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Item 8. Financial Statements and Supplementary Data

2025-03-31 compared with 2024-04-01 · 256 added, 383 removed, 569 unchanged (53% of the section changed)

5 unchanged sentences

Statements of Operations for the Fiscal Years Ended December 31, 2024 and 2023

Statements of Preferred Stock and Stockholders’ Deficit for the Fiscal Years Ended December 31, 2023 and 2022

Statements of Preferred Stock and Stockholders’ Equity (Deficit) for the Fiscal Years Ended December 31, 2024 and 2023

Statements of Cash Flows for the Fiscal Years Ended December 31, 2024 and 2023

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We have audited the accompanying balance sheets of Knightscope, Inc.

(a Delaware corporation) (the “Company”) as of December 31, 2023 and 2022, and the related statements of operations, preferred stock and stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the USA.

(a Delaware corporation) (the “Company”) as of December 31, 2024 and 2023, and the related statements of operations, preferred stock and stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

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San Jose, California

April 1, 2024

March 31, 2025

KNIGHTSCOPE, INC.

4 unchanged sentences

Restricted cash

Accounts receivable, net of allowance for credit losses

Accounts receivable, net of allowance for credit losses of $ 139 and $ 15 as of December 31, 2024 and 2023, respectively

Prepaid expenses and other current assets

4 unchanged sentences

Intangible assets, net

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:

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Deferred revenue

Debt obligations

Operating lease liabilities, current

Debt obligations, current

Other current liabilities

Total current liabilities

Debt obligations

Non-current liabilities:

Debt obligations, net of debt issuance costs of $ 316 and $ 194 as of December 31, 2024 and 2023, respectively

Preferred stock warrant liability

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Preferred Stock, $ 0.001 par value;

43,405,324 shares authorized as of December 31, 2023 and 2022, 9,499,083 and 11,351,841 shares issued and outstanding at December 31, 2023 and 2022, respectively;

40,000,000 and 43,405,324 shares authorized as of December 31, 2024 and 2023, 0 and 189,982 shares issued and outstanding as of December 31, 2024 and 2023, respectively;

aggregate liquidation preference of $ 0 and $ 35,361 as of December 31, 2024 and 2023 respectively (1)

Stockholders’ deficit:

Class A Common Stock, $ 0.001 par, 114,000,000 shares authorized as of December 31, 2023 and 2022, 80,188,600 and 28,029,238 shares issued and outstanding as of December 31, 2023 and 2022, respectively

Class B Common Stock, $ 0.001 par, 30,000,000 shares authorized as of December 31, 2023 and 2022, 9,357,822 and 10,319,884 shares issued and outstanding as of December 31, 2023 and 2022, respectively

Stockholders’ equity (deficit) (1):

Class A Common Stock, $ 0.001 par, 228,000,000 and 114,000,000 shares authorized as of December 31, 2024 and 2023, 4,065,347 and 1,603,772 shares issued and outstanding as of December 31, 2024 and 2023, respectively

Class B Common Stock, $ 0.001 par, 30,000,000 shares authorized as of December 31, 2024 and 2023, 336,759 and 187,156 shares issued and outstanding as of December 31, 2024 and 2023

Additional paid-in capital

Accumulated deficit

Total stockholders’ deficit

Total liabilities, preferred stock and stockholders’ deficit

Total stockholders’ equity (deficit)

Total liabilities, preferred stock and stockholders’ equity (deficit)

(1) Share amounts as of December 31, 2023 have been adjusted to reflect the impact of a 1 -for-50 reverse stock split of the Company’s common stock effected in September 2024 as discussed in Note 1.

See accompanying Notes to Financial Statements.

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Loss from operations

Other income:

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

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

Basic and diluted net loss per share of Class A and Class B Common Stock

Basic and diluted net loss per common share

Weighted average shares used to compute basic and diluted net loss per share (1)

(1) Share amounts for the year ended December 31, 2023 have been adjusted to reflect the impact of a 1 -for-50 reverse stock

split of the Company’s common stock effected in September 2024 as discussed in Note 1 .

See accompanying Notes to Financial Statements.

KNIGHTSCOPE, INC.

STATEMENTS OF PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

STATEMENTS OF PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands except share data)

Preferred Stock

Stockholders’

Paid-in-capital

Equity (Deficit)

Balance as of January 1, 2023

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Share conversion to Class A Common Stock

( 2,719,589 )

( 1,091,666 )

( 3,069,404 )

( 2,836,313 )

Share conversion costs

1 unchanged sentence

Stock based compensation

Conversion of debt obligations to Class A Common Stock

Reclassification of warrant liabilities

Stock options exercised

Proceeds from equity sale, net of issuance costs

Share conversion to Class A Common Stock

( 1,667,779 )

( 1,200,062 )

Fractional share adjustment due to reverse stock split

Offering proceeds, net of issuance costs

Issuance of common stock, and pre-funded warrants sold for cash, net of issuance costs

Share conversion to common stock

Share conversion costs

Balance as of December 31, 2024

Share amounts have been adjusted to reflect the impact of a 1 -for-50 reverse stock split of the Company’s common stock effected in September 2024 as discussed in Note 1.

See accompanying Notes to Financial Statements.

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Depreciation and amortization

Loss on disposal of Autonomous Security Robots

Stock compensation expense

Change in fair value of warrant and derivative liability

Change in fair value of convertible note

Amortization of debt discount

Loss from damage of Autonomous Security Robots

Change in fair value of warrant and derivative liabilities

Accrued interest

Common stock issued in exchange for consulting services

Amortization of debt discount

Non-cash interest

Changes in operating assets and liabilities:

Accounts receivable

Accounts receivable, net

Prepaid expenses and other current assets

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Cash Flows From Investing Activities

Acquisition of business, net of cash acquired

Purchase of Autonomous Security Robots

Purchase of property and equipment

Purchases and related costs incurred for Autonomous Security Robots

Purchases of property and equipment

Net cash used in investing activities

Cash Flows From Financing Activities

Proceeds from stock options exercise

Proceeds from issuance of REG A Bonds, net of issuance costs

Proceeds for the issuance of convertible notes, net of issuance costs

Offering proceeds, net of issuance costs

Proceeds from issuance of warrants, net of issuance costs

Proceeds from stock options exercised

Cash paid for fractional shares

Proceeds from equity sale, net of issuance costs

Net repayments from financing obligations

Proceeds from issuance of Public Safety Infrastructure Bonds, net of issuance costs

Proceeds from issuance of common stock and pre-funded warrants sold for cash, net of issuance costs

Repayments of debt obligations

Share conversion costs

Net cash provided by financing activities

Net change in cash and cash equivalents

Cash, cash equivalents and restricted cash at beginning of year

Cash, cash equivalents and restricted cash at end of year

Net change in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of the period

Cash, cash equivalents and restricted cash at end of the period

Supplemental Disclosure of Non-Cash Financing and Investing Activities

Goodwill adjustment

Cashless exercise of warrants for preferred stock

Conversion of preferred stock to common stock

Conversion of debt obligations to Class A Common Stock

Fair value of shares issued for consulting services

Capital expenditures in accounts payable and other long-term liabilities

Preferred stock warrant reclassification to equity

Promissory note issued in exchange for cancellation of Class A Common Stock Warrants

Operating lease liabilities arising from obtaining right of use asset

Holdback liability for acquisition of business included in accrued liabilities

See accompanying Notes to Financial Statements.

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The Company’s mission is to make the USA the safest country in the world by helping to protect the people, places, and assets where we live, work, study and visit.

To support this mission, the Company designs, develops, manufactures, markets, deploys, and supports Autonomous Security Robots (“ASRs”), autonomous charging stations, the proprietary Knightscope Security Operations Center (“KSOC”) software user interface, Emergency Communication Devices (“ECDs” which include, its newly released Knightscope Emergency Management System (“KEMS”) platform.

To support this mission, the Company designs, develops, manufactures, markets, deploys, and supports Autonomous Security Robots (“ASRs”), autonomous charging stations, the proprietary Knightscope Security Operations Center (“KSOC”) software user interface, and Emergency Communication Devices (“ECDs”) which include, its newly released Knightscope Emergency Management System (“KEMS”) platform.

Basis of Presentation and Liquidity

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The Company has historically incurred losses and negative cashflows from operations.

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.

The Company is dependent on additional fundraising in order to sustain its ongoing operations.

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This facility provides the Company with additional access to capital, as needed, subject to market conditions.

On September 29, 2023, the Company filed an Offering Circular (the “Offering Circular”) for the issuance of up to $ 10.0 million in Public Safety Infrastructure 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 Company’s projected cash flows are subject to various risks and uncertainties, and the unavailability or inadequacy of financing to meet future capital needs could force it to modify, curtail, delay, or suspend some or all aspects of its planned operations or discontinue operations completely.

On April 8, 2024, the Company filed a prospectus supplement (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, the Company filed a prospectus supplement (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 in shares of Class A Common Stock subject to, and in accordance with, SEC rules.

The Company’s projected cash flows are subject to

various risks and uncertainties, and the unavailability or inadequacy of financing to meet future capital needs could force it to modify, curtail, delay, or suspend some or all aspects of its planned operations or discontinue operations completely.

Management’s plans include seeking additional financing, such as issuances of equity and issuances of debt and/or convertible debt instruments.

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The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

The Company has one operating segment and one reportable segment as its chief operating decision maker, who is its Chief Executive Officer, reviews financial information on a basis for purposes of allocating resources and evaluating financial performance.

All long-lived assets are located in the USA and substantially all revenue is attributed to sellers and buyers based in the USA.

