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What changed in Knightscope, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Knightscope, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+431 added−300 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-31)

Top changes in Knightscope, Inc.'s 2023 10-K

431 paragraphs added · 300 removed · 207 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

54 edited+24 added−31 removed13 unchanged
Biggest changeThey are not, in fact, competitive products because cameras do not provide a physical presence, are typically used for forensics after an event, and do not offer a client the plethora of capabilities available in an ASR/KSOC combination. 8 Table of Contents We believe that having these two types of systems working together provide a more holistic approach to promoting safety and reducing crime.
Biggest changeIt is a common misconception outside of the security industry that we compete against closed-circuit television (“CCTV”) providers. We do not believe that they are competitive products because cameras do not provide a physical presence, are typically used for forensics after an event, and do not offer a client the plethora of capabilities available with our technologies.
The approximate dimensions of the K1 Blue Light Tower are: Height: 12 feet, Width: less than one foot, Weight: 208 pounds. The K1 Blue Light Emergency Phone is a compact, full-featured emergency calling solution for indoor and outdoor use.
The approximate dimensions of the K1 Blue Light Tower are: Height: 12 feet, Width: less than one foot, Weight: 208 pounds. K1 Blue Light Emergency Phone The K1 Blue Light Emergency Phone is a compact, full-featured emergency calling solution for indoor and outdoor use.
In order optimize our ability to serve our clients, we have partnered with one of our strategic investors, Konica Minolta, Inc., among others, to train their technicians to service, maintain and support our machines-in-network and assist us with our nationwide scaling efforts.
In order to optimize our ability to serve our clients, we have partnered with one of our strategic investors, Konica Minolta, Inc., among others, to train their technicians to service, maintain and support our machines-in-network and assist us with our nationwide scaling efforts.
Knightscope+ Knightscope+ is a virtual monitoring and response solution providing an alternative for client sites that do not have the resources to receive and respond to alerts generated by Knightscope’s ASRs. The service enables a full service solution for ASR clients, including but not limited to, alerts, broadcast messaging, and two-way communications.
Knightscope+ Knightscope+ is a virtual monitoring and response solution providing an alternative for client sites that do not have the resources to receive and respond to alerts generated by Knightscope’s ASRs and other products. The service enables a full-service solution for ASR clients, including but not limited to, alerts, broadcast messaging, and two-way communications.
Once alerted of an abnormal event, such as a person spotted during a specific time in a particular location, authorized users can view the live stream of data in the KSOC from each of the ASRs in the user’s network, accessing it from a security operations center or a remote laptop.
Once alerted of an abnormal event, such as a person spotted during a specific time in a particular location, authorized users can view the live stream of data in the KSOC from each of the ASRs in the user’s network, accessing it from a 911 dispatch center, security operations center or a remote laptop.
It has the same suite of advanced anomaly detection capabilities as the K5, but the parking utilization, parking meter and license plate recognition features are turned off. The ASRs include several communications features. The units can transfer data over both 4G LTE networks and Private LTE as well as future 5G capabilities.
It has the same suite of advanced anomaly detection capabilities as the K5, but the parking utilization, parking meter and license plate recognition features are turned off. The ASRs include several communications features. The units can transfer data over both 4G LTE networks and Private LTE.
Additionally, Turing AI has recently begun offering an indoor-only robot and Robotic Assistance Devices, a subsidiary of Artificial Intelligence Technology Solutions, while beginning autonomous robot offerings, has continued to grow its stationary fixed device offerings, similar to other fixed solutions, such as those offered by Verkada.
Additionally, Turing AI has recently begun offering an indoor-only robot and Robotic Assistance Devices, a subsidiary of Artificial Intelligence Technology Solutions has continued to grow its stationary fixed device offerings, similar to other fixed solutions, such as those offered by Verkada.
For example, assisting with alerts regarding increased risks of fires; ● Two-way communication feature may be utilized for both public announcements and avoidance of human physical confrontations with dangerous individuals; and ● Signal detection can be utilized as a rogue router detector for sensitive locations such as a data center.
For example, assisting with alerts regarding increased risks of fires; ● Two-way communication feature may be utilized for both public announcements and avoidance of human physical confrontations with dangerous individuals; and ● Signal detection can be utilized as a rogue router detector for sensitive locations.
Competition At the moment, we are not aware of any direct competitors for our ASR products in the advanced physical security technology space that have viable commercial products in the United States, addressing both outdoor and indoor applications, at the same scale as Knightscope.
Competition At the moment, we are not aware of any direct competitors for our ASR products in the advanced physical security technology space that have viable commercial products in the USA, addressing both outdoor and indoor applications, at the same scale as Knightscope.
A user can use the timestamp of the recording to search through other data detected to assess and better understand other conditions in the area patrolled by the ASR; 5 Table of Contents ● Thermal imaging, which allows for triggered alerts based on temperature.
A user can use the timestamp of the recording to search through other data detected to assess and better understand other conditions in the area patrolled by the ASR; ● Thermal imaging, which allows for triggered alerts based on temperature.
We have not experienced any significant effects relating to seasonality for our products and services. Human Capital As of December 31, 2022, the Company had 111 full-time employees and one part-time employee working primarily out of our combined headquarters and production facility in Mountain View, California and production facilities in Downey and Irvine, California.
We have not experienced any significant effects relating to seasonality for our products and services. Human Capital As of December 31, 2023, the Company had 95 full-time employees and one part-time employee working primarily out of our combined headquarters and production facility in Mountain View, California and production facilities in Downey and Irvine, California.
You may also access this information, free of charge, at the SEC’s website at http://www.sec.gov. ​ 10 Table of Contents
You may also access this information, free of charge, at the SEC’s website at http://www.sec.gov. ​ 12 Table of Contents
Our technologies are Made in the USA and allow public safety professionals to more effectively deter, intervene, capture, and prosecute criminals. Our mission is to make the United States of America the safest country in the world by helping protect the people, places, and things where we live, work, study and visit.
Our technologies are made in the United States of America (“USA”) and are designed to enable public safety professionals to more effectively deter, intervene, capture, and prosecute criminals. Our mission is to make the USA the safest country in the world by helping protect the people, places, and things where people live, work, study and visit.
Our stationary blue light, E-Phone, and Call Box towers are sold as point-of-sale modular systems, including Knightscope’s exclusive, self-diagnostic, alarm monitoring system firmware that provides system owners daily email reports on the operational status of their system, a one-year parts warranty, and optional installation services. Modular upgrades are available for the blue light towers, such as public announcement speaker systems.
Our stationary K1B technologies are sold as point-of-sale modular systems, including Knightscope’s exclusive, self-diagnostic, alarm monitoring system, KEMS, that provides system owners daily email reports on the operational status of their system, a one-year parts warranty, and optional installation services. Modular upgrades are available for the blue light towers, such as public announcement speaker systems.
Our headquarters is located in Silicon Valley at 1070 Terra Bella Ave, Mountain View, CA 94043 and our telephone number is (650) 679-7626.
Our headquarters is located in Silicon Valley at 1070 Terra Bella Ave, Mountain View, CA 94043 and our telephone number is (650) 679-7626 and our website is www.knightscope.com.
The dimensions of the K1 Hemisphere are: Diameter: 24 inches, Depth: 10 inches, Weight: 30 pounds. The K1 Blue Light Tower emergency phone is for outdoor use and delivers completely wireless emergency phone operation, 24/7/365, even in harsh weather conditions with voice connectivity, broadcast warning capability, a flashing strobe, and night area illumination to assist responders in locating callers.
K1 Blue Light Tower The K1 Blue Light Tower emergency phone is for outdoor use and delivers completely wireless emergency phone operation, 24/7/365, even in harsh weather conditions with voice connectivity, broadcast warning capability, a flashing strobe, and night area illumination to assist responders in locating callers.
Manufacturing and Suppliers Knightscope assembles its ASRs at its Mountain View, California headquarters and Blue Light Towers and Call Boxes in Downey and Irvine, California from components manufactured by more than 100 suppliers.
Manufacturing and Suppliers Knightscope assembles its ASRs at its Mountain View, California headquarters and ECDs in Downey and Irvine, California from components manufactured by more than 100 suppliers.
They are configured to patrol autonomously for approximately two to three hours, following which, without human intervention, the ASRs find and dock to a charging station, recharging for approximately 20 minutes or more before resuming patrol. The ASRs remain operational during the charging period, providing 24/7 uptime to clients.
They are configured to patrol autonomously for approximately two to three hours, following which, without human intervention, the ASRs find and dock to a charging station, recharging for approximately 20 minutes or more before resuming patrol.
While this technology builds on a great deal of our technology stack, we anticipate that its development will require significant additional time before it can be launched into full-scale production.
While this technology builds on a great deal of our technology stack, we anticipate that its development will require significant additional time and resources before it can be launched into full-scale production. Clients Knightscope clients use the Company’s technology to protect people and assets.
In addition, Knightscope continues to partner with strategic resellers for our ASRs, Blue Light Towers, and Call Boxes, such as large security companies and value-added resellers offering safety equipment looking to augment the security solutions offered to their customers with advanced technology.
