Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and notes thereto included herein as Item 8. This discussion contains forward-looking statements. Refer to “Forward-Looking Statements” and “Risk Factors” herein, for a discussion of the uncertainties, risks, assumptions, and other important factors associated
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with these statements. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.
Our MD&A discusses our results of operations for the year ended December 31, 2024 as compared to the year ended December 31, 2023. For a discussion and analysis of the year ended December 31, 2023 as compared to the year ended December 31, 2022, please refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 1, 2024.
Overview
Knightscope is dedicated to transforming public safety through AI-driven robotics, emergency communication solutions, and real-time monitoring. Our comprehensive suite of solutions includes Autonomous Security Robots (ASRs), advanced AI-powered detection, emergency communication devices (ECDs), and the cloud-based Knightscope Security Operations Center (KSOC), providing organizations with scalable, 24/7 autonomous protection.
Autonomous Security Robots (ASRs)
Knightscope’s ASRs deliver proactive public safety solutions for diverse environments. Each model is purpose-deployed to enhance deterrence, situational awareness and threat detection:
● K1 Hemisphere Stationary ASR – Fixed-location presence equipped with license plate, where permitted, ideal for high-traffic areas.
● K3 Indoor Patrol ASR – Compact and quiet, designed for autonomous indoor security in offices, malls, and commercial buildings .
● K5 Outdoor Patrol ASR – A high-visibility deterrent with rugged weatherproof capabilities, ideal for patrolling large perimeters.
● K7 Multi-Terrain ASR – A future product, the K7 ASR is being designed for complex terrains such as large commercial or industrial sites and critical infrastructure.
Each mobile ASR is equipped with LiDAR, thermal imaging, high-definition cameras, and real-time AI-driven threat detection to provide comprehensive safety and security intelligence.
Knightscope Security Operations Center (KSOC)
KSOC serves as the command hub for our ASR fleet, leveraging AI-powered video analytics, automated threat detection, and 24/7 remote monitoring to enhance response times. Key features include:
● AI-driven incident detection for loitering, trespassing, and anomalies.
● Automated reporting and analytics to optimize security planning.
● Integrated emergency communication allowing direct connection between ASRs and human security teams.
Emergency Communication Devices (ECDs) and Solutions
Knightscope is committed to providing comprehensive public safety solutions, including enhanced emergency communication capabilities. Our solar powered K1 Blue Light Towers, Ephones and Emergency Call Boxes offer an immediate lifeline to security personnel, law enforcement, and emergency responders. These systems are strategically deployed in universities, corporate campuses, transit stations, and other public areas to ensure rapid response in critical situations. The Knightscope Emergency Monitoring System (“KEMS”), integrated into our ECDs, includes a self-diagnostic, alarm monitoring software solution that provides system owners with
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daily reports on the operational status of their emergency devices. The cloud-based application monitors the overall system's health, alerts users to operational issues, provides real-time error detection and diagnostics, and generates system performance reports.
In addition to our physical communication devices, our ASRs are equipped with emergency call buttons, allowing individuals to establish a direct connection with our 24/7 Security Operations Center (SOC). This feature provides a critical communication link during emergencies, enhancing presence and responsiveness.
We continue to advance our autonomous response capabilities, enabling ASRs to navigate to specific locations, assess threats, and relay real-time information to human operators. These systems can broadcast pre-recorded messages, provide live two-way audio communication, and integrate with existing infrastructure to facilitate coordinated response efforts.
We derive our revenue from two primary sources: a) subscription based Machines-as-a-Service (MaaS) offering which includes the ASRs as well as maintenance, service, support, data transfer, KSOC access, charging stations, and unlimited software, firmware and select hardware upgrades and b) the sale of ECD products and related recurring revenues from KEMS and full-service maintenance contracts.
The Company has incurred net losses since inception. Our net loss was $31.7 million for the year ended December 31, 2024 and $22.1 million for the year ended December 31, 2023. As of December 31, 2024, we had an accumulated deficit of $193.2 million. Cash and cash equivalents on hand were $11.1 million as of December 31, 2024, compared to $2.3 million as of December 31, 2023. These factors raise substantial doubt about our ability to continue as a going concern. See Item 1A. Risk Factors—Risks Related to the Business and the Global Economy—We have not yet generated any profits, anticipate that we will incur continued losses for the foreseeable future, and may never achieve profitability .
Our strategy is to try to keep driving a decrease in our overall costs while achieving our overall growth objectives.
As of March 27, 2025, the Company had a total backlog of approximately $1.8 million, comprised of $0.5 million related to ASR orders and $1.3 million related to orders for ECDs.
2024 Developments
In 2024, the Company made strategic decisions that impacted its operations and its capital structure with the goal to establish a foundation to pursue long-term profitable growth and to simplify its corporate structure. In the short-term, our strategic operational initiatives resulted in unfavorable impacts, including a reduction in revenue and an increase in operational costs. However, we firmly believe they are essential investments in our future growth and market positioning and although these decisions have led to lower revenues in the near term, we remain confident in their long-term potential to enhance our competitive advantage, drive sustainable value creation, and position the company for long-term success.