Reverse Stock Split

On August 16, 2024, the Company held an annual meeting of stockholders at which the Company’s stockholders approved, among other items, amendments to the Company’s 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 of Directors (the “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”).

The Reverse Stock Split Amendment was described in the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on July 5, 2024.

The Board had previously approved 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 Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Delaware to effect the Reverse Stock Split Amendment.

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.

No fractional shares of either Class A Common Stock or Class B Common Stock were issued if, as a result of the Reverse Stock Split Amendment, a stockholder would otherwise have become entitled to a fractional share because the number of shares of Class A Common Stock or Class B Common Stock, as applicable, that they held before the Reverse Stock Split Amendment was not evenly divisible by the split ratio;

instead, each stockholder received a cash payment in lieu of such fractional share based on the closing price per share as reported by The Nasdaq Capital Market on September 13, 2024, which totaled approximately $ 78 .

All stock options outstanding under the Company’s Equity Incentive plan immediately prior to the Reverse Stock Split Amendment were adjusted by dividing the number of affected shares of common stock by 50 and, as applicable, multiplying the exercise price by 50 .

All share and per-share amounts in these financial statements have been restated to reflect the Reverse Stock Split Amendment as if it had occurred at the beginning of the earliest period presented.

The Company has one operating segment and one reportable segment as its chief operating decision maker (“CODM”), who is its Chief Executive Officer , reviews financial information on a basis for purposes of allocating resources and evaluating financial performance.

All long-lived assets are located in the United States and substantially all revenue is attributed to sellers and buyers based in the United States.

Comprehensive Loss

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The Company has restricted cash as collateral for the Company’s corporate credit card program.

As of December 31, 2023 and 2022, the carrying value of restricted cash was $ 0.1 and $ 0 million, respectively.

As of December 31, 2024 and 2023, the carrying value of restricted cash was $ 0.1 million.

Concentrations of Credit Risk

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The Company also considers any changes to the financial condition of its clients and any other external market factors that could impact the collectibility of the receivables in the determination of the allowance for credit losses.

Based on these assessments, the Company recorded an immaterial allowance for credit losses on its accounts receivable as of December 31, 2023 compared to an allowance of $ 0.2 million on its accounts receivable balance as of December 31, 2022.

As of December 31, 2023, the Company had one client whose accounts receivable balance, including unbilled amounts, totaled 10% or more of the Company’s total accounts receivable ( 34 %) compared with three such clients as of December 31, 2022 ( 13 %, 12 % and 12 %).

For the year ended December 31, 2023, the Company had two client who individually accounted for 10% or more of the Company’s total revenue, net ( 10 %) compared with no clients accounting for 10% or more of total revenue for the year ended December 31, 2022.

Based on these assessments, the Company recorded a $ 139 allowance for credit losses on its accounts receivable as of December 31, 2024 compared to an allowance of $ 15 on its accounts receivable balance as of December 31, 2023.

As of December 31, 2024, the Company had one client whose accounts receivable balance totaled 10% or more of the Company’s total accounts receivable ( 13 %) compared with one client as of December 31, 2023 ( 34 %).

For the year ended December 31, 2024, the Company had no clients who individually accounted for 10% or more of the Company’s total revenue, net compared with two clients who individually accounted for 10% of total revenue, net for the year ended December 31, 2023 ( 11 %, 10 %).

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

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Prepaid expenses and other current assets

Prepaid and other current assets is comprised of the following (in thousands):

Prepaid inventory

Prepaid and other current assets is comprised of the following:

Prepaid expense

Other receivables

Research and development tax credit

Prepaid inventory

Other receivables

Other current assets

Autonomous Security Robots, net (“ ASRs”)

Autonomous Security Robots, net

ASRs consist of materials, ASRs in progress and finished 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 and $ 66 , depreciation expense of finished ASRs included in sales and marketing expense amounted to $ 15 and $ 46 , 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.

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

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

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

In the first quarter of 2024, the Company discontinued the K5 v3 machines and as a result, wrote off approximately $ 1.1 million against service cost of revenue, net for the year ended December 31, 2024 .

ASRs, net, consisted of the following:

Raw materials

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accumulated depreciation on Finished ASRs

The components of the Finished ASRs, net, are as follows (in thousands):

The components of the Finished ASRs, net, are as follows:

ASRs on lease or available for lease

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When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the balance sheets and any resulting gain or loss is reflected in the statements of operations in the period realized.

Property, equipment, and software, net as of December 31, 2023 and 2022 were as follows (in thousands):

Property, equipment, and software, net as of December 31, 2024 and 2023 were as follows:

Computer equipment

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Property, equipment and software, net

Depreciation and amortization expense on property, equipment and software included in research and development expenses amounted to $ 27 and $ 47 , for cost of revenue, net amounted to $ 173 and $ 29 , and for sales and marketing amounted to $ 8 and $ 0 for the years ended December 31, 2023 and 2022, respectively.

Depreciation and amortization expense relating to general and administrative expenses was insignificant for all periods presented.

Business Acquisitions

The Company performs valuations of assets acquired and liabilities assumed for acquisitions and allocates the purchase price to its respective net tangible and intangible assets, and liabilities based on their estimated fair values.

Any residual purchase price is recorded as goodwill.

Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies.

During the measurement period, the Company may record certain adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

After the measurement period, which could be up to one year after the transaction date, all adjustments are recorded to the Company’s statements of operations.

During the quarter ended June 30, 2023, the Company became aware of an error in the calculation of deferred revenue and goodwill associated with the CASE Emergency Systems acquisition in October of 2022.

The error resulted in an understatement of acquired deferred revenue and goodwill in the amount of $ 578 .

As such, the June 30, 2023 condensed balance sheet has been adjusted to increase goodwill and deferred revenue by $ 578 .

Based on an analysis of Staff Accounting Bulletin 108, “Quantifying Misstatements” and Staff Accounting Bulletin 99, “Materiality,” the Company has determined that these errors were immaterial to the previously issued audited financial statements for the year ended December 31, 2022 and the unaudited condensed financial statements for the quarters ended March 31, 2023 and June 30, 2023.

Depreciation and amortization expense on property, equipment and software is included in research and development expenses, cost of revenue, net, and sales and marketing expense on the Company’s Statements of Operations.

Depreciation and amortization expense on property, equipment and software was $ 262 and $ 208 for the years ended December 31, 2024 and 2023, respectively.

Goodwill and Acquired Intangible Assets

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Goodwill is not amortized, but rather is tested for impairment.

The Company performs testing for impairment of goodwill annually, at the end of the year, or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The Company performs testing for impairment of goodwill annually, during the fourth quarter, or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The Company tests goodwill for impairment at the reporting unit level using a two-step approach.

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The Company has determined that there is a single reporting unit for the purpose of goodwill impairment tests.

Since inception through December 31, 2023, the Company did not have any goodwill impairment.

Since inception through December 31, 2024, the Company has not had any goodwill impairment.

Acquired intangible assets consist of identifiable intangible assets, primarily developed technology, trademark and customer relationships.

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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 year ended December 31, 2023 and 2022.

Management reviewed the Company‘s ASRs, property, equipment, software and intangible assets and no assets were determined to be impaired for the years ended December 31, 2024 and 2023.

The Company determines if a contract is a lease or contains a lease at the inception of the contract and reassesses that conclusion if the contract is modified.

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Other current liabilities consisted of the following:

Customer and vendor deposits

Warranty liability

Customer deposits

Accrued Warranty

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Balance January 1,

Provision for warranties issued during the year

Provision for warranties issued

Warranty services provided

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Accrued expenses consisted of the following:

Accrued bonuses

Payroll and payroll taxes

Legal, consulting and financial services

Payroll and payroll taxes

Accrued interest

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 operation.

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.

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.

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

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

These warrants are recorded as a derivative liability as it was determined they are not indexed to the Company’s common 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 change in fair value of warrant and derivative liability on the statements of operations.

Revenue Recognition

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In these situations, the Company records the invoices as deferred revenue and amortizes the subscription amount when the services are delivered, which generally is a 12 -month period.

In addition, the Company refers certain transactions to Dimension and Balboa Capital, whereby Dimension or Balboa Capital advances the full value of the MaaS subscription to the Company, less a processing fee.

In addition, the Company refers certain transactions to Dimension, whereby Dimension advances the full value of the MaaS subscription to the Company, less a processing fee.

The advanced payment is recorded in deferred revenue and amortized over the term of the subscription once the ASR is delivered to the deployment site.

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Point in time

Product Revenue, net

Product revenue, net includes point of sale transactions related to the ECDs, including product, shipping, and installation.

Other revenue, net

1 unchanged sentence

Revenue from these transactions has been immaterial for all periods presented and is included in service revenue, net.

Product Revenue, net

Product revenue, net includes point of sale transactions related to the ECDs, including product, shipping, and installation.

Cost of revenue, net

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The amounts classified as cost of revenue, net represent shipping and handling costs associated with the deployment or returns of the ASRs directly to or from clients.

Management believes that the classification of these shipping and handling costs as cost of revenue, net better reflects the cost of producing the ASRs and selling its services.

Management believes that the classification of these shipping and handling costs as cost of revenue, net better

reflects the cost of producing the ASRs and selling its services.

Shipping and handling costs associated with the transportation of demonstration units shipped to sales personnel and clients are recorded as sales and marketing expenses.

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Basic and Diluted Net Loss per Share

Net loss per share of Class A and Class B Common Stock is computed using the two-class method required for participating securities based on their participation rights.

Net loss per share of common stock is computed using the two-class method required for participating securities based on their participation rights.

All series of convertible preferred stock are participating securities as the holders are entitled to participate in common stock dividends with common stock on an as converted basis.

