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Item 7. Management’s Discussion and Analysis

2025-03-31 compared with 2024-04-01 · 220 added, 192 removed, 111 unchanged (79% of the section changed)

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This discussion contains forward-looking statements.

Refer to “Forward-Looking Statements” and “Risk Factors” herein, for a discussion of the uncertainties, risks, assumptions, and other important factors associated with these statements.

Refer to “Forward-Looking Statements” and “Risk Factors” herein, for a discussion of the uncertainties, risks, assumptions, and other important factors associated

with these statements.

The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

A discussion of our comparison between 2023 and 2022 is presented below.

A discussion of the changes in our results of operations between the years ended December 31, 2022 and 2021 has been omitted from this Annual Report on Form 10-K but may be found in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 31, 2023, which is available free of charge on the SEC’s website at www.sec.gov and our corporate website (www.knightscope.com).

Knightscope is a public safety advanced technology company that builds fully autonomous security robots and blue light emergency communications systems.

Our technologies are designed to help our clients protect the people, places, and things where we live, work, study, and visit.

Our technologies are made in the USA and allow public safety professionals to more effectively identify, deter, intervene, capture, and prosecute criminals.

To support our mission to make the USA the safest country in the world, we design, develop, manufacture, market, deploy and support ASRs, autonomous charging stations, the KSOC software user interface, Blue Light emergency communication devices, and our newly released KEMS software platform.

Our core technologies are suitable for most environments that require security patrol coverage and designed to be force multipliers that offer security teams improved situational awareness.

ASRs conduct real-time on-site data collection and analysis in both indoor and outdoor spaces delivering alerts to security professionals through the KSOC.

The KSOC enables clients with appropriate credentials and user permissions to access the data for investigative and evidence collection purposes.

Our ECDs that comprise our K1B portfolio of products consist of the K1 Blue Light Tower, E-Phone, and the K1 Call Box.

Tower devices are tall, highly visible and recognizable apparatuses that provide emergency communications using cellular and satellite communications with solar power for additional safety in remote locations.

E-Phones and Call Boxes offer a smaller, yet still highly visible, footprint than the towers, but with the same reliable communication capabilities.

In October 2022, we completed the acquisition of substantially all of the assets of Case Emergency Systems (the “CASE Acquisition”), which consisted of their emergency call box and communications business.

We sell our ASR and stationary multi-purpose security solutions under an annual subscription, Machine-as-a-Service (“MaaS”) business model, which includes the ASR machine as well as maintenance, service, support, data transfer, KSOC access, charging stations, and unlimited software, firmware and select hardware upgrades.

Our stationary ECD technologies are sold as point-of-sale modular systems, including Knightscope’s exclusive, self-diagnostic, alarm monitoring software solution that provides system owners daily email reports on the operational status of their system, a one-year parts warranty, and optional installation services which was announced in 2023 as the Knightscope Emergency Communication System (“KEMS”) platform.

The cloud-based application monitors the system wide state-of-health, alerts users concerning operational issues, provides technicians real-time error detection/diagnostics, and collects/reports system performance statistics.

Our current strategy for all products and services is to focus solely on USA sales and deployments for the foreseeable future before considering global expansion.

Our MD&A discusses our results of operations for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

For a discussion and analysis of the year ended December 31, 2023 as compared to the year ended December 31, 2022, please refer to Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 1, 2024.

Knightscope is dedicated to transforming public safety through AI-driven robotics, emergency communication solutions, and real-time monitoring.

Our comprehensive suite of solutions includes Autonomous Security Robots (ASRs), advanced AI-powered detection, emergency communication devices (ECDs), and the cloud-based Knightscope Security Operations Center (KSOC), providing organizations with scalable, 24/7 autonomous protection.

Autonomous Security Robots (ASRs)

Knightscope’s ASRs deliver proactive public safety solutions for diverse environments.

Each model is purpose-deployed to enhance deterrence, situational awareness and threat detection:

● K1 Hemisphere Stationary ASR – Fixed-location presence equipped with license plate, where permitted, ideal for high-traffic areas.

● K3 Indoor Patrol ASR – Compact and quiet, designed for autonomous indoor security in offices, malls, and commercial buildings .

● K5 Outdoor Patrol ASR – A high-visibility deterrent with rugged weatherproof capabilities, ideal for patrolling large perimeters.

● K7 Multi-Terrain ASR – A future product, the K7 ASR is being designed for complex terrains such as large commercial or industrial sites and critical infrastructure.

Each mobile ASR is equipped with LiDAR, thermal imaging, high-definition cameras, and real-time AI-driven threat detection to provide comprehensive safety and security intelligence.

Knightscope Security Operations Center (KSOC)

KSOC serves as the command hub for our ASR fleet, leveraging AI-powered video analytics, automated threat detection, and 24/7 remote monitoring to enhance response times.

Key features include:

● AI-driven incident detection for loitering, trespassing, and anomalies.

● Automated reporting and analytics to optimize security planning.

● Integrated emergency communication allowing direct connection between ASRs and human security teams.

Emergency Communication Devices (ECDs) and Solutions

Knightscope is committed to providing comprehensive public safety solutions, including enhanced emergency communication capabilities.

Our solar powered K1 Blue Light Towers, Ephones and Emergency Call Boxes offer an immediate lifeline to security personnel, law enforcement, and emergency responders.

These systems are strategically deployed in universities, corporate campuses, transit stations, and other public areas to ensure rapid response in critical situations.

The Knightscope Emergency Monitoring System (“KEMS”), integrated into our ECDs, includes a self-diagnostic, alarm monitoring software solution that provides system owners with

daily reports on the operational status of their emergency devices.

The cloud-based application monitors the overall system's health, alerts users to operational issues, provides real-time error detection and diagnostics, and generates system performance reports.

In addition to our physical communication devices, our ASRs are equipped with emergency call buttons, allowing individuals to establish a direct connection with our 24/7 Security Operations Center (SOC).

This feature provides a critical communication link during emergencies, enhancing presence and responsiveness.

We continue to advance our autonomous response capabilities, enabling ASRs to navigate to specific locations, assess threats, and relay real-time information to human operators.

These systems can broadcast pre-recorded messages, provide live two-way audio communication, and integrate with existing infrastructure to facilitate coordinated response efforts.

We derive our revenue from two primary sources:

a) subscription based Machines-as-a-Service (MaaS) offering which includes the ASRs as well as maintenance, service, support, data transfer, KSOC access, charging stations, and unlimited software, firmware and select hardware upgrades and b) the sale of ECD products and related recurring revenues from KEMS and full-service maintenance contracts.

The Company has incurred net losses since inception.

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Risk Factors—Risks Related to the Business and the Global Economy—We have not yet generated any profits, anticipate that we will incur continued losses for the foreseeable future, and may never achieve profitability .

Known or Anticipated Trends

Our primary goal remains meeting client demand for additional orders of our technology, attracting new client orders, and ensuring consistent performance in the field.