Operational changes
In the first quarter of 2024, Knightscope undertook significant leadership and governance enhancements to better align the Company with its long-term strategic objectives. We appointed a new Chief Financial Officer and appointed independent board members with extensive industry and financial expertise, strengthening oversight and strategic direction. Additionally, throughout the year, we streamlined our management structure by reducing approximately 40% of executive and senior leadership roles, fostering greater efficiency in decision-making and operational execution.
Early in 2024, the Company discovered that quality issues plaguing our K5 ASRs in the field would cost too much to resolve and likely have a negative impact on our client experience. Management made the strategic decision to swap out all impacted ASRs with new ones at no cost to our clients.
As part of our ongoing commitment to operational excellence, we conducted a comprehensive restructuring of the Emergency Communication Division (ECD), which we acquired through the CASE acquisition in 2022. Upon review, it became evident that legacy CASE business processes lacked modern processes, were largely manual, and led to inefficiencies, excessive costs, and financial underperformance. We took decisive action in furtherance of our goal to achieving profitability in the long-term.
To address these challenges, we implemented a series of strategic and structural changes, including:
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● Outsourcing non-core field services to specialized third-party providers to optimize resources and reduce costs.
● Relocating production from Irvine, CA, to our headquarters in Mountain View, CA, consolidating operations for improved oversight and efficiency.
● Eliminating redundant and inefficient roles, ensuring that our workforce is optimized for streamlined execution.
● Reducing real estate footprint by consolidating operations across fewer locations, enhancing cost efficiency.
● Renegotiating long-term client contracts to align pricing structures with sustainable profitability.
Focus on Innovation
Throughout the year, the Company also expanded its focus on innovation by investing in new product development and enhancing its technological capabilities. To support these initiatives, we increased our R&D headcount and engaged specialized consultants to accelerate the development of key projects such as the K7 ASR. We also invested in advancing our cybersecurity to ensure compliance with federal contract requirements. These strategic investments reflect our commitment to strengthening our product portfolio, meeting evolving customer needs, and positioning the Company for success in the public safety technology industry.
We believe that these transformative measures will deliver long-term operational and financial benefits, even though they have resulted in temporary disruptions to revenue while increasing short-term costs. We anticipate that these impacts will continue into 2025 as we complete the transition and drive further efficiencies across the entire business. However, we believe that these strategic actions position Knightscope for stronger, more sustainable growth and profitability in the years ahead.
Capital Structure
On September 29, 2023, Knightscope filed an Offering Circular with the SEC for up to $10 million in Public Safety Infrastructure Bonds, which was qualified on October 2, 2023. The bonds, priced at $1,000 each, are unsecured, carry a 10% annual interest rate payable on December 31st, and mature five years after issuance. In 2023, the Company issued $1.4 million in bonds, netting approximately $1.2 million after $0.2 million in issuance costs. Between January 1 and March 14, 2024, an additional $2.8 million in bonds were issued, netting approximately $2.6 million after $0.2 million in issuance costs. In total, $4.3 million in bonds were issued, generating net proceeds of approximately $3.9 million after total issuance costs of approximately $0.4 million.
On April 5, 2024, during a special stockholder meeting, shareholders approved an amendment to our Certificate of Incorporation, increasing the authorized shares of Class A Common Stock from 114 million to 228 million. This increase provides greater flexibility for corporate needs, such as financing activities, stock dividends or splits, issuing equity awards, and forming strategic partnerships. Having additional authorized shares allows us to act on opportunities without requiring further stockholder approval. The Board will determine the timing and terms of any future issuances based on the Company’s needs.
On May 15, 2024, in accordance with our Certificate of Incorporation, all outstanding shares of Knightscope’s preferred stock, encompassing both Super Voting and Ordinary Preferred shares, were automatically converted into Class B and Class A common stock, respectively. This conversion was triggered by a written request from holders representing a majority of the voting power of the then-outstanding preferred stock, in accordance with the terms of the Company’s Certificate of Incorporation (the “Automatic Conversion”). Following the Automatic Conversion, no shares of preferred stock remain outstanding.
At its Annual Meeting on August 16, 2024, Knightscope’s stockholders approved the reverse stock split (“RSS”) at a ratio between 1-for-5 and 1-for-50. The Board of Directors subsequently approved a final RSS ratio of 1-for-50, which was implemented on September 13, 2024, with the Class A Common Stock trading on a post-split basis beginning September 16, 2024.
Shareholders at the Annual Meeting also authorized the creation of 40 million preferred shares, designated as “blank check” preferred stock, issuable in one or more series. This authorization empowers the Board of Directors to determine the specific terms, rights, preferences, and limitations of each series of preferred stock without requiring further shareholder action. This strategic flexibility allows the Company to respond effectively to future capital raising opportunities and other corporate needs. In conjunction with this
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authorization, shareholders also approved ancillary and conforming changes to the Company’s governing documents, including the removal of outdated information about the previously existing preferred stock, which was converted to common stock earlier this year.