Holders of Series m-4 Preferred Stock are entitled to receive cumulative dividends payable semi-annually in arrears at the rate per share of Series m-4 Preferred Stock equal to the Dividend Rate for the Series m-4 Preferred Stock, in each case subject to compliance with applicable law.

Dividends to holders of Series m-4 Preferred Stock are paid in kind as a dividend of additional shares of Series m-4 Preferred Stock for each Dividend Period on the applicable Dividend Payment Date using a price per share equal to the original issue price, provided that the Company shall not issue any fractional shares of Series m-4 Preferred Stock.

The holders of the Company’s convertible preferred stock, other than Series m-4 Preferred Stock, are also entitled to noncumulative dividends prior and in preference to common stock and do not have a contractual obligation to share in the losses of the Company.

In accordance with the two-class method, earnings allocated to these participating securities, which include participation rights in undistributed earnings with common stock, are subtracted from net loss to determine net loss attributable to common stockholders upon their occurrence.

Basic net loss per share of Class A and Class B Common Stock is computed by dividing net loss attributable to common stockholders (adjusted for preferred stock dividends declared or accumulated) by the weighted average number of shares of Class A and Class B Common Stock outstanding during the period.

The voting, dividend, liquidation and other rights and powers of the common stock are subject to and qualified by the rights, powers and preferences of any series of preferred stock as may be designated by the Company’s Board of Directors and outstanding from time to time.

In accordance with the two-class method, earnings allocated

to these participating securities, which include participation rights in undistributed earnings with common stock, are subtracted from net loss to determine net loss attributable to common stockholders upon their occurrence.

Basic net loss per share is computed by dividing net loss attributable to common stockholders (net adjusted for preferred stock dividends declared or accumulated) by the weighted average number of shares of common stock outstanding during the period.

All participating securities are excluded from basic weighted average shares outstanding.

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Diluted net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by diluted weighted average shares outstanding, including potentially dilutive securities, unless anti-dilutive.

Potentially dilutive securities that were excluded from the computation of diluted net loss per share consist of the following:

Potentially dilutive securities that were excluded from the computation of diluted net loss per share for the years ended December 31, 2023 and 2024 consist of the following:

Series A Preferred Stock (convertible to Class B Common Stock)

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Warrants to purchase common stock (convertible to Class A Common Stock)

Warrants to purchase Series m-3 (convertible to Class A Common Stock)

Warrants to purchase Series s (convertible to Class A Common Stock)

Convertible Notes

Warrants to purchase Series m-3 Preferred Stock (convertible to Class A Common Stock)

Warrants to purchase Series S Preferred Stock (convertible to Class A Common Stock)

Stock options

Total potentially dilutive shares

The weighted average number of shares of common stock outstanding as of December 31, 2024 includes the weighted average effect of the 816,341 pre-funded warrants issued in connection with the November Offering (as defined in Note 5 - Capital Stock and Warrants) because the exercise of such warrants requires nominal consideration ($ 0.001 per share exercise price for each pre-funded warrant).

As of December 31, 2024, 190,007 of the pre-funded warrants have been exercised for 189,997 shares of Class A Common Stock;

and 626,334 outstanding pre-funded warrants as of that date are not included in the table above.

As all potentially dilutive securities are anti-dilutive as of December 31, 2024 and 2023, diluted net loss per share of Class A and Class B Common Stock is the same as basic net loss per share for each year.

Accounting Pronouncements Adopted in 2024

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU No.

2016-13”), which requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on internal information, external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts.

2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model, which will result in earlier recognition of credit losses.

Subsequent to the issuance of ASU No.2016-13, the FASB issued ASU No.

2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, ASU No.

2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815,Derivatives and Hedging, and Topic 825, Financial Instrument, ASU No.

2019-05, Financial Instruments – Credit Losses (Topic 326) Targeted Transition Relief, ASU No.

2016-13, ASU No.

2019-10 Financial Instruments-Credit Losses (Topic326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), and ASU No.

2019-11 Codification Improvements to Topic 326, Financial Instruments-Credit Losses.

The subsequent ASUs do not change the core principle of the guidance in ASU No.

Instead, these amendments are intended to clarify and improve operability of certain topics included within ASU No.

The Company adopted this standard on January 1, 2023, using a modified retrospective approach, which requires accumulative-effect adjustment to accumulated deficit as of the beginning of the period of adoption with prior periods not restated.

The adoption of ASU No.

2016-13 did not have a material impact on the Company’s financial statements.

Accounting Pronouncements Not Yet Adopted

In November 2023, FASB released Accounting Standards Update No.

2023-07, Segment Reporting .

The amendment improves financial reporting by requiring disclosure of incremental segment information on an annual and interim basis.

In November 2023, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update (“ASU”) No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

The amendment expands financial reporting by requiring disclosure of incremental segment information on an annual and interim basis.

It is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Management does not believe the implementation of this pronouncement will have a material impact on the Company’s financial statements.

On December 14, 2023, the FASB issued Accounting Standards Update 2023-09, Income Taxes , which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements.

The Company adopted this standard on a retrospective basis for the fiscal 2024 annual period, and for interim periods beginning January 1, 2025.

The adoption did not have a material impact on the Company’s financial statements and is limited to financial statement disclosures.

Accounting Pronouncements Not Yet Adopted

On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements.

Under the new guidance, entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation.

The amendment is effective for fiscal years ending after December 15, 2025.

Management does not believe the implementation of this pronouncement will have a material impact on the Company’s financial statements.

The amendment is effective for fiscal years beginning after December 15, 2024.

The Company is currently evaluating the impact of the new standards on the financial statements and related disclosures.

In November 2024, the FASB issued ASU No.

2024-03 , Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses .

The standard requires entities to disclose specified information about certain expenses in the notes to the financial statements, including employee compensation.

It is effective on a prospective basis for annual periods beginning after December 15, 2026 and interim periods within fiscal years beginning after

December 15, 2027 with early adoption permitted.

Management does not believe the implementation of this standard will have a material impact on the Company’s financial statements.

Management has reviewed other recently issued accounting pronouncements issued or proposed by the FASB and does not believe any of these accounting pronouncements has had or will have a material impact on the financial statements.

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December 31, 2024

Cash equivalents:

Cash equivalents and restricted cash

Money market funds

Derivative liability – Class A Common Stock warrants

Warrant liability – Series m-3 Preferred Stock

Warrant liability – Series s Preferred Stock

December 31, 2023

Cash equivalents:

Cash equivalents and restricted cash

Money market funds

2 unchanged sentences

Derivative liability – Class A common stock warrants

2022 Convertible Notes

During the years ended December 31, 2024 and 2023, there were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis and the valuation techniques used did not change compared to the Company’s established practice.

As of December 31, 2024, there were no liabilities measured and recognized at fair value on a recurring basis.

The following table sets forth a summary of the changes in the fair value of Company’s Level 3 warrant and derivative liability during the years ended December 31, 2024 and 2023, which were measured at fair value on a recurring basis:

Warrant and Derivative Liability

Warrant and Derivative Liabilities

Balance as of January 1, 2023

Initial fair value of Class A Common Stock warrants

Exercise of warrants

Revaluation of Class A Common Stock, Series B, m-3 and s Preferred Stock warrants

Balance as of December 31, 2022

Warrant cancellations

2 unchanged sentences

Balance as of December 31, 2023

The following table sets forth a summary of the changes in the fair value of the Company’s level 3 convertible note during the year ended December 31, 2023, which were measured at fair value on a recurring basis:

Balance January 1, 2023

Accretion of interest

Note conversion

Warrant cancellations

Revaluation of Common Stock warrants

Reclassification of Series s and Series m-3 Preferred Stock warrants

Revaluation of Series s and Series m-3 Preferred Stock warrants

Balance as of December 31, 2024

Business Acquisition

On October 14, 2022, the Company finalized an asset acquisition (“APA”) with CASE Emergency Systems, a privately held California corporation (“CASE”), pursuant to which the Company purchased and assumed from CASE substantially all the assets and certain specified liabilities of CASE’s emergency call box and communications business to complement and strengthen the Company’s growing autonomous security robot business with a comprehensive product portfolio and a broadened geographic footprint.

The purchase price was $ 6.72 million, which included an unsecured, non-negotiable promissory note (see Note 5) in the amount of $ 0.56 million.

The cash purchase price of $ 6.16 million was reduced by a working capital adjustment of $ 67 and was subject to an indemnification holdback of $ 0.67 million.

On February 8, 2023, the Company and CASE finalized the working capital adjustment reflected as a reduction of the indemnification holdback amount to $ 0.23 million, reflected in the purchase price.

The indemnification holdback was not needed to satisfy indemnification claims and was released to CASE on October 14, 2023.

The following table represents the unaudited pro-forma operating results of the Company as if the CASE acquisition had been completed on January 1, 2021 (amounts in thousands).

The unaudited pro-forma information makes certain adjustments to remove transaction costs and related expenses, amortize acquired intangible assets and align the Company’s debt financing with that as of the acquisition date.

The unaudited pro-forma information should not be considered indicative of the results that would have occurred if the acquisition had been completed on January 1, 2022, nor is such unaudited pro-forma information necessarily indicative of future results.

2022 (unaudited)

Goodwill and Intangible Assets, net

The Company recorded goodwill of $ 1.3 million during the year ended December 31, 2022 related to the CASE acquisition (Note 3) and an out of period adjustment of $ 0.6 million during the year ended December 31, 2023, bringing the total goodwill recorded pursuant to the CASE acquisition to $ 1.9 million (Note 1).

The Company recorded goodwill of $ 1.3 million during the year ended December 31, 2022 related to the Case Emergency Systems (“CASE”) acquisition.