The Company is focused on scaling its business to meet incoming orders and increasing demand through various marketing efforts, including our nationwide Robot Roadshow and media coverage, which continues to drive an increase in orders and client inquiries.

Sales trends for the year ended December 31, 2023 showed demand across all of Knightscope’s product and service lines.

The sales pipeline continues to grow, however, due to the nature of business-to-business transactions, with enterprises and government municipalities, the sales cycle is lengthy.

Although we have executed some contracts in less than 30 days, in some cases negotiations can range up to several months and years, due to the client’s budget, finance, legal, cyber security, human resources, facilities and other

The sales process for brand-new technology as well as mature, trusted technology requires significant streamlining and improvements, and we are taking steps to improve our sales processes to move our products through the sales pipeline quicker.

Delays due to supply chain issues and the COVID-19 pandemic that negatively impacted the Company’s performance during the first half of 2022 had largely subsided by the end of fiscal 2023, although supply chain constraints can still be unpredictable and problematic.

The CASE Acquisition also contributed to a significant increase in the Company’s revenues for the year ended December 31, 2023.

Due to geopolitical events and safety requirements as well as various high-profile incidents of violence across the USA, we believe that the market for our technologies will continue to grow.

We also expect that competing products may be introduced in the near future, creating pressure on us to improve on our production methods, cost, quality and product features.

The Company is aiming to scale its business and become more streamlined, which management expects will decrease gross loss over time.

Therefore, we are focusing our resources on growing the business, in order to be able to generate both a gross profit and net income.

We are continually evaluating and taking a number of near-term actions to facilitate this result, and as the Company matures, we expect to obtain economies of scale and efficiency that will help to increase revenue and reduce costs over the medium to long-term.

We are also focused on controlling general overhead costs, such as

● decreasing expenditures for real estate leases;

● optimizing team composition and size;

● optimizing the manufacturing process through leverage of third-party manufacturers;

● reducing telecommunication service and cloud costs to further reduce our ongoing support, repair and maintenance costs;

● transitioning our ASR and ECD production processes from a work cell environment to a more traditional assembly line process, for improved quality, efficiency and throughput.

Our strategy is to try to keep fixed costs as low as possible and minimize variable costs while achieving our overall growth objectives.

Our strategy is to try to keep driving a decrease in our overall costs while achieving our overall growth objectives.

As of March 27, 2025, the Company had a total backlog of approximately $1.8 million, comprised of $0.5 million related to ASR orders and $1.3 million related to orders for ECDs.

The Company’s continued focus on addressing supply chain constraints and implementing operational efficiencies has contributed to a reduction in the backlog, which directly contributes to increased revenue, net.

Recent Developments

On February 23, 2024, we filed a definitive proxy statement with the SEC in connection with a special meeting of stockholders to be held on April 5, 2024 to approve an amendment to our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of our Class A Common Stock from 114,000,000 to 228,000,000 (the “Share Increase Amendment”).

See Liquidity and Capital Resources .

On October 26, 2023, the Company was listed on The Nasdaq Global Market and received written notice (the “Notice”) from Nasdaq indicating that the Company is no longer in compliance with Nasdaq Listing Rule 5450(a)(1) (the “Minimum Bid Price Requirement”), as the minimum bid price of the Company’s Class A Common Stock had been below $1.00 per share for the last 31 consecutive business days.

The notification of noncompliance had no immediate effect on the listing or trading of the Company’s Class A Common Stock on The Nasdaq Global Market at that time.

The Company has 180 calendar days, or until April 23, 2024, to regain compliance with the Minimum Bid Price Requirement.

The Company transferred to The Nasdaq Capital Market effective as of March 4, 2024.

As a result, provided that the Company meets continued listing requirements for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and provides written notice of its intention to cure the bid price deficiency during the second compliance period by April 23, 2024, the Company may be eligible for an additional 180-calendar day compliance period, to regain compliance with the Minimum Bid Price Requirement.

If we fail to regain compliance with the Minimum Bid Price Requirement by April 23, 2024, we expect to receive a determination letter from the Nasdaq staff that our Class A Common

Stock is subject to delisting.

If we receive such a determination letter, we expect to have a period of seven days to submit a written request for a review of the delisting determination by the Nasdaq Hearings Panel (the “Hearings Panel”).

There can be no assurance that the Company will be able to regain compliance with the Minimum Bid Price Requirement or that a Hearings Panel would grant an exception to the Minimum Bid Price Requirement to give us additional time to comply with the rule.

On September 29, 2023, we filed an Offering Circular (the “Offering Circular”) for the issuance of up to $10.0 million in Public Safety Infrastructure Bonds (the “Bonds”) pursuant to Regulation A of the Securities Act of 1933, as amended.

The Offering Circular was qualified with the SEC on October 2, 2023.

The price per Bond is $1,000.

The Bonds are unsecured, bearing interest at 10% per annum, payable annually on December 31 each year, starting on December 31, 2024, with the Bonds maturing on the fifth anniversary of the initial issuance.

We issued Bonds totaling a principal amount of approximately $1.4 million, in aggregate, generating net proceeds to the Company of approximately $1.2 million, net of issuance costs of approximately $0.2 million during the year ended December 31, 2023.

We closed the Bond issuance on March 14, 2024 and issued Bonds totaling a principal amount of approximately $2.8 million, in aggregate, generating net proceeds to the Company of approximately $2.6 million, net of issuance costs of approximately $0.2 million during the period starting January 1, 2024 and ending on March 14, 2024.

Overall, we issued Bonds totaling a principal amount of approximately $4.2 million, in aggregate, generating net proceeds to the Company of approximately $3.8 million, net of issuance costs of approximately $0.4 million during the life of the offering.

2024 Developments

In 2024, the Company made strategic decisions that impacted its operations and its capital structure with the goal to establish a foundation to pursue long-term profitable growth and to simplify its corporate structure.

In the short-term, our strategic operational initiatives resulted in unfavorable impacts, including a reduction in revenue and an increase in operational costs.

However, we firmly believe they are essential investments in our future growth and market positioning and although these decisions have led to lower revenues in the near term, we remain confident in their long-term potential to enhance our competitive advantage, drive sustainable value creation, and position the company for long-term success.

Operational changes

In the first quarter of 2024, Knightscope undertook significant leadership and governance enhancements to better align the Company with its long-term strategic objectives.

We appointed a new Chief Financial Officer and appointed independent board members with extensive industry and financial expertise, strengthening oversight and strategic direction.

Additionally, throughout the year, we streamlined our management structure by reducing approximately 40% of executive and senior leadership roles, fostering greater efficiency in decision-making and operational execution.

Early in 2024, the Company discovered that quality issues plaguing our K5 ASRs in the field would cost too much to resolve and likely have a negative impact on our client experience.

Management made the strategic decision to swap out all impacted ASRs with new ones at no cost to our clients.

As part of our ongoing commitment to operational excellence, we conducted a comprehensive restructuring of the Emergency Communication Division (ECD), which we acquired through the CASE acquisition in 2022.