In addition, Knightscope continues to partner with strategic resellers for our K1B portfolio, such as value-added resellers offering safety equipment looking to augment the security solutions offered to their customers with advanced technology.
Each one has an available intercom that may be used for two-way communication with a security team. In addition, one or multiple units may be used as a live broadcast public address system or to deliver pre-recorded messages based on time, location, detection or randomly. The ASRs run on rechargeable batteries.
In addition, one or multiple units may be used as a live broadcast public address system or to deliver pre-recorded messages based on time, location, detection or randomly. The ASRs run on rechargeable batteries.
The dimensions of the K1 Blue Light Emergency Phone are: Height: 31.5 inches, Width: 10.5 inches, Weight: 52 pounds. The K1 Call Box is our smallest emergency call box system, delivering one-touch connection with a simple housing and interface. Call Boxes are typically mounted to a pole for outdoor use, and can be outfitted with solar charging capabilities.
The dimensions of the K1 Blue Light Emergency Phone are: Height: 31.5 inches, Width: 10.5 inches, Weight: 52 pounds. K1 Call Box The K1 Call Box is our smallest emergency call box system, delivering one-touch connection with a simple housing and interface.
To do this, the ASRs employ several autonomous motion and self-driving technologies, including lasers, ultrasonic sensors, inertial measurement unit (“IMU”), and wheel encoders integrated into a navigation software stack enabling autonomy.
They can successfully navigate around people, vehicles and objects in dynamic indoor or outdoor environments. To do this, the ASRs employ several autonomous motion and self-driving technologies, including lasers, ultrasonic sensors, inertial measurement unit (“IMU”), and wheel encoders integrated into a navigation software stack enabling autonomy.
To differentiate its towers and call boxes from the competition, Knightscope has focused on providing its clients with standalone solutions that include the use of solar power, requiring that no power infrastructure be in place in order for the products to work. In addition, our E-Phones are primarily cellular, requiring no communications infrastructure.
To differentiate its towers and call boxes from the competition, Knightscope has focused on providing its clients with self-sufficient solutions that include the use of solar power and wireless communications, requiring that no power infrastructure be in place in order for the products to work or landlines, making for easier installation and maintenance.
Strategy The Knightscope management team intends to continue its focus on organic growth as well as add to its core solutions portfolio through future, opportunistic acquisitions based on a target’s revenue, free cash flow, technology, talent, and facilities. On October 14, 2022, we completed the acquisition (the “CASE Acquisition”) of CASE Emergency Systems (“CASE”).
Strategy The Knightscope management team intends to continue its focus on organic growth as well as add to its core solutions portfolio through future, opportunistic acquisitions based on a target’s revenue, free cash flow, technology, talent, and facilities as well as strategic partnerships to achieve its mission.
While traditional human guards provide a closer comparator or competitor in some cases, we believe that utilizing our “Software, Hardware, Humans” approach is much more effective. We are aware of a start-up, SMP Robotics Services Corp.
We believe that having these two types of systems working together provide a more holistic approach to promoting safety and reducing crime. While traditional human guards provide a closer competitor in some cases, we believe that utilizing our “Software, Hardware, Humans” approach is much more effective. 10 Table of Contents We are aware of a start-up, SMP Robotics Services Corp.
E-Phones and Call Boxes offer a smaller, yet still highly visible, footprint than the stationary security towers, but with the same reliable communication capabilities. 4 Table of Contents We sell our ASR and stationary multi-purpose security solutions under an annual subscription, Machine-as-a-Service (“MAAS”) business model, which includes the ASR lease as well as maintenance, service, support, data transfer, KSOC access, charging stations, and unlimited software, firmware and select hardware upgrades.
We sell our ASRs and stationary multi-purpose security solutions under an annual all-inclusive subscription, Machine-as-a-Service (“MaaS”) business model, which includes the ASR machine as well as maintenance, service, support, data transfer, KSOC access, charging stations, and unlimited software, firmware and select hardware upgrades.
The K5’s advanced anomaly detection features include: ● 360-degree high-definition night and day video capture positioned at eye-level; ● Live streaming and recorded high-definition video capabilities; ● Automatic license plate recognition; ● Parking meter feature, which assesses the top 10 vehicles and their “dwell time” in a particular location.
The K5’s advanced anomaly detection features include: ● 360-degree high-definition night and day video capture positioned at eye-level; ● Live streaming and recorded high-definition video capabilities; ● Automatic license plate recognition; ● People detection, which can alert a user in real-time of people detected on their premises, together with 360-degree recorded high-definition video.
We believe that our products offer a better economic proposition for our clients relative to a human guard or a mobile vehicle patrol unit operating 24/7, enabling the estimated 2.5 million law enforcement and security professionals to focus on strategic decision-making and enforcement.
We believe that our products offer a better economic proposition for our clients relative to a solely human guard or a mobile vehicle patrol unit operating 24/7, enabling the estimated 2.5 million law enforcement and security professionals to focus on strategic decision-making and enforcement. 6 Table of Contents Products ASRs and ECDs K3 and K5 ASRs The K3 ASR and K5 ASR are designed to roam a geo-fenced area autonomously by utilizing numerous sensors and lasers, either on a random basis or based on a particular patrolling algorithm.
The K7 is expected to have the same features as the K5, but to employ four wheels for use on more rugged outdoor terrain such as dirt, sand, and gravel. We expect that the K7 could be utilized at airfields, power utilities, borders, solar farms, wind farms or oil or gas fields.
The K7 is expected to have the same features as the K5, but to employ four wheels for use on more rugged outdoor terrain such as dirt, sand, gravel and much larger environments.
The K1 Tower carries all the relevant features from the K3 and K5 but in a large stationary format. The K1 can be used indoors or outdoors and especially at ingress/egress points for both people and vehicles. The approximate dimensions of the K1 are: Height: 6 feet, Width: 3 feet, Weight: 150 pounds.
The ASRs remain operational during the charging period, providing 24/7 uptime to clients. 7 Table of Contents K1 Tower The K1 Tower carries all the relevant features from the K5 but in a large stationary format. The K1 can be used indoors or outdoors and especially at ingress/egress points for both people and vehicles.
Our blue light emergency communication devices consist of emergency blue light towers, E-Phone towers, fully integrated, solar-powered cellular emergency phone towers, and Call Boxes. Towered devices are tall, highly visible and recognizable apparatuses that provide emergency communications using cellular and satellite communications with solar power for additional safety in remote locations.
Tower devices are tall, highly visible and recognizable apparatuses that provide emergency communications using cellular and satellite communications with solar power for additional safety in remote locations. E-Phones and Call Boxes offer a smaller, yet still highly visible, footprint than the towers, but with the same reliable communication capabilities.
Competitors for our K1 Blue Light E-Phone Towers and Emergency Call Boxes include Code Blue Corporation, Talk-a-Phone, GaiTronics (Hubbell), and Rath.
Competitors for our K1B portfolio include Code Blue Corporation, Talk-a-Phone, GaiTronics (“Hubbell”), and Rath.
The dimensions of the K1 Call Box are: Height: 19.6 inches, Width: 15.3 inches, Weight: 47.4 pounds. 6 Table of Contents KSOC The KSOC is our intuitive, browser-based interface that, coupled with ASRs, provides security professionals with “smart mobile eyes and ears and voice – on the ground”.
KSOC The KSOC is our intuitive, browser-based interface that, coupled with our ASRs, and other line of products, provides our clients and security professionals with “smart mobile eyes and ears and voice – on the ground”.
In addition, a number of data protection laws impact, or may impact, the manner in which we collect, process and transfer personal data. U.S. laws that have been applied to protect user privacy (including laws regarding unfair and deceptive practices) may be subject to evolving interpretations or applications in light of privacy developments.
U.S. laws that have been applied to protect user privacy (including laws regarding unfair and deceptive practices) may be subject to evolving interpretations or applications in light of privacy developments. Compliance with enhanced data protection laws requires additional resources and efforts, and noncompliance with personal data protection regulations could result in increased regulatory enforcement and significant monetary fines and costs.
Like all Knightscope emergency communications products, it can provide a completely wireless solution for emergency phone calls, or it can be adapted to work with existing nearby wiring. Designed to work with hands-free ease, a handset, and TTY pad are additional options available on this device.
Call Boxes are typically mounted to a pole for outdoor use and can be outfitted with solar charging capabilities. Like all Knightscope emergency communications devices, it can provide a completely wireless solution for emergency phone calls, or it can be adapted to work with existing nearby wiring.
The Company’s top three suppliers, measured by spending, are Fast Radius, based in Illinois, E and M Electric and Machinery Inc., based in Healdsburg, California, and Quigley’s Auto Body, based in Lake Forest, California. The Company is not highly dependent on any one supplier and believes it can source components from other suppliers and has done so when necessary.
The Company is not highly dependent on any one supplier and believes it can source components from other suppliers and has done so when necessary.
As a result, the K1 Blue Light E-Phone Towers and Emergency Call Boxes are easy to install and maintain. Government Regulation Our operations are subject to numerous governmental laws and regulations, including those governing antitrust and competition, the environment, collection, recycling, treatment and disposal of covered electronic products and components.