During the year ended December 31, 2023, an out of period adjustment of $ 0.6 million was recorded, bringing the total goodwill recorded pursuant to the CASE acquisition to $ 1.9 million.

Goodwill is not amortized to earnings, but instead is reviewed for impairment at least annually, absent any interim indicators of impairment.

There was no impairment of goodwill during the years ended December 31, 2024 and 2023.

The following table sets forth a summary of the changes in goodwill (in thousands):

The following table sets forth a summary of the changes in goodwill:

Balance as of January 1, 2023

Goodwill recorded pursuant to the CASE acquisition

Balance as of December 31, 2022

Out of period adjustment

Balance as of December 31, 2023

The gross carrying amounts and accumulated amortization of the intangible assets with determinable lives are as follows (in thousands):

Balance as of December 31, 2023 and 2024

The gross carrying amounts and accumulated amortization of the intangible assets with determinable lives are as follows:

December 31, 2024

Intangible assets with determinable lives

Developed technology

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December 31, 2023

Intangible assets with determinable lives

Developed technology

Customer relationships

Intangible assets amortization expense was recorded as follows (in thousands):

Intangible assets amortization expense was recorded as follows:

Cost of revenue

1 unchanged sentence

Total intangible asset amortization

As of December 31, 2023, future intangible assets amortization expense for each of the next five years and thereafter is as follows (in thousands):

As of December 31, 2024, future intangible assets amortization expense for each of the next five years and thereafter is as follows:

Year ending December 31,

2030 and thereafter

Debt Obligations

Convertible Note Financing

On April 30, 2019 the Company signed a Note and Warrant Purchase Agreement under the form of which the Company could issue up to $ 15 million of convertible promissory notes and warrants to purchase up to 3,000,000 shares of Series S Preferred Stock ( 20 % warrant coverage) (the “Convertible Note Financing”).

Pursuant to the terms of the Convertible Note Financing, the Company became obligated, to the same group of Convertible Note Financing investors, to exchange their 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.

Warrants to purchase shares of Series S Preferred Stock of the Company were also issued to investors who invested in the Convertible Note Financing.

The warrants to purchase shares of Series S Preferred Stock have an exercise price of $ 4.50 per share and were initially scheduled to expire 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 initially had a maturity date of January 1, 2022, and provided for payment of accrued interest at a rate of 12% per annum upon the maturity date, and were generally the most senior company security (subject to limited subordination carve-outs) and provided for significant discounts upon a qualified financing or an initial public offering, and for a premium upon a change of control.

On November 18, 2021, the Company agreed to amend the Note and Warrant Purchase Agreement 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 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, commencing 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 remained 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 listing of our Class A Common Stock on the Nasdaq Global Market on January 27, 2022, all of the outstanding convertible notes issued under the Convertible Note Financing converted to Class A Common Stock.

On October 10, 2022, the Company entered into a securities purchase agreement with an accredited investor (the “Buyer”) pursuant to which the Company 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 the Company’s 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, 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 four and half percent ( 4.50 %) of the aggregate principal amount of the 2022 Convertible Notes.

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.

The 2022 Common Stock Warrants are recorded as derivative liabilities as it was determined they were not indexed 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.

Promissory Note

On June 30, 2023, Knightscope 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.

Public Safety Infrastructure Bonds

The Company 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.

On September 29, 2023 , the Company filed an Offering Circular on Form 1-A/A (File No.

024-12314) (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.

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

1 unchanged sentence

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.

The Company issued Bonds totaling a principal amount of $ 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.

August 2024 Note

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 1,138,446 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 Class A Common Stock (a “Stock Issuance”), excluding an At The Market (“ATM”) offering, at any price per share of Class A 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 the 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.

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 ATM offering program and equity line of credits).

Upon the occurrence of a Change of Control (as defined in the August 2024 Note), the Holder may, at its option, exercisable at any time commencing on the public announcement of such Change of Control until the 30 th day after the consummation thereof, require the Company to repay the August 2024 Note in full.

The August 2024 Note shall not bear interest;

provided, however, upon the occurrence and during the continuance of an Event of Default (as defined in the August 2024 Note), the outstanding principal amount of the Principal shall, automatically upon the occurrence and during the continuance of such Event of Default, bear interest at a rate equal to ten percent of the amount payable per annum until such date that the Event of Default is cured or the August 2024 Note is paid in full.

Additionally, pursuant to the Waiver, the Holder agreed that the Company’s obligations under the 2022 Notes, the 2022 Purchase Agreement, the 2022 Registration Rights Agreement, the 2022 Warrants, and the other Transaction Documents (as defined in the 2022

Purchase Agreement) have been satisfied in full and such documents are terminated, except that the Company shall continue to comply with and perform Section 4.10 of the 2022 Purchase Agreement and Section 6 of the 2022 Registration Rights Agreement, in each case which provide for indemnification, and which in each case survive and shall remain in full force and effect.

The Waiver and August 2024 Note contain various representations and warranties, affirmative and negative covenants, financial covenants, events of default and other provisions and obligations.

In connection with the entry into the Waiver and the August 2024 Note, on the Issuance Date, the Company and the Holder entered into a security agreement, pursuant to which the Company granted to the Holder a security interest in substantially all current and future properties, assets, and rights of the Company.

As of December 31, 2024, the outstanding balance of the August 2024 Note is $ 1.4 million and is included in the current portion of

debt obligations.

The amortized carrying amount of the debt obligations consists of the following:

Bonds, net of unamortized issuance costs of $ 194

Convertible notes, net of fees and discount

Promissory notes

Bonds, net of unamortized issuance costs of $ 316 and $ 194 , respectively

August 2024 Note

current portion of debt obligations

Non-current portion of debt obligations

The Company issued Bonds with a total 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 year ended December 31, 2024.

Capital Stock and Warrants

In May 2019, the Company amended and restated its Certificate of Incorporation.

As of December 31, 2023, the Company was authorized to issue three classes of $ 0.001 par value stock consisting of Class A Common Stock (“Class A Common Stock”), Class B Common Stock (“Class B Common Stock”) and Preferred Stock totaling 187,405,324 shares.

The total number of shares the Company has the authority to issue under each class consists of common stock designated as 114,000,000 shares of Class A Common Stock and 30,000,000 shares of Class B Common Stock, 43,405,324 shares of $ 0.001 par value Preferred Stock, with Preferred Stock designated as 8,936,015 shares of Series A Preferred Stock (“Series A Preferred Stock”), 4,707,501 shares of Series B Preferred Stock (“Series B Preferred Stock”), 6,666,666 shares of Series m Preferred Stock (“Series m Preferred Stock”), 333,334 shares of Series m-1 Preferred Stock (“Series m-1 Preferred Stock”), 1,660,756 shares of Series m-2 Preferred Stock (“Series m-2 Preferred Stock”), 3,490,658 shares of Series m-3 Preferred Stock (“Series m-3 Preferred Stock”), 13,108,333 shares of Series S Preferred Stock (“Series S Preferred Stock”) and 4,502,061 shares of Series m-4 Preferred Stock (“Series m-4 Preferred Stock”).

Preferred Stock

Other than a change of control or in a liquidation, dissolution or winding up of the Company whether voluntary or involuntary or upon the occurrence of a deemed liquidation event, the Preferred Stock is non-redeemable.

As a result of the liquidation preference, the Preferred Stock was not classified as part of stockholders’ deficit in the accompanying balance sheets in accordance with ASC 480-10-S99, SEC Materials .

The Company has excluded all series of Preferred Stock from being presented within stockholders’ deficit in the accompanying balance sheets due to the nature of the liquidation preferences.

Effective December 23, 2016, the Company was qualified by the SEC to offer up to 6,666,666 shares of Series m Preferred Stock to accredited and non-accredited investors in an offering pursuant to Regulation A of the Securities Act of 1933, as amended (the “Securities Act”).

The offering commenced in January 2017 for up to $ 20 million of the Company’s Series m Preferred Stock pursuant to Regulation A at a price of $ 3.00 per share and closed at the end of 2017.

The Company received net proceeds of approximately $ 18.2 million from the sale of its Series m Preferred Stock through the Regulation A offering as well as from private placement transactions through December 31, 2017.

The Company entered into Series m-3 Preferred Stock Purchase Agreements with certain purchasers pursuant to which the Company issued and sold directly to the purchasers an aggregate of 1,038,571 and 410,972 shares of the Company’s Series m-3 Preferred Stock in December 2017 and year ended 2018, respectively, par value $ 0.001 per share, at a price of $ 3.50 per share.

The Company received net proceeds of approximately $ 3.6 million and $ 1.4 million in December 2017 and the year ended 2018, respectively.

In January and February 2018, the Company converted 1,327,423 shares of Series m Preferred Stock into shares of Series m-2 Preferred Stock at a 1 :

1 conversion ratio.

In January 2018, the Company issued 333,333 shares of Series m-2 Preferred Stock, par value $ 0.001 per share, at a price of $ 3.00 per share.

On July 11, 2018, the Company commenced an offering of up to $ 50 million of its Series S Preferred Stock pursuant to Regulation D and Regulation S to raise additional capital for operations (the “Regulation D Offering”).

The Company is offering to sell up to 6,250,000 shares of Series S Preferred Stock, which are convertible into shares of Class A Common Stock, at a price of $ 8.00 per share.

As of December 31, 2019, the Company has raised approximately $ 3.8 million through the Regulation D Offering, of which $ 1 million was received during year ended December 31, 2019.

Issuance costs related to Regulation D Offering were $ 3 million as of December 31, 2019.

