Annual Report for Fiscal Year Ending 09-30, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this report. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly in the sections titled "Risk Factors" and "Special Note Regarding Forward-Looking Statements."

The following discussion and analysis should be read together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed in or implied by these forward-looking statements due to factors including those described under "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements." We do not undertake to update forward-looking statements except as required by law.

Overview

USBC, Inc. is a publicly traded multi-disciplinary technology company that we believe is an industry leading innovator in digital financial technologies. Under the leadership of Chairman and Chief Executive Officer, Greg Kidd, USBC develops transformative financial services, including digital assets and banking solutions as well as non-invasive health monitoring research.

USBC has implemented a Bitcoin treasury strategy to bolster pre-launch development and research across its various divisions. A key focus of USBC is the further development of the USBC tokenized deposit offering, a U.S.-dollar denominated tokenized deposit that will operate on blockchain technology, be embedded with digital identity, and may offer high-yield rewards. With a focus on identity, inclusion, innovation, and risk management, USBC is dedicated to creating long-term shareholder value in a rapidly evolving financial landscape.

Recent Developments

As previously disclosed, on August 6, 2025, we issued approximately 357.8 million shares of our common stock, par value $0.001 per share to Goldeneye 1995 LLC, an affiliate of our Chairman and Chief Executive Officer Greg Kidd, at a per share purchase price of $0.335 in exchange for aggregate purchase price of: (i) 1,000 Bitcoin, and (ii) $15 million in cash. In connection with the issuance of the shares, the board of directors approved the change in the name of the Company to USBC, Inc. from Know Labs, Inc. and the change in trading symbol of the Company to "USBC" from "KNW" on the New York Stock Exchange American LLC ("NYSE"), to align with our strategic transition into a multi-disciplinary enterprise following closing.

Our Bitcoin treasury strategy operates in parallel with our continuing non-invasive health monitoring technology research, and the further development of the USBC tokenized deposit offering. We are focused on developing go-to market and sales strategies to acquire customers and drive future revenue while optimizing efficiency and ensuring transparency.

We view our Bitcoin holdings as long-term holdings and we intend to strategically utilize Bitcoin as a primary treasury reserve asset to generate yield to help support the current business and future growth and expansion of new business lines. We have developed partnerships with premier Bitcoin financial services platforms and institutional services providers, leveraging their expertise to ensure secure execution, robust governance, and market transparency of our yield generation treasury strategy.

On August 6, 2025, we appointed Hyrcanian Asset Management, LLC to provide discretionary investment management services with respect to our Bitcoin treasury trading strategy which resulted in an addition of 2.6 Bitcoin, or approximately $283,000, to our Bitcoin holdings during the three months ended September 30, 2025, based on the price of a Bitcoin as of September 30, 2025. We held approximately 1,003 Bitcoin on our balance sheet with a carrying value of approximately $115.0 million as of September 30, 2025, which value may be materially impacted as the market value of Bitcoin fluctuates. We believe that we are well-positioned to execute on our long-term yield generation trading strategy, coupled with our relative position and liquidity.

On September 29, 2025, our stockholders approved the Amended and Restated USBC, Inc. 2021 Equity Incentive Plan (the "2021 Plan"). The 2021 Plan, among other things, (i) increased the number of shares of common stock authorized for issuance by 65,000,000 shares; (ii) provides flexibility to the Board and/or its compensation committee to expressly permit repricings and other exchanges of awards under the 2021 Plan from time to time; and (iii) amended the evergreen provision so that, beginning January 1, 2026 and each January 1 thereafter through January 1, 2030, the share reserve may automatically increase by up to 15,000,000 shares, 4% of outstanding common stock, or such lower amount as determined by the Board.

On October 7, 2025, our Board of Directors approved the repricing of the 48,620,000 option grants awarded in August 2025, lowering the exercise price to $1.10 per share from $2.45 per share. There were no other changes to the vesting schedule or timelines of these awards.

During October 2025, our Board of Directors approved the issuance of stock option grants for 62,530,000 shares at a weighted average exercise price of $1.07 per share. The stock option grants expire in ten years and vest over four years.

28

On October 23, 2025, we announced a preliminary partnership with Uphold and Vast Bank to launch the USBC tokenized deposit program. Uphold is an infrastructure provider for on-chain finance and Vast Bank is a nationally-chartered bank. The new strategic partnership will introduce the world's first retail tokenized deposit offering, providing unprecedented global access to U.S. dollar-denominated tokenized deposits and U.S. dollar deposit accounts worldwide for individuals, enterprises and financial institutions.