Government Regulation Our operations are subject to numerous governmental laws and regulations, including those governing antitrust and competition, the environment, collection, recycling, treatment and disposal of covered electronic products and components. In addition, a number of data protection laws impact, or may impact, the manner in which we collect, process and transfer personal data.
KNOC The Company has built a custom set of tools that enables it to manage and monitor the network of ASRs operating in the field nationwide, which it refers to as the Knightscope Network Operations Center (“KNOC”).
The cloud-based application monitors the system wide state-of-health, alerts users of operational issues, provides technicians with real-time error detection/diagnostics, and collects/reports system performance statics. 8 Table of Contents KNOC The Company has built a custom set of tools that enables our employees to manage and monitor the network of ASRs and other Knightscope technologies operating in the field nationwide, which it refers to as the Knightscope Network Operations Center (“KNOC”).
Of the total sales outstanding as of March 19, 2023, $2.7 million represent MaaS agreements for ASR deployments and $2.5 million relates to orders for Blue Light E-phone towers and Call Boxes. As of December 31, 2022 and 2021, we had orders representing approximately $4.7 million and $1.1 million in sales outstanding, respectively.
Backlog and Seasonality As of December 31, 2023, we had orders representing approximately $3.4 million in new contracts outstanding that we expect to be able to deliver within the year based on production capacity. Of the total sales outstanding as of December 31, 2023, $2.3 million represent MaaS agreements for ASR deployments and $1.1 million relates to orders for K1B.
To support this mission, we design, develop, manufacture, market, deploy, and support ASRs, autonomous charging stations, the proprietary Knightscope Security Operations Center (“KSOC”) software user interface, and blue light emergency communication devices. We are a Delaware corporation, founded in April 2013.
To support this mission, we design, develop, manufacture, market, deploy, and support ASRs and ECDs, with our proprietary Knightscope Security Operations Center (“KSOC”) and Knightscope Emergency Management System (“KEMS”) software user interfaces.
Our ASRs, Blue Light Tower and Call Box solutions have been deployed across a broad range of clients, including but not limited to casinos, corporations, law enforcement, county agencies, universities, and property management companies.
Knightscope’s ASRs, and K1B ECDs provide our clients with the ability to augment their existing security infrastructure, enabling human security resources to be more strategic in their approach to security. Our ASRs, and ECDs have been deployed across a broad range of clients, including but not limited to casinos, corporations, law enforcement, municipalities, universities, and property management companies.
Available Information We file reports and other information with the United States Securities and Exchange Commission (“SEC”), which are accessible on the SEC’s website at www.sec.gov.
The human capital strategy includes the attraction, acquisition, engagement, and development of the Company’s employees as resources allow. 11 Table of Contents Available Information We file reports and other information with the SEC, which are accessible on the SEC’s website at www.sec.gov.
Industry background In the United States, there are more than 8,000 private security firms and over 19,000 law enforcement agencies – a fragmented marketplace relying primarily on human beings for monitoring and patrol activities.
Knightscope also offers an extended warranty on this series of stationary public safety towers. Industry background In the USA, there are more than 11,000 private security firms and approximately 18,000 law enforcement agencies – a fragmented marketplace relying primarily on humans to safeguard people and assets primarily through monitoring and patrol activities.
The initiative entails a cross country tour of a physical “Pod” housing numerous ASRs providing a one-on-one hybrid offline/online selling technique with in-person robots and telepresence sales staff. Furthermore, we continue to be dedicated to achieving an Authority-to- 7 Table of Contents Operate (“ATO”) from the Federal Risk and Authorization Management Program (“FedRamp”), targeted during 2023.
The initiative entails a cross-country tour of a physical “Pod” housing numerous ASRs, the K1 Blue Light Emergency Phone, and Knightscope’s new Automated Gunshot Detection system, providing a one-on-one hybrid offline/online selling technique with in-person robots and telepresence and/or onsite sales staff.
The federal government adopted the Cloud First Policy, which requires all cloud service providers that hold federal data to be FedRamp certified. FedRamp compliance will enable federal agencies to do business with Knightscope. We regularly advertise in the media through various online and offline channels.
On January 3, 2024, the Company announced that it achieved an Authority-to-Operate (“ATO”) from the Federal Risk and Authorization Management Program (“FedRAMP”). The federal government adopted the Cloud First Policy, which requires all cloud service providers that hold federal data to be FedRAMP certified. FedRAMP compliance is one of the factors that enables Knightscope to do business with federal agencies.
In 2021, we commenced the FedRamp certification process, which is expected to continue throughout 2023 and will require ongoing support thereafter for the foreseeable future. Intellectual Property The Company holds ten patents collectively covering its ASRs, the security data analysis and display features of the KSOC and its parking monitor feature.
The K5 GOV is an ASR exclusively developed for the U.S. Federal Government. Intellectual Property The Company holds twelve patents collectively covering its ASRs, the security data analysis and display features of the KSOC and its parking monitor feature.
Sales and Marketing The Company has been able to successfully sell new contracts through virtual private demonstrations and has embarked on an innovative “Robot Roadshow” beginning in the fourth quarter of 2021 and has now completed over 75 Pod landings across the country.
Marketing and Sales The Company has been able to successfully sell new contracts through virtual private demonstrations and live demonstrations with decision makers utilizing its innovative “Robot Roadshow” which has been instrumental in securing stakeholder ‘buy in’ to help close more contracts.
As our fleet of deployed ASRs grows, the Company has engaged additional third-party service providers with broad geographic footprints to support our clients. K1 Blue Light Ephone Towers and Emergency Call Boxes are serviced by our in-house team of service technicians or by our value added resellers of those product lines.
As our fleet of deployed ASRs and K1B devices grows, the Company has engaged additional third-party service providers with broad geographic footprints to support our clients. We believe that by opting to outsource field services, Knightscope is able to laser-focus on what we do best: innovation and product development.
Item 1. Business Overview Knightscope is a leading provider of Autonomous Security Robots (“ASRs”) and blue light emergency communication devices consisting of emergency blue light towers, blue light emergency phone (“E-Phone”) towers, fully integrated, solar-powered cellular emergency phone towers, and emergency call box systems (“Call Box”).
Item 1. Business Overview Knightscope, Inc. is a Silicon Valley based technology company that designs, builds, and deploys solutions to enhance public safety. Knightscope products include ASRs and ECDs consisting of fully integrated, solar powered wireless emergency blue light towers (“BLT”), blue light emergency phones (“E-Phones”), and emergency call box systems (“Call Boxes”).
We compete indirectly with private physical security firms that provide clients with security personnel and other security services. Our ASRs offer clients a significant cost reduction relative to the cost of human security guards.
We do not actively compete against security companies, although sometimes clients will choose our ASRs instead of a security personnel. We augment clients’ security apparatus by providing technology to better monitor and safeguard assets and people. Our ASRs offer clients a significant cost reduction relative to the cost of human security guards.
The cost-reduction plan included a reduction of the Company’s workforce by approximately 20%. As of March 30, 2023, the Company had 92 full-time employees and one part-time employee. The Company believes that our future growth and success will depend in part on our ability to attract and retain highly-skilled employees.
We are not a party to any collective bargaining agreements. The Company believes that our future growth and success will depend in part on our ability to attract and retain highly skilled employees. The executive management team is responsible for developing and executing the Company’s human capital strategy.
ASRs conduct real-time on-site data collection and analysis in both indoor and outdoor spaces delivering alerts to security professionals through the KSOC. The KSOC enables clients with appropriate credentials and user permissions to access the data for investigative and evidence collection purposes.
Federal Government buildings Our core technologies are suitable for most environments that require law enforcement or security patrol coverage and designed to be force multipliers that offer public safety teams improved situational awareness. ASRs and ECDs conduct real-time on-site data collection and analysis in both indoor and outdoor spaces delivering alerts to security professionals through the KSOC and KEMS.
Research and Development Our research and development efforts focus primarily on the development of robust base technology as well as scaling efforts. In addition, we will continue to enhance our ASRs’, Blue Light Towers’, and Call Boxes’ capabilities and features, and the functionality of the KSOC software platform for use with the ASRs.
We regularly advertise in the media through various online and offline channels. 9 Table of Contents Research and Development Our research and development efforts focus primarily on the development of robust base technology, new technology as well as scaling efforts.
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CASE is a leader in blue light emergency phones and an innovator in next generation wireless emergency communications technology, providing Knightscope with a strategic entry into a nationwide market.
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Our ASRs and ECDs are designed to deter, detect, and report security incidents, providing innovative solutions for public safety at various venues, including convention centers, casinos, resorts, college campuses, corporate campuses and other public spaces. We are a Delaware corporation, founded in April 2013.
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The transaction provides a significant increase in infrastructure that is readily available for use in supporting the core business and brand strength to Knightscope with over 7,000 devices currently deployed across the United States, 9 production and logistics facilities spread throughout California, Texas and New York, and a seasoned team located across 4 states.