Upon review, it became evident that legacy CASE business processes lacked modern processes, were largely manual, and led to inefficiencies, excessive costs, and financial underperformance.

We took decisive action in furtherance of our goal to achieving profitability in the long-term.

To address these challenges, we implemented a series of strategic and structural changes, including:

● Outsourcing non-core field services to specialized third-party providers to optimize resources and reduce costs.

● Relocating production from Irvine, CA, to our headquarters in Mountain View, CA, consolidating operations for improved oversight and efficiency.

● Eliminating redundant and inefficient roles, ensuring that our workforce is optimized for streamlined execution.

● Reducing real estate footprint by consolidating operations across fewer locations, enhancing cost efficiency.

● Renegotiating long-term client contracts to align pricing structures with sustainable profitability.

Focus on Innovation

Throughout the year, the Company also expanded its focus on innovation by investing in new product development and enhancing its technological capabilities.

To support these initiatives, we increased our R&D headcount and engaged specialized consultants to accelerate the development of key projects such as the K7 ASR.

We also invested in advancing our cybersecurity to ensure compliance with federal contract requirements.

These strategic investments reflect our commitment to strengthening our product portfolio, meeting evolving customer needs, and positioning the Company for success in the public safety technology industry.

We believe that these transformative measures will deliver long-term operational and financial benefits, even though they have resulted in temporary disruptions to revenue while increasing short-term costs.

We anticipate that these impacts will continue into 2025 as we complete the transition and drive further efficiencies across the entire business.

However, we believe that these strategic actions position Knightscope for stronger, more sustainable growth and profitability in the years ahead.

Capital Structure

On September 29, 2023, Knightscope filed an Offering Circular with the SEC for up to $10 million in Public Safety Infrastructure Bonds, which was qualified on October 2, 2023.

The bonds, priced at $1,000 each, are unsecured, carry a 10% annual interest rate payable on December 31st, and mature five years after issuance.

In 2023, the Company issued $1.4 million in bonds, netting approximately $1.2 million after $0.2 million in issuance costs.

Between January 1 and March 14, 2024, an additional $2.8 million in bonds were issued, netting approximately $2.6 million after $0.2 million in issuance costs.

In total, $4.3 million in bonds were issued, generating net proceeds of approximately $3.9 million after total issuance costs of approximately $0.4 million.

On April 5, 2024, during a special stockholder meeting, shareholders approved an amendment to our Certificate of Incorporation, increasing the authorized shares of Class A Common Stock from 114 million to 228 million.

This increase provides greater flexibility for corporate needs, such as financing activities, stock dividends or splits, issuing equity awards, and forming strategic partnerships.

Having additional authorized shares allows us to act on opportunities without requiring further stockholder approval.

The Board will determine the timing and terms of any future issuances based on the Company’s needs.

On May 15, 2024, in accordance with our Certificate of Incorporation, all outstanding shares of Knightscope’s preferred stock, encompassing both Super Voting and Ordinary Preferred shares, were automatically converted into Class B and Class A common stock, respectively.

This conversion was triggered by a written request from holders representing a majority of the voting power of the then-outstanding preferred stock, in accordance with the terms of the Company’s Certificate of Incorporation (the “Automatic Conversion”).

Following the Automatic Conversion, no shares of preferred stock remain outstanding.

At its Annual Meeting on August 16, 2024, Knightscope’s stockholders approved the reverse stock split (“RSS”) at a ratio between 1-for-5 and 1-for-50.

The Board of Directors subsequently approved a final RSS ratio of 1-for-50, which was implemented on September 13, 2024, with the Class A Common Stock trading on a post-split basis beginning September 16, 2024.

Shareholders at the Annual Meeting also authorized the creation of 40 million preferred shares, designated as “blank check” preferred stock, issuable in one or more series.

This authorization empowers the Board of Directors to determine the specific terms, rights, preferences, and limitations of each series of preferred stock without requiring further shareholder action.

This strategic flexibility allows the Company to respond effectively to future capital raising opportunities and other corporate needs.

In conjunction with this

authorization, shareholders also approved ancillary and conforming changes to the Company’s governing documents, including the removal of outdated information about the previously existing preferred stock, which was converted to common stock earlier this year.

In October 2022, Knightscope strategically secured financing through a private placement with Alto Opportunity Master Fund, SPC - Segregated Master Portfolio B (“Holder”).

This transaction involved the issuance of senior secured convertible notes and warrants to purchase up to 22,768 (RSS adjusted) shares of the Company’s Class A Common Stock.

These warrants included a critical price adjustment mechanism:

should Knightscope issue common stock at a price lower than the then-current warrant exercise price, that exercise price would be reduced, and the number of shares purchasable would be increased, thereby preserving the intrinsic value of the warrants.

A registration rights agreement was also executed, obligating Knightscope to register these securities with the SEC.

On August 1, 2024, Knightscope and the Holder executed an Agreement and Waiver, resulting in a significant restructuring of this financial arrangement.

The outstanding 2022 Warrants were cancelled in exchange for a new Senior Secured Promissory Note with a principal amount of $3.0 million, due on July 1, 2025.

This note is structured for repayment in two tranches:

$2.5 million will be repaid in 11 equal monthly installments commencing September 1, 2024, and the remaining $500,000 is due on the earlier of October 15, 2024, or the date upon which Knightscope completes a funding transaction.

A change of control provision allows the Holder to demand full repayment upon the public announcement of such an event, continuing for 30 days after its completion.

While the August 2024 Note does not bear interest, a default will trigger a 10% per annum interest rate on the outstanding principal until the default is cured or the note is paid in full.

As of December 31, 2024, the outstanding principal balance on this note is approximately $1.4 million.

On November 21, 2024, Knightscope announced the pricing of a public offering of Class A Common Stock and pre-funded warrants, projected to generate gross proceeds of approximately $12.1 million.

The offering, conducted under an effective shelf registration statement previously filed with the SEC, closed on November 25, 2024.

The offering comprised the sale of 393,659 shares of Class A Common Stock and pre-funded warrants to purchase 816,341 shares of Class A Common Stock, at a public offering price of $10.00 per share and $9.999 per pre-funded warrant, respectively, before underwriting discounts and commissions.

The pre-funded warrants were immediately exercisable at a nominal price of $0.001 per share and remained exercisable until fully utilized.

As of February 11, 2025, the pre-funded warrants were fully exercised.

The offering was managed by Titan Partners Group LLC, a division of American Capital Partners, LLC who were also issued underwriter warrants, exercisable commencing 180 days after the agreement date and continuing for a period of five years, to purchase 36,300 shares of Class A Common Stock.

These underwriter warrants are exercisable at the price of $18.29 per share.

Critical Accounting Estimates

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Please see Note 1 to our financial statements, which are included in Item 8 “Financial Statements and Supplementary Data” of this Annual Report.

Business Combinations

We account for our business combinations using the acquisition method of accounting, which requires, among other things, allocation of the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed at their estimated fair values on the acquisition date.