With this new partnership, Uphold's customers will be able to open U.S. dollar deposit accounts enabling customers to hold and transfer digital representations of their U.S. dollar deposits at Vast Bank on USBC's privacy-preserving blockchain ledger. Enabled by Vast Bank's national charter and compliance framework, USBC tokenized deposit offering is being designed to enable the underlying deposit account to be eligible for FDIC insurance (in accordance with applicable limits and requirements) and subject to Reg E protections. Uphold, Vast and USBC have entered into a non-binding Memorandum of Understanding (MOU) to finalize the terms of their strategic partnership in a definitive agreement. While non-binding, the MOU reflects a shared intent to finalize the terms of the partnership during the fourth quarter of 2025, with the final agreement being subject to requisite board and regulatory approvals.

Results of Operations

The following table sets forth key components of our results of operations for the years ended September 30, 2025 and 2024.

In thousands of $
		Years Ended September 30,
		2025				2024				$ Variance
Operating expenses-
Research and development expenses		$	1,753			$	6,114			$	(4,361	)
Selling, general and administrative expenses			16,294				9,109				7,185
Total operating expenses			18,047				15,223				2,824
Operating loss			(18,047	)			(15,223	)			2,824
Other (Expense) Income, Net:
Interest income			66				155				(89	)
Interest expense			(2,834	)			(1,514	)			(1,320	)
Loss on debt settlements, net			(942	)			-				(942	)
Change in fair value of digital assets			(823	)			-				(823	)
Other derivative income, net			283				-				283
Total other (expense), net			(4,250	)			(1,359	)			(2,891	)
Loss before income taxes			(22,297	)			(16,582	)			(5,715	)
Income tax benefit			(174	)			-				(174	)
Net loss		$	(22,123	)		$	(16,582	)		$	(5,541	)

Our operating results for the year ended September 30, 2025 include the results of operations of our Bitcoin treasury trading strategy and the shift to our financial-technology development initiative following the Goldeneye capital investment on August 6, 2025.

Revenues. We did not generate any operating revenue during either period presented. The legacy Know Labs business is a pre-commercial research enterprise without product sales. Following the shift in our business plan on August 6, 2025 to include the management of digital assets and financial-technology development opportunities, we expect future operating revenues to primarily be generated from financial technology network services such as the recent partnership with Uphold and Vast Bank that is expected to bring the first retail U.S. dollar-denominated tokenized deposits designed to provide worldwide access to U.S. dollar deposit accounts.

Research and Development. R&D expense decreased by $4,361,000 to $1,753,000 for the year ended September 30, 2025 as compared to $6,114,000 for the year ended September 30, 2024, primarily due to reduced personnel, use of consultants, and lower expenditures related to the development of our radio frequency spectroscopy Bio-RFID™ technology. During the year ended September 30, 2025, we reduced headcount and the use of external consultants, reducing the cost of development of our radio frequency spectroscopy Bio-RFID™ technology. During the year ended September 30, 2024, we developed Generation 3 and launched the Generation 2 working prototype device.

29

Selling, General and Administrative. SG&A expense increased by $7,185,000 to $16,294,000 for the year ended September 30, 2025 as compared to $9,109,000 for the year ended September 30, 2024, primarily due to an increase in non-cash stock -based compensation expense of $4,450,000, severance of $530,000, and legal and advisory fees of $2,323,000, partially offset by other science division expense reductions.

Other (Expense) Income, Net. Other expense, net increased by $2,891,000 to $4,250,000 for the year ended September 30, 2025 as compared to $1,359,000 for the year ended September 30, 2024, which was primarily driven by a combination of increases in interest expense of $1,320,000, loss on debt settlements, net of $942,000 and a decrease of $823,000 in fair value of digital assets. These increases reflect the impact of non-cash interest expense and amortization of debt discount related to legacy convertible instruments, partially offset by other derivative income, net from the yield generated by option premiums collected on our Bitcoin treasury trading strategy of $283,000.