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In 2022, we completed the acquisition of Case Emergency Systems (“CASE”), a manufacturer of blue light emergency communication devices, and market the products under the portfolio of “K1B” emergency communication devices. Positioned to enhance Knightscope offerings, the K1B technologies are designed for reliability and ease of use in critical situations, providing one-touch connections to emergency services.
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With a US installed base of over 7,000 devices, the CASE acquisition is positioned to enhance to Knightscope’s ASR sales strategy by providing direct access to, numerous CASE clients, including major airports, top law enforcement agencies, universities, municipalities, rail, healthcare, parks, and the U.S. Federal Government.
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They are solar-powered, weatherproof, and can operate wirelessly via cellular or satellite technology, making them suitable for a wide range of environments.
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This direct client access will compliment and strengthen Knightscope’s growing autonomous security robot business with a comprehensive product portfolio and broadened physical footprint. Our core technologies are suitable for most environments that require security patrol coverage and designed to be force multipliers that offer security teams improved situational awareness.
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With an installed base of nearly 10,000 devices across the USA, K1B technologies significantly enhance safety and security in public spaces by allowing individuals to quickly contact emergency services or security personnel with the push of a button on any K1B device.
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Knightscope also offers an extended warranty on this series of stationary security towers. Our current strategy for all products and services is to focus on United States sales and deployments for the foreseeable future before considering global expansion.
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Our technologies aim to build on each other to create safer environments through proactive monitoring and reactive emergency communication capabilities. By integrating autonomous security with robust emergency communication systems, organizations can offer comprehensive safety solutions that are adaptive, responsive, and effective in a wide range of scenarios.
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Products ASRs, Blue Light Towers, and Call Boxes The K3 ASR and K5 ASR are designed to roam a geo-fenced area autonomously by utilizing numerous sensors and lasers, either on a random basis or based on a particular patrolling algorithm. They can successfully navigate around people, vehicles and objects in dynamic indoor or outdoor environments.
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Use cases for our combined suite of ASR and K1B technologies include a wide variety of applications where a 24/7 presence, accessible emergency communication, and deterrence can assist public safety officials with incidents, disturbances, medical emergencies, theft, trespassing, fire, talk downs, and promote an overall feeling of improved safety.
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If a vehicle is parked for more than 24 hours in the same location, a user can receive an alert or have the data flagged.
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Areas where our products and services can be useful include, but are not limited to: ● Airports; ● Casinos; ● Commercial Real Estate; ● Corporate Campus; ● Homeowner Associations; ● Hospitals; 5 Table of Contents ● Hotels; ● Law Enforcement sites; ● Logistics sites; ● Manufacturing sites; ● Parking areas; ● Public Parks; ● Schools and; ● U.S.
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The parking meter feature can also track the top 10 stationary vehicles in an area and accurate parking meter readout for each such vehicle; ● People detection, which can alert a user in real-time of people detected on their premises, together with 360-degree recorded high-definition video.
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The KSOC and KEMS software applications enable clients with appropriate credentials and user permissions to access the data for investigative and evidence collection purposes. Our K1B portfolio of Emergency Communication Devices consist of the K1 Blue Light Towers, K1 Blue Light Emergency Phones, and K1 Call Boxes.
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The new K1 Hemisphere, soon to be commercially released, with its smaller profile, is a stationary unit designed for both indoor and outdoor use. The K1 Hemisphere provides up to 210 degree eye-level HD Recording, can be wall or pole mounted, and includes several features from the K3 and K5.
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The company is also developing capabilities to operate over 5G networks for planned deployment in the future. Each one has an available intercom that may be used for two-way communication with a public safety team.
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Products in Development The Company is in the process of developing the 5 th generation of the K5, which is inprocess of being released, as well as the 1 st generation K1 Hemisphere. In addition, the K7 multi-terrain ASR is under concept development.
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The approximate dimensions of the K1 are: Height: 6 feet, Width: 3 feet, Weight: 150 pounds. K1 Hemisphere The new K1 Hemisphere, with its smaller profile, is a stationary unit designed for both indoor and outdoor use.
Removed
Additionally, the Company offers “Knightscope+” remote monitoring as an optional service that can be bundled into its MaaS subscriptions, primarily for clients that operate without a fully staffed 24/7 Security Operations Center (“SOC”).
Added
The Hemisphere can easily be mounted to a variety of surfaces or objects and has 3 cameras that provide up to 210-degrees of eye-level, high-definition video, a strobe light, automatic license plate recognition, facial recognition (optional), automated broadcast announcements, and intercom capability running on a wired or wireless network.
Removed
Knightscope+ operators have extensive training and experience related to surveillance and remote monitoring for greater situational awareness. Clients Knightscope’s products are designed to supplement the work of law enforcement and security professionals and are suitable for most environments that require patrol coverage.
Added
The dimensions of the K1 Hemisphere are: Diameter: 24 inches, Depth: 10 inches, Weight: 30 pounds.
Removed
In the United States, there are more than 8,000 private security firms and over 19,000 law enforcement agencies – a fragmented marketplace that we believe offers numerous opportunities for disruption.
Added
Designed to work with hands-free ease, a handset, and TTY pad are additional options available on this device. The dimensions of the K1 Call Box are: Height: 19.6 inches, Width: 15.3 inches, Weight: 47.4 pounds.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

91 edited+144 added−22 removed55 unchanged
Biggest changeChanges in global economic conditions, including, but not limited to, those driven by inflation and interest rates, may adversely affect customer spending and the financial health of our customers and others with whom we do business, which may adversely affect our financial condition, results of operations, and cash resources. ​ Uncertainty about current and future global economic conditions may cause our customers and partners to cancel agreements with us.
Biggest changeFor other risks associated with our U.S. government customers, see “ We have a government customer and are seeking additional government customers, which subject us to risks including early termination, audits, investigations, sanctions, or penalties. ” The occurrence of any of the above and any unanticipated obstacles may hinder the execution of our business plan and adversely affect or materially adversely affect our operating results. 15 Table of Contents Changes in global economic conditions, including, but not limited to, those driven by inflation and interest rates, may adversely affect customer spending and the financial health of our customers and others with whom we do business, which may adversely affect our financial condition, results of operations, and cash resources.
Li, our Chairman and Chief Executive Officer, and Stacy Dean Stephens, our EVP and Chief Client Officer) and the holders of the Super Voting Preferred Stock (collectively, the “Super Voting Stock”), are entitled to ten votes for each such share held at meetings of stockholders, subject to the provisions of the Delaware law and relevant provisions of the Company’s certificate of incorporation.
Li, our Chairman and Chief Executive Officer, and Stacy Dean Stephens, our EVP and Chief Client Officer) and the holders of the Super Voting Preferred Stock (collectively, the “Super Voting Stock”), are entitled to ten votes for each such share held at meetings of stockholders, subject to the provisions of Delaware law and relevant provisions of the Company’s certificate of incorporation.
Our ability to gain market share also depends on a number of factors beyond our control, including the perceived value associated with our products and services, the public’s perception of the use of robots to perform tasks traditionally reserved for humans, and our clients’ acceptance that security services can be performed more efficiently and cost-effectively through the use of our products and ancillary services.
Our ability to gain market share also depends on a number of factors beyond our control, including the perceived value associated with our products and services, the public’s perception of the use of robots to perform tasks traditionally reserved for humans, and our clients’ acceptance of our view that security services can be performed more efficiently and cost-effectively through the use of our products and ancillary services.
As we continue to grow, and implement more complex organizational and management structures, we may find it increasingly difficult to maintain the benefits of our corporate culture, including our current team’s efficiency and expertise, which could negatively affect our business performance. Our costs may grow more quickly than our revenues, harming our business and profitability.
As we grow, and implement more complex organizational and management structures, we may find it increasingly difficult to maintain the benefits of our corporate culture, including our current team’s efficiency and expertise, which could negatively affect our business performance. Our costs may grow more quickly than our revenues, harming our business and profitability.
Our failure to implement and maintain effective internal control over financial reporting may result in material misstatements in our consolidated financial statements, which could in the future require us to restate consolidated financial statements, cause investors to lose confidence in our reported financial information and could have an adverse effect on our ability to fundraise.
Our failure to implement and maintain effective internal control over financial reporting may result in material misstatements in our financial statements, which could in the future require us to restate financial statements, cause investors to lose confidence in our reported financial information and could have an adverse effect on our ability to fundraise.
Our sales efforts involve educating our clients about the use and benefit of our new products and technology, including their technical capabilities and potential cost savings to the clients. Clients typically undertake a significant evaluation process that has in the past resulted in a lengthy sales cycle.
Our sales efforts involve educating our clients about the use and benefit of our products and technology, including their technical capabilities and potential cost savings to the clients. Clients typically undertake a significant evaluation process that has in the past resulted in a lengthy sales cycle.
GAAP”), contemplating that we will continue to operate as a going concern, we cannot assure you that the Company will be successful in acquiring additional funding at levels sufficient to fund future operations.
GAAP”), contemplating that we will continue to operate as a going concern. However, we cannot assure you that the Company will be successful in acquiring additional funding at levels sufficient to fund future operations.