In October 2022, Knightscope strategically secured financing through a private placement with Alto Opportunity Master Fund, SPC - Segregated Master Portfolio B (“Holder”). This transaction involved the issuance of senior secured convertible notes and warrants to purchase up to 22,768 (RSS adjusted) shares of the Company’s Class A Common Stock. These warrants included a critical price adjustment mechanism: should Knightscope issue common stock at a price lower than the then-current warrant exercise price, that exercise price would be reduced, and the number of shares purchasable would be increased, thereby preserving the intrinsic value of the warrants. A registration rights agreement was also executed, obligating Knightscope to register these securities with the SEC.
On August 1, 2024, Knightscope and the Holder executed an Agreement and Waiver, resulting in a significant restructuring of this financial arrangement. The outstanding 2022 Warrants were cancelled in exchange for a new Senior Secured Promissory Note with a principal amount of $3.0 million, due on July 1, 2025. This note is structured for repayment in two tranches: $2.5 million will be repaid in 11 equal monthly installments commencing September 1, 2024, and the remaining $500,000 is due on the earlier of October 15, 2024, or the date upon which Knightscope completes a funding transaction. A change of control provision allows the Holder to demand full repayment upon the public announcement of such an event, continuing for 30 days after its completion. While the August 2024 Note does not bear interest, a default will trigger a 10% per annum interest rate on the outstanding principal until the default is cured or the note is paid in full. As of December 31, 2024, the outstanding principal balance on this note is approximately $1.4 million.
On November 21, 2024, Knightscope announced the pricing of a public offering of Class A Common Stock and pre-funded warrants, projected to generate gross proceeds of approximately $12.1 million. The offering, conducted under an effective shelf registration statement previously filed with the SEC, closed on November 25, 2024. The offering comprised the sale of 393,659 shares of Class A Common Stock and pre-funded warrants to purchase 816,341 shares of Class A Common Stock, at a public offering price of $10.00 per share and $9.999 per pre-funded warrant, respectively, before underwriting discounts and commissions. The pre-funded warrants were immediately exercisable at a nominal price of $0.001 per share and remained exercisable until fully utilized. As of February 11, 2025, the pre-funded warrants were fully exercised. The offering was managed by Titan Partners Group LLC, a division of American Capital Partners, LLC who were also issued underwriter warrants, exercisable commencing 180 days after the agreement date and continuing for a period of five years, to purchase 36,300 shares of Class A Common Stock. These underwriter warrants are exercisable at the price of $18.29 per share.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based upon our accompanying financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that can have significant impact on the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of assets and liabilities at the date of our financial statements. For the Company, these estimates include, but are not limited to: deriving the useful lives of ASRs, determination of the cost of ASRs, assessing assets for impairment, accounts receivable – estimated credit losses, determination of deferred tax valuation allowances, the valuation of convertible preferred stock warrants, estimating fair values of the Company’s share-based awards, and derivative liabilities. Actual results could differ from those estimates. We base our estimates, assumptions and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On a regular basis, we evaluate our estimates, assumptions and judgments and make changes accordingly.
We believe the following critical accounting estimates affect our more significant judgments and estimates used in preparing our financial statements. Please see Note 1 to our financial statements, which are included in Item 8 “Financial Statements and Supplementary Data” of this Annual Report.
Inventory
Inventory, principally purchased components, is stated at the lower of cost or net realizable value. Cost is determined using an average cost, which approximates actual cost on a first-in, first-out basis. Inventory in excess of salable amounts and inventory which is considered obsolete based upon changes in existing technology is fully expensed to the cost of revenue service line item in our Statement of Operations. At the point of loss recognition, a new lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in the new cost basis.
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Autonomous Security Robots, net (“ASRs”)
ASRs consist of materials, ASRs in progress and finished ASRs. ASRs in progress and finished ASRs include materials, labor and other direct and indirect costs used in their production. Finished ASRs are valued using a discrete bill of materials, which includes an allocation of labor and direct overhead based on assembly hours. Depreciation expense on ASRs is recorded using the straight-line method over their estimated expected lives, which currently ranges from 3 to 5 years. Depreciation expense of finished ASRs is included in research and development expense, sales and marketing expense, and cost of revenue, net on the Company’s Statements of Operations. Depreciation expense on finished ASRs was $2.0 million and $1.6 million for the years ended December 31, 2024 and 2023, respectively. ASRs, net, consisted of the following (in thousands):
December 31,
2024
2023
Raw materials
$
2,465
$
3,841
ASRs in progress
322
1,575
Finished ASRs
11,790
12,130
14,577
17,546
Accumulated depreciation on Finished ASRs
(5,812)
(8,701)
ASRs, net
$
8,765
$
8,845
The components of the Finished ASRs, net at December 31, 2024 and 2023 are as follows (in thousands):
December 31,
2024
2023
ASRs on lease or available for lease
$
10,553
$
10,804
Demonstration ASRs
587
607
Research and development ASRs
102
194
Charge boxes
548
525
11,790
12,130
Less: accumulated depreciation
(5,812)
(8,701)
Finished ASRs, net
$
5,978
$
3,429
Impairment of Long-Lived Assets
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable from the estimated future cash flows expected to result from their use or eventual disposition. If the assets are determined to be recoverable, but the useful lives are shorter than originally estimated, the Company will depreciate the net book value of the assets over the newly determined remaining useful lives. If estimates of future undiscounted net cash flows are insufficient to recover the carrying value of the assets, the Company will record an impairment loss in the amount by which the carrying value exceeds the fair value. None of the Company’s ASRs, property, equipment and software or intangible assets were determined to be impaired during the years ended December 31, 2024 and 2023.