The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill.

When determining the fair value of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to intangible assets.

Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable, and as a result, actual results may differ from estimates.

Once the purchase accounting is finalized, any subsequent adjustments are reflected in the statements of operations.

Acquisition costs, such as legal and consulting fees, are expensed as incurred.

Acquired Intangible Assets

When we acquire a business, a portion of the purchase price is typically allocated to identifiable intangible assets, such as trademarks, acquired technology and customer relationships.

Fair value of these assets is determined primarily using the income approach, which requires us to project future cash flows and apply an appropriate discount rate.

We amortize intangible assets with finite lives over their expected useful lives.

Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.

Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.

Incorrect estimates could result in future impairment charges, and those charges could be material to our results of operations.

Inventory, principally purchased components, is stated at the lower of cost or net realizable value.

Cost is determined using an average cost, which approximates actual cost on a first-in, first-out basis.

Inventory in excess of salable amounts and inventory which is considered obsolete based upon changes in existing technology is written off.

Inventory in excess of salable amounts and inventory which is considered obsolete based upon changes in existing technology is fully expensed to the cost of revenue service line item in our Statement of Operations.

At the point of loss recognition, a new lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in the new cost basis.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination.

Goodwill is not subject to amortization but will be reviewed for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.

Autonomous Security Robots, net (“ASRs”)

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Depreciation expense on ASRs is recorded using the straight-line method over their estimated expected lives, which currently ranges from 3 to 5 years.

Depreciation expense of finished ASRs included in research and development expense amounted to $8 thousand and $66 thousand, depreciation expense of finished ASRs included in sales and marketing expense amounted to $15 thousand and $46 thousand, and depreciation expense included in cost of revenue, net amounted to $1.6 million and $1.4 million for the years ended December 31, 2023 and 2022, respectively.

Depreciation expense of finished ASRs is included in research and development expense, sales and marketing expense, and cost of revenue, net on the Company’s Statements of Operations.

Depreciation expense on finished ASRs was $2.0 million and $1.6 million for the years ended December 31, 2024 and 2023, respectively.

ASRs, net, consisted of the following (in thousands):

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Accumulated depreciation on Finished ASRs

The components of the Finished ASRs, net at December 31, 2023 and 2022 are as follows:

The components of the Finished ASRs, net at December 31, 2024 and 2023 are as follows (in thousands):

ASRs on lease or available for lease

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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 the assets are determined to be recoverable, but the useful lives are shorter than originally estimated, the Company will depreciate the net book value of the assets over the newly determined remaining useful lives.

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, property, equipment and software or intangible assets were determined to be impaired during the years ended December 31, 2024 and 2023.

Convertible Preferred Warrant Liability 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 were fully exercised in 2022 and none remain outstanding as of December 31, 2023.

The fair value of these common stock warrants is determined using the Black-Scholes option pricing model.

On October 10, 2022, we issued common stock warrants in connection with the execution of Convertible Notes (“2022 Convertible Notes”).

These warrants are recorded as derivative liabilities as it was determined they were not indeed to the Company’s stock and accounted for at fair value upon issuance.

The derivative liability will be marked to market each reporting period with changes in fair value recorded in changes in fair value of warrant and derivative liability on the statements of operations.

On April 7, 2023, the Company entered into an Amendment and Cancellation Agreement with certain holders of warrants to purchase Series m-3 and Series S Preferred Stock.

Under the terms of the agreement, the expiration date for warrants to purchase 1,432,786 shares of Series m-3 Preferred Stock and 2,941,814 shares of Series S Preferred Stock was extended to the earlier of December 31, 2027 or eighteen (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 of 1933, as amended, in exchange for the cancellation of warrants to purchase 1,500,000 shares of Series S Preferred Stock.

Freestanding warrants to purchase shares of the Company’s preferred stock were classified as liabilities on the balance sheets at their estimated fair value because the underlying shares of preferred stock were contingently redeemable and, therefore, may have obligated the Company to transfer assets at some point in the future.

The preferred stock warrants were recorded at fair value upon issuance and were 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 were recorded in the statements of operations.

The Company adjusted the liability associated with the preferred stock warrants for changes in the estimated fair value until the earlier of the exercise or conversion.

On May 15, 2024, the preferred stock warrants converted into warrants to purchase common stock and any liabilities recorded for the preferred stock warrants were reclassified to additional paid-in capital and are no longer subject to remeasurement.

Common stock warrants that are not considered derivative liabilities are accounted for at fair value at the date of issuance in additional paid-in capital.

Stock-Based Compensation

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General and administrative

Restructuring costs

Restructuring charges

Total operating expenses

Loss from operations

Interest expense, net

Change in fair value of warrant and derivative liability

Change in fair value of convertible note

Other expense, net

Total other income, net

Loss before income tax expense

Other income (expense):

Change in fair value of warrant and derivative liabilities

Interest income (expense), net

Other income (expense), net

Total other income (expense)

Net loss before income tax expense

Income tax expense

Service revenue, net, which includes revenue generated through MaaS agreements for our ASRs and maintenance and support contracts for our K1B portfolio of ECDs, increased by approximately $2.0 million to $7.2 million, or approximately 39%, for the year ended December 31, 2023, from $5.2 million for the year ended December 31, 2022.

The increase resulted from having a full year of services for ECDs after the Company’s acquisition of CASE during the fourth quarter of 2022.

Product revenue of approximately $5.6 million from sales of ECDs, an increase of 1100% over the prior year, primarily represents a full year of sales as compared to product revenue of approximately $0.5 million in the prior year, as a result of the CASE Acquisition in the fourth quarter of the fiscal year ended December 31, 2022.

Total revenue, net, of $10.8 million for the year ended December 31, 2024 decreased by $2.0 million compared to the year ended December 31, 2023, primarily in Product revenue due to the company’s decision to restructure its ECD product line, which resulted in significant business disruption as the Company outsourced field services, eliminated positions and consolidated its ECD operations from Irvine, CA to Mountain View, CA.

The decrease in Product revenue was partially offset by an increase in Service revenue.

Service revenue, net, which includes revenue generated through MaaS agreements for our ASRs and maintenance and support contracts for our portfolio of ECDs, increased by approximately $0.3 million, or approximately 4%, to $7.5 million, for the year ended December 31, 2024, from $7.2 million for the year ended December 31, 2023.

The increase was driven by an increase in the ASR installed base, lower downtime credits and higher revenue from ECD maintenance and support contracts.

Product revenue, net, was $3.3 million for the year ended December 31, 2024, a decrease of $2.3 million or 41% from prior year, primarily from decreased sales of ECDs due to disruptions in production and operations caused by restructuring initiatives.

Cost of revenue, net

Service cost of revenue, net, representing the cost of supporting ASR MaaS and maintenance and support agreements related to ECD installations, for the year ended December 31, 2023, was approximately $9.9 million, as compared to approximately $8.8 million for the year ended December 31, 2022, representing an increase of approximately $1.1 million, or approximately 12%.