Additionally, existing private security firms may also compete on price by lowering their operating costs, developing new business models or providing other incentives. 15 Table of Contents Our ability to operate and collect digital information on behalf of our clients is dependent on the privacy laws of jurisdictions in which our ASRs operate, as well as the corporate policies of our clients, which may limit our ability to fully deploy our technologies in various markets.
Additionally, existing private security firms may also compete on price by lowering their operating costs, developing new business models or providing other incentives. 19 Table of Contents Our ability to operate and collect digital information on behalf of our clients is dependent on the privacy laws of jurisdictions in which our ASRs operate, as well as the corporate policies of our clients, which may limit our ability to fully deploy our technologies in various markets.
If a material weakness were to exist, it could result in errors in our consolidated financial statements that could result in a restatement of consolidated financial statements and cause us to fail to meet our reporting obligations.
If a material weakness were to exist, it could result in errors in our financial statements that could result in a restatement of financial statements and cause us to fail to meet our reporting obligations.
In the future, we may also issue additional securities if we need to raise capital, which could constitute a material portion of our then-outstanding shares of common stock. We may be unable to successfully integrate the businesses and personnel of acquired companies and businesses, and may not realize the anticipated synergies and benefits of such acquisitions.
In the future, we may also issue additional securities given our need to raise capital, which could constitute a material portion of our then-outstanding shares of common stock. We may be unable to successfully integrate the businesses and personnel of acquired companies and businesses, and may not realize the anticipated synergies and benefits of such acquisitions.
The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel will need to devote a substantial amount of time to compliance with these requirements.
The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel will need to devote a substantial amount of time to comply with these requirements.
Future issuances of debt securities, which would rank senior to our common equity in bankruptcy or liquidation, or future issuances of preferred stock, which would rank senior to our common equity for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able to achieve from an investment in our common stock .
Future issuances of debt securities, which would rank senior to our common equity in bankruptcy or liquidation, or future issuances of preferred stock, which would rank senior to our common equity for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able to achieve from an investment in our Class A Common Stock .
Sales of substantial amounts of our Class A Common Stock in the public market, the conversion of the Convertible Notes and subsequent sale of the underlying securities, or the perception that these sales or conversion could occur, could adversely affect the price of our Class A Common Stock and could impair our ability to raise capital through the sale of additional shares.
Sales of substantial amounts of our Class A Common Stock in the public market, the conversion of the securities convertible into Class A Common Stock and subsequent sale of the underlying securities, or the perception that these sales or conversion could occur, could adversely affect the price of our Class A Common Stock and could impair our ability to raise capital through the sale of additional shares.
The Company experienced supply chain constraints resulting from the COVID-19 pandemic, which slowed down production and negatively impacted the timing of deploying ASRs to our clients. In addition, we experienced and continue to experience supply chain delays as a result of the impact of the conflict in the Ukraine.
The Company experienced supply chain constraints resulting from the COVID-19 pandemic, which slowed down production and negatively impacted the timing of deploying ASRs to our clients. In addition, we experienced supply chain delays as a result of the impact of the conflict in the Ukraine.
Our Class A Common Stock is listed on The Nasdaq Global Market under the symbol “KSCP.” In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements, including maintaining a minimum bid price and a minimum market value.
Our Class A Common Stock is listed on The Nasdaq Capital Market under the symbol “KSCP.” In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements, including maintaining a minimum bid price and a minimum market value.
Such shares of Class A Common Stock are generally freely tradable without restriction under the Securities Act. Furthermore, holders of our preferred stock have the option to convert their shares of preferred stock into shares of our common equity, which may be subquentely sold in the market.
Such shares of Class A Common Stock are generally freely tradable without restriction under the Securities Act. Furthermore, holders of our preferred stock have the option to convert their shares of preferred stock into shares of our common equity, which may be subsequently sold in the market.
In addition, the applicable conversion rates for the Convertible Notes and certain of our preferred stock and/or warrants, may be adjusted based on future issuances of our Class A Common Stock, which may lead to the issuance of additional shares of Class A Common Stock.
In addition, the applicable conversion rates for certain of our preferred stock and/or warrants, may be adjusted based on future issuances of our Class A Common Stock, which may lead to the issuance of additional shares of Class A Common Stock.
Risks related to Ownership of our Class A Common Stock We may not be able to comply with all applicable listing requirements or standards of The Nasdaq Global Market, and Nasdaq could delist our Class A Common Stock.
Risks Related to Ownership of our Class A Common Stock We may not be able to comply with all applicable listing requirements or standards of The Nasdaq Capital Market, and Nasdaq could delist our Class A Common Stock.
Any customer or supplier bankruptcy or insolvency, or the failure of any customer to make payments when due, or any breach or default by a customer or supplier, or the loss of any significant supplier relationships, could result in material losses to the Company and may have a material adverse impact on our business. ​ We have a limited number of deployments, and limited market acceptance of our products could harm our business.
Any customer or supplier bankruptcy or insolvency, or the failure of any customer to make payments when due, or any breach or default by a customer or supplier, or the loss of any significant supplier relationships, could result in material losses to the Company and may have a material adverse impact on our business. 16 Table of Contents We have a limited number of deployments, and limited market acceptance of our products could harm our business.
The increased cost of components and freight as well as ongoing delays in receiving raw materials and components for production are likely to have an impact on sales and profitability in 2023 and beyond.
The increased cost of components and freight as well as ongoing delays in receiving raw materials and components for production are likely to have an impact on sales and profitability in 2024 and beyond.
We cannot predict or estimate the amount of additional costs we will incur as a listed public company or the timing of such costs. 20 Table of Contents Substantial future sales or issuances of our securities, or the perception in the public markets that these sales may occur, may depress our stock price.
We cannot predict or estimate the amount of additional costs we will incur as a listed public company or the timing of such costs. Substantial future sales or issuances of our securities, or the perception in the public markets that these sales may occur, may depress our stock price.
The holders of our Class B Common Stock and Super Voting Preferred Stock currently control a significant majority of the voting rights of the Company. Holders of our Class B Common Stock (including Mr.
The holders of our Class B Common Stock and Super Voting Preferred Stock currently control a significant portion of the voting rights of the Company. Holders of our Class B Common Stock (including Mr.
If financial securities industry analysts do not publish research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our Class A Common Stock could be negatively affected.
If financial securities industry analysts continue not to publish research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our Class A Common Stock could be negatively affected.
If 11 Table of Contents our revenues grow more slowly than we anticipate or if our operating expenses exceed our expectations or cannot be adjusted accordingly, our business, operating results and financial condition will be materially and adversely affected. The Company is subject to potential fluctuations in operating results due to its sales cycle.
If our revenues grow more slowly than we anticipate or if our operating expenses exceed our expectations or cannot be adjusted accordingly, our business, operating results and financial condition will be materially and adversely affected. The Company is subject to potential fluctuations in operating results due to its sales cycle.
If our suppliers or other parties in our supply chain experience diminished liquidity, and as a result are unable to fulfill their obligations to us, we may be unable to provide our customers with our products in a timely manner, resulting in lost sales opportunities or a deterioration in our customer relationships.
Additionally, if our suppliers or other parties in our supply chain experience diminished liquidity, and as a result are unable to fulfill their obligations to us in a timely manner or at all, we may in turn be unable to provide our customers with our products in a timely manner or at all, resulting in lost sales opportunities or a deterioration in our customer relationships.
The Company has a history of losses and has projected operating losses and negative cash flows for the foreseeable future, and we are currently dependent on additional fundraising in order to sustain our ongoing operations. Although our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.
As noted above, the Company has a history of losses and has projected operating losses and negative cash flows for the foreseeable future, and we are currently dependent on additional fundraising in order to sustain our ongoing operations. Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.
We cannot assure you that we will ever generate sufficient revenues to achieve profitability. If we do achieve profitability in some future period, we cannot assure you that we can sustain profitability on a quarterly or annual basis in the future.
We cannot assure you that we will ever generate sufficient revenues to achieve profitability. If we do achieve profitability in some future period, we cannot assure you that we will be able sustain profitability on a quarterly or annual basis in the future.
The Company has filed in the United States various applications for protection of certain aspects of its intellectual property, and currently holds ten patents. However, third parties may knowingly or unknowingly infringe our proprietary rights, third parties may challenge proprietary rights held by us, and pending and future trademark and patent applications may not be approved.
The Company has filed in the USA various applications for protection of certain aspects of its intellectual property, and currently holds twelve patents. However, third parties may knowingly or unknowingly infringe our proprietary rights, third parties may challenge proprietary rights held by us, and pending and future trademark and patent applications may not be approved.
The market price of our Class A Common Stock may be thinly traded, highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following: ● Changes to the physical security and technology industries; ● Current and future competition; ● Additions or departures of key personnel; ● Additional sales of our Class A Common Stock and other securities; ● Our ability to execute our business plan; ● Operating results that fall below expectations; ● Loss of any strategic relationship; ● Continued access to working capital funds; ● Economic and other external factors; and ● The threat of terrorism, geopolitical tensions, and general disruptions in the global economy, including the impacts of military action, financial and economic sanctions, and increasing geopolitical tensions related to the ongoing conflict between Russia and Ukraine.