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 offering statement was qualified by the Securities and Exchange Commission on July 22, 2019 and the Company commenced the 2019 Regulation A Offering shortly thereafter.

Consistent with prior financings by the Company, the 2019 Regulation A Offering was conducted as a continuous offering pursuant to Rule 251(d)(3) of Regulation A, meaning that while the offering of securities is continuous, active sales of securities may happen sporadically over the term of the offering.

For clarity, the 2019 Regulation A Offering was conducted simultaneously with the Regulation D Offering for aggregate proceeds of $ 50 million.

As of December 31, 2021, the Company has raised $ 44.6 million from the 2019 Regulation A Offering, offset by $ 4.6 million issuance costs.

In June 2019, the Company issued to investors in the Convertible Note Financing, 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.

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 of 12 %, in the form of m-4 Preferred shares, and has certain other preferential rights, including voting rights.

Due to higher seniority and different terms of Series m-4 Preferred Stock compared to Series m-3 Preferred Stock, this exchange resulted in an increase in fair value of Series m-4 Preferred Stock exchanged from Series m-3 Preferred Stock of $ 0.9 million that was recorded as interest expense on the exchange date.

On June 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 offering statement was qualified by the Commission on October 21, 2020 and the Company commenced the 2020 Regulation A Offering shortly thereafter.

Consistent with prior financings by the Company, the 2020 Regulation A Offering was conducted as a continuous offering pursuant to Rule 251(d)(3) of Regulation A, meaning that while the offering of securities is continuous, active sales of securities may happen sporadically over the term of the offering.

For clarity, the 2020 Regulation A Offering was conducted simultaneously with the Regulation D Offering for aggregate proceeds of $ 50 million.

As of December 31, 2020, the Company had raised approximately $ 2.5 million from the 2020 Regulation A Offering.

The 2020 Regulation A Offering terminated on April 21, 2021.

All classes of preferred stock have a par value of $ 0.001 per share.

The following tables summarize convertible preferred stock authorized and issued and outstanding as of December 31, 2023:

(in thousands)

Series A Preferred Stock

Series B Preferred Stock

Series m Preferred Stock

Series m-1 Preferred Stock

Series m-2 Preferred Stock

Series m-3 Preferred Stock

Series m-4 Preferred Stock

Series S Preferred Stock

Conversion Rights

Each share of Series A Preferred Stock, Series B Preferred Stock and Series m-2 Preferred Stock (collectively known as “Super Voting Preferred Stock”) is convertible at the option of the holder at any time after the date of issuance of those shares into fully paid non-assessable shares of Class B Common Stock at the then-applicable conversion rate.

Each share of Series m, Series m-1, Series m-3, Series m-4 and Series S Preferred Stock (collectively known as “Ordinary Preferred Stock”) is convertible at the option of the holder at any time after the date of issuance of such shares into fully paid non-assessable shares of Class A Common Stock at the then-applicable conversion rate.

Both Super Voting Preferred Stock and Ordinary Preferred Stock will be automatically converted into fully paid non-assessable shares of Class A Common Stock (i) immediately prior to an IPO, or (ii) upon receipt by the Company of a written request for such conversion from the holders of a majority of the preferred stock then outstanding and voting as a single class on an as-converted basis other than the Series m-4 Preferred Stock then outstanding, or (iii) with respect to the Series m-4 Preferred Stock, upon the receipt by the Company of a written request for such conversion from the holders of a majority of the Series m-4 Preferred Stock then outstanding.

The stock will convert in the same manner as a voluntary conversion.

Voting Rights

Super Voting Preferred stockholders vote on an as converted to Class B Common Stock basis and Class B Common Stock are entitled to ten votes for each share of Class B Common Stock held.

Ordinary Preferred stockholders are entitled to one vote for each share of Class A Common Stock held.

Class A and Class B Common stockholders vote together as one class on all matters.

The holders of the preferred stock, the Class A Common Stock and Class B Common Stock vote together and not as separate classes.

Holders of Preferred Stock are entitled to vote on all matters submitted to a vote of the stockholders, including the election of directors, as a single class with the holders of common stock.

William Santana Li, the Chief Executive Officer and sole director of the Company, holds the Voting Proxy to vote substantially all of the shares of the Company’s Series m-4 Preferred Stock, and the stock issued upon the conversion of warrants to purchase all of the shares of the Company’s Series m-3 Preferred Stock and upon the conversion of warrants to purchase shares of the Company’s Series S Preferred Stock, and the stock issuable 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.

Dividends Rights

In any calendar year, the holders of outstanding shares of Preferred Stock are entitled to receive dividends, when, as and if declared by the Board of Directors, out of any assets at the time legally available therefor, at the dividend rate specified for such shares of Preferred Stock payable in preference and priority to any declaration or payment of any distribution on Common Stock of the Company in such calendar year.

Except the PIK dividends described below, the right to receive dividends on shares of Preferred Stock is not cumulative, and no right to dividends shall accrue to holders of Preferred Stock by reason of the fact that dividends on said shares are not declared or paid.

Holders of Series m-4 Preferred Stock are entitled to receive cumulative dividends payable semi-annually in arrears with respect to each dividend period ending on and including the last calendar day of each six-month period ending March 31 and September 30, respectively at an annual rate of $ 0.42 per share in the form of Series m-4 Preferred Stock (“PIK Dividends).

The Company has no obligation to pay any dividends other than the PIK Dividends to the holders of Series m-4 Preferred Stock, except when, as and if declared by the Board of Directors out of any assets at the time legally available therefor or as otherwise specifically provided in its amended and restated certificate of incorporation.

No distribution will be made with respect to the other series of Preferred Stock or Common Stock until all declared or accrued but unpaid dividends on the Series m-4 Preferred Stock have been paid or set aside for payment to the Series m-4 Preferred Stockholders.

No distributions shall be made with respect to the Series B Preferred Stock, the Series m Preferred Stock, the Series m-1 Preferred Stock, the Series m-2 Preferred Stock, Series A Preferred Stock or Series m-3 Preferred Stock unless dividends on the Series S Preferred Stock have been declared in accordance with the preferences stated in the amended and restated certificate of incorporation and all declared dividends on the Series S Preferred Stock have been paid or set aside for payment to the Series S Preferred Stockholders.

No distributions shall be made with respect to the Series A Preferred Stock or Series m-3 Preferred Stock unless dividends on the Series B Preferred Stock, the Series m Preferred Stock, the Series m-1 Preferred Stock and the Series m-2 Preferred Stock have been declared in accordance with the preferences stated in the amended and restated certificate of incorporation and all declared dividends on the Series B Preferred Stock, the Series m Preferred Stock, the Series m-1 Preferred Stock and the Series m-2 Preferred Stock have been paid or set aside for payment to the Series B Preferred Stockholders, the Series m Preferred Stockholders, the Series m-1 Preferred Stockholders and the Series m-2 Preferred Stockholders, as applicable.

No distributions shall be made with respect to the Series m-3 Preferred Stock unless dividends on the Series A Preferred Stock have been declared in accordance with the preferences stated in the amended and restated certificate of incorporation and all declared dividends on the Series A Preferred Stock have been paid or set aside for payment to the Series A Preferred Stockholders.

No distributions shall be made with respect to the Common Stock unless dividends on the Series m-3 Preferred Stock have been declared in accordance with the preferences stated in the amended and restated certificate of incorporation and all declared dividends on the Series m-3 Preferred Stock have been paid or set aside for payment to the Series m-3 Preferred Stockholders.

The Company has never declared or paid cash dividends on any of its capital stock and currently does not anticipate paying any cash dividends after this offering or in the foreseeable future.

Right to receive Liquidation Distributions

In the event of any Liquidation Event, as defined in the Company’s amended and restated certificate of incorporation (which includes the liquidation, dissolution, merger, acquisition or winding up of the Company), the holders of the Series m-4 Preferred Stock are entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of the other series of Preferred Stock or Common Stock by reason of their ownership of such stock, an amount per share for each share of Series m-4 Preferred Stock held by them equal to the greater of (A):

the sum of (i) the Liquidation Preference specified for such share of Series m-4 Preferred Stock, and (ii) all accrued but unpaid PIK Dividends (if any) on such share of Series m-4 Preferred Stock, whether or not declared, or (B) the consideration that such Holder would receive in the Liquidation Event if all shares of Series m-4 Preferred Stock were converted to Class A Common Stock immediately prior to such Liquidation Event, or (C) such lesser amount as may be approved by the holders of the majority of the outstanding shares of Series m-4 Preferred Stock, where for purposes of (B) such Holder is deemed to hold, in addition to each of its shares of Series m-4 Preferred Stock, any additional shares of Series m-4 Preferred Stock that constitute all accrued but unpaid PIK Dividends, whether or not declared.

If upon the Liquidation Event, the assets of the Company legally available for distribution to the holders of the Series m-4 Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in our amended and restated certificate of incorporation, then the entire assets of the Company legally available for distribution shall be distributed with equal priority and pro rata among the holders of the Series m-4 Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive.

The Series m-4 Preferred Stock has a $ 7.00 per share liquidation preference, which is 2x its original issue price.

The holders of the Series S Preferred Stock are entitled to receive, after distributions to Series m-4 Preferred stockholders and prior and in preference to any distribution of any of the assets of the Company to the holders of the Series A Preferred Stock, Series B Preferred Stock, Series m Preferred Stock, Series m-1 Preferred Stock, Series m-2 Preferred Stock, Series m-3 Preferred Stock or Common Stock by reason of their ownership of such stock, an amount per share for each share of Series S Preferred Stock held by them equal to the greater of (A):

the sum of (i) $ 8.00 per share of Series S Preferred Stock, and (ii) all declared but unpaid dividends (if any) on such share of Series S Preferred Stock, or (B) the amount such Holder would receive if all shares of Series S Preferred Stock were converted to Common Stock immediately prior to such Liquidation Event, or (C) such lesser amount as may be approved by the holders of the majority of the outstanding shares of Series S Preferred Stock.