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Convertible Preferred Warrant Liability and Common Stock Warrants
Freestanding warrants to purchase shares of the Company’s preferred stock were classified as liabilities on the balance sheets at their estimated fair value because the underlying shares of preferred stock were contingently redeemable and, therefore, may have obligated the Company to transfer assets at some point in the future. The preferred stock warrants were recorded at fair value upon issuance and were subject to remeasurement to their respective estimated fair values. At the end of each reporting period, changes in the estimated fair value of the preferred stock warrants were recorded in the statements of operations. The Company adjusted the liability associated with the preferred stock warrants for changes in the estimated fair value until the earlier of the exercise or conversion. On May 15, 2024, the preferred stock warrants converted into warrants to purchase common stock and any liabilities recorded for the preferred stock warrants were reclassified to additional paid-in capital and are no longer subject to remeasurement.
Common stock warrants that are not considered derivative liabilities are accounted for at fair value at the date of issuance in additional paid-in capital.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with Accounting Standards Codification 718, Compensation – Stock Compensation , which requires that the estimated fair value on the date of grant be determined using the Black-Scholes option pricing model with the fair value recognized over the requisite service period of the awards, which is generally the option vesting period. The Company’s determination of the fair value of the stock-based awards on the date of grant, using the Black-Scholes option pricing model, is affected by the fair value of the Company’s common stock as well as other assumptions regarding a number of highly complex and subjective variables. These variables include but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee option exercise behaviors. Because there is insufficient historical information available to estimate the expected term of the stock-based awards, the Company adopted the simplified method of estimating the expected term of options granted by taking the average of the vesting term and the contractual term of the option. The Company recognizes forfeitures as they occur when calculating stock-based compensation for its equity awards.
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Results of Operations
The following table sets forth certain historical statements of operations data (in thousands) and such data as a percentage of revenue for the periods indicated.
Year Ended December 31,
2024
% of Revenue
2023
% of Revenue
Revenue, net
Service
$
7,474
69
%
$
7,169
56
%
Product
3,331
31
%
5,628
44
%
Total revenue, net
10,805
100
%
12,797
100
%
Cost of revenue, net
Service
11,626
108
%
9,874
77
%
Product
2,878
27
%
4,947
39
%
Total cost of revenue, net
14,504
134
%
14,821
116
%
Gross loss
(3,699)
(34)
%
(2,024)
(16)
%
Operating expenses:
Research and development
7,061
65
%
6,351
50
%
Sales and marketing
5,142
48
%
5,179
40
%
General and administrative
13,266
123
%
12,585
98
%
Restructuring charges
510
5
%
149
1
%
Total operating expenses
25,979
240
%
24,264
190
%
Loss from operations
(29,678)
(275)
%
(26,288)
(205)
%
Other income (expense):
Change in fair value of warrant and derivative liabilities
(1,515)
(14)
%
4,910
38
%
Interest income (expense), net
(423)
(4)
%
(551)
(4)
%
Other income (expense), net
(118)
(1)
%
(189)
(1)
%
Total other income (expense)
(2,056)
(19)
%
4,170
33
%
Net loss before income tax expense
(31,734)
(294)
%
(22,118)
(173)
%
Income tax expense
—
—
%
—
—
%
Net loss
$
(31,734)
(294)
%
$
(22,118)
(173)
%
Revenue, net
Total revenue, net, of $10.8 million for the year ended December 31, 2024 decreased by $2.0 million compared to the year ended December 31, 2023, primarily in Product revenue due to the company’s decision to restructure its ECD product line, which resulted in significant business disruption as the Company outsourced field services, eliminated positions and consolidated its ECD operations from Irvine, CA to Mountain View, CA. The decrease in Product revenue was partially offset by an increase in Service revenue.
Service revenue, net, which includes revenue generated through MaaS agreements for our ASRs and maintenance and support contracts for our portfolio of ECDs, increased by approximately $0.3 million, or approximately 4%, to $7.5 million, for the year ended December 31, 2024, from $7.2 million for the year ended December 31, 2023. The increase was driven by an increase in the ASR installed base, lower downtime credits and higher revenue from ECD maintenance and support contracts.
Product revenue, net, was $3.3 million for the year ended December 31, 2024, a decrease of $2.3 million or 41% from prior year, primarily from decreased sales of ECDs due to disruptions in production and operations caused by restructuring initiatives.
Cost of revenue, net
Total cost of revenue, net of $14.5 million for the year ended December 31, 2024 declined by $0.3 million or 2% compared to the year ended December 31, 2023 as $1.8 million higher Service cost of revenue was offset by $2.1 million year-over-year decline in Product cost of revenue during the same period.