The market price of our Class A Common Stock may be thinly traded, highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following: ● Fluctuations in and unpredictability of our sales cycle; ● Changes to the physical security and technology industries; ● Current and future competition; ● Additions or departures of key personnel; ● Additional sales of our Class A Common Stock and other securities; ● Our ability to execute our business plan; ● Operating results that fall below expectations; ● Loss of any strategic relationship; ● Continued access to working capital funds; 27 Table of Contents ● Economic and other external factors; and ● The threat of terrorism, geopolitical tensions, and general disruptions in the global economy, including the impacts of military action, financial and economic sanctions, and increasing geopolitical tensions related to the ongoing conflicts between Russia and Ukraine and Israel and its surrounding areas.
Any failure to maintain existing or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, cause us to fail to meet our periodic reporting obligations or result in material misstatements in our 16 Table of Contents consolidated financial statements.
Any failure to maintain existing or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements.
We cannot assure you that we will be profitable in the next several years or generate sufficient revenues to meet our debt servicing and payment obligations.
We cannot assure you that we will be profitable in the next several years or at all, or that we will generate any revenues in the future or sufficient revenues to meet our debt servicing and payment obligations.
Our financial results in any given quarter can be influenced by numerous factors, many of which we are unable to predict or are outside of our control, including: ● Our ability to maintain and grow our client base; ● Downturns or financial instability in the business of our customers and partners; ● Development and introduction of new products by us or our competitors; ● Adverse changes affecting our suppliers and other third-party service providers, and any disruption in the supply of materials necessary for our business; ● Increases in marketing, sales, service and other operating expenses that we may incur to grow and expand our operations and to remain competitive; ● Our ability to achieve profitable gross margins and operating margins; ● Periodic litigation and related legal proceedings, which could result in unexpected expenditures of time and resources; and ● Changes in global business or macroeconomic conditions including regulatory changes. 12 Table of Contents The occurrence of any of unanticipated obstacles will hinder the execution of our business plan and adversely affect our operating results.
Our financial results in any given quarter can be influenced by numerous factors, many of which we are unable to predict or are outside of our control, including: ● Fluctuations in and the unpredictability of our sales cycle; ● Our ability to maintain and grow our client base; ● Downturns or financial instability in the business of our customers and partners; ● Development and introduction of new products by us or our competitors; ● Adverse changes affecting our suppliers and other third-party service providers, and any disruption in the supply of materials necessary for our business; ● Increases in marketing, sales, service and other operating expenses that we may incur to grow and expand our operations and to remain competitive; ● Our ability to achieve profitable gross margins and operating margins; ● Periodic litigation and related legal proceedings, which could result in unexpected expenditures of time and resources; and ● Changes in global business or macroeconomic conditions including regulatory changes.
If any of the above risks occur, our business, financial condition, results of operations and cash flows may be materially and adversely impacted, we may fail to meet the expectations of investors or analysts, and our stock price may decline as a result. Item 1B. Unresolved Staff Comments None.
If any of the above risks occur, our business, financial condition, results of operations and cash flows may be materially and adversely impacted, we may fail to meet the expectations of investors or analysts, and our stock price may decline as a result.
The report of our independent registered public accounting firm on our consolidated financial statements as of and for the years ended December 31, 2022 and 2021, which is included in this Annual Report, includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern due to our recurring losses from operations and significant accumulated deficit.
The report of our independent registered public accounting firm on our financial statements as of and for the years ended December 31, 2023 and 2022, which is included in this Annual Report, includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern due to our recurring losses from operations, available cash and cash used in operations.
However, we cannot assure you that a collision, with property or with humans, will not occur, which could damage the ASR, or lead to personal injury or property damage and may subject us to lawsuits. Moreover, any such incident, even without damage, may lead to adverse publicity for us.
We cannot assure you that a collision, including with property or with humans, will not occur. Any such collision or other incident could damage the ASR, lead to personal injury or property damage, and may subject us to lawsuits. Moreover, any actual or perceived incident, even without any resulting damage, may lead to adverse publicity for us.
If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our existing capital stock.
If we raise additional funds through further issuances of equity or debt securities, including through our at-the-market offering program, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our existing capital stock.
Any debt financing secured by us in the future could involve additional restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. Such financing could also require us to pledge assets as security for borrowings.
Any debt financing secured by us in the future could involve additional restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities.
These factors may also adversely affect our ability to access our cash and cash equivalents at affected financial institutions. ​ Investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us or our customers to acquire financing on terms favorable to us, or at all.
Investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us or our customers to acquire financing on terms favorable to us, or at all.
While we have regained access to our funds at Silicon Valley Bank and have subsequently moved it to another bank, we continue to evaluate our banking relationships as our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by events such as liquidity constraints or failures, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry.
We continue to evaluate our banking relationships as our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by events such as liquidity constraints or failures, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry.
In order to grow our business and extend our market position, we will need to place into service more ASRs, expand our service offerings, including by developing a new generation of our K5 ASR, and expand our presence nationwide.
In order to grow our business and extend our market position, we will need to place into service more ASRs, expand our service offerings, including by developing new products and services, and expand our presence nationwide.
Our employee headcount and the scope and complexity of our business have increased significantly since we were first formed, and we expect it will continue as we grow over the long term.
We cannot assure you that we will effectively manage our growth. Our employee headcount and the scope and complexity of our business have increased significantly since we were first formed, and we expect it will continue as we grow over the long term.
The success of any acquisition will depend, in part, on our ability to realize all or some of the anticipated synergies and other benefits from integrating the acquired businesses with our existing business. The integration process may be complex, costly and time-consuming.
For example, in October 2022, we completed the CASE Acquisition. 29 Table of Contents The success of any acquisition will depend, in part, on our ability to realize all or some of the anticipated synergies and other benefits from integrating the acquired businesses with our existing business. The integration process may be complex, costly and time-consuming.
Further, as additional competitors enter our market, we expect an increased pressure on production costs and margins. Our debt arrangements, such as the Convertible Notes (as defined below), impose significant operating and financial restrictions on us, which may prevent us from capitalizing on business opportunities.
Further, as additional competitors enter our market, we expect an increased pressure on production costs and margins. Any debt arrangements that we enter into may impose significant operating and financial restrictions on us, which may prevent us from capitalizing on business opportunities.
We may require additional funds to maintain our operations and respond to business challenges and opportunities, including the need to develop new products or enhance our existing products, enhance our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in subsequent equity or debt financings to secure additional funds.
We will require additional funds to maintain our operations and respond to business challenges and opportunities, including the need to develop new products or enhance our existing products, enhance our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we will need to engage in equity or debt financings to secure additional funds, such as our current at-the-market offering program.
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our Class A Common Stock.
In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our Class A Common Stock. As a result, you may be unable to resell your shares at a desired price.
The private security industry is undergoing structural changes, consolidation, changing client needs, evolving industry standards and introduction of new products and services. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in such industries. If we do not address these risks successfully, our business will be harmed.
The private security industry is undergoing structural changes in technology and services. The private security industry is undergoing structural changes, consolidation, changing client needs, evolving industry standards and introduction of new products and services. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in such industries.
The potential difficulties we may face in integrating the operations of our acquisitions include, among others: ● Failure to implement our business plan for the combined businesses; ● Unexpected losses of key employees, customers or suppliers of acquired companies and businesses; ● Unanticipated issues in conforming our acquired companies’ and businesses’ standards, processes, procedures and internal controls with our operations; ● Coordinating new product and process development; ● Increasing the scope, geographic diversity and complexity of our operations; ● Diversion of management’s attention from other business concerns; ● Adverse effects on our or acquired companies’ and businesses’ existing business relationships; ● Unanticipated changes in applicable laws and regulations; ● Unanticipated expenses and liabilities; and ● Other difficulties in the assimilation of acquired companies and businesses operations, technologies, products and systems. 21 Table of Contents We may not be able to maintain or increase the levels of revenue, earnings or operating efficiency that any acquired company and business and us had historically achieved or might achieve separately.
The potential difficulties we may face in integrating the operations of our acquisitions include, among others: ● Failure to implement our business plan for the combined businesses; ● Unexpected losses of key employees, customers or suppliers of acquired companies and businesses; ● Unanticipated issues in conforming our acquired companies’ and businesses’ standards, processes, procedures and internal controls with our operations; ● Coordinating new product and process development; ● Increasing the scope, geographic diversity and complexity of our operations; ● Diversion of management’s attention from other business concerns; ● Adverse effects on our or acquired companies’ and businesses’ existing business relationships; ● Unanticipated changes in applicable laws and regulations; ● Unanticipated expenses and liabilities; and ● Other difficulties in the assimilation of acquired companies and businesses operations, technologies, products and systems.
Our financial success is sensitive to changes in general economic conditions, higher interest rates, higher energy costs, increased labor costs, inflation, increases in commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws, public health issues like the COVID-19 pandemic, or other economic factors, certain of which effects, including cost inflation, we experienced in 2022 and currently expect to continue to experience in 2023. ​ Global inflation, elevated interest rates, and global industry-wide logistics challenges have impacted, and we expect will continue to impact, our business.
