Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and notes thereto included herein as Item 8. This discussion contains forward-looking statements. Refer to “Forward-Looking Statements” on page 4 and “Risk Factors” beginning on page 12, for a discussion of the uncertainties, risks and assumptions associated
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with these statements. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.
Overview
We are a developer of advanced physical security technologies focused on enhancing U.S. security operations. Knightscope designs, develops, manufactures, markets, and supports ASRs with real-time on-site data collection and analysis and a proprietary interface for both indoor and outdoor usage. In addition, we developed and operate the KSOC which allows real-time data access, a service accessible to all our clients.
Our primary focus is on the development, deployment and marketing of our core technologies which are designed to be a force multiplier, offering improved situational awareness to security professionals and are suitable for most environments that require security patrol coverage. We sell our solutions under an annual subscription, MaaS business model, which includes the ASR rental as well as maintenance, service, support, data transfer, KSOC access, docking stations, and unlimited software, firmware and select hardware upgrades. Our current strategy is to focus on servicing the United States for the foreseeable future before considering global expansion.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our accompanying financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates, assumptions and judgments that can have significant impact on the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of assets and liabilities at the date of our financial statements. For the Company, these estimates include, but are not limited to: deriving the useful lives of ASRs, determination of the cost of ASRs, assessing assets for impairment, and the valuation of convertible preferred stock warrants and stock options. Actual results could differ from those estimates. We base our estimates, assumptions and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On a regular basis, we evaluate our estimates, assumptions and judgments and make changes accordingly.
We believe the following critical accounting estimates affect our more significant judgments and estimates used in preparing our financial statements. Please see Note 1 to our financial statements, which are included in Item 8 “Financial Statements and Supplementary Data” of this Annual Report, for our Company Summary of Significant Accounting Policies. There have been no material changes made to the critical accounting estimates during the periods presented in the financial statements.
Autonomous Security Robots, net (“ ASRs”)
ASRs consist of materials, ASRs in progress and finished ASRs. ASRs in progress and finished ASRs include materials, labor and other direct and indirect costs used in their production. Finished ASRs are valued using a discrete bill of materials, which includes an allocation of labor and direct overhead based on assembly hours. Depreciation expense on ASRs is recorded using the straight-line method over their estimated expected lives, which currently ranges from 3 to 4.5 years. Depreciation expense of finished ASRs included in research and development expense amounted to $82 thousand and $83 thousand, depreciation expense of finished ASRs included in sales and marketing expense amounted to $71 thousand and $70 thousand, and depreciation expense included in cost of revenue, net amounted to $1.4 million and $1.2 million for the years ended December 31, 2021 and 2020, respectively.
ASRs, net, consisted of the following (in thousands):
December 31,
2021
2020
Raw materials
$
1,041
$
597
ASRs in progress
427
132
Finished ASRs
7,695
6,217
9,163
6,946
Accumulated depreciation on Finished ASRs
(6,192)
(4,656)
ASRs, net
$
2,971
$
2,290
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The components of the Finished ASRs, net at December 31, 2021 and 2020 are as follows:
ASRs on lease or available for lease
$
6,489
$
4,822
Demonstration ASRs
585
604
Research and development ASRs
320
567
Charge boxes
301
224
7,695
6,217
Less: accumulated depreciation
(6,192)
(4,656)
Finished ASRs, net
$
1,503
$
1,561
Impairment of Long-Lived Assets
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable from the estimated future cash flows expected to result from their use or eventual disposition. If estimates of future undiscounted net cash flows are insufficient to recover the carrying value of the assets, the Company will record an impairment loss in the amount by which the carrying value exceeds the fair value. If the assets are determined to be recoverable, but the useful lives are shorter than originally estimated, the Company will depreciate or amortize the net book value of the assets over the newly determined remaining useful lives. None of the Company’s ASRs or property and equipment was determined to be impaired during the year ended December 31, 2021 and 2020.
Convertible Preferred Warrant Liabilities and Common Stock Warrants
Freestanding warrants to purchase shares of the Company’s preferred stock are classified as liabilities on the balance sheets at their estimated fair value because the underlying shares of preferred stock are contingently redeemable and, therefore, may obligate the Company to transfer assets at some point in the future. The preferred stock warrants are recorded at fair value upon issuance and are subject to remeasurement to their respective estimated fair values. At the end of each reporting period, changes in the estimated fair value of the preferred stock warrants are recorded in the statements of operations. The Company will continue to adjust the liability associated with the preferred stock warrants for changes in the estimated fair value until the earlier of the exercise or expiration of the preferred stock warrants, the completion of a sale of the Company or an underwritten initial public offering (“IPO”). Upon an IPO, the preferred stock warrants will convert into warrants to purchase common stock and any liabilities recorded for the preferred stock warrants will be reclassified to additional paid-in capital and will no longer be subject to remeasurement.