Service cost of revenue, net, representing the cost of supporting ASR MaaS and maintenance and support agreements related to ECD installations, for the year ended December 31, 2024, was approximately $11.6 million, as compared to approximately $9.9 million for
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the year ended December 31, 2023, representing an increase of approximately $1.8 million, or 18%. This was driven by $1.6 million in higher third-party service costs due to outsourcing our field services, $1.2 million in higher scrap costs primarily related to our ASR hot-swap program, and $0.4 million in increased depreciation and amortization expenses; partially offset by a $0.8 million decrease in headcount expense, $0.4 million lower cellular and other software costs, and $0.2 million savings in rent, utilities and vehicle maintenance expenses compared to the same period in the prior year.
Product cost of revenue, net of approximately $2.9 million and $4.9 million for the years ended December 31, 2024 and 2023, respectively, decreased by $2.1 million or 42% primarily due to $1.8 million in lower volume of sales and $0.4 million in lower warranty costs, which were partially offset by $0.1 million in higher third-party installation fees.
Gross loss
Gross loss for the year ended December 31, 2024 was approximately $3.7 million, as compared to $2.0 million for the year ended December 31, 2023, representing a year-over-year increase of approximately $1.7 million.
Research and development
Year Ended
December 31,
2024
2023
$ Change
% Change
Research and development
$
7,061
$
6,351
$
710
11
%
Percentage of total revenue
65
%
50
%
Research and development (“R&D”) expense for the year ended December 31, 2024 was approximately $7.1 million, or 65% of revenue, compared to R&D expense of $6.4 million, or 50% of revenue, for the year ended December 31, 2023. The year-over-year increase was due to the Company’s continued investment in the development of new products and in cybersecurity capabilities in support of federal contracts through the use of third-party engineering firms which drove an increase of $0.5 million in professional fees and approximately $0.5 million in increased headcount expense partially offset by $0.3 million in general cost savings.
Sales and marketing
Year Ended
December 31,
2024
2023
$ Change
% Change
Sales and marketing
$
5,142
$
5,179
$
(37)
(1)
%
Percentage of total revenue
48
%
40
%
Sales and marketing expense for the year ended December 31, 2024 was approximately $5.1 million and remained relatively flat compared to sales and marketing expense of $5.2 million, for the year ended December 31, 2023.
General and administrative
Year Ended
December 31,
2024
2023
$ Change
% Change
General and administrative
$
13,266
$
12,585
$
681
5
%
Percentage of total revenue
123
%
98
%
General and administrative (“G&A”) expense for the year ended December 31, 2024 was approximately $13.3 million, compared to G&A expense of approximately $12.6 million, for the year ended December 31, 2023. The increase was primarily driven by an increase of approximately $1.2 million in investor relations expense and $1.1 million in higher professional services fees, partially offset by $1.7 million compensation expense savings due to lower headcount.
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Restructuring charges
Year Ended
December 31,
2024
2023
$ Change
% Change
Restructuring Charges
$
510
$
149
$
361
242
%
Percentage of total revenue
5
%
1
%
We incurred restructuring charges for the year ended December 31, 2024, of $0.5 million as a result of operational changes made to the ECD portfolio. These changes, primarily driven by our decision to exit our production facilities in Irvine, CA and consolidate all operations in Mountain View, CA, included costs related to headcount reduction across production and field services, lease termination, and other relocation, consolidation and exit costs.
Other income (expense)
Year Ended
December 31
2024
2023
$ Change
% Change
Change in fair value of warrant and derivative liabilities
$
(1,515)
$
4,910
$
(6,425)
(131)
%
Interest income (expense), net
(423)
(551)
128
23
%
Other income (expense), net
(118)
(189)
71
38
%
Total other income (expense)
$
(2,056)
$
4,170
$
(6,226)
(149)
%
Change in fair value of warrant and derivative liability
The change in the fair value of warrant and derivative liability for the year ended December 31, 2024 resulting in other income (expense) of approximately ($1.5) million compared to other income of approximately $4.9 million for the year ended December 31, 2023. The change in the fair value of the warrant and derivative liability is attributable to the extinguishment of warrants with Alto Opportunity Master Fund, SPC - Segregated Master Portfolio B which occurred on August 1, 2024.
Interest income (expense), net
Interest income (expense), net for the year ended December 31, 2024 was approximately ($0.4) million, compared to interest income (expense), net of approximately ($0.6) million for the year ended December 31, 2023. The decrease in interest income (expense), net resulted from paying off the convertible notes in 2023, partially offset by interest and issuance costs on the Bonds that were issued in 2023 and 2024.
Other income (expense), net
Other income (expense), net for the year ended December 31, 2024 was approximately ($0.1) million, as compared to other income (expense), net of ($0.2) million for the year ended December 31, 2023 mainly attributable to the Referral Agreement with Dimension Funding LLC.