Our financial success is sensitive to changes in general economic and financial conditions, including interest rates, energy costs, labor costs, inflation, commodity prices, unemployment levels, consumer debt levels, tax rates and other changes in tax laws, public health issues like the COVID-19 pandemic, or other economic factors, certain of which effects, including cost inflation, we experienced in 2022 and 2023 and expect to continue to experience in 2024.
From time to time, we may complete acquisitions of companies and certain businesses of companies, and we may not realize the expected benefits from such acquisitions because of integration difficulties or other challenges. For example, in October 2022, we completed the CASE Acquisition.
From time to time, we may complete acquisitions of companies and certain businesses of companies, and we may not realize the expected benefits from such acquisitions because of integration difficulties or other challenges.
If we do not address these risks successfully, our operating results will be harmed. ​ Investors should evaluate an investment in us in light of the uncertainties encountered by developing companies in a competitive environment.
We have encountered and will continue to encounter risks and difficulties frequently experienced by developing companies in rapidly changing industries. If we do not address these risks successfully, our operating results will be harmed. ​ Investors should evaluate an investment in us in light of the uncertainties encountered by developing companies in a competitive environment.
Our ability to gain market share depends upon our ability to satisfy client requirements, enhance existing products and develop and introduce new products. Further, we expect the intensity of competition to increase in the future.
If we do not address these risks successfully, our business will be harmed. Our ability to gain market share depends upon our ability to satisfy client requirements, enhance existing products and develop and introduce new products. Further, we expect the intensity of competition to increase in the future.
To date, we have funded our operations from the sale of equity and debt securities in private transactions and in the capital markets, and by means of credit facilities and other financing arrangements.
We have incurred net losses since our inception, and we expect to continue to incur net losses for the foreseeable future. To date, we have funded our operations from the sale of equity and debt securities in private transactions and in the capital markets, and by means of credit facilities and other financing arrangements.
Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our liquidity and our business, financial condition or results of operations. ​ 13 Table of Contents Any further deterioration in the macroeconomic economy or financial services industry could lead to losses or defaults by our customers or suppliers, which in turn, could have a material adverse effect on our current and/or projected business operations and results of operations and financial condition.
Any further deterioration in the macroeconomic economy or financial services industry could lead to losses or defaults by our customers or suppliers, which in turn, could have a material adverse effect on our current and/or projected business operations and results of operations and financial condition.
We have never paid cash dividends on our equity securities and do not anticipate doing so in the foreseeable future. The payment of any dividends on our Class A Common Stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant.
The payment of any dividends on our Class A Common Stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant.
If we are unable to effectively remediate material weaknesses in a timely manner, investors could lose confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our ability to sell our securities and to conduct future fundraising. The private security industry is undergoing structural changes in technology and services.
If our internal control over financial reporting is ineffective or if we are unable to effectively identify or remediate any material weaknesses in a timely manner, or if our disclosure controls and procedures are ineffective, investors could lose confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our ability to sell our securities and to conduct future fundraising.
If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable to it, the Company may have to significantly reduce its operations or delay, scale back or discontinue the development of additional products and services, seek alternative financing arrangements, declare bankruptcy or terminate its operations entirely.
If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable to it, the Company may have to significantly reduce its operations, delay, scale back or discontinue the development of one or more of its platforms or discontinue operations completely.
In addition, higher inflation and macro turmoil and uncertainty could also adversely affect our customers, which could reduce demand for our products. ​ Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions, could adversely affect our business, financial condition or results of operations. ​ Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future adversely affect our liquidity.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future adversely affect our liquidity.
As of February 24, 2023, the holders of the Super Voting Stock beneficially held approximately 79.32% of the Company’s total voting rights, with Mr. Li and Mr. Stephens beneficially holding (including by irrevocable voting proxy) approximately 37.8% and 15.5%, respectively, of the Company’s voting rights (approximately 53.3% collectively).
As of March 29, 2024, the holders of the Super Voting Stock beneficially held approximately 27.8% of the Company’s total voting rights, with Mr. Li and Mr. Stephens beneficially holding (including by irrevocable voting proxy) approximately 19.8% and 8.3%, respectively, of the Company’s voting rights (approximately 28.1% collectively).
Ultimately, our success will depend largely on our clients’ acceptance that security services can be performed more efficiently and cost effectively through the use of our ASRs and ancillary services. We cannot assure you that we will effectively manage our growth.
Ultimately, our success will depend largely on our clients’ acceptance that security services can be performed more efficiently and cost effectively through the use of our ASRs and ancillary services. Additionally, our customers consider many factors when deciding whether to purchase ASRs.
The growth and expansion of our business and products create significant challenges for our management, operational, and financial resources, including managing multiple relationships and interactions with users, distributors, vendors, and other third parties.
The growth and expansion of our business and products create significant challenges for our management, operational, and financial resources, including managing multiple relationships and interactions with users, distributors, vendors, and other third parties. As the Company grows, our information technology systems, internal management processes, internal controls and procedures and production processes may not be adequate to support our operations.
Item 1A. Risk Factors Selected Risks Related to the Business and the Global Economy We have not yet generated any profits or significant revenues. The Company was formed in 2013 and made its first pilot sales in 2015. The Company began listing on the Nasdaq Stock Market in January 2022.
Item 1A. Risk Factors Risks Related to the Business and the Global Economy We have not yet generated any profits or significant revenues, anticipate that we will incur continued losses for the foreseeable future, and may never achieve profitability. The Company was formed in 2013 and made its first pilot sales in 2015.
We have limited experience in operating our ASRs in a variety of environments and increased interactions may lead to collisions, possible liability and negative publicity. Our ASRs operate autonomously in environments, such as shopping malls, parking lots and stadiums, that are surrounded by various moving and stationary physical obstacles and by humans and vehicles.
Our ASRs operate autonomously in environments, such as shopping malls, parking lots and stadiums, that are surrounded by various moving and stationary physical obstacles and by humans and vehicles. Such environments are prone to collisions, unintended interactions and various other incidents, regardless of our technology.
As a result, you may be unable to resell your shares at a desired price. 19 Table of Contents We have not paid cash dividends in the past and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our Class A Common Stock.
We have not paid cash dividends in the past and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our Class A Common Stock. We have never paid cash dividends on our equity securities and do not anticipate doing so in the foreseeable future.
Increased inflation rates have already, and may continue to, adversely affect us by increasing our costs, including labor and employee benefit costs.
Increased inflation rates have already, and may continue to, adversely affect us by increasing our costs, including labor and employee benefit costs. In addition, higher inflation and macro turmoil and uncertainty could also adversely affect our customers, which could reduce demand for our products.
In addition, the Convertible Notes require that we maintain our listing on Nasdaq and contain other restrictive covenants that limit our ability to engage in specified types of transactions which limit our ability to, among other things: ● Incur certain additional indebtedness; 14 Table of Contents ● Pay dividends on, repurchase or make distributions in respect our capital stock; ● Make certain investments; ● Sell or dispose of certain assets; ● Grant liens on our assets; and ● Consolidate, merge, sell or otherwise dispose of all or substantially all of our assets.
Such restrictions could, for example, limit our ability to, among other things: ● Incur certain additional indebtedness; ● Pay dividends on, repurchase or make distributions in respect our capital stock; ● Make certain investments; ● Sell or dispose of certain assets; ● Grant liens on our assets; and ● Consolidate, merge, sell or otherwise dispose of all or substantially all of our assets.
If we are unable to mitigate the impact of supply chain constraints and inflationary pressure through price increases or other measures, our results of operations and financial condition could be negatively impacted. ​ Similarly, the ongoing war between Russia and Ukraine has created volatility in the global capital markets and is expected to continue to have further global economic consequences, including disruptions of the global supply chain and energy markets.
If we are unable to mitigate the impact of supply chain constraints and inflationary pressure through price increases or other measures, our results of operations and financial condition could be negatively impacted.
The industry is characterized by rapid change, new and complex technology and intense competition. Our ability to gain market share depends upon our ability to satisfy client demands, enhance existing products and services and develop and introduce new products and services.
Our ability to gain market share depends upon our ability to [create demand, including by increasing awareness about our products,] satisfy client demands, enhance existing products and services and develop and introduce new products and services.
We currently depend on the continued services and performance of key members of its management team, in particular, our founders, William Santana Li and Stacy Dean Stephens. If we cannot call upon them or other key management personnel for any reason, our operations and development could be harmed.
The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could harm our business. We currently depend on the continued services and performance of key members of its management team, in particular, our founders, William Santana Li and Stacy Dean Stephens.
We may face additional competition. We are aware of a number of other companies that are developing physical security technology in the United States and abroad that may potentially compete with our technology and services.
These actions may expose us to negative publicity, substantial monetary damages and legal defense costs, injunctive relief, and criminal and civil fines and penalties. We may face additional competition. We are aware of a number of other companies that are developing physical security technology in the USA and abroad that may potentially compete with our technology and services.
As the Company continues to grow, our information technology systems, internal management processes, internal controls and procedures and production processes may not be adequate to support our operations. To ensure success, we must continue to improve our operational, financial, and management processes and systems and to effectively expand, train, and manage our employee base.