The Company issued common stock warrants in connection with the execution of a certain debt financing during the year ended December 31, 2015. These common stock warrants are not considered derivative liabilities are accounted for at fair value at the date of issuance in additional paid-in capital and remain outstanding as of December 31, 2021. The fair value of these common stock warrants is determined using the Black-Scholes option-pricing model.
Share-Based Compensation
The Company accounts for stock-based compensation in accordance with Accounting Standards Codification 718, Compensation - Stock Compensation , which requires that the estimated fair value on the date of grant be determined using the Black-Scholes option pricing model with the fair value recognized over the requisite service period of the awards, which is generally the option vesting period. Stock-based awards made to nonemployees are measured and recognized based on the estimated fair value on the vesting date and are re-measured at each reporting period. The Company’s determination of the fair value of the stock-based awards on the date of grant, using the Black-Scholes option pricing model, is affected by the fair value of the Company’s common stock as well as other assumptions regarding a number of highly complex and subjective variables. These variables include but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee option exercise behaviors. Because there is insufficient historical information available to estimate the expected term of the stock-based awards, the Company adopted the simplified method of estimating the expected term of options granted by taking the average of the vesting term and the contractual term of the option. For awards with graded vesting, the Company recognizes stock-based compensation expense over the service period using the straight-line method, based on shares ultimately expected to vest. The Company recognizes forfeitures as they occur when calculating stock-based compensation for its equity awards.
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Results of Operations
The following table sets forth certain historical statements of operations data (in thousands) and such data as a percentage of revenue for the periods indicated.
Year ended December 31,
2021
2020
Revenue, net
$
3,407
100
%
$
3,335
100
%
Cost of revenue, net
5,464
160
%
4,634
139
%
Gross loss
(2,057)
(60)
%
(1,299)
(39)
%
Operating Expenses
Research and development
5,601
164
%
3,245
97
%
Sales and marketing
12,017
353
%
7,310
219
%
General and administrative
4,880
143
%
2,788
84
%
Total operating expenses
22,498
660
%
13,343
400
%
Loss from operations
(24,555)
(721)
%
(14,642)
(439)
%
Interest expense, net
(4,333)
(127)
%
(2,259)
(68)
%
Change in fair value of warrant liabilities
(15,718)
(461)
%
(2,425)
(73)
%
Other income (expense), net
763
(22)
%
(11)
—
%
Total other expense, net
(19,288)
(566)
%
(4,695)
(141)
%
Loss before income tax expense
(43,843)
(1,287)
%
(19,337)
(580)
%
Income tax expense
—
—
%
(4)
—
%
Net loss
$
(43,843)
(1,287)
%
$
(19,341)
(580)
%
Revenue, net
Revenue for the year ended December 31, 2021 was relatively flat at approximately $3.4 million, as compared to approximately $3.3 million for the year ended December 31, 2020, primarily due to new deployments in 2021 offset by increased backlog resulting from supply chain delays and client subscription terminations.
Cost of revenue, net
Cost of revenue, net for the year ended December 31, 2021 was approximately $5.5 million, as compared to approximately $4.7 million for the year ended December 31, 2020, representing an increase of approximately $0.8 million, or approximately 18%. As a percentage of revenue, cost of revenue, net increased to 160% from 139%. The increase in cost of revenue, net was primarily related to increased depreciation, service, consumable supplies and hardware costs relating to deployed ASR’s as well as increased personnel costs partially due to increased headcount.
Gross loss
Gross loss for the year ended December 31, 2021 was approximately $2.1 million, as compared to $1.3 million for the year ended December 31, 2020, representing an increase of $0.8 million, or 59%. The increase in gross loss was primarily due to revenue remaining unchanged from 2020 to 2021 coupled with an incremental increase in costs during 2021 relating to deployed ASR’s and increased personnel related costs.