The increase was due to increased warranty costs and higher service revenue volume over the prior year.

As a percentage of service revenue, service cost of revenue, net decreased to 138% from 171%.

The service cost of revenue, net is primarily related to the depreciation and service costs for ASRs and support and maintenance of the ECDs.

Product cost of revenue, net of approximately $4.9 million and $0.1 million for the years ended December 31, 2023 and 2022, respectively, increased primarily due to the costs of ECDs sold pursuant to the CASE Acquisition during the fourth quarter of 2022.

Gross loss for the year ended December 31, 2023 was approximately $2.0 million, as compared to $3.3 million for the year ended December 31, 2022, representing a decrease of approximately $1.3 million, or 39%.

Total cost of revenue, net of $14.5 million for the year ended December 31, 2024 declined by $0.3 million or 2% compared to the year ended December 31, 2023 as $1.8 million higher Service cost of revenue was offset by $2.1 million year-over-year decline in Product cost of revenue during the same period.

Service cost of revenue, net, representing the cost of supporting ASR MaaS and maintenance and support agreements related to ECD installations, for the year ended December 31, 2024, was approximately $11.6 million, as compared to approximately $9.9 million for

the year ended December 31, 2023, representing an increase of approximately $1.8 million, or 18%.

This was driven by $1.6 million in higher third-party service costs due to outsourcing our field services, $1.2 million in higher scrap costs primarily related to our ASR hot-swap program, and $0.4 million in increased depreciation and amortization expenses;

partially offset by a $0.8 million decrease in headcount expense, $0.4 million lower cellular and other software costs, and $0.2 million savings in rent, utilities and vehicle maintenance expenses compared to the same period in the prior year.

Product cost of revenue, net of approximately $2.9 million and $4.9 million for the years ended December 31, 2024 and 2023, respectively, decreased by $2.1 million or 42% primarily due to $1.8 million in lower volume of sales and $0.4 million in lower warranty costs, which were partially offset by $0.1 million in higher third-party installation fees.

Gross loss for the year ended December 31, 2024 was approximately $3.7 million, as compared to $2.0 million for the year ended December 31, 2023, representing a year-over-year increase of approximately $1.7 million.

Research and development

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Research and development (“R&D”) expense for the year ended December 31, 2024 was approximately $7.1 million, or 65% of revenue, compared to R&D expense of $6.4 million, or 50% of revenue, for the year ended December 31, 2023.

The decrease was primarily due to expense reduction initiatives taken by the Company in early 2023, which also included headcount reductions in departments that support R&D.

In addition, revenue growth, which included a full year cycle of the K1B business line (formerly CASE) occurred at a higher pace than our R&D expenses, leading to the lower R&D expense as a percent of total revenue.

The year-over-year increase was due to the Company’s continued investment in the development of new products and in cybersecurity capabilities in support of federal contracts through the use of third-party engineering firms which drove an increase of $0.5 million in professional fees and approximately $0.5 million in increased headcount expense partially offset by $0.3 million in general cost savings.

Sales and marketing

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Percentage of total revenue

Sales and marketing expense for the year ended December 31, 2023 was approximately $5.2 million, or 40% of revenue, compared to sales and marketing expense of $8.5 million, or 151% of revenue, for the year ended December 31, 2022.

The decrease in 2023 was primarily due to lower spend on advertising activities in 2023.

In addition, revenue growth, which included a full year cycle of the K1B business line (formerly CASE) occurred at a higher pace than our sales and marketing expenses, leading to the lower sales and marketing expense as a percent of total revenue.

Sales and marketing expense for the year ended December 31, 2024 was approximately $5.1 million and remained relatively flat compared to sales and marketing expense of $5.2 million, for the year ended December 31, 2023.

General and administrative

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Percentage of total revenue

General and administrative (“G&A”) expense for the year ended December 31, 2023 was approximately $12.6 million, or 98% of revenue, compared to G&A expense of approximately $11.7 million, or 208% of revenue, for the year ended December 31, 2022.

The increase was primarily driven by an increase of approximately $2.5 million for investor relations expense, approximately $0.6 million for payroll expense as a result of a full year realization of the acquired CASE business, and approximately $0.3 million for real estate and property tax expense, partially offset by decreases in bonus expense of approximately $1.0 million, director and officer insurance expense of approximately $0.7 million, bad debt expense of approximately $0.6 million, and rent expense of approximately $0.3 million.

General and administrative (“G&A”) expense for the year ended December 31, 2024 was approximately $13.3 million, compared to G&A expense of approximately $12.6 million, for the year ended December 31, 2023.

The increase was primarily driven by an increase of approximately $1.2 million in investor relations expense and $1.1 million in higher professional services fees, partially offset by $1.7 million compensation expense savings due to lower headcount.

Restructuring charges

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Percentage of total revenue

We incurred restructuring charges for the year ended December 31, 2023, of $149 thousand as a result of a work force reduction initiated in January 2023.

Other Income, Net

Interest expense, net

Change in fair value of warrant and derivative liability

Change in fair value of convertible note

Other expense, net

Total other income

Interest expense, net

Interest expense, net for the year ended December 31, 2023 was approximately $0.6 million, compared to interest expense net of approximately $9.2 million for the year ended December 31, 2022.

The decrease in interest expense, net resulted from the full amortization of the debt discount in the year ended December 31, 2022 from the conversion of all of the notes outstanding in 2022 and paying off the promissory note issued in connection with the CASE acquisition in 2022, partially offset by interest on the Bonds issued in 2023.

We incurred restructuring charges for the year ended December 31, 2024, of $0.5 million as a result of operational changes made to the ECD portfolio.

These changes, primarily driven by our decision to exit our production facilities in Irvine, CA and consolidate all operations in Mountain View, CA, included costs related to headcount reduction across production and field services, lease termination, and other relocation, consolidation and exit costs.

Other income (expense)

Change in fair value of warrant and derivative liabilities

Interest income (expense), net

Other income (expense), net

Total other income (expense)

Change in fair value of warrant and derivative liability

The change in the fair value of warrant and derivative liability for the year ended December 31, 2023 resulting in other income of approximately $4.9 million compared to other income of approximately $20.9 million for the year ended December 31, 2022.

The change in the fair value of the warrant and derivative liability is attributable to the decrease in the fair value of the preferred stock and common stock warrants that are accounted for as a liability.

Other expense, net

Other expense, net for the year ended December 31, 2023 was approximately $0.2 million, and was incurred in connection with the Referral Agreement with Dimension Funding, LLC (see below), as compared to other expense, net of $0.6 million for the year ended December 31, 2022 attributable to transaction costs related to the CASE acquisition.

The change in the fair value of warrant and derivative liability for the year ended December 31, 2024 resulting in other income (expense) of approximately ($1.5) million compared to other income of approximately $4.9 million for the year ended December 31, 2023.

The change in the fair value of the warrant and derivative liability is attributable to the extinguishment of warrants with Alto Opportunity Master Fund, SPC - Segregated Master Portfolio B which occurred on August 1, 2024.