Liquidity and Capital Resources
As of December 31, 2024 and 2023, we had $11.1 million and $2.3 million, respectively, of cash and cash equivalents. As of December 31, 2024, the Company also had an accumulated deficit of $193.2 million, working capital of $6.8 million and stockholders’ equity of $15.8 million. These factors raise substantial doubt about our ability to continue as a going concern. The Company will require significant additional financing to meet its planned capital and operational needs and is pursuing opportunities to obtain additional financing through equity and/or debt alternatives. There can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its future operations. Management’s plans include seeking additional financing, such as issuances of equity and issuances of debt and/or convertible debt instruments. Sales of additional equity securities, convertible debt and/or warrants by the Company could result in the dilution of the interests of existing stockholders. However, there can be no assurance that financing will be available when required in sufficient amounts, on acceptable terms or at all. If the Company is unable to raise additional capital
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in sufficient amounts or on terms acceptable to it, the Company may have to significantly reduce its operations, delay, scale back or discontinue the development of one or more of its platforms or discontinue operations completely.
We executed a purchase agreement on September 13, 2024 in order to secure the acquisition of raw materials essential to ASR production. This agreement stipulates monthly purchases of $40,000 commencing in January 2025 and concluding in August 2026, culminating in a total expenditure of $0.8 million .
Cash Flow
The table below, for the periods indicated, provides selected cash flow information:
Year Ended
December 31,
2024
2023
Net cash used in operating activities
$
(22,453)
$
(24,155)
Net cash used in investing activities
(3,178)
(5,122)
Net cash provided by financing activities
34,475
26,849
Net change in cash, cash equivalents and restricted cash
$
8,844
$
(2,428)
Net Cash Used in Operating Activities
Net cash used in operating activities is influenced by the amount of cash we invest in personnel, marketing, and infrastructure to support the anticipated growth of our business, the number of clients to whom we lease our ASRs, sell and service ECDs, the amount and timing of accounts receivable collections, as well as the amount and timing of disbursements to our vendors.
Net cash used in operating activities for the year ended December 31, 2024 decreased by $1.7 million to $22.5 million, compared to $24.2 million for the year ended December 31, 2023. The change in fair value of warrant and derivative liabilities accounted for a decrease in cash used in operating activities of $6.4 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Changes in operating assets and liabilities, net of $5.3 million, also contributed to the decrease in cash used in operating activities for the year ended December 31, 2024 compared to the prior year. These decreases were partially offset by an increase in net loss of $9.6 million, a decrease in stock compensation expense of $1.0 million and an increase in the loss on disposal of ASR of $1.2 million in 2024 compared to the prior year.
Net Cash Used in Investing Activities
Our primary investing activities have consisted of capital expenditures and investment in ASRs. As our business grows, we expect our capital expenditures to continue to increase.
Net cash used in investing activities for the year ended December 31, 2024 was $3.2 million compared to $5.1 million for the year ended December 31, 2023, a decrease of $1.9 million. The decrease was primarily a result of lower investments in ASRs and equipment of $1.5 million.
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Net Cash Provided by Financing Activities
Net cash provided by financing activities was approximately $34.5 million for the year ended December 31, 2024, an increase of approximately $7.6 million as compared to the prior year. Our financing activities for the year ended December 31, 2024, consisted primarily of the issuance and sale of shares of Class A Common Stock pursuant to our at-the-market offering program for net proceeds of approximately $22.7 million, net proceeds from issuance of common stock and pre-funded warrants of approximately $10.8 million and net proceeds from the issuance of Regulation A bonds of approximately $2.6 million, partially offset by a $1.6 million repayment of debt obligations. Our financing activities for the year ended December 31, 2023, consisted primarily of the issuance and sale of shares of Class A Common Stock for net proceeds of approximately $25.9 million, net proceeds from the issuance of Regulation A bonds of approximately $1.2 million, and Class A Common Stock issued as a result of option exercises of approximately $0.3 million, partially offset by a note repayment of approximately $0.6 million.
At-the-Market Offering Program
In February 2023, we commenced an at-the-market offering program with H.C. Wainwright & Co., LLC, as sales agent, in connection with which we filed a prospectus supplement filed on February 9, 2023 (the “February Prospectus Supplement”), allowing us 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, our prospectus supplement provided that in no event would we sell any securities in a public primary offering with a value exceeding one-third of our non-affiliated public float in any 12-month period unless our non-affiliated public float subsequently rose to $75.0 million or more.
On August 18, 2023, after our non-affiliated public float subsequently rose to an amount greater than $75.0 million, we filed a new prospectus supplement (the “August Prospectus Supplement”) providing for the offer and sale from time to time of up to $25.0 million in shares of Class A Common Stock subject to, and in accordance with, SEC rules.
On April 8, 2024, we filed the April Prospectus Supplement, relating to the issuance and sale from time to time of up to $6.4 million in shares of Class A Common Stock, subject to, and in accordance with, SEC rules.
On June 7, 2024, we filed the June Prospectus Supplement to amend the April Prospectus Supplement to increase the issuance and sale from time to time to up to $11.66 million of shares of Class A Common Stock, subject to, and in accordance with, SEC rules. In the event that our public float increases or decreases, we may sell securities in public primary offerings on Form S-3 with a value up to one-third of our public float, in each case calculated pursuant to General Instruction I.B.6 and subject to the terms of the ATM Agreement. In the event that our public float increases above $75.0 million, we will no longer be subject to the limits in General Instruction I.B.6 of Form S-3.