Research and Development
Year Ended
December 31,
2021
2020
$ Change
% Change
Research and development
$
5,601
$
3,245
$
2,356
73
%
Percentage of total revenue
164
%
97
%
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Research and development (“R&D”) expense for the year ended December 31, 2021 was approximately $5.6 million, or 164% of revenue, compared to R&D expense of $3.2 million, or 97% of revenue, for the year ended December 31, 2020. R&D expense increased primarily due to investment in FedRamp and cybersecurity necessitating increased headcount.
Sales and marketing
Year Ended
December 31,
2021
2020
$ Change
% Change
Sales and marketing
$
12,017
$
7,310
$
(4,707)
(64)
%
Percentage of total revenue
353
%
219
%
Sales and marketing expense for the year ended December 31, 2021 was approximately $12.0 million, or 353% of revenue, compared to sales and marketing expense of $7.3 million, or 219% of revenue, for the year ended December 31, 2020. The increase in sales and marketing expense was primarily due to an increase in in the Company’s advertising expense during the 2020 and 2021 Regulation A Offerings as well as increased investment in professional services to support sales during 2021.
General and administrative
Year Ended
December 31,
2021
2020
$ Change
% Change
General and administrative
$
4,880
$
2,788
$
2,092
75
%
Percentage of total revenue
143
%
84
%
General and administrative (“G&A”) expense for the year ended December 31, 2021 was approximately $4.9 million, or 143% of revenue, compared to G&A expense of $2.8 million, or 84% of revenue, for the year ended December 31, 2020. The increase in G&A expense was primarily due to an increase in personnel related costs relating to hiring an in-house accounting team and chief financial officer as well as legal and professional services incurred in connection with changing transfer agents, high volumes of stock conversions, and the 2021 Offering and public listing efforts.
Interest expense, net
Year Ended
December 31,
2021
2020
$ Change
% Change
Interest expense, net
$
4,333
$
2,259
$
2,074
92
%
Percentage of total revenue
127
%
68
%
Interest expense, net for the year ended December 31, 2021 was approximately $4.3 million, compared to interest expense net of $2.3 million for the year ended December 31, 2020. The increase in interest expense is primarily due to an increase in the amortization of debt discount by $1.5 million and an increase in the cumulative principal balance related to convertible notes.
Change in fair value of warrant liability
The expense relating to the change in the fair value of warrant liability increased by approximately $13.3 million for the year ended December 31, 2021 to $15.7 million, as compared to expense relating to the fair value of warrant liability for the year ended December 31, 2020 of $2.4 million. The change in the fair value of the warrant liability is attributable to the increase in the fair value of the preferred stock warrants that are accounted for as a liability.
Other income (expense), net
Other income, net for the year ended December 31, 2021 was approximately $0.8 million, as compared to other expense, net of $11 thousand for the year ended December 31, 2020. The increase in other income, net was primarily due to the PPP Loan (as described in Note 3: Debt Obligations) forgiveness in May 2021 that was recorded as other income, net offset by fees relating to Dimension Funding referral fees (see Liquidity and Capital Resources below).
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The following table sets forth total other income (expense), as described above, for the periods indicated:
Year Ended
December 31
2021
2020
$ Change
% Change
Interest expense, net
$
(4,333)
$
(2,259)
$
(2,074)
(92)
%
Change in fair value of warrant liability
(15,718)
(2,425)
$
(13,293)
(548)
%
Other income, net
763
(11)
774
7,031
%
Total other income (expense)
$
(19,288)
$
(4,695)
$
(14,593)
311
%
Liquidity and Capital Resources
As of December 31, 2021, and 2020, we had $10.7 million and $7.1 million, respectively, of cash and cash equivalents. As of December 31, 2021, the Company also had an accumulated deficit of approximately $113.7 million, working capital of $1.1 million and stockholders’ deficit of $ 82.9 million. On April 20, 2021, the Company entered into a Referral Agreement with Dimension Funding, LC (“Dimension”), whereby the Company can generate up to $10 million of immediate cash flow by referring its clients to Dimension for financing of their annual fees over the MaaS subscription term. This agreement enables the Company to quickly offset the up-front costs associated with building and deploying ASR’s by accelerating collection of its accounts receivable. In addition, as of March 16, 2022, the Company’s cash balance was approximately $22.3 million, which includes net proceeds from the Regulation A Offering terminated on January 26, 2022 as disclosed in Note 10 – Subsequent Events. The Company has projected operating losses and negative cash flows of approximately $1.5 million per month, on average, for the next several months. The Company has sufficient working capital to fund at least twelve months of operations. There can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its future operations beyond this period. If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable to it, the Company may have to significantly reduce its operations, delay, scale back or discontinue the development of one or more of its platforms or discontinue operations completely.
Cash Flow
The table below, for the periods indicated, provides selected cash flow information:
Year ended December 31,
2021
2020
(In thousands)
Net cash used in operating activities
$
(20,106)
$
(15,169)
Net cash used in investing activities
(2,333)
(632)
Net cash provided by financing activities
26,131
22,249
Net increase in cash and cash equivalents
$
3,692
$
6,448
Net Cash Used in Operating Activities
Net cash used in operating activities is influenced by the amount of cash we invest in personnel, marketing, and infrastructure to support the anticipated growth of our business, the number of clients to whom we lease our ASRs, the amount and timing of accounts receivable collections, as well as the amount and timing of disbursements to our vendors.
Net cash used in operating activities for the year ended December 31, 2021 increased by $4.9 million to $20.1 million, compared to $15.2 million for the year ended December 31, 2020. This increase was due to a net loss increase of approximately $24.5 million and increases in cash used in operating activities over the prior year of approximately $0.6 million and $0.1 million resulting from changes in prepaid expenses and accounts receivable, respectively, along with foregiveness of the PPP loan of approximately $0.8 million. These increases were partially offset by decreases over the prior year resulting from changes of approximately $13.3 million, $3.1 million, $1.5 million, $1.0 million, $0.4 million, $0.8 million, $0.5 million, $0.4 million, and $0.2 million in the fair value of warrants, accounts payable and accrued expenses, amortization of debt discount, interest related to preferred stock warrants, accured interest, stock compensation expense, other current and noncurrent liabilities, deferred revenue, and depreciation and amortization, respectively.
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Net Cash Used in Investing Activities
Our primary investing activities have consisted of capital expenditures and investment in ASRs. As our business grows, we expect our capital expenditures to continue to increase.
Net cash used in investing activities for the year ended December 31, 2021 was approximately $2.3 million compared to $0.6 million for the year ended December 31, 2020, an increase of $1.7 million. The increase was primarily a result of an increase in the investment in ASRs.
Net Cash Provided by Financing Activities
Our financing activities for the year ended December 31, 2021, consisted primarily of raising proceeds through issuing stock in connection with the Company’s 2020 Regulation A offering and the issuance of convertible preferred notes.
Net cash provided by financing activities was approximately $26.1 million for the year ended December 31, 2021, an increase of approximately $3.9 million as compared to the year ended December 31, 2020 primarily driven by an increase in net proceeds from the issuance of convertible notes of approximately $7.1 million and no net loan proceeds and loan payments in 2021 providing approximately $1.7 million offset by lower net proceeds received from the issuance of Series S Preferred Stock of approximately $5.0 million, versus 2020, relating to the sale of Series S Preferred Stock in connection with the 2020 Regulation A Offering that terminated on April 21, 2021.
Series S Preferred Regulation A Offerings
On May 21, 2019 the Company filed an offering statement in connection with a proposed offering of up to $50 million of its Series S Preferred Stock pursuant to Regulation A of the Securities Act, to raise additional capital for operations (the “2019 Regulation A Offering”). The 2019 Regulation A Offering terminated on July 22, 2020. The Company issued 2,937,467 shares of Series S Preferred Stock and raised approximately $23.5 million from the 2019 Regulation A offering, offset by $2.2 million in issuance costs.
On September 15, 2020, the Company filed an offering statement in connection with a proposed offering of up to $25 million of its Series S Preferred Stock pursuant to Regulation A of the Securities Act, to raise additional capital for operations (the “2020 Regulation A Offering”). The 2020 Regulation A Offering terminated on April 21, 2021. As of December 31, 2021, the Company issued 2,107,330 shares of Series S Preferred Stock and raised approximately $21.1 million from the 2020 Regulation A Offering, offset by $2.3 million in issuance costs.
Convertible Promissory Notes and Series S Preferred Stock Warrants, and the Related Conversion of Certain Series m-3 Preferred Stock into Series m-4 Preferred Stock
On April 30, 2019 the Company signed a Note and Warrant Purchase Agreement under the form of which the Company can issue up to $15 million of convertible promissory notes and warrants to purchase up to 3,000,000 shares of Series S Preferred Stock (the “Convertible Note Financing”). Pursuant to the terms of the Convertible Note Financing, the Company became obligated to exchange certain of its outstanding shares of Series m-3 Preferred Stock for the newly authorized shares of Series m-4 Preferred Stock upon the closing of at least $1 million in aggregate principal amount of convertible promissory notes under the Convertible Note Financing. On September 10, 2019, the Company issued, to the same group of Convertible Note Financing investors, 1,432,786 shares of its Series m-4 Preferred Stock in exchange for 1,432,786 shares of its shares of Series m-3 Preferred Stock held by such investors. The Series m-4 Preferred Stock has a senior liquidation preference to all other Preferred Stock and Common Stock of the Company, has an accruing payment in kind dividend in the form of Series m-4 Preferred Stock of 12%, and has certain other preferential rights, including voting rights, as further explained in the Company’s amended and restated certificate of incorporation. Exchange of Series m-3 Preferred Stock for Series m-4 Preferred Stock was inclusive of inducement expenses of $0.9 million (see Note 4 – Capital Stock and Warrants to the audited financial statements for details). Warrants to purchase shares of Series S Preferred Stock of the Company were also issued to investors who invested in the Convertible Note Financing. These warrants to purchase shares of Series S Preferred Stock have an exercise price of $4.50 per share and expired on the earlier of December 31, 2021 or 18 months after the closing of the Company’s first firm commitment underwritten initial public offering of the Company’s common stock pursuant to a registration statement filed under the Securities Act. The convertible promissory notes have a maturity date of January 1, 2022, provide for interest at a rate of 12% per annum payable upon the maturity date, are generally the most senior company security (subject to limited subordination carve-outs) and provide for significant discounts upon a qualified financing or an initial public offering, and for a premium upon a change of control.
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As of December 31, 2021, the Company had issued convertible notes in the aggregate principal amount of approximately $14.7 million (out of $15 million). Warrants for the purchase of up to 2,941,814 shares of Series S Preferred Stock were also issued and accrued for, respectively, to the same convertible note holders. The warrants have an exercise price of $4.50 per share, originally set to expire on December 31, 2021.
On November 18, 2021, the Company agreed to amend the Note and Warrant Purchase Agreement (see Note 3 -- Debt Obligations -- Convertible Note Financing) and the convertible notes and warrants to purchase Series S Preferred Stock issued thereunder principally as follows: (i) the scheduled maturity date of the convertible notes was extended from January 1, 2022 to January 1, 2024, (ii) the interest rate of the convertible notes was reduced from 12% per annum to 3% per annum starting on January 1, 2022, (iii) the conversion terms of the convertible notes were revised so that the convertible notes would automatically convert into Class A common stock upon the listing of the Company’s Class A common stock for trading on a nationally recognized securities exchange (e.g., the New York Stock Exchange) or inter-dealer quotation system (e.g., Nasdaq), (iv) the exercise period of the warrants was extended from December 31, 2021 to December 31, 2024 and will commence on January 1, 2023, and (v) the cashless exercise feature was removed from the warrants. The conversion price of the convertible notes for conversion into Class A common stock was not changed and remains at $2.50 per share and the exercise price of the warrants to purchase Series S Preferred Stock was not changed and remains at $4.50 per share.
In connection with the Convertible Note Financing, later amended on November 18, 2021, William Santana Li, Chairman and Chief Executive Officer of the Company, was granted a voting proxy to vote substantially all of the shares of the Company’s Series m-4 Preferred Stock, the stock issued upon the conversion of warrants to purchase all of the shares of the Company’s Series m-3 Preferred Stock, the stock issued upon the conversion of warrants to purchase shares of the Company’s Series S Preferred Stock, and the stock issued upon conversion of the convertible promissory notes issued as part of the Convertible Note Financing, in each case to the extent that such shares are held by participants in the Convertible Note Financing (the “Voting Proxy”). The votes held by Mr. Li, as a result of the Voting Proxy and related to the outstanding securities to which the Voting Proxy applies, represents approximately 1.15% of the Company’s aggregate voting power as of February 28, 2022.
The Series S Preferred Stock has a right to convert at any time into Class A Common Stock. The initial conversion rate was 1:1, which conversion rate will continue to be adjusted pursuant to the broad-based weighted average anti-dilution adjustment provisions provided for in the Company’s amended and restated certificate of incorporation, including without limitation as a result of the issuance of warrants to purchase Series S Preferred Stock in connection with the Convertible Note Financing referenced in the paragraph above, which may continue to have closings simultaneously with the Regulation D Offering of Series S Preferred Stock. As of December 31, 2021, the conversion rate has been adjusted to approximately 1.1069 shares of Class A Common Stock for every 1 share of Series S Preferred Stock, and remains subject to further adjustment.
In connection with the placement of the Series m-3 Preferred Stock during the years ended December 31, 2017 and 2018, the Company issued to the purchasers warrants to purchase an aggregate of 1,432,786 shares of Series m-3 Preferred Stock. These warrants have an exercise price of $4.00 per share. Pursuant to a second amendment to the Warrants to Purchase Shares of Series M-3 Preferred Stock Agreement dated November 18, 2021, the exercise period of the warrants was extended from December 31, 2021 to December 31, 2024 and shall be exercisable, in whole or in part, beginning January 1, 2023. In addition, the cashless exercise feature was removed from the warrants.
Credit Facilities
In November 2016, the Company granted each of Structural Capital Investments II, LP and Structural Capital Investments II-C, LP a warrant to purchase an aggregate of 53,918 Series B Preferred Stock shares. The warrants have an exercise price of $2.0401 per share and expire upon the later of November 7, 2026 or two years following the Company’s firm commitment underwritten initial public offering of the Company’s common stock pursuant to a registration statement filed under the Securities Act, provided that the aggregate gross proceeds to the Company are not less than $50 million.
In May 2018, the Company entered into a Loan and Security Agreement with Silicon Valley Bank, which allowed for individual term loans to be drawn in amounts totaling up to $3.5 million (the “SVB Loan Facility”). The Company had the ability to draw funds under the SVB Loan Facility until the earlier of January 10, 2019 or an event of default. Each individual term loan called for 18 equal monthly payments of principal plus accrued interest which would fully amortize the term loan. Outstanding borrowings under the term loan agreement bore interest at a floating rate of 1.75% above the prime rate as published in the Wall Street Journal. Only one individual term loan in the amount of $0.4 million was drawn by the Company in May 2018. The loan was fully repaid in February 2019 in connection with a new $3 million debt received from Farnam Street Financial (“Farnam”).
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In connection with the SVB Loan Facility, the Company granted Silicon Valley Bank a warrant to purchase up to 77,413 shares of the Company’s Class B Common Stock at an exercise price of $1.26 per share and which expires on the earlier of ten years from the date of the warrant or a change in control of the Company.
In order to obtain capital to finance our operations, in February 2019 the Company entered into a financing arrangement with Farnam for $3 million (the “Farnam Financing Arrangement”). Under the Farnam Financing Arrangement, we collateralized fifty (50) ASRs and had an initial repayment period of two years for a monthly payment of $0.1 million plus tax and an option to repurchase these ASRs for $1.4 million plus tax or, at the end of the two-year period (March 2021) we could elect to extend the repayment period for one additional year at a monthly payment of $0.1 million plus tax with a final payment of $0.6 million plus tax at the end of the additional year. The effective interest rate under the two and three-year repayment periods was 35% and 31%, respectively. On April 24, 2020, we amended the Farnam Financing Arrangement with Farnam by deferring the March and April 2020 payments due to Farnam to the end of the Farnam Financing Arrangement and by extending the term of the agreement by two months and forgoing security deposit of $0.2 million paid to Farnam. The Farnam Financing Arrangement with Farnam was terminated and settled in November 2020, with no subsequent payments due to Farnam. The final payment to Farnam consisted of the aggregate amount of remaining payments due through March 2021 and a reduced equipment purchase amount of $1 million plus tax.
On April 24, 2020, the Company, entered into a promissory note evidencing an unsecured loan in the aggregate amount of approximately $0.8 million made to Knightscope under the Paycheck Protection Program that was established under the Coronavirus Aid, Relief, and Economic Security Act and was administered by the U.S. Small Business Administration (“SBA”) (the “PPP Loan”). The PPP Loan to Knightscope was made through Fresno First Bank. The interest rate on the PPP Loan was 1.00% and the term is two years.
The Company submitted its PPP Loan forgiveness application to the SBA in January 2021. The PPP Loan of $0.8 million and the accrued interest of $9 thousand were forgiven by the SBA on May 20, 2021.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide this information
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.