Interest income (expense), net

Interest income (expense), net for the year ended December 31, 2024 was approximately ($0.4) million, compared to interest income (expense), net of approximately ($0.6) million for the year ended December 31, 2023.

The decrease in interest income (expense), net resulted from paying off the convertible notes in 2023, partially offset by interest and issuance costs on the Bonds that were issued in 2023 and 2024.

Other income (expense), net

Other income (expense), net for the year ended December 31, 2024 was approximately ($0.1) million, as compared to other income (expense), net of ($0.2) million for the year ended December 31, 2023 mainly attributable to the Referral Agreement with Dimension Funding LLC.

Liquidity and Capital Resources

As of December 31, 2024 and 2023, we had $11.1 million and $2.3 million, respectively, of cash and cash equivalents.

As of December 31, 2023, the Company also had an accumulated deficit of $161.5 million, working capital of $1.3 million and stockholders’ deficit of $26.6 million.

As of December 31, 2024, the Company also had an accumulated deficit of $193.2 million, working capital of $6.8 million and stockholders’ equity of $15.8 million.

These factors raise substantial doubt about our ability to continue as a going concern.

The Company will require significant additional financing to meet its planned capital and operational needs and is pursuing opportunities to obtain additional financing through equity and/or debt alternatives.

There can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its future operations.

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Sales of additional equity securities, convertible debt and/or warrants by the Company could result in the dilution of the interests of existing stockholders.

However, there can be no assurance that financing will be available when required in sufficient amounts, on acceptable terms or at all.

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.

Share Increase Amendment

We are currently authorized to issue 114,000,000 shares of Class A common stock.

Our ability to conduct financing activities, including our at-the-market offering program, will be limited unless the Share Increase Amendment is approved.

Referral Agreement with Dimension

On April 20, 2021, the Company entered into a Referral Agreement with Dimension Funding, LLC (“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 ASRs by accelerating collection of its accounts receivable.

In 2022, the Company also began working with a second source for order financing for its ASRs to supplement its ability to finance its backlog.

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.

We executed a purchase agreement on September 13, 2024 in order to secure the acquisition of raw materials essential to ASR production.

This agreement stipulates monthly purchases of $40,000 commencing in January 2025 and concluding in August 2026, culminating in a total expenditure of $0.8 million .

The table below, for the periods indicated, provides selected cash flow information:

Year ended December 31,

(In thousands)

Net cash used in operating activities

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Net cash provided by financing activities

Net (decrease) increase in cash, cash equivalents, and restricted cash

Net change in cash, cash equivalents and restricted cash

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, sell and service ECDs, 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, 2023 increased by $0.1 million to $24.2 million, compared to $24.1 million for the year ended December 31, 2022.

Loan discount amortization and a change in fair value of convertible notes in 2022 was immaterial in 2023 and accounted for an increase in cash used in operating activities of $13.5 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

Changes in operating assets and liabilities, net of $6.1 million, and a decrease in stock compensation expense of $0.8 million also contributed to the increase in cash used in operating expenses for the year ended December 31, 2023 compared to the prior year.

These increases were partially offset by a decrease in net loss of $3.5 million, a decrease in the change in the fair value of warrant liabilities of $15.9 million, an increase in depreciation and amortization expense of $0.7 million, an increase in stock issued for consulting services of $0.1 million and an increase in accrued interest of $0.1 million.

Net cash used in operating activities for the year ended December 31, 2024 decreased by $1.7 million to $22.5 million, compared to $24.2 million for the year ended December 31, 2023.

The change in fair value of warrant and derivative liabilities accounted for a decrease in cash used in operating activities of $6.4 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

Changes in operating assets and liabilities, net of $5.3 million, also contributed to the decrease in cash used in operating activities for the year ended December 31, 2024 compared to the prior year.

These decreases were partially offset by an increase in net loss of $9.6 million, a decrease in stock compensation expense of $1.0 million and an increase in the loss on disposal of ASR of $1.2 million in 2024 compared to the prior year.

Net Cash Used in Investing Activities

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Net cash used in investing activities for the year ended December 31, 2024 was $3.2 million compared to $5.1 million for the year ended December 31, 2023, a decrease of $1.9 million.

The decrease was primarily a result of the CASE acquisition in the prior year for $5.4 million partially offset by higher investments in ASRs and equipment of $0.6 million in the current year.

The decrease was primarily a result of lower investments in ASRs and equipment of $1.5 million.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was approximately $26.8 million for the year ended December 31, 2023, a decrease of approximately $1.1 million as compared to the prior year.

Net cash provided by financing activities was approximately $34.5 million for the year ended December 31, 2024, an increase of approximately $7.6 million as compared to the prior year.

Our financing activities for the year ended December 31, 2024, consisted primarily of the issuance and sale of shares of Class A Common Stock pursuant to our at-the-market offering program for net proceeds of approximately $22.7 million, net proceeds from issuance of common stock and pre-funded warrants of approximately $10.8 million and net proceeds from the issuance of Regulation A bonds of approximately $2.6 million, partially offset by a $1.6 million repayment of debt obligations.

Our financing activities for the year ended December 31, 2023, consisted primarily of the issuance and sale of shares of Class A Common Stock for net proceeds of approximately $25.9 million, net proceeds from the issuance of Regulation A bonds of approximately $1.2 million, and Class A Common Stock issued as a result of option exercises of approximately $0.3 million, partially offset by a note repayment of approximately $0.6 million.

Warrants to Purchase Shares of, Series m-3 Preferred Stock

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.

On April 7, 2023, the Company entered into an Amendment and Cancellation Agreement with certain holders of warrants to purchase Series m-3 and Series S Preferred Stock.

2022 Convertible Notes and Common Stock Warrants

On October 10, 2022, we entered into a securities purchase agreement with an accredited investor (the “Buyer”), pursuant to which we sold and issued to the Buyer in a private placement (i) senior secured convertible notes in an aggregate principal amount of $6.075 million (the “2022 Convertible Notes”), at an initial conversion price of $5.00 per share of Class A Common Stock, subject to adjustment upon the occurrence of specified events described in the 2022 Convertible Notes, and (ii) warrants to purchase up to 1,138,446 shares of Class A Common Stock with an initial exercise price of $3.25 per share of Class A Common Stock, exercisable immediately and expiring five years from the date of issuance (the “2022 Common Stock Warrants” and, together with the 2022 Convertible Notes, the “2022 Convertible Notes Offering”), for $5.0 million of gross proceeds.

Digital Offering, LLC, acted as the placement agent for the 2022 Convertible Notes Offering and received a commission of 4.50% of the aggregate principal amount of the 2022 Convertible Notes.

The 2022 Common Stock Warrants are recorded as derivative liabilities as it was determined they are not indexed to the Company’s stock and accounted for at fair value upon issuance.

During the year ended December 31, 2023, the Company issued 10,432,428 shares of Class A Common Stock in connection with various conversions of the 2022 Convertible Notes by the Buyer, representing an aggregate principal amount of $6.075 million.