On October 11, 2024, the Company filed a prospectus supplement (the “October Prospectus Supplement”) to amend the June Prospectus Supplement to increase the issuance and sale from time to time to up to $1.347 million in shares of Class A Common Stock subject to, and in accordance with, SEC rules.
On November 14, 2024, after our non-affiliated public float subsequently rose to an amount greater than $75.0 million, we filed a new prospectus supplement (the “November Prospectus Supplement”) providing for the offer and sale from time to time of up to $25.0 million in shares of Class A Common Stock, in addition to the shares of Class A common stock previously sold, subject to, and in accordance with, SEC rules .
For the year ended December 31, 2024, we issued 1,716,419 shares of Class A Common Stock under the at-the-market offering program for net proceeds of approximately $22.7 million, net of brokerage and placement fees of approximately $0.9 million.
November 2024 Public Offering
On November 21, 2024, Knightscope announced the pricing of a public offering of Class A Common Stock and pre-funded warrants, projected to generate gross proceeds of approximately $12.1 million. The offering, conducted under an effective shelf registration statement previously filed with the SEC, closed on November 25, 2024. The offering comprised the sale of 393,659 shares of Class A Common Stock and pre-funded warrants to purchase 816,341 shares of Class A Common Stock, at a public offering price of $10.00 per share and $9.999 per pre-funded warrant, respectively, before underwriting discounts and commissions. The pre-funded warrants were immediately exercisable at a nominal price of $0.001 per share and remained exercisable until fully utilized. As of February 11, 2025,
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the pre-funded warrants were fully exercised. The offering was managed by Titan Partners Group LLC, a division of American Capital Partners, LLC who were also issued underwriter warrants, exercisable commencing 180 days after the agreement date and continuing for a period of five years, to purchase 36,300 shares of Class A Common Stock. These underwriter warrants are exercisable at a price of $18.29 per share.
Reverse Stock Split
On August 16, 2024, the Company held an annual meeting of stockholders (the “Annual Meeting”) at which the Company’s stockholders approved, among other items, amendments to the Certificate of Incorporation, to effect a reverse stock split of the Company’s Class A
Common Stock at a ratio ranging from any whole number between 1-for-5 and 1-for-50, as determined by the Company’s Board in its
discretion, subject to the Board’s authority to abandon such amendments (the “Class A Reverse Stock Split Amendment”), and effect a
reverse stock split of the Company’s Class B Common Stock at a ratio ranging from any whole number between 1-for-5 and 1-for-50 (which ratio shall be the same ratio as the reverse stock split determined by the Board with respect to the Class A Common Stock), as determined by the Board in its discretion, subject to the Board’s authority to abandon such amendments (the “Class B Reverse Stock Split Amendment” and, together with the Class A Reverse Stock Split Amendment, the “Reverse Stock Split Amendment”). On September 4, 2024, the Board selected a reverse stock split of the Class A Common Stock at a final ratio of 1-for-50 and a reverse stock
split of the Class B Common Stock at a final ratio of 1-for-50 and abandoned all other reverse stock split amendments at different ratios.
On September 13, 2024, the Company filed a Certificate of Amendment to the Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Delaware to effect the Amendments. The Reverse Stock Split Amendment became effective at 5:00 p.m. Eastern Time on the date of filing of the related Certificate of Amendment.
Preferred Stock Conversion to Common
On May 15, 2024 (the “Preferred Stock Conversion Date”), pursuant to the terms of the Certificate of Incorporation, each share of the Company’s Super Voting Preferred Stock was automatically converted into fully-paid, non-assessable shares of Class B common stock and each share of the Company’s Ordinary Preferred Stock (together with the Super Voting Preferred Stock, the “Preferred Stock”) was automatically converted into fully-paid, non-assessable shares of Class A common stock, in each case at the then effective applicable Conversion Rate, as a result of the receipt by the Company of a written request for such conversion from the holders of a majority of the voting power of the Preferred Stock then outstanding (the “Automatic Conversion”). As a result of the Automatic Conversion, no shares of previously authorized preferred stock remain outstanding. Management believes this change helps the Company maintain compliance with Nasdaq listing rules by helping the Company meet the minimum stockholders’ equity requirement under the Equity Standard for continued listing pursuant to Nasdaq Listing Rule 5550(b)(1) on The Nasdaq Capital Market.
On August 16, 2024, at its Annual Meeting, the Company received stockholder approval to authorize 40,000,000 shares of “blank check” preferred stock, issuable in one or more series, and (ii) implement ancillary and conforming changes in connection with the authorization of “blank check” preferred stock and to remove provisions related to the Company’s former Super Voting Preferred Stock and Ordinary Preferred Stock, which are no longer outstanding. The term “blank check” preferred stock refers to preferred stock, the creation and issuance of which is authorized in advance by a company’s stockholders and the terms, rights and features of which are determined by the Board of Directors of a company without seeking further actions or vote of the stockholders.