If upon the Liquidation Event, the assets of the Company legally available for distribution to the holders of the Series S Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in our amended and restated certificate of incorporation, then the entire assets of the Company legally available for distribution shall be distributed with equal priority and pro rata among the holders of the Series S Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive.

The holders of the Series B Preferred Stock, the Series m Preferred Stock, the Series m-1 Preferred Stock and the Series m-2 Preferred Stock shall be entitled to receive, after distributions to Series m-4 and Series S Preferred stockholders and prior and in preference to any distribution of any of the assets of the Company to the holders of the Series A Preferred Stock, Series m-3 Preferred Stock or Common Stock by reason of their ownership of such stock, an amount per share for each share of Series B Preferred Stock, the Series m Preferred Stock, the Series m-1 Preferred Stock and the Series m-2 Preferred Stock held by them equal to the greater of (A):

the sum of (i) $ 2.0401 per share of Series B Preferred Stock, $ 3.00 per share of Series m Preferred Stock, $ 3.00 per share of Series m-1 Preferred Stock or $ 3.00 per share of Series m-2 Preferred Stock, as applicable, and (ii) all declared but unpaid dividends (if any) on such share of Series B Preferred Stock, Series m Preferred Stock, Series m-1 Preferred Stock or Series m-2 Preferred Stock, as applicable, or (B) the amount such Holder would receive if all shares of the applicable series of Preferred Stock were converted to Common Stock immediately prior to such Liquidation Event, or (C) such lesser amount as may be approved by the holders of the majority of the outstanding shares of Series B Preferred Stock, Series m Preferred Stock, Series m-1 Preferred Stock and Series m-2 Preferred Stock, voting together as a single class.

If upon the Liquidation Event, the assets of the Company legally available for distribution to the holders of the Series B Preferred Stock, the Series m Preferred Stock, the Series m-1 Preferred Stock and the Series m-2 Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in our amended and restated certificate of incorporation, then the entire assets of the Company legally available for distribution shall be distributed with equal priority and pro rata among the holders of the Series B Preferred Stock, the Series m Preferred Stock, the Series m-1 Preferred Stock and the Series m-2 Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive.

The holders of Series A Preferred Stock are entitled to receive, after distributions to Series m-4, Series S, Series B, Series m, Series m-1 and Series m-2 Preferred Stock and prior and in preference to any distribution of any of the assets of the Company to the holders of Common Stock or Series m-3 Preferred Stock by reason of their ownership of such stock, an amount per share for each share of Series A Preferred Stock held by them equal to the greater of:

(A) the sum of (i) $ 0.8932 per share of Series A Preferred Stock and (ii) all declared but unpaid dividends (if any) on such share of Series A Preferred Stock, or (B) the amount such Holder would receive if all shares of Series A Preferred Stock were converted to Common Stock immediately prior to such Liquidation Event, or (C) such lesser amount as may be approved by the holders of the majority of the outstanding shares of Series A Preferred Stock.

If upon a Liquidation Event, the assets of the Company legally available for distribution to the holders of the Series A Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in our amended and restated certificate of incorporation, then the entire assets of the Company legally available for distribution shall be distributed with equal priority and pro rata among the holders of the Series A Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive.

The holders of Series m-3 Preferred Stock are entitled to receive, after distributions to Series m-4, Series S, Series B, Series m, Series m-1 and Series m-2, and Series A Preferred Stock and prior and in preference to any distribution of any of the assets of the Company to the holders of Common Stock by reason of their ownership of such stock, an amount per share for each share of Series m-3 Preferred Stock held by them equal to the greater of (A):

the sum of (i) the $ 3.50 per share of Series m-3 Preferred Stock and (ii) all declared but unpaid dividends (if any) on such share of Series m-3 Preferred Stock, or (B) the amount such Holder would receive if all shares of Series m-3 Preferred Stock were converted to Common Stock immediately prior to such Liquidation Event, or (C) such lesser amount as may be approved by the holders of the majority of the outstanding shares of Series m-3 Preferred Stock.

If upon a Liquidation Event, the assets of the Company legally available for distribution to the holders of the Series m-3 Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in our amended and restated certificate of incorporation, then the entire assets of the Corporation legally available for distribution shall be distributed with equal priority and pro rata among the holders of the Series m-3 Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive.

After payment of all liquidation preferences to the holders of the Preferred Stock, as outlined below, all remaining assets of the Company legally available for distribution shall be distributed pro rata to the holders of the common stock, without any participation in such liquidation by the Preferred Stock.

Our amended and restated certificate of incorporation explicitly requires that before any shares of Preferred Stock are converted into common stock, the relevant holder’s right to liquidation preference be surrendered, in order to prevent treatment of shares as both Preferred Stock and common stock for the purpose of distributions of assets upon a Liquidation Event.

Each share of Class B Common Stock is convertible into one fully paid and non-assessable share of Class A Common Stock at the option of the holder at any time.

Each share of Class B Common Stock will automatically convert into one fully paid and non-assessable share of Class A Common Stock upon the sale, assignment, transfer or disposition of the share or any interest in the share.

Standstill Agreements

On August 14, 2023, the Company entered into a Standstill Agreement (the “August Standstill Agreement”) with a holder of 7,000,000 shares of Class B Common Stock.

Under the terms of the August Standstill Agreement the holder agreed not to exercise his right to convert his Class B Common Stock to Class A Common Stock until after 2024 Annual Meeting of Stockholders of the Company.

On November 27, 2023, the Company entered into a Standstill Agreement (the “November Standstill Agreement”) with a holder of 2,000,000 shares of Class B Common Stock.

Under the terms of the November Standstill Agreement the holder agreed not to exercise his right to convert his Class B Common Stock to Class A Common Stock until the 2024 Annual Meeting of Stockholders of the Company.

On December 26, 2023, the Company entered into a Standstill Agreement (the “First December Standstill Agreement”) with a holder of a warrant to purchase up to 346,000 shares of Series m-3 Preferred Stock.

Under the terms of the First December Standstill Agreement the warrant holder agreed not to convert any of the shares of Series m-3 Preferred Stock issuable under the warrants upon exercise thereof into Class A Common Stock, until the 2024 Annual Meeting of Stockholders of the Company.

The First December Standstill Agreement provides that in the event that the stockholders of the Company do not approve at the 2024 annual meeting of stockholders an amendment to the Company’s certificate of incorporation that increases the available authorized shares of Class A Common Stock, then the conversion standstill period shall be extended until such time as the stockholders duly approve an amendment to the Company’s certificate of incorporation that increases the available authorized shares of Class A Common Stock.

On February 23, 2024, the Company

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 the Company’s 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 .

On December 27, 2023, the Company entered into a Standstill Agreement (the “Second December Standstill Agreement”) with a holder of a warrant to purchase up to 835,787 shares of Series m-3 Preferred Stock.

Under the terms of the Second December Standstill Agreement the warrant holder agreed not to convert any of the shares of Series m-3 Preferred Stock issuable under the warrants upon exercise thereof into Class A Common Stock, until the 2024 Annual Meeting of Stockholders of the Company.

The Second December Standstill Agreement provides that in the event that the stockholders of the Company do not approve at the 2024 meeting of stockholders an amendment to the Company’s certificate of incorporation that increases the available authorized shares of Class A Common Stock, then the conversion standstill period shall be extended until such time as the stockholders duly approve an amendment to the Company’s certificate of incorporation that increases the available authorized shares of Class A Common Stock.

On December 27, 2023, the Company entered into a Standstill Agreement (the “Third December Standstill Agreement”) with a holder of warrants to purchase up to 250,999 shares of Series m-3 Preferred Stock and 2,942,714 shares of Series S Preferred Stock.

Under the terms of the Third December Standstill Agreement the warrant holder agreed not to convert any of the shares of Series m-3 or Series S Preferred Stock issuable under the warrants upon exercise thereof into Class A Common Stock, until the 2024 Annual Meeting of Stockholders of the Company.

On January 16, 2018, March 16, 2018, and June 20, 2018, the Company issued warrants in connection with the Company’s Series m-3 financing to purchase an aggregate of 394,215 shares of the Company’s Series m-3 Preferred Stock.

The warrants have an exercise price of $ 4.00 per share and expire on the earlier of:

a) two years from the date of the warrant;

b) the acquisition of the Company by another entity by means of any transaction or series of transactions to which the Company is a party or sale, lease or disposition of all or substantially all of the assets of the Company, or c) immediately prior to the closing of an initial public offering pursuant to an effective registration statement filed under the Securities Act covering the offering and sale of the Company’s common stock.

The warrants issued qualify as liability instruments as the warrants are exercisable into Series m-3 Preferred Stock which are redeemable upon a change of control or any liquidation or winding up of the Company whether voluntary or involuntary.

The warrants have been classified as a noncurrent liability on the Company’s balance sheets and were recorded as a component of the issuance costs related to the Series m-3 Preferred Stock.

The Series m-3 warrant is valued at market at the end of every reporting period until the warrant is exercised or expires with the change in fair value being recorded in other income (expense) on the Company’s statements of operations.

The expiration date of the Series m-3 warrants have been extended to December 31 2024.

On April 30, 2019, the Company entered into the “Convertible Note Financing”.

Pursuant to the terms of the Convertible Note Financing, the Company became obligated to exchange 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.

Warrants to purchase shares of Series S Preferred Stock of the Company were also issued to investors who invested in the Convertible Note Financing.

The warrants to purchase shares of Series S Preferred Stock have an exercise price of $ 4.50 per share and were initially scheduled to expire 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.

As of December 31, 2021, the Company had issued and accrued warrants to purchase up to 2,941,814 shares of Series S Preferred Stock.

These warrants issued qualify as liability instruments as the warrants are exercisable into Series S Preferred Stock which are redeemable upon a change of control or any liquidation or winding up of the Company whether voluntary or involuntary.

The warrants have been classified as a current liability on the Company’s balance sheets and were recorded as a component of the issuance costs related to Convertible Note.

The Series S warrants are valued at market at the end of every reporting period until the warrants are exercised or expire with the change in fair value being recorded in other income (expense) on the Company’s statements of operations.

On November 18, 2021, the Company agreed to amend the Note and Warrant Purchase Agreement for the Convertible Note Financing and the convertible notes and warrants to purchase Series S Preferred Stock issued thereunder principally as follows:

On July 23, 2019, the Company issued a warrant to purchase 1,500,000 shares of its Series S Preferred Stock, par value $ 0.001 per share (the “Warrant”), to Proud Productions LLC (“Proud”) pursuant to the terms of a Distribution Assignment and Warrant Purchase Agreement, dated as of July 22, 2019 (the “Purchase Agreement”).

The warrants were exercisable at $ 8.00 per share beginning July 24, 2021 and expiring on July 31, 2024.

On April 7, 2023, the Company entered into an Amendment and Cancellation Agreement whereby these warrants were cancelled in exchange for an extension of 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 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.

On October 10, 2022, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which the Company issued and sold to the investor (i) the 2022 Convertible Notes (see Note 5) in an aggregate principal amount of $ 6.075 million, at an initial conversion price of $ 5.00 per share of the Company’s Class A Common Stock, 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.

On May 15, 2024 (“the Preferred Stock Conversion Date”), pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation as amended to date (the “Certificate of Incorporation”), each share of the Company’s Super Voting Preferred Stock (as defined in the Certificate of Incorporation) was automatically converted into fully-paid, non-assessable shares of Class B Common Stock and each share of the Company’s Ordinary Preferred Stock (as defined in the Certificate of Incorporation) 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 defined in the Certificate of Incorporation), 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, there were no shares of Preferred Stock outstanding after the Preferred Stock Conversion Date.

For periods subsequent to May 15, 2024, the preferred warrants were no longer subject to contractual modification provisions and were reclassified from a liability classification to an equity classification on the balance sheet.

As described further in Note 1, on August 16, 2024, the Company held an annual meeting of stockholders at which the Company’s stockholders approved, among other items, amendments to the Certificate of Incorporation, 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.

Pre-funded Warrants

On November 21, 2024, the Company priced a public offering (the “November offering”) of Class A Common Stock (and pre-funded warrants issued in lieu thereof) for gross proceeds of approximately $ 12.1 million.

The pre-funded warrants were exercisable immediately on the date of issuance at an exercise price of $ 0.001 per share and may be exercised at any time until all of the pre-funded

warrants are exercised in full.

The securities in the November offering were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3, which was initially filed with the SEC on February 1, 2023, and subsequently declared effective on February 8, 2023 (File No.

333-269493) (the “Registration Statement”), the base prospectus contained in the Registration Statement, as supplemented by the preliminary prospectus supplement, dated November 21, 2024 (the “Prospectus Supplement”), and a final prospectus supplement filed with the SEC pursuant to Rule 424(b) under the Securities Act.

The November offering closed on November 25, 2024.

The November offering was conducted pursuant to an underwriting agreement (the “Agreement”) between the Company and Titan Partners Group LLC, a division of American Capital Partners, LLC, as the sole bookrunner (the “Underwriter”), that was entered into on November 21, 2024.

Pursuant to the Agreement, the Company sold 393,659 shares of Class A Common Stock and pre-funded warrants to purchase 816,341 shares of Class A Common Stock in the November offering at a public offering price of $ 10.00 per share and $ 9.999 per pre-funded warrant, less underwriting discounts and commissions.

The Company also granted the Underwriter a 30 -day option to purchase up to an additional 181,500 shares of Class A Common Stock (or pre-funded warrants) from the Company at the public offering price, less underwriting discounts and commissions.

The Company also agreed to issue to the Underwriter a warrant to purchase 36,300 shares of Class A Common Stock and 3 % of the securities sold upon the exercise of the Underwriter’s overallotment option, which such warrant is exercisable commencing 180 days after the date of the Agreement, and will be exercisable for a period of five years from the date of the Agreement, at an exercise price of $ 18.29 per share.

The material terms of the November offering are described in the Registration Statement and the Prospectus Supplement.

The Agreement contains customary representations, warranties and agreements of the Company.

The Company also agreed in the Agreement to indemnify the Underwriter against certain liabilities

A summary of the Company’s outstanding warrants as of December 31, 2024, is as follows:

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Expiration Date

Class A Common Stock

October 13, 2027

Series m-3 Preferred Stock

Class A Common Stock (previously Series m-3 Preferred Stock)

December 31, 2027

Series S Preferred Stock

Class A Common Stock (previously Series S Preferred Stock)

December 31, 2027

Class A Common Stock (Prefunded Warrants)

Class A Common Stock (Underwriter Warrants)

November 21, 2029

Common Stock Reserved for Future Issuance

Shares of common stock reserved for future issuance relate to outstanding preferred stock, warrants, stock options, and the 2022 Convertible Notes were as follows:

Series A Preferred Stock (convertible to Class B Common Stock)

Series B Preferred Stock (convertible to Class B Common Stock)

Series m Preferred Stock (convertible to Class A Common Stock)

Series m-2 Preferred Stock (convertible to Class B Common Stock)

Series S Preferred Stock (convertible to Class A Common Stock)

Shares of common stock reserved for future issuance relate to outstanding warrants or stock options as follows:

Stock options to purchase common stock

Warrants outstanding for future issuance of convertible preferred stock and common stock

Warrants outstanding for future issuance of common stock

Stock options available for future issuance

Total shares of common stock reserved

At-the-Market Offering Program

In February 2023, the Company commenced an at-the-market offering program with H.C.

Wainwright & Co., LLC, as sales agent, in connection with which the Company filed a prospectus supplement filed on February 9, 2023 (the “February Prospectus Supplement”), allowing the Company to offer and sell from time to time of up to $ 20.0 million in shares of Class A Common Stock, subject to, and in accordance with, SEC rules.

Pursuant to General Instruction I.B.6 of Form S-3, the prospectus supplement provided that in no event would the Company sell any securities in a public primary offering with a value exceeding one-third of its non-affiliated public float in any 12-month period unless its non-affiliated public float subsequently rose to $75.0 million or more.

Total shares of Class A Common Stock reserved

ATM Offering Program

In February 2023, the Company commenced an ATM offering program with H.C.

Wainwright & Co., LLC (“Wainwright”), as sales agent, in connection with which the Company filed a prospectus supplement filed on February 9, 2023 (the “February Prospectus Supplement”), allowing the Company to offer and sell from time to time up to $ 20.0 million in shares of Class A Common Stock, subject to, and in accordance with, SEC rules.

Pursuant to General Instruction I.B.6 of Form S-3, the February Prospectus Supplement provided that in no event would the Company sell any securities in a public primary offering with a value exceeding one-third of the Company’s non-affiliated public float in any 12 month period unless the Company’s non-affiliated public float subsequently rose to $75.0 million or more.

On August 18, 2023, after the Company’s non-affiliated public float subsequently rose to an amount greater than $75.0 million, the Company 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, the Company 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 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.

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

Stock-Based Compensation

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Awards outstanding under the 2014 Plan at the time of the 2014 Plan’s termination will continue to be governed by their existing terms.

The shares underlying any awards that are forfeited, canceled, repurchased or are otherwise terminated by the Company under the 2014 Plan will be added back to the shares of common stock available for issuance under the Company’s 2016 Plan.

The shares underlying any awards that are forfeited or repurchased by the Company under the 2014 Plan, on or after the 2014 Plan’s termination will be added back to the shares of common stock available for issuance under the Company’s 2016 Plan.

The 2016 Plan provides for the granting of stock awards such as incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock or restricted stock units to employees, directors and outside consultants as determined by the Board of Directors.

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In connection with the adoption of the 2022 Plan, shares previously available for issuance under the 2016 Plan became available for issuance under the 2022 Plan.

The number of shares authorized under the 2022 Plan will be increased each January 1 st , beginning January 1, 2023 and ending on (and including) January 1, 2032, by an amount equal to the lesser of (a) 5 % of our outstanding Class A Common Stock and Class B Common Stock outstanding on December 31 st of the immediately preceding calendar year (rounded up to the nearest whole share) and (b) a number of shares determined by the committee.

The number of shares authorized under the 2022 Plan will be increased each January 1 st , beginning January 1, 2023 and ending on (and including) January 1, 2032, by an amount equal to the lesser of (a) 5 % of our Class A Common Stock and Class B Common Stock outstanding on December 31 st of the immediately preceding calendar year (rounded up to the nearest whole share) and (b) a number of shares determined by the plan administrator.

Shares subject to awards (including under the 2016 Plan and the 2014 Plan) that lapse, expire, terminate, or are canceled prior to the issuance of the underlying shares or that are subsequently forfeited to or otherwise reacquired by us will be added back to the shares of common stock available for issuance under the 2022 Plan.

The Board of Directors may grant stock options under the 2022 Plan at a price of not less than 100 % of the fair market value of the Company’s common stock on the date the option is granted.