As of December 31, 2023, the entire outstanding principal balance of the 2022 Convertible Notes was fully retired.

The 2022 Common Stock Warrants remain outstanding.

Common Stock Purchase Agreement with B.

On April 4, 2022, the Company entered into the Purchase Agreement and a Registration Rights Agreement with B.

Riley Principal Capital.

Pursuant to the Purchase Agreement, the Company has the right to sell to B.

Riley Principal Capital, up to the lesser of (i) $100,000,000 of newly issued shares of the Company’s Class A Common Stock and (ii) the Exchange Cap (as defined in the Purchase Agreement) (subject to certain conditions and limitations), from time to time during the term of the Purchase Agreement.

Sales of Class A Common Stock pursuant to the Purchase Agreement, and the timing of any sales, are solely at the option of the Company, and the Company is under no obligation to sell any securities to B.

Riley Principal Capital under the Purchase Agreement.

The per share purchase price for the shares of Class A Common Stock that B.

Riley Principal Capital is required to purchase pursuant to the Purchase Agreement, if any, will be determined by reference to the volume weighted average price of the Class A Common Stock calculated in accordance with the Purchase Agreement, and subject to the terms and conditions set forth in the Purchase Agreement.

As consideration for B.

Riley Principal Capital’s commitment to purchase shares of Class A Common Stock at the Company’s direction upon the terms and subject to the conditions set forth in the Purchase Agreement, upon execution of the Purchase Agreement, the Company issued 98,888 shares of Class A Common Stock to B.

Riley Principal Capital as initial commitment shares.

In addition, (i) upon the Company’s receipt of total aggregate gross cash proceeds equal to $25,000,000 as payment by B.

Riley Principal Capital for all shares of Class A Common Stock purchased under the Purchase Agreement, the Company will issue 59,333 additional shares of Class A Common Stock to B.

Riley Principal Capital as additional commitment shares, and (ii) upon the Company’s receipt of total aggregate gross cash proceeds equal to $50,000,000 from B.

Riley Principal Capital under the Purchase Agreement, the Company will issue an additional 39,555 shares of Class A Common Stock to B.

Riley Principal Capital as additional commitment shares, totaling 98,888 additional commitment shares (in addition to the 98,888 initial commitment shares the Company issued to B.

Riley Principal Capital upon execution of the Purchase Agreement).

Pursuant to the Registration Rights Agreement, the Company filed a registration statement on Form S-1 to register the resale of 12,197,776 shares of Class A Common Stock by B.

Riley Principal Capital, which was declared effective by the SEC on May 11, 2022.

During the year ended December 31, 2023 we sold and issued 851,109 shares of Class A Common Stock under the Purchase Agreement for total net proceeds of $1.3 million.

At-the-Market Offering Program

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On August 18, 2023, after our non-affiliated public float subsequently rose to an amount greater than $75.0 million, we filed a new prospectus supplement (the “August Prospectus Supplement”) providing for the offer and sale from time to time of up to $25.0 million in shares of Class A Common Stock subject to, and in accordance with, SEC rules.

For the year ended December 31, 2023, we issued 25,734,332 shares of Class A Common Stock under the at-the-market offering program for net proceeds of approximately $16.4 million, net of brokerage and placement fees of approximately $0.6 million pursuant to the February Prospectus Supplement, and 11,817,912 shares of Class A Common Stock under the at-the-market offering program for net proceeds of approximately $8.2 million, net of brokerage and placement fees of approximately $0.3 million pursuant to the August Prospectus Supplement.

On April 8, 2024, we filed the April Prospectus Supplement, relating to the issuance and sale from time to time of up to $6.4 million in shares of Class A Common Stock, subject to, and in accordance with, SEC rules.

On June 7, 2024, we filed the June Prospectus Supplement to amend the April Prospectus Supplement to increase the issuance and sale from time to time to up to $11.66 million of shares of Class A Common Stock, subject to, and in accordance with, SEC rules.

In the event that our public float increases or decreases, we may sell securities in public primary offerings on Form S-3 with a value up to one-third of our public float, in each case calculated pursuant to General Instruction I.B.6 and subject to the terms of the ATM Agreement.

In the event that our public float increases above $75.0 million, we will no longer be subject to the limits in General Instruction I.B.6 of Form S-3.

On October 11, 2024, the Company filed a prospectus supplement (the “October Prospectus Supplement”) to amend the June Prospectus Supplement to increase the issuance and sale from time to time to up to $1.347 million in shares of Class A Common Stock subject to, and in accordance with, SEC rules.

On November 14, 2024, after our non-affiliated public float subsequently rose to an amount greater than $75.0 million, we filed a new prospectus supplement (the “November Prospectus Supplement”) providing for the offer and sale from time to time of up to $25.0 million in shares of Class A Common Stock, in addition to the shares of Class A common stock previously sold, subject to, and in accordance with, SEC rules .

For the year ended December 31, 2024, we issued 1,716,419 shares of Class A Common Stock under the at-the-market offering program for net proceeds of approximately $22.7 million, net of brokerage and placement fees of approximately $0.9 million.

November 2024 Public Offering

On November 21, 2024, Knightscope announced the pricing of a public offering of Class A Common Stock and pre-funded warrants, projected to generate gross proceeds of approximately $12.1 million.

The offering, conducted under an effective shelf registration statement previously filed with the SEC, closed on November 25, 2024.

The pre-funded warrants were immediately exercisable at a nominal price of $0.001 per share and remained exercisable until fully utilized.

As of February 11, 2025,

the pre-funded warrants were fully exercised.

These underwriter warrants are exercisable at a price of $18.29 per share.

Reverse Stock Split

On August 16, 2024, the Company held an annual meeting of stockholders (the “Annual Meeting”) at which the Company’s stockholders approved, among other items, amendments to the Certificate of Incorporation, to effect a reverse stock split of the Company’s Class A

Common Stock at a ratio ranging from any whole number between 1-for-5 and 1-for-50, as determined by the Company’s Board in its

discretion, subject to the Board’s authority to abandon such amendments (the “Class A Reverse Stock Split Amendment”), and effect a

reverse stock split of the Company’s Class B Common Stock at a ratio ranging from any whole number between 1-for-5 and 1-for-50 (which ratio shall be the same ratio as the reverse stock split determined by the Board with respect to the Class A Common Stock), as determined by the Board in its discretion, subject to the Board’s authority to abandon such amendments (the “Class B Reverse Stock Split Amendment” and, together with the Class A Reverse Stock Split Amendment, the “Reverse Stock Split Amendment”).

On September 4, 2024, the Board selected a reverse stock split of the Class A Common Stock at a final ratio of 1-for-50 and a reverse stock

split of the Class B Common Stock at a final ratio of 1-for-50 and abandoned all other reverse stock split amendments at different ratios.

On September 13, 2024, the Company filed a Certificate of Amendment to the Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Delaware to effect the Amendments.