Extinguishment of Warrants with Anti-Dilution Features
On October 10, 2022, the Company entered into a Securities Purchase Agreement (the “2022 Purchase Agreement”) with Alto Opportunity Master Fund, SPC - Segregated Master Portfolio B (the “Holder”), pursuant to which the Company issued and sold to the Holder in a private placement (i) senior secured convertible notes (the “2022 Notes”), and (ii) warrants (the “2022 Warrants”) to purchase up to 22,768 shares of the Company’s Class A common stock. The 2022 Warrants included an adjustment mechanism, whereby the exercise price and number of shares issuable upon the exercise of the 2022 Warrants (the “Warrant Exercise Price”) were subject to adjustment from time to time, such that immediately after an issuance of shares of Common Stock (a “Stock Issuance”) at any price per share of Common Stock that was lower than the then in effect Warrant Exercise Price (the “Reset Price”), the Warrant Exercise Price would be reduced to equal the Reset Price, and number of shares issuable upon the exercise of the 2022 Warrants would be increased to the number necessary to maintain the value of the 2022 Warrants immediately prior to such Stock Issuance. In connection with the entry into the 2022 Purchase Agreement, the Company and the Holder also entered into a registration rights agreement (the “2022 Registration Rights Agreement”), pursuant to which the Company agreed to provide the Holder with certain registration rights under the Securities Act and the rules and regulations thereunder. Capitalized terms not defined herein have the meaning assigned to them in the 2022 Purchase Agreement.
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On August 1, 2024 (the “Issuance Date”), the Company and the Holder entered into an Agreement and Waiver (the “Waiver”) pursuant to which, on the Issuance Date, the Company issued to the Holder a Senior Secured Promissory Note due on July 1, 2025, in an aggregate amount equal to $3.0 million (the “Principal”), in exchange for the cancellation of the Holder’s 2022 Warrants (the “August 2024 Note”). The Company has agreed to pay the Principal in two separate installments: the first installment in an amount equal to $2,500,000 payable in 11 equal consecutive monthly installments beginning on September 1, 2024, and the second installment in an amount equal to $500,000, payable on the earlier of (x) October 15, 2024, and (y) upon any issuance by the Company or any of its subsidiaries of common stock or common stock equivalents for cash consideration, indebtedness or a combination of units thereof (other than pursuant to a customary at-the-market offering program and equity lines of credit). Upon the occurrence of a Change of Control (as defined in the August 2024 Note), the Holder may, at its option, require the Company to repay the Note in full, starting from the public announcement of such a Change of Control until 30 days after its completion. The August 2024 Note does not bear interest under normal circumstances; however, if an Event of Default occurs (as defined in the August 2024 Note), the outstanding principal will automatically bear interest at a rate of 10% per annum until the default is resolved or the Note is paid in full. As of March 31, 2025, approximately $0.9 million of the note is outstanding.
Share Increase Amendment
On April 5, 2024, we held a special meeting of stockholders (the “Special Meeting”) at which the Company’s stockholders approved an amendment (the “Share Increase Amendment”) to the Certificate of Incorporation to increase the number of authorized shares of the Company’s Class A Common Stock, par value $0.001 per share from 114,000,000 to 228,000,000 shares. Our Board believes it is in the best interests of the Company and our stockholders to have additional shares available for use as our Board deems appropriate or necessary. As such, the primary purpose of the Share Increase Amendment was to provide the Company with greater flexibility with respect to managing its Class A Common Stock in connection with such corporate purposes as may, from time to time, be considered advisable by our Board. These corporate purposes could include, without limitation, (i) financing activities, including the at-the-market offering program that we commenced in February 2023, as amended in August 2023, with H.C. Wainwright & Co., LLC as sales agent; (iii) stock dividends or splits; (iv) conversions of convertible securities; (v) issuance of stock options and other equity awards pursuant to our incentive plans; and (vi) establishing strategic relationships. Having an increased number of authorized but unissued shares of Class A Common Stock allows the Company to take prompt action with respect to corporate.
Public Safety Infrastructure Bonds
We filed an Offering Circular dated September 29, 2023 (the “Offering Circular”) for the issuance of up to $10.0 million in Public Safety Infrastructure Bonds (the “Bonds”) pursuant to Regulation A of the Securities Act, as amended. The Offering Circular was qualified with the SEC on October 2, 2023. The price per Bond is $1,000. The Bonds are unsecured, bearing interest at 10% per annum, payable annually on December 31 each year, starting on December 31, 2024, with the Bonds maturing on the fifth anniversary of the initial issuance. For the year ended December 31, 2023, we issued Bonds totaling a principal amount of approximately $1.4 million, in aggregate, generating net proceeds to the Company of approximately $1.2 million, net of issuance costs of approximately $0.2 million. We closed the Bond issuance on March 14, 2024 and issued Bonds totaling a principal amount of approximately $2.8 million, in aggregate, generating net proceeds to the Company of approximately $2.6 million, net of issuance costs of approximately $0.2 million during the period starting January 1, 2024 and ending on March 14, 2024. Overall, we issued Bonds totaling a principal amount of approximately $4.3 million, in aggregate, generating net proceeds to the Company of approximately $3.9 million, net of issuance costs of approximately $0.4 million during the life of the offering.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide information under this item.