Net Loss. We reported a net loss of $22,123,000 for the year ended September 30, 2025 compared with a net loss of $16,582,000 for the year ended September 30, 2024. The higher net loss of $5,541,000 primarily reflects increases in operating expenses, including $7,407,000 of non-cash stock-based compensation expense recognized, partially offset by the decrease in research and development expenses and the other derivative income, net generated from derivative trading activities beginning in the year ended September 30, 2025. Although we expect our operating losses to continue in the near term, we believe our potential revenue opportunities and strengthened capital structure have the potential to provide us with the flexibility to pursue our digital-asset and financial-technology initiatives.

Known Trends and Uncertainties

We anticipate that our future operating results will be heavily influenced by the following factors:

	●	Financing dependence: We expect to require additional equity or debt financings in the near term to fund the shortfall in net operating revenue as we continue investing in the further development of the tokenized deposit program.
	●	Digital-asset market volatility: Changes in the market price of Bitcoin could cause material non-cash gains or losses in our operating expenses each period.
	●	Integration of banking partners: Our future results will depend on successful technical and regulatory integration with partner banks and technology providers supporting our tokenized-deposit platform. Delays or changes in partner strategy could affect timing of launches and revenue realization.
	●	Regulatory developments: Evolving federal and state treatment of digital assets, stablecoins, and related financial-technology services could adversely affect our business model and accounting policies.
	●	Potential divestiture: As part of the ongoing review of our business operations, management is assessing whether the legacy non-invasive sensor business continues to align with our long-term strategy, capital allocation priorities and revenue generation opportunities. No decision has been made, and there can be no assurance that any transaction will occur.

Liquidity and Capital Resources

As of September 30, 2025, we had cash and cash equivalents of $8,822,000 and working capital of $6,018,000. We have historically incurred recurring losses and we had an accumulated deficit of $163,090,000 as of September 30, 2025. We recorded net losses of $22,123,000 and $16,582,000 during the years ended September 30, 2025 and 2024, respectively.

Our liquidity primarily reflects the net proceeds of the equity issuance from the private placement completed on August 6, 2025 in which we issued approximately 357.8 million shares of common stock at $0.335 per share, for an aggregate purchase price consisting of 1,000 Bitcoin and $15 million in cash. As such, a substantial portion of our assets consist of Bitcoin. We view our Bitcoin holdings as long-term strategic reserves rather than trading assets although we may convert Bitcoin to cash periodically to fund operations. Management believes existing liquidity is sufficient for at least 12 months after issuance of these financial statements.

30

Non-GAAP Financial Measure

Adjusted EBITDA is a non-GAAP financial measure used by our management to better help evaluate our financial performance and provide more useful information to investors and others in understanding our operating results. This measure removes the effect of certain non-cash items, non-recurring items, unrealized gains or losses or other similar non-cash items that are included in our net loss that otherwise do not contribute directly to management's evaluation of its operating results.

Adjusted EBITDA is defined as net loss excluding interest expense primarily incurred in connection with the conversion or extinguishment of our convertible debt obligations, stock-based compensation expense, non-cash changes in the fair value of digital assets, income taxes, and any other items that management has determined are not reflective of our operating performance because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. Adjusted EBITDA should be viewed independently of our reported GAAP net loss as this metric is meant to be considered in addition to, not as a substitute for or in isolation from, our net loss prepared in accordance with GAAP.

The following table reconciles Adjusted EBITDA to net loss, the most closely comparable GAAP financial measure, for the periods indicated:

		Years Ended,
		September 30, 2025				September 30, 2024
Net income (loss)		$	(22,123,000	)		$	(16,582,000	)
Plus: Stock-based compensation			8,774,000				3,318,000
Plus: Interest expense			2,834,000				1,514,000
Plus: Loss on debt settlements, net			942,000				-
Plus: Change in fair value of digital assets			823,000				-
Subtract: Income tax benefit			(173,000	)			-
Adjusted EBITDA		$	(8,923,000	)		$	(11,750,000	)

Financing Transactions Related to the Private Placement

In connection with the private placement of shares of our common stock with Goldeneye 1995 LLC, the following financing transactions closed on August 6, 2025:

	●	The sole holder of Series C and D Convertible Preferred Stock, elected redemption, including dividends, for 8.3 million shares of common stock.
	●	The holder of convertible debt, elected conversion, including interest, for a combination of $75,000 in cash and 3.3 million shares of common stock.
	●	In connection with the private placement, we issued 3.9 million shares of common stock to J.V.B. Financial Group LLC (Cohen & Company Capital Markets) as Goldeneye 1995 LLC's financial advisor.
	●	In connection with the private placement, we issued 3.9 million shares of common stock to Fifth Era LLC as Goldeneye 1995 LLC's financial advisor.
	●	The sole holder of Series H Convertible Preferred Stock, an entity affiliated with our former CEO, elected redemption, including interest, for a combination of $654,276 in cash and 2,000,000 shares of common stock.
	●	We repaid in full the Lind Global Fund II LP promissory note for approximately $2.35 million in cash, including prepayment penalties.