The Reverse Stock Split Amendment became effective at 5:00 p.m.

Eastern Time on the date of filing of the related Certificate of Amendment.

Preferred Stock Conversion to Common

On May 15, 2024 (the “Preferred Stock Conversion Date”), pursuant to the terms of the Certificate of Incorporation, each share of the Company’s Super Voting Preferred Stock was automatically converted into fully-paid, non-assessable shares of Class B common stock and each share of the Company’s Ordinary Preferred Stock (together with the Super Voting Preferred Stock, the “Preferred Stock”) was automatically converted into fully-paid, non-assessable shares of Class A common stock, in each case at the then effective applicable Conversion Rate, as a result of the receipt by the Company of a written request for such conversion from the holders of a majority of the voting power of the Preferred Stock then outstanding (the “Automatic Conversion”).

As a result of the Automatic Conversion, no shares of previously authorized preferred stock remain outstanding.

Management believes this change helps the Company maintain compliance with Nasdaq listing rules by helping the Company meet the minimum stockholders’ equity requirement under the Equity Standard for continued listing pursuant to Nasdaq Listing Rule 5550(b)(1) on The Nasdaq Capital Market.

On August 16, 2024, at its Annual Meeting, the Company received stockholder approval to authorize 40,000,000 shares of “blank check” preferred stock, issuable in one or more series, and (ii) implement ancillary and conforming changes in connection with the authorization of “blank check” preferred stock and to remove provisions related to the Company’s former Super Voting Preferred Stock and Ordinary Preferred Stock, which are no longer outstanding.

The term “blank check” preferred stock refers to preferred stock, the creation and issuance of which is authorized in advance by a company’s stockholders and the terms, rights and features of which are determined by the Board of Directors of a company without seeking further actions or vote of the stockholders.

Extinguishment of Warrants with Anti-Dilution Features

On October 10, 2022, the Company entered into a Securities Purchase Agreement (the “2022 Purchase Agreement”) with Alto Opportunity Master Fund, SPC - Segregated Master Portfolio B (the “Holder”), pursuant to which the Company issued and sold to the Holder in a private placement (i) senior secured convertible notes (the “2022 Notes”), and (ii) warrants (the “2022 Warrants”) to purchase up to 22,768 shares of the Company’s Class A common stock.

The 2022 Warrants included an adjustment mechanism, whereby the exercise price and number of shares issuable upon the exercise of the 2022 Warrants (the “Warrant Exercise Price”) were subject to adjustment from time to time, such that immediately after an issuance of shares of Common Stock (a “Stock Issuance”) at any price per share of Common Stock that was lower than the then in effect Warrant Exercise Price (the “Reset Price”), the Warrant Exercise Price would be reduced to equal the Reset Price, and number of shares issuable upon the exercise of the 2022 Warrants would be increased to the number necessary to maintain the value of the 2022 Warrants immediately prior to such Stock Issuance.

In connection with the entry into the 2022 Purchase Agreement, the Company and the Holder also entered into a registration rights agreement (the “2022 Registration Rights Agreement”), pursuant to which the Company agreed to provide the Holder with certain registration rights under the Securities Act and the rules and regulations thereunder.

Capitalized terms not defined herein have the meaning assigned to them in the 2022 Purchase Agreement.

On August 1, 2024 (the “Issuance Date”), the Company and the Holder entered into an Agreement and Waiver (the “Waiver”) pursuant to which, on the Issuance Date, the Company issued to the Holder a Senior Secured Promissory Note due on July 1, 2025, in an aggregate amount equal to $3.0 million (the “Principal”), in exchange for the cancellation of the Holder’s 2022 Warrants (the “August 2024 Note”).

The Company has agreed to pay the Principal in two separate installments:

the first installment in an amount equal to $2,500,000 payable in 11 equal consecutive monthly installments beginning on September 1, 2024, and the second installment in an amount equal to $500,000, payable on the earlier of (x) October 15, 2024, and (y) upon any issuance by the Company or any of its subsidiaries of common stock or common stock equivalents for cash consideration, indebtedness or a combination of units thereof (other than pursuant to a customary at-the-market offering program and equity lines of credit).

Upon the occurrence of a Change of Control (as defined in the August 2024 Note), the Holder may, at its option, require the Company to repay the Note in full, starting from the public announcement of such a Change of Control until 30 days after its completion.

The August 2024 Note does not bear interest under normal circumstances;

however, if an Event of Default occurs (as defined in the August 2024 Note), the outstanding principal will automatically bear interest at a rate of 10% per annum until the default is resolved or the Note is paid in full.

As of March 31, 2025, approximately $0.9 million of the note is outstanding.

Share Increase Amendment

On April 5, 2024, we held a special meeting of stockholders (the “Special Meeting”) at which the Company’s stockholders approved an amendment (the “Share Increase Amendment”) to the Certificate of Incorporation to increase the number of authorized shares of the Company’s Class A Common Stock, par value $0.001 per share from 114,000,000 to 228,000,000 shares.

Our Board believes it is in the best interests of the Company and our stockholders to have additional shares available for use as our Board deems appropriate or necessary.

As such, the primary purpose of the Share Increase Amendment was to provide the Company with greater flexibility with respect to managing its Class A Common Stock in connection with such corporate purposes as may, from time to time, be considered advisable by our Board.

These corporate purposes could include, without limitation, (i) financing activities, including the at-the-market offering program that we commenced in February 2023, as amended in August 2023, with H.C.

Wainwright & Co., LLC as sales agent;

(iii) stock dividends or splits;

(iv) conversions of convertible securities;

(v) issuance of stock options and other equity awards pursuant to our incentive plans;

and (vi) establishing strategic relationships.

Having an increased number of authorized but unissued shares of Class A Common Stock allows the Company to take prompt action with respect to corporate.

Public Safety Infrastructure Bonds

We filed an Offering Circular dated September 29, 2023 (the “Offering Circular”) for the issuance of up to $10.0 million in Public Safety Infrastructure Bonds (the “Bonds”) pursuant to Regulation A of the Securities Act of 1933, as amended.

The Offering Circular was qualified with the SEC on October 2, 2023.

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For the year ended December 31, 2023, we issued Bonds totaling a principal amount of approximately $1.4 million, in aggregate, generating net proceeds to the Company of approximately $1.2 million, net of issuance costs of approximately $0.2 million.

Overall, we issued Bonds totaling a principal amount of approximately $4.3 million, in aggregate, generating net proceeds to the Company of approximately $3.9 million, net of issuance costs of approximately $0.4 million during the life of the offering.

Promissory Note

On June 30, 2023, Knightscope and CASE executed a Promissory Note Partial Payment and Extension Agreement, whereby the maturity date of the Seller’s Note (“Note”) issued on October 14, 2022 in the amount of $560,000 in connection with the acquisition of CASE was extended to October 6, 2023.

The balance of the Note was payable in two installments with the first payment made July 10, 2023 and the final payment made on October 5, 2023.

Quantitative and Qualitative Disclosures About Market Risk

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis