate, identify and diagnose based upon the color that is present.
The color is both visible to us as humans but also outside of the humanly
visible color spectrum in the near infra-red and near ultra-violet and beyond.
Our ChromaID scanner sees what we like to call "Nature's Color Fingerprint."
Everything in nature has a unique color identifier and with ChromaID we can see
it, and identify, authenticate and diagnose based upon the color that is
present. Our ChromaID scanner is capable of uniquely identifying and
authenticating almost any substance or liquid using light to create, record and
detect its unique color signature. We will continue to develop and enhance our
ChromaID technology and extend its capacity. More recently, we have focused upon
extensions and new inventions that are derived from and extend beyond our
ChromaID technology. We call this technology Bio-RFID. The rapid advances made
with our Bio-RFID technology in our laboratory have caused us to move quickly
into the commercialization phase of our Company as we work to create revenue
generating products for the marketplace. We will also, as resources permit,
pursue licensing opportunities with third parties who have ready applications
for our technologies.

In 2010, we acquired TransTech Systems, Inc. as an adjunct to our business.
TransTech is a distributor of products for employee and personnel identification
and authentication. TransTech has historically provided substantially all of the
Company's revenues. The financial results from our TransTech subsidiary have
been diminishing as vendors of their products increasingly move to the Internet
and direct sales to their customers. While it does provide our current revenues
it is not central to our current focus as a Company. Moreover, we have written
down any goodwill associated with its historic acquisition. We continue to
closely monitor this subsidiary. We expect it to wind down completely prior to
the end of our current fiscal year.

The Know Labs Technology



We have internally and under contract with third parties developed proprietary
platform technologies to uniquely authenticate or diagnose almost any material
and substance. Our technology utilizes electromagnetic energy at various points
along the electromagnetic spectrum to perform analytics which allow the user to
identify, authenticate and diagnose depending upon the application and the
unique field of use. The Company's proprietary platform technologies are called
ChromaID and Bio-RFID.

The ChromaID patented technology utilizes light at the photon (elementary
particle of light) level through a series of emitters and detectors to generate
a unique signature or "fingerprint" from a scan of almost any solid, liquid or
gaseous material. This signature of reflected or transmitted light is digitized,
creating a unique ChromaID signature. Each ChromaID signature is comprised of
from hundreds to thousands of specific data points.

The ChromaID technology looks beyond visible light frequencies to areas of near
infra-red and ultraviolet light and beyond that are outside the humanly visible
light spectrum. The data obtained allows us to create a very specific and unique
ChromaID signature of the substance for a myriad of authentication, verification
and diagnostic applications.




                                       22


Traditional light-based identification technology, called spectrophotometry, has
relied upon a complex system of prisms, mirrors and visible light.
Spectrophotometers typically have a higher cost and utilize a form factor (shape
and size) more suited to a laboratory setting and require trained laboratory
personnel to interpret the information. The ChromaID technology uses lower cost
LEDs and photodiodes and specific electromagnetic frequencies resulting in a
more accurate, portable and easy-to-use solution for a wide variety of
applications. The ChromaID technology not only has significant cost advantages
as compared to spectrophotometry, it is also completely flexible is size, shape
and configuration. The ChromaID scan head can range in size from endoscopic to a
scale that could be the size of a large ceiling-mounted florescent light
fixture.

In normal operation, a ChromaID master or reference scan is generated and stored
in a database. We call this the ChromaID Reference Library. The scan head can
then scan similar materials to identify, authenticate or diagnose them by
comparing the new ChromaID digital signature scan to that of the original or
reference ChromaID signature or scan result. Over time, we believe the ChromaID
Reference Libraries can become a significant asset of the Company, providing
valuable information in numerous fields of use. The Reference Libraries for our
newly developed Bio-RFID will have a similar promise regarding their utility and
value.

The Company's latest technology platform is called Bio-RFID. Working in our lab
over the past year and a half, we have developed extensions and new inventions
derived in part from our ChromaID technology which we refer to as Bio-RFID
technology. We are rapidly advancing the development of this technology. We have
announced over the past several months that we have successfully been able to
non-invasively ascertain blood glucose levels in humans. We are building the
internal and external development team necessary to commercialize this newly
discovered technology as well as make additional patent filings covering the
intellectual property created with these new inventions. The first applications
of our Bio-RFID technology will be in a product we call the UBAND™. The first
UBAND product will be marketed as a real time calorie counter. It is a wearable
product which will be worn on the wrist and communicate with a smart phone
device via Bluetooth connectivity. It will provide the user with real time
information on their caloric consumption from carbohydrates.

We have also announced the results of laboratory-based comparison testing
between our Bio-RFID technology and the leading continuous glucose monitors from
Abbott Labs (Freestyle Libre®) and DexCom (G5®). These results provide evidence
of a high degree of correlation between our Bio-RFID based technology and the
current industry leaders. Our technology is fundamentally differentiated from
these industry leaders as it is completely non-invasive.

We expect to begin the process of obtaining US Food and Drug Administration
(FDA) approval of our non-invasive continuous blood glucose monitoring device
during calendar year 2019. To guide us in that undertaking we have announced the
hiring of a Chief Medical Officer and formed a Medical and Regulatory Advisory
Board to guide us through the FDA process. We are unable, however, to estimate
the time necessary for such approval nor the likelihood of success in that
endeavor.

ChromaID and Bio-RFID: Foundational Platform Technologies



Our ChromaID and Bio-RFID technologies provide a platform upon which a myriad of
applications can be developed. As platform technologies, they are analogous to a
smartphone, upon which an enormous number of previously unforeseen applications
have been developed. ChromaID and Bio-RFID technologies are "enabling"
technologies that bring the science of electromagnetic energy to low-cost,
real-world commercialization opportunities across multiple industries. The
technologies are foundational and, as such, the basis upon which the Company
believes a significant business can be built.

As with other foundational technologies, a single application may reach across
multiple industries. The ChromaID technology can, for example effectively
differentiate and identify different brands of clear vodkas that appear
identical to the human eye. By extension, this same technology can identify pure
water from water with contaminants present. It can provide real time detection
of liquid medicines such as morphine that have been adulterated or compromised.
It can detect if jet fuel has water contamination present. It could determine
when it is time to change oil in a deep fat fryer. These are but a few of the
potential applications of the ChromaID technology based upon extensions of its
ability to identify different clear liquids.

Similarly, the Bio-RFID technology can non-invasively identity the presence and
quantity of glucose in the human body. By extension, there may be other
molecular structures which this same technology can identity in the human body
which, over time, the Company will focus upon. They may include the monitoring
of drug usage or the presence of illicit drugs. They may also involve
identifying hormones and various markers of disease.

The cornerstone of a company with a foundational platform technology is its
intellectual property. We have pursued an active intellectual property strategy
and have been granted 12 patents. We currently have more than 20 patents
pending. We possess all right, title and interest to the issued patents. Ten of
the pending patents are licensed exclusively to us in perpetuity by our
strategic partner, Allied Inventors, a spin-off entity of Intellectual Ventures,
an intellectual property fund.

Our Patents and Intellectual Property



We believe that our 12 patents, more than 20 patent applications, three
registered trademarks, and our trade secrets, copyrights and other intellectual
property rights are important assets. Our issued patents will expire at various
times between 2027 and 2033. The duration of our trademark registrations varies
from country to country. However, trademarks are generally valid and may be
renewed indefinitely as long as they are in use and/or their registrations

are
properly maintained.




                                       23



The issued patents cover the fundamental aspects of the Know Labs ChromaID
technology and a growing number of unique applications ranging, to date, from
invisible bar codes to tissue and liquid analysis. We have filed patents on
Bio-RFID technology and will continue to expand the Company's patent portfolio
over time through internal development efforts as well as through licensing
opportunities with third parties.

Additionally, significant aspects of our technology are trade secrets which may
not be disclosed through the patent filing process. We intend to be diligent in
maintaining our trade secrets.