31

The net effect of these transactions was the elimination of all outstanding preferred equity and convertible debt, a significant increase in authorized capital (from 7.5 million shares to 750 million shares), and the creation of net equity.

The $15 million cash component of the purchase price was partially used to satisfy these redemptions, repayments, and transaction costs, with the remainder allocated to working capital.

Operating Activities

Net cash used in operating activities for the fiscal years ended September 30, 2025 and 2024 was $7,596,000 and $12,829,000, respectively.

Net cash used in operating activities for fiscal year 2025 was primarily related to a net loss of $22,123,000, partially offset by working capital changes of $1,883,000 and non-cash expenses of $12,644,000. The non-cash items primarily include (i) stock-based compensation of $7,407,000; (ii) amortization of debt issuance costs of $1,186,000; (iii) issuance of common stock for services of $1,096,000; (iv) loss on debt extinguishment of $942,000; (v) change in fair value of digital assets of $823,000; (vi) interest expense for default of convertible notes of $749,000; (vii) extension of notes and warrants of $513,000; and (viii) offset by other non-cash items of $72,000.

Net cash used in operating activities for fiscal year 2024 was primarily related to (i) a net loss of $16,582,000; (ii) working capital changes of $1,177,000; and partially offset by (iii) non-cash expenses of $4,930,000. The non-cash items include (i) depreciation and amortization of $81,000; (ii) stock based compensation-stock options of $2,958,000; (iii) issuance of common stock for services of $277,000; (iv) amortization of operating lease right-of-use asset of $189,000; amortization of debt issuance costs of $831,000; and (v) interest expense for extension of notes and warrants of $594,000.

Investing Activities

Net cash used in investing activities for fiscal year 2024 was $66,000, primarily related to investments in equipment for research and development. No net cash was used in investing activities during fiscal year 2025.

Financing Activities

Net cash provided by financing activities for the fiscal years ended 2025 and 2024 was $13,307,000 and $7,983,000, respectively.

Net cash provided by financing activities for fiscal year 2025 was primarily related to (i) proceeds from issuance of common stock-Goldeneye 1995 LLC capital investment of $15,000,000: (ii) proceeds from a debt offering of $200,000; (iii) proceeds from Original Issuance Discount Notes of $246,000; (iv) proceeds from the issuance of common stock, net of $300,000; (v) proceeds from the At The Market common stock offering of $1,284,000; (vi) proceeds from convertible notes payable of $656,000 offset by (vii) repayment of notes payable of $3,419,000; and (viii) redemption of Series H preferred stock of $514,000.

Net cash provided by financing activities for the fiscal year ended 2024 was primarily related to (i) the proceeds from debt offering, net of expenses, of $3,764,000; (ii) proceeds from common stock offering, net of expenses of $5,193,000; (iii) proceeds from the issuance of common stock from the exercise of warrants of $8,000; partially offset by (iv) repayment of note payable of $720,000; and (v) payments of debt offering of $262,000.

Capital Requirements and Future Liquidity

We expect to continue incurring operating losses as we fund the further development of our tokenized deposit program. Our ability to sustain operations and execute our strategy depends on our capacity to raise additional capital through equity or debt financings.

Future capital needs will depend on, among other things:

	●	potential licensing or technology-development expenditures,
	●	regulatory and compliance costs associated with financial technology activities, and
	●	any acquisitions or strategic investments.

32

Management is actively evaluating whether a divestiture of the legacy non-invasive sensor business could enhance our strategic focus, margin profile and longer-term shareholder value. If we elect to proceed with a divestiture, we may redeploy capital to help fund the tokenized deposit program instead of the sensor business. Because discussions are preliminary, there is no assurance that any transactions will be consummated, nor can we estimate the timing, terms or financial impact of any potential sale.

Based on our current projections, management believes we have adequate resources to meet our obligations for the next twelve months; however, continuation of operations beyond that period will depend on market conditions for additional capital and the financial performance of our tokenized deposit program.

Contractual Obligations and Commitments

Our contractual cash obligations as of September 30, 2025 are summarized in the table below:

						Less Than
Contractual Cash Obligations (1)		Total				1 Year				1-3 Years
Operating leases		$	282,501			$	100,663			$	181,838

(1) We may incur capital expenditures related to the development of the "Bio-RFID™" and "ChromaID" technologies. None of the expenditures are contractual obligations as of September 30, 2025.

As of September 30, 2025, digital assets totaling approximately $34.5 million were pledged as collateral under agreements that permit the secured party to exercise control and liquidate such assets under certain conditions, including events of default or margin deficiencies related to our derivative trading strategy. As of September 30, 2025, we had experienced no such events of default or margin deficiencies.

We had no other off balance sheet arrangements as of September 30, 2025.

Critical Accounting Policies Involving Significant Estimates

The following discussion relates to critical accounting policies for our company which involve significant estimates. The preparation of financial statements in conformity with United States generally accepted accounting principles, or GAAP, requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management's difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements.

Valuation of Digital Assets

We hold Bitcoin as the principal component of our balance sheet. Digital assets such as Bitcoin are initially recorded at cost and subsequently measured at fair value, with changes in fair value recognized in the line item, change in fair value of digital assets.

Because active quoted prices exist only on certain trading platforms, we use observable Level 1 inputs when available and Level 2 inputs (such as composite or volume-weighted prices) when market liquidity or trading restrictions make Level 1 data less representative. The determination of fair value requires judgment, particularly during periods of volatility or when exchanges experience constrained trading volumes.

33

Our Bitcoin holdings are custodied by a third-party institutional custodian under multi-signature cold-storage arrangements designed to mitigate security risk. Management continues to monitor FASB's evolving guidance on fair-value accounting for digital assets. Future adoption of new standards could significantly affect our results of operations and balance-sheet presentation.

Accounting for Derivatives & Trading Activities

As part of our Bitcoin yield generation strategy trading activities, we enter into option derivative contracts on our Bitcoin holdings. We enter into short-term arrangements that result in obtaining the right to receive or obligation to deliver a fixed amount of Bitcoin crypto assets in the future. Derivatives are instruments that derive their value from changes in an underlying reference outside of our control. Derivatives may be traded on an exchange (exchange-traded) or they may be privately negotiated contracts, which are usually referred to as over the counter ("OTC") derivatives. We settle the options in physical delivery. We account for these derivatives in accordance with ASC 815, Derivatives and Hedging.

Stock-Based Compensation

We account for stock-based awards under ASC 718, Compensation - Stock Compensation. The fair value of stock options and warrants is estimated using the Black-Scholes-Merton option-pricing model, which requires assumptions regarding expected volatility, risk-free interest rates, expected term, and dividend yield. For restricted stock awards, fair value is based on the closing market price of our common stock on the grant date.

Because volatility and expected-term assumptions involve significant judgment, changes in these inputs could materially affect compensation expense recognized under the Amended and Restated 2021 Equity Incentive Plan (see Item 11 - Executive Compensation).

Convertible Instruments and Derivatives

When we issue convertible debt or equity instruments that may contain embedded conversion or redemption features, we evaluate whether those features require bifurcation and separate accounting as derivatives under ASC 815. Determining the fair value of embedded derivatives involves the use of valuation models incorporating market-based assumptions, such as the volatility of our stock price, expected term, and discount rates. Future volatility or interest-rate changes could result in material non-cash gains or losses each period.

Potential Divestiture of Business

If a sale of the non-invasive sensor business becomes probable, the business may be evaluated for classification as held for sale and potentially as a discontinued operation under ASC 205-20, Presenting Discontinued Operations. As of the filing date, management has not concluded that classification as held for sale is appropriate because negotiations have not reached a stage where a sale is probable.

Going Concern

In accordance with ASC 205-40, management evaluates our ability to continue as a going concern for a period of one year after the date the financial statements are issued. Our assessment considers current cash on hand, expected cash flows from operations, and our ability to raise additional capital. In December 2025, the Company analyzed its cash requirements and operations at least through December 2026 and has determined that, based upon the Company's current available cash, the value of its assets and operations, the Company has no substantial doubt about its ability to continue as a going concern. While the capital investment significantly improved our liquidity, our business model remains dependent on external financing and the value of digital assets, both of which are subject to market volatility and investor sentiment.