The option exercise price generally may not be less than the underlying stock’s fair market value at the date of grant and generally have a term of ten years .

The Board of Directors may grant stock options under the 2022 Plan at an exercise price of not less than 100 % of the fair market value of the Company’s common stock on the date the option is granted.

The options generally have a term of ten years from the grant date.

Incentive stock options granted to employees who, on the date of grant, own stock representing more than 10 % of the voting power of all of the Company’s classes of stock, are granted at an exercise price of not less than 110 % of the fair market value of the Company’s common stock.

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Options granted under the 2022 Plan may vest upon the passage of time, generally four years , or upon the attainment of certain performance criteria established by the Board of Directors.

The Company may from time-to-time grant options to purchase common stock to nonemployees for advisory and consulting services.

The Company may from time-to-time grant options to purchase common stock to non-employees for advisory and consulting services.

At each measurement date, the Company will remeasure the fair value of these stock options using the Black-Scholes option pricing model and recognize the expense ratably over the vesting period of each stock option award.

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Available for

Life (Years)’

Value (000’s)

Outstanding as of January 1, 2022

2022 Equity incentive plan

( 2,272,299 )

Outstanding as of December 31, 2022

Available and outstanding as of January 1, 2023

2022 Equity incentive plan increase

( 2,190,299 )

( 1,751,800 )

2022 Equity incentive plan decrease

( 4,917,862 )

Outstanding as of December 31, 2023

Available and outstanding as of December 31, 2023

2022 Equity incentive plan increase

Available and outstanding as of December 31, 2024

Vested and exercisable as of December 31, 2024

The aggregate intrinsic value in the table above represents the total intrinsic value based on the Company’s closing stock price of $ 12.62 as of December 31, 2024, which would have been received by the option holders had all option holders exercised their options as of that date.

The total intrinsic value of options exercised during the years ended December 31, 2023 and 2022 was $ 0.2 million and $ 1.2 million, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2024 and 2023 was $ 37 thousand and $ 0.2 million, respectively.

The fair value of stock options that vested during the years ended December 31, 2024 and 2023 was $ 1.4 million and $ 3.4 million, respectively.

As of December 31, 2023, the Company had unamortized stock-based compensation expense of $ 12.5 million that will be recognized over the average remaining vesting term of options of 1.82 years.

The determination of the fair value of options granted during the years ended December 31, 2024 and 2023 is computed using the Black-Scholes option pricing model with the following weighted average assumptions:

Year Ended December 31,

Risk-free interest rate

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The weighted average grant date fair value of options granted during the years ended December 31, 2024 and 2023 was $ 11.23 and $ 27.50 per share, respectively.

As of December 31, 2024, the Company had unamortized stock-based compensation expense of $ 2.7 million that will be recognized over the average remaining vesting term of options of 1.57 years.

Option pricing models require the input of various subjective assumptions, including the option’s expected life and the price volatility of the underlying stock.

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A summary of stock-based compensation expense recognized in the Company’s statements of operations is as follows:

Year ended December 31,

Cost of revenue, net

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The following table presents the significant components of the Company’s deferred tax assets and liabilities for the periods presented:

(in thousands)

Deferred tax assets:

1 unchanged sentence

Research and development credit carryforwards

Stock-based compensation

Accruals and other

13 unchanged sentences

As of December 31, 2024, the Company had U.S.

federal net operating loss carryforwards amounts of approximately $ 128.0 million of which $ 23.3 million begin to expire in 2033 and $ 104.7 million can be carried over indefinitely.

federal net operating loss carryforwards of approximately $ 153.3 million of which $ 23.3 million begin to expire in 2033 and $ 130.0 million can be carried over indefinitely.

As of December 31, 2024, the Company had federal research and development tax credits of approximately $ 2.1 million which begin to expire in 2033.

As of December 31, 2023, the Company had state net operating loss carryforwards amounts of approximately $ 102.5 million which begin to expire in 2024.

As of December 31, 2024, the Company had state net operating loss carryforwards of approximately $ 124.4 million which begin to expire in 2027.

As of December 31, 2024, the Company had state research and development tax credits of approximately $ 2.0 million, which do not expire.

3 unchanged sentences

Tax positions are evaluated in a two-step process, whereby the Company first determines whether it is more likely than not that a tax position will be sustained upon examination by tax authorities, including resolutions of any related appeals or litigation processes, based on technical merit.

If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognized in the financial statements.

If a tax position meets the more

likely than not recognition threshold it is then measured to determine the amount of benefit to recognized in the financial statements.

The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

(in thousands)

Unrecognized tax benefits as of the beginning of the year

5 unchanged sentences

The Company’s unrecognized tax benefits as of December 31, 2024 relate entirely to research and development credits.

The total amount of unrecognized tax benefits at December 31, 2023 is $ 0.5 million.

The total amount of unrecognized tax benefits as of December 31, 2024 is $ 0.6 million.

If recognized, none of the unrecognized tax benefits would impact the effective tax rate because of the valuation allowance.

The Company’s policy is to recognize interest and penalties to income taxes as components of interest expense and other expense, respectively.

The Company did not accrue interest or penalties related to unrecognized tax benefits as of December 31, 2023.

The Company did no t accrue interest or penalties related to unrecognized tax benefits as of December 31, 2024.

The Company does not anticipate any significant change within twelve months of this reporting date.

3 unchanged sentences

The Company is not currently under audit in any major tax jurisdiction.

Related parties and related-party transactions

One of the Company’s vendors, Konica Minolta, Inc.

(“Konica Minolta”), is a stockholder of the Company.

Konica Minolta provides the Company with repair services to its ASRs.

The Company has paid to Konica Minolta approximately $ 0.4 million and $ 0.4 million in service fees for the years ended December 31, 2023 and 2022, respectively.

The Company had payables of $ 84 and $ 117 owed to Konica Minolta as of December 31, 2023 and 2022, respectively.

The Company paid $ 180 and $ 38 for rent for the years ended December 31, 2023 and 2022, respectively, for a building owned by Sebastian Gutierrez, Senior VP Public Safety Infrastructure Development.

Commitments and contingencies

1 unchanged sentence

The Company leases space for its corporate headquarters in Mountain View, California through August 2025.

The components of leases and lease costs are as follows (in thousands):

The components of leases and lease costs are as follows:

December 31, 2024

December 31, 2023

Operating leases

4 unchanged sentences

Operating lease costs

As of December 31, 2023, future minimum operating lease payments for each of the next two years is as follows (in thousands):

Year ending December 31,

As of December 31, 2024, future minimum operating lease payments for the year is as follows:

Years ending December 31,

Total future minimum lease payments

4 unchanged sentences

Rent expense totaled $ 1.0 million and $ 1.0 million for the years ended December 31, 2024 and 2023, respectively, included in the Company’s statements of operations.

There were three month to month lease agreements and one lease agreement with a lease term of less than 12 months for the year ended December 31, 2023.

There were no lease agreements of less than 12 months for the year ended December 31, 2022.

There were two month to month lease agreements for the year ended December 31, 2024.

were three month to month lease agreements and one lease agreement with a lease term of less than 12 months for the year ended December 31, 2023.

Purchase Commitments

The Company 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 thousand commencing in January 2025 and concluding in August 2026, culminating in a total expenditure of $ 0.8 million.

Legal Matters

11 unchanged sentences

The Company continues to analyze possible sales tax exposure but does not currently believe that any individual claim or aggregate claims that might arise will ultimately have a material effect on its results of operations, financial position or cash flows.

Segment Information

Management identifies reportable segments based on how it manages the Company’s operations.

As such, the Company operates as one segment for reporting purposes.

The accounting policies of the Company’s segment are the same as those described in Note 1.

The CODM assesses performance at a Company level and decides how to allocate resources based on net loss.

The measure of segment assets is reported on the balance sheet as total assets.

The measure of significant segment expenses is listed on the statement of operations.

The CODM evaluates performance and allocates resources for its reportable segment using segment income or loss.

This metric is used to evaluate the overall financial performance of the segment, make operational and strategic decisions, prepare our annual plan, and allocate resources.

Subsequent Events

On February 23, 2024, the Company 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 the Company’s 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 Company issued Public Safety Infrastructure Bonds (see Note 5) with a total 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 and from January 1, 2024 until the Bond issuance was closed 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 offering.

From January 1, 2024 through March 26, 2024 the Company issued 13,074,738 shares of Class A Common Stock under the at-the-market offering program for net proceeds of approximately $ 6.9 million, net of brokerage and placement fees of approximately $ 0.3 million pursuant to the August Prospectus Supplement.

ATM offering program

From January 1, 2025 through March 31, 2025 the Company issued 1,247,836 shares of Class A Common Stock under the ATM offering program for net proceeds of approximately $ 7.4 million, net of brokerage and placement fees of approximately $ 0.2 million pursuant to the August Prospectus Supplement.

Pre-funded warrants

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

Registered Direct Offering of Common Stock

On March 28, 2025, the Company entered into definitive agreements for the sale of an aggregate of 625,000 shares of Class A Common Stock at a sale price of $ 2.75 per share in a registered direct offering.

The offering is expected to close on or about March 31, 2025, subject to the satisfaction of customary closing conditions.

The gross proceeds to the Company from the offering are expected to be approximately $ 1.7 million, before deducting the placement agent’s fees and other offering expenses payable by the Company.

The Company currently intends to use the net proceeds from the offering for working capital and general corporate purposes.

These shares are being offered and sold by the Company pursuant to a shelf registration on Form S-3 which was initially filed with the SEC on February 1, 2023, and subsequently declared effective on February 8, 2023 (File No.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data