The patents that have been issued to Know Labs and their dates of issuance are:



On August 9, 2011, we were issued US Patent No. 7,996,173 B2 entitled "Method,
Apparatus and Article to Facilitate Distributed Evaluation of Objects Using
Electromagnetic Energy," by the United States Office of Patents and Trademarks.
The patent expires August 24, 2029.

On December 13, 2011, we were issued US Patent No. 8,076,630 B2 entitled "System
and Method of Evaluating an Object Using Electromagnetic Energy" by the United
States Office of Patents and Trademarks. The patent expires November 7, 2028.

On December 20, 2011, we were issued US Patent No. 8,081,304 B2 entitled "Method, Apparatus and Article to Facilitate Evaluation of Objects Using Electromagnetic Energy" by the United States Office of Patents and Trademarks. The patent expires July 28, 2030.



On October 9, 2012, we were issued US Patent No. 8,285,510 B2 entitled "Method,
Apparatus, and Article to Facilitate Distributed Evaluation of Objects Using
Electromagnetic Energy" by the United States Office of Patents and Trademarks.
The patent expires July 31, 2027.

On February 5, 2013, we were issued US Patent No. 8,368,878 B2 entitled "Method,
Apparatus and Article to Facilitate Evaluation of Objects Using Electromagnetic
Energy by the United States Office of Patents and Trademarks. The patent expires
July 31, 2027.

On November 12, 2013, we were issued US Patent No. 8,583,394 B2 entitled "Method, Apparatus and Article to Facilitate Distributed Evaluation of Objects Using Electromagnetic Energy by the United States Office of Patents and Trademarks. The patent expires July 31, 2027.

On November 21, 2014, we were issued US Patent No. 8,888,207 B2 entitled "Systems, Methods, and Articles Related to Machine-Readable Indicia and Symbols" by the United States Office of Patents and Trademarks. The patent expires February 7, 2033. This patent describes using ChromaID to see what we call invisible bar codes and other identifiers.



On March 23, 2015, we were issued US Patent No. 8,988,666 B2 entitled "Method,
Apparatus, and Article to Facilitate Evaluation of Objects Using Electromagnetic
Energy" by the United States Office of Patents and Trademarks. The patent
expires July 31, 2027.

On May 26, 2015, we were issued US Patent No. 9,041,920 B2 entitled "Device for
Evaluation of Fluids using Electromagnetic Energy" by the United States Office
of Patents and Trademarks. The patent expires March 12, 2033. This patent
describes a ChromaID fluid sampling devices.

On April 19, 2016, we were issued US Patent No. 9,316,581 B2 entitled "Method,
Apparatus, and Article to Facilitate Evaluation of Substances Using
Electromagnetic Energy" by the United States Office of Patents and Trademarks.
The patent expires March 12, 2033. This patent describes an enhancement to the
foundational ChromaID technology.

On April 18, 2017, we were issued US Patent No. 9,625,371 B2 entitled "Method,
Apparatus, and Article to Facilitate Evaluation of Substances Using
Electromagnetic Energy." The patent expires July 2027. This patent pertains to
the use of ChromaID technology for the identification and analysis of biological
tissue. It has many potential applications in medical, industrial and consumer
markets.

On April 4, 2018, we were issued US Patent No. 9,869,636 B2, entitled "Device
for Evaluation of Fluids Using Electromagnetic Energy." The patent expires
approximately April 2033. This patent pertains to the use of ChromaID technology
for evaluating and analyzing fluids such as those following through an IV drip
in a hospital or water, for example.

We continue to pursue a patent strategy to expand our unique intellectual property in the United States and other countries.






                                       24


Product Strategy

We are currently undertaking internal development work on potential products for
the consumer marketplace. This development work was previously being performed
through our Consulting Agreement with Blaze Clinical, and Phillip A. Bosua, who
served as our Chief Product Officer. In his current role as Chief Executive
Officer, Mr. Bosua continues to lead these efforts. We have announced the
development of our UBAND Calorie Counter and our UBAND CGM. We have also
recently announced the engagement of a manufacturing partner we will work with
to bring these products to market. We will make further announcements regarding
these products as development and manufacturing work on them progresses.

As time and resources permit, we also will engage with partners through
licensing our technology in various fields of use, entering into joint venture
agreements to develop specific applications of our technology, and in certain
specific instances develop our own products for the marketplace.

Currently we are focusing our current efforts on productizing our Bio-RFID technology as we move it out of the research laboratory and into the marketplace.

Research and Development



Our current research and development efforts are primarily focused improving our
Bio-RFID technology, extending its capacity and developing new and unique
applications for the technology. As part of this effort, we conduct on-going
laboratory testing to ensure that application methods are compatible with the
end-user and regulatory requirements, and that they can be implemented in a
cost-effective manner. We are also actively involved in identifying new
applications. Our current internal team along with outside consultants have
considerable experience working with the application of our technologies and
their application. We engage third party experts as required to supplement our
internal team. We believe that continued development of new and enhanced
technologies is essential to our future success. We incurred expenses of
$391,014, $570,514 and $79,405 for the six months ended March 31, 2019 and years
ended September 30, 2018 and 2017, respectively, on development activities, On
July 6, 2017, we entered into a Consulting Agreement with Phillip A. Bosua, our
Chief Product Officer to lead our development efforts. He has continued in that
role with expanded responsibilities upon his appointment as Chief Executive
Officer on April 19, 2018.

Merger with RAAI Lighting, Inc.


On April 10, 2018, we entered into an Agreement and Plan of Merger with 500
Union Corporation, a Delaware corporation and a wholly owned subsidiary of the
Company, and RAAI Lighting, Inc., a Delaware corporation. Pursuant to the Merger
Agreement, we have acquired all the outstanding shares of RAAI's capital stock
through a merger of Merger Sub with and into RAAI (the "Merger"), with RAAI
surviving the Merger as a wholly owned subsidiary of the Company.

Under the terms of the Merger Agreement, each share of RAAI common stock issued
and outstanding immediately before the Merger (1,000 shares) were cancelled and
we issued 2,000,000 shares of our common stock. As a result, we issued 2,000,000
shares of its common stock to Phillip A. Bosua, formerly the sole stockholder of
RAAI. The consideration for the Merger was determined through arms-length
bargaining by the Company and RAAI. The Merger was structured to qualify as a
tax-free reorganization for U.S. federal income tax purposes. As a result of the
Merger, the Company received certain intellectual property, related to RAAI.

Merger with Know Labs, Inc.


On May 1, 2018, Know Labs, Inc., a Nevada corporation incorporated on April 3,
2018, and our wholly-owned subsidiary, merged with and into the Company pursuant
to an Agreement and Plan of Merger dated May 1, 2018. In connection with the
merger, our Articles of Incorporation were effectively amended to change our
name to Know Labs, Inc. by and through the filing of Articles of Merger. This
parent-subsidiary merger was approved by us, the parent, in accordance with
Nevada Revised Statutes Section 92A.180. Stockholder approval was not required.
This amendment was filed with the Nevada Secretary of State and became effective
on May 1, 2018.

Corporate Name Change and Symbol Change



On May 24, 2018, the Financial Industry Regulatory Authority ("FINRA") announced
the effectiveness of a change in our name from Know Labs Incorporated to Know
Labs, Inc. and a change in our ticker symbol from VSUL to the new trading symbol
KNWN which became effective on the opening of trading as of May 25, 2018. In
addition, in connection with the name change and symbol change, we were assigned
the CUSIP number of 499238103.

THE COMPANY'S COMMON STOCK



Our common stock trades on the OTCQB Exchange under the symbol "KNWN." On May 1,
2018, we filed a corporate action with FINRA to effectively change the Company's
OTC trading symbol and change our name to "Know Labs, Inc." Our name change from
Know Labs, Incorporated to Know Labs, Inc. and symbol change from VSUL to KNWN
was announced by FINRA declared effective on the opening of trading as of May
25, 2018.




                                       25


EMPLOYEES


As of March 31, 2019, we had twelve full-time employees and two consultants or
consulting groups. Our senior management is located in the Seattle, Washington
office.

WEBSITE ACCESS TO UNITED STATES SECURITIES AND EXCHANGE COMMISSION REPORTS

We file annual and quarterly reports, proxy statements and other information
with the Securities and Exchange Commission ("SEC"). You may read and copy any
document we file at the SEC's Public Reference Room at 100 F Street, N.E.,
Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. The SEC maintains a website at
http://www.sec.gov that contains reports, proxy and information statements and
other information concerning filers. We also maintain a web site at
http://www.knowlabs.co that provides additional information about our Company
and links to documents we file with the SEC. The Company's charters for the
Audit Committee, the Compensation Committee, and the Nominating Committee; and
the Code of Conduct & Ethics are also available on our website. The information
on our website is not part of this Form 10-Q.

PRIMARY RISKS AND UNCERTAINTIES



We are exposed to various risks related to our need for additional financing,
the sale of significant numbers of our shares and a volatile market price for
our common stock. These risks and uncertainties are discussed in more detail
below in Part II, Item 1A.

RESULTS OF OPERATIONS

The following table presents certain consolidated statement of operations
information and presentation of that data as a percentage of change from
period-to-period.

(dollars in thousands)

                                                  Three Months Ended March 31,

                                             2019       2018      $ Variance % Variance


                                             (Restated)




Revenue                                       $594       $1,092    $(498)     -45.6%
Cost of sales                                 455        866       (411)      47.5%
Gross profit                                  139        226       (87)       -38.5%

Research and development expenses             184        153       31

-20.3%

Selling, general and administrative expenses 1,004 578 426 


  -73.7%
Operating loss                                (1,049)    (505)     (544)      55.5%
Other (expense) income:
Interest expense                              (400)      (793)     393        49.6%
Other income (expense)                        7          (1)       8          800.0%
Total other income (expense)                  (393)      (794)     401        50.5%
(Loss) before income taxes                    (1,442)    (1,299)   (143)      -11.0%

Income taxes - current (benefit)              -          -         -       

  0.0%
Net loss                                      $(1,442)   $(1,299)  $(143)     -11.0%

THREE MONTHS ENDED MARCH 31, 2019 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2018



Sales

Net revenue for the three months ended March 31, 2019 decreased $498,000 to
$594,000 as compared to $1,092,000 for the three months ended March 31, 2018.
The decrease was due to lower sales by TransTech. We have focused TransTech on
maximizing profits at the lower sales level.

Cost of Sales


Cost of sales for the three months ended March 31, 2019 decreased $411,000 to
$455,000 as compared to $866,000 for the three months ended March 31, 2018. The
decrease was due to lower sales by TransTech. We have focused TransTech on
maximizing profits at the lower sales level.



                                       26


Gross profit was $139,000 for the three months ended March 31, 2019 as compared
to $226,000 for the three months ended March 31, 2018. Gross profit was 22.5%
for the three months ended March 31, 2019 as compared to 20.8% for the three
months ended March 31, 2018. We have focused TransTech on maximizing profits at
the current sales level.

Research and Development Expenses


Research and development expenses for the three months ended March 31, 2019
increased $31,000 to $184,000 as compared to $153,000 for the three months ended
March 31, 2018. The increase was due to expenditures related to the development
of our Bio-RFID™ technology.

Selling, General and Administrative Expenses



Selling, general and administrative expenses for the three months ended March
31, 2019 increased $426,000 to $1,004,000 as compared to $578,000 for the three
months ended March 31, 2018.

The increase primarily was due to (i) increased stock based compensation of
$293,000 and (ii) increased other expenses of $133,000; As part of the selling,
general and administrative expenses for the three months ended March 31, 2019,
we recorded $406,000 of investor relation expenses and business development
expenses.

Other Income (Expense)



Other expense for the three months ended March 31, 2019 was $393,000 as compared
to other expense of $794,000 for the three months ended March 31, 2018. The
other expense for the three months ended March 31, 2019 included (i) interest
expense of $400,000; offset by (ii) other income of $7,000.

The other expense for the three months ended March 31, 2018 included (i)
interest expense of $793,000; and (ii) other expense of $1,000. The interest
expense related to senior convertible exchangeable debentures issued on February
28, 2018 in conjunction with a Securities Purchase Agreement dated August 14,
2017.

Net Loss

Net loss for the three months ended March 31, 2019 was $1,442,000 as compared to
a net loss of $1,299,000 for the three months ended March 31, 2018. The net loss
for the three months ended March 31, 2019, included non-cash expenses of
$911,000. The non-cash items include (i) depreciation and amortization of
$71,000; (ii) stock based compensation of $91,000; (iii) issuance of capital
stock for services and expenses of $349,000; (if) amortization of debt discount
of $362,000;  and (v) other of $38,000. TransTech's net loss from operations was
$7,000 for the three months ended March 31, 2019 as compared to a net income
from operations of $17,000 for the three months ended March 31, 2018.

The net loss for the three months ended March 31, 2018, included non-cash expenses of non-cash items of $1,037,000. The non-cash items include (i) depreciation and amortization of $16,000; (ii) stock based compensation of $2,000; (iii) conversion of interest and amortization of debt discount of $323,000; (iv) conversion of accrued liabilities of $492,000; (v) issuance of warrants for debt conversion of $110,000; (vi) other of $94,000.






                                       27



We expect losses to continue as we commercialize our ChromaID™ and Bio-RFID™
technology.

(dollars in thousands)


                                             Six Months Ended March 31,


                                             2019       2018       $ Variance % Variance


                                             (Restated)




Revenue                                       $ 1,196    $ 2,325    $ (1,129)  -48.6%
Cost of sales                                 927        1,851      (924)      49.9%
Gross profit                                  269        474        (205)      -43.2%

Research and development expenses             391        241        150

-62.2%

Selling, general and administrative expenses 1,693 992 701 


   -70.7%
Operating loss                                (1,815)    (759)      (1,056)    89.7%
Other (expense) income:
Interest expense                              (409)      (1,087)    678        62.4%
Other income (expense)                        13         19         (6)        -31.6%
Total other income (expense)                  (396)      (1,068)    672        62.9%
(Loss) before income taxes                    (2,211)    (1,827)    (384)      -21.0%

Income taxes - current (benefit)              -          -          -      

   0.0%
Net loss                                      $ (2,211)  $ (1,827)  $ (384)    -21.0%

SIX MONTHS ENDED MARCH 31, 2019 COMPARED TO THE SIX MONTHS ENDED MARCH 31, 2018

Sales


Net revenue for the six months ended March 31, 2019 decreased $1,129,000 to
$1,196,000 as compared to $2,325,000 for the six months ended March 31, 2018.
The decrease was due to lower sales by TransTech. We have focused TransTech on
maximizing profits at the lower sales level.

Cost of Sales

Cost of sales for the six months ended March 31, 2019 decreased $924,000 to $927,000 as compared to $1,851,000 for the six months ended March 31, 2018. The decrease was due to lower sales by TransTech. We have focused TransTech on maximizing profits at the lower sales level.



Gross profit was $269,000 for the six months ended March 31, 2019 as compared to
$474,000 for the six months ended March 31, 2018. Gross profit was 23.4% for the
six months ended March 31, 2019 as compared to 20.4% for the six months ended
March 31, 2018. We have focused TransTech on maximizing profits at the current
sales level.

Research and Development Expenses



Research and development expenses for the six months ended March 31, 2019
increased $150,000 to $391,000 as compared to $241,000 for the six months ended
March 31, 2018. The increase was due to expenditures related to the development
of our Bio-RFID™ technology.

Selling, General and Administrative Expenses


Selling, general and administrative expenses for the six months ended March 31,
2019 increased $1,376701,000 to $2,3681,693,000 as compared to $992,000 for the
six months ended March 31, 2018.

The increase primarily was due to (i) increased corporate development expense of
$38921,000; (ii) increased stock based compensation of $835286,000;(iii)
increased issuance of capital stock for shares and services of $278,000; and
(iv) increased other expenses of $152116,000. As part of the selling, general
and administrative expenses for the six months ended March 31, 2019, we recorded
$467,000 of investor relation expenses and business development expenses.

Other Income (Expense)

Other expense for the six months ended March 31, 2019 was $4396,000 as compared to other expense of $1,068,000 for the six months ended March 31, 2018. The other expense for the six months ended March 31, 2019 included (i) interest expense of $17409,000; offset by (ii) other income of $13,000.






                                       28


The other expense for the six months ended March 31, 2018 included (i) interest
expense of $1,087,000; offset by (ii) other income of $19,000. The interest
expense related a senior convertible exchangeable debenture issued on December
12, 2017 and February 28, 2018 in conjunction with a Securities Purchase
Agreement dated August 14, 2017.

Net Loss


Net loss for the six months ended March 31, 2019 was $2,211,000 as compared to a
net loss of $1,827,000 for the six months ended March 31, 2018. The net loss for
the six months ended March 31, 2019, included non-cash expenses of $1,146,000.
The non-cash items include (i) depreciation and amortization of $133,000; (ii)
stock based compensation of $293,000; (iii) issuance of capital stock for
services and expenses of $349,000;(iv) amortization of debt discount of
$362,000;and (v) other of $9,000. TransTech's net loss from operations was
$36,000 for the six months ended March 31, 2019 as compared to a net income from
operations of $38,000 for the six months ended March 31, 2018.

The net loss for the six months ended March 31, 2018, included non-cash expenses
of non-cash items of $1,272,000. The non-cash items include (i) depreciation and
amortization of $30,000; (ii) stock based compensation of $71,000; (iii)
conversion of interest and amortization of debt discount of $475,000; (iv)
conversion of accrued liabilities of $492,000; (v) issuance of warrants for debt
conversion of $110,000; and (vi) other of $30,000.

We expect losses to continue as we commercialize our ChromaID™ and Bio-RFID™technology.

LIQUIDITY AND CAPITAL RESOURCES



Liquidity is the ability of a company to generate funds to support its current
and future operations, satisfy its obligations, and otherwise operate on an
ongoing basis. Significant factors in the management of liquidity are funds
generated by operations, levels of accounts receivable and accounts payable and
capital expenditures.

We had cash of approximately $3,062,000 and net working capital deficit of
approximately $1,308,000 (net of convertible notes payable and notes payable) as
of March 31, 2019. We have experienced net losses since inception and we expect
losses to continue as we commercialize our ChromaID™ technology. As of March 31,
2019, we had an accumulated deficit of $37,003,000 and net losses in the amount
of $2,211,000, $3,258,000 and $3,901,000 for the six months ended March 31, 2019
and years ended September 30, 2018 and 2017, respectively. We believe that our
cash on hand will be sufficient to fund our operations through December 31,
2019.

As of March 31, 2019, we closed rounds of a debt offering and received gross
proceeds of $3,809,976 in exchange for issuing Subordinated Convertible Notes
(the "Convertible Notes") and Warrants (the "Warrants") in a private placement
to 35 accredited investors, pursuant to a series of substantially identical
Securities Purchase Agreements, Common Stock Warrants, and related documents.

The Convertible Notes have a principal amount of $3,809,976 and bear annual
interest of 8%. Both the principal amount and the interest are payable on a
payment-in-kind basis in shares of Common Stock of the Company (the "Common
Stock"). They are due and payable (in Common Stock) on the earlier of (a)
mandatory and automatic conversion of the Convertible Notes into a financing
that yields gross proceeds of at least $10,000,000 (a "Qualified Financing") or
(b) on the one-year anniversary of the Convertible Notes (the "Maturity Date").
Investors will be required to convert their Convertible Notes into Common Stock
in any Qualified Financing at a conversion price per share equal to the lower of
(i) $1.00 per share or (ii) a 25% discount to the price per share paid by
investors in the Qualified Financing. If the Convertible Notes have not been
paid or converted prior to the Maturity Date, the outstanding principal amount
of the Convertible Notes will be automatically converted into shares of Common
Stock at the lesser of (a) $1.00 per share or (b) any adjusted price resulting
from the application of a "most favored nations" provision, which requires the
issuance of additional shares of Common Stock to investors if the Company issues
certain securities at less than the then-current conversion price.

We expect to continue offering additional Convertible Notes and Warrants on substantially the same terms until April 15, 2019 (unless extended at our discretion) or until we have raised a maximum of $5 million in gross proceeds (or such other amount determined by us).



The opinion of our independent registered public accounting firm on our audited
financial statements as of and for the year ended September 30, 2018 contains an
explanatory paragraph regarding substantial doubt about our ability to continue
as a going concern. Our ability to continue as a going concern is dependent upon
raising capital from financing transactions.

We need additional financing to implement our business plan and to service our
ongoing operations and pay our current debts. There can be no assurance that we
will be able to secure any needed funding, or that if such funding is available,
the terms or conditions would be acceptable to us. If we are unable to obtain
additional financing when it is needed, we will need to restructure our
operations, and divest all or a portion of our business. We may seek additional
capital through a combination of private and public equity offerings, debt
financings and strategic collaborations. Debt financing, if obtained, may
involve agreements that include covenants limiting or restricting our ability to
take specific actions, such as incurring additional debt, and could increase our
expenses and require that our assets secure such debt. Equity financing, if
obtained, could result in dilution to our then-existing stockholders and/or
require such stockholders to waive certain rights and preferences. If such
financing is not available on satisfactory terms, or is not available at all, we
may be required to delay, scale back, eliminate the development of business
opportunities or file for bankruptcy and our operations and financial condition
may be materially adversely affected.

We have financed our corporate operations and our technology development through
the issuance of convertible debentures, the issuance of preferred stock, the
sale common stock, issuance of common stock in conjunction with an equity line
of credit, loans by our Chairman and the exercise of warrants.




                                       29


Operating Activities

Net cash used in operating activities for the six months ended March 31, 2019
was $1,148,000. This amount was primarily related to (i) a net loss of
$2,211,000; and (ii) working capital changes of $81,000; offset by (iii)
non-cash expenses of $1,146,000. The non-cash items include (iv) depreciation
and amortization of $133,000; (v) stock based compensation of $293,000; (vi)
issuance of capital stock for services and expenses of $349,000;(vii)
amortization of debt discount of $343,000; and (viii) other of $9,000.

Investing Activities



Net cash used in investing activities for the six months ended March 31, 2019
was $75,000. This amount was primarily related to the investment in equipment
for research and development.

Financing Activities



Net cash provided by financing activities for the six months ended March 31,
2019 was $3,350,000. This amount was primarily related to issuance of
convertible notes payable for cash of $3,810,000, offset by repayments of line
of credit of $92,000 and payments for issuance costs for notes payable of
$368,000

Our contractual cash obligations as of March 31, 2019 are summarized in the
table below:


                                                       Less Than                           Greater Than


                                         Total         1 Year        1-3 Years   3-5 Years 5 Years
    Contractual Cash Obligations (1)
Operating leases                          $ 389,994     $ 187,652     $ 196,526   $ 5,816   $ -
Convertible notes payable (Restated)      6,065,042     6,065,042     -    

      -         -
                                          $ 6,455,036   $ 6,252,694   $ 196,526   $ 5,816   $ -



(1)
Convertible notes payable includes $3,808,976 that converts into common stock at
the maturity date during early 2020. We expect to incur capital expenditures
related to the development of the "Bio-RFID™" and "ChromaID™" technologies. None
of the expenditures are contractual obligations as of March 31, 2019.

Off-Balance Sheet Arrangements


We do not have any off-balance sheet arrangements (as that term is defined in
Item 303 of Regulation S-K) that are reasonably likely to have a current or
future material effect on our financial condition, revenue or expenses, results
of operations, liquidity, capital expenditures or capital resources.

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