To ensure success, we must continue to improve our operational, financial, and management processes and systems and to effectively expand, train, and manage our employee base.
In addition, we may not accomplish the integration of any acquired company and business smoothly, successfully or within the anticipated costs or timeframe.
We may not be able to maintain or increase the levels of revenue, earnings or operating efficiency that any acquired company and business and us had historically achieved or might achieve separately. In addition, we may not accomplish the integration of any acquired company and business smoothly, successfully or within the anticipated costs or timeframe.
Increased competitiveness may result in reductions in the prices of our products and services, lower-than-expected gross margins or loss of market share, any of which would harm our business. The Company may fail in its efforts to secure a material amount of business from the U.S. Federal Government.
Increased competitiveness may result in reductions in the prices of our products and services, lower-than-expected gross margins or loss of market share, any of which would harm our business. We have a government customer and are seeking additional government customers, which would subject us to risks including early termination, audits, investigations, sanctions, or penalties.
As a result of their control of greater than 50% of the voting rights of the Company, Messrs. Li and Stephens can collectively take actions requiring stockholder approval with the vote of other stockholders. This concentration of voting power may also delay or prevent a change in control of us and might affect the market price of our securities.
This concentration of voting power may also delay or prevent a change in control of us and might affect the market price of our securities.
A breach of any of those restrictive covenants may cause us to be in default under our debt arrangements, and our lenders could foreclose on our assets. We issued convertible notes in October 2022 (the “Convertible Notes”), and the Convertible Notes require us to maintain certain financial covenants, including maintaining available cash of at least $1.5 million.
A breach of any of the restrictive covenants under such debt arrangements may cause us to be in default under our debt arrangements, and our lenders could foreclose on our assets.
Our ASRs contain a number of advanced sensors that are designed to effectively prevent any such incidents and are intended to stop any motion at the detection of intervening objects. Nonetheless, real-life environments, especially those in crowded areas, are unpredictable and situations may arise in which the ASRs may not perform as intended.
Therefore, our ASRs have been in the past and may in the future be involved in a collision with any number of such obstacles. Our ASRs contain a number of advanced sensors that are designed to prevent any such incidents and are intended to stop any motion at the detection of intervening objects.
Our ASRs collect, store and may analyze certain types of personal or identifying information regarding individuals that interact with the ASRs. The regulatory framework for privacy and security issues is rapidly evolving worldwide and is likely to remain uncertain for the foreseeable future.
The regulatory framework for privacy and security issues is rapidly evolving worldwide and is likely to remain uncertain for the foreseeable future.
The Company may not achieve ATO during 2023, may never achieve an ATO, or, if achieved, may never garner new business contracts from the effort. The Company is controlled by certain of its officers and early-stage investors (who hold super voting securities), and they may make decisions that may not reflect the interests of other stockholders .
Certain of the Company’s officers and early-stage investors (who hold super voting securities), control a significant percentage of the voting rights of the Company, and they may make decisions that may not reflect the interests of other stockholders .
Furthermore, the receipt of the Notice, or a future delisting of our Class A Common Stock, provides certain rights to the holders of our Convertible Notes, which could have a material adverse affect on the Company. 18 Table of Contents In the event that our Class A Common Stock is not eligible for quotation on another market or exchange, trading of our Class A Common Stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board.
There can be no assurance that the Company will be able to regain compliance with the Minimum Bid Price Requirement or that a Hearings Panel would grant an exception to the Minimum Bid Price Requirement to give us additional time to comply with the rule. 26 Table of Contents In the event that our Class A Common Stock is delisted and not eligible for quotation on another market or exchange, trading of our Class A Common Stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board.
The Company may need to seek additional funds in the future. The Company projects operating losses and negative cash flows for the foreseeable future.
The Company will need to seek additional funds in the future. The Company projects operating losses and negative cash flows for the foreseeable future. These factors raise substantial doubt about our ability to continue as a going concern. See Liquidity and Capital Resources .
Further, our industry is characterized by rapid technological change, changing client needs, evolving industry standards and frequent introduction of new products and services. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries.
Any evaluation of our business and our prospects must be considered in light of our limited operating history and the risks and uncertainties encountered by companies in our stage of development. Further, our industry is characterized by rapid technological change, changing client needs, evolving industry standards and frequent introduction of new products and services.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company wholly owns its ASRs and typically builds in batches based on client demand, refraining where possible in stocking inventory or finished products. The Blue Light EPhone Towers and Emergency Call Boxes are designed and assembled in the Company’s two 6,540 and 4,254 square foot facilities located in Irvine and Downey, California, respectively.
Biggest changeThe Company wholly owns its ASRs and typically builds in batches based on client demand, refraining where possible in stocking inventory or finished products. The ECDs are designed and assembled in the Company’s two 6,540 and 4,254 square foot facilities located in Irvine and Downey, California, respectively.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe Company is not presently a party to any litigation that it believes to be material and the Company is not aware of any pending or threatened litigation against the Company that it believes could have a material adverse effect on its business, operating results, financial condition or cash flows. Item 4. Mine Safety Disclosures Not applicable. PART II
Biggest changeThe Company is not presently a party to any litigation that it believes to be material and the Company is not aware of any pending or 32 Table of Contents threatened litigation against the Company that it believes could have a material adverse effect on its business, operating results, financial condition or cash flows.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeFuture declarations of dividends will depend on, among other things, our results of operations, financial condition, cash flows and capital requirements, and on such other factors as the board of directors may in its discretion consider relevant and in the best long-term interest of stockholders. Recent Sales of Unregistered Securities None. 22 Table of Contents Item 6. [Reserved] ​
Biggest changeFuture declarations of dividends will depend on, among other things, our results of operations, financial condition, cash flows and capital requirements, and on such other factors as the board of directors may in its discretion consider relevant and in the best long-term interest of stockholders. Recent Sales of Unregistered Securities None.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Holders Our Class A Common Stock is listed and traded on the Nasdaq Global Market under the symbol “KSCP.” As of February 24, 2023, we had (i) 14,499 holders of record of our Class A Common Stock and (ii) 12 holders of our Class B Common Stock.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Holders Our Class A Common Stock is listed and traded on The Nasdaq Capital Market under the symbol “KSCP.” As of March 28, 2024, we had (i) 14,207 holders of record of our Class A Common Stock and (ii) 15 holders of our Class B Common Stock.
Added
Purchases of Equity Securities By the Issuer and Affiliated Purchasers. None. Item 6. [Reserved]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults 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, ​ ​ 2022 ​ 2021 ​ Revenue, net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Service ​ $ 5,162 ​ 92 % $ 3,407 ​ 100 % Product ​ ​ 469 ​ 8 % ​ — ​ — % Total revenue, net ​ ​ 5,631 ​ 100 % $ 3,407 ​ 100 % Cost of revenue, net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Service ​ ​ 8,804 ​ 156 % ​ 5,464 ​ 160 % Product ​ ​ 146 ​ 3 % ​ — ​ — % Total cost of revenues ​ ​ 8,950 ​ 159 % ​ 5,464 ​ 160 % Gross loss ​ (3,319) (59) % (2,057) (60) % Operating Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ 8,449 150 % 5,601 164 % Sales and marketing ​ 8,500 151 % 12,017 353 % General and administrative ​ 11,700 208 % 4,880 143 % Total operating expenses ​ 28,649 509 % 22,498 660 % Loss from operations ​ (31,968) (568) % (24,555) (721) % Interest expense, net ​ (9,235) (164) % (4,333) (127) % Change in fair value of warrant and derivative liability ​ 20,857 370 % (15,718) (461) % Change in fair value of convertible note ​ ​ (4,650) ​ (83) % ​ — ​ — ​ Other income (expense), net ​ (647) (11) % 763 22 % Total other expense, net ​ 6,325 112 % (19,288) (566) % Loss before income tax expense ​ (25,643) (455) % (43,843) (1,287) % Income tax expense ​ — — % — — % Net loss ​ $ (25,643) (455) % $ (43,843) (1,287) % ​ Revenue, net Service revenue, net, which includes revenue generated through MaaS agreements for our ASRs and maintenance and support contracts for our Blue Light EPhone Towers and Call Boxes, increased by approximately $1.8 million to $5.2 million, or approximately 53% for the year ended December 31, 2022, from $3.4 million for the year ended December 31, 2021.
Biggest changeThe Company recognizes forfeitures as they occur when calculating stock-based compensation for its equity awards. 40 Table of Contents 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, ​ ​ 2023 % of Revenue 2022 % of Revenue Revenue, net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Service ​ $ 7,169 ​ 56 % $ 5,162 ​ 92 % Product ​ ​ 5,628 ​ 44 % ​ 469 ​ 8 % Total revenue, net ​ ​ 12,797 ​ 100 % $ 5,631 ​ 100 % Cost of revenue, net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Service ​ ​ 9,874 ​ 77 % ​ 8,804 ​ 156 % Product ​ ​ 4,947 ​ 39 % ​ 146 ​ 3 % Total cost of revenue, net ​ ​ 14,821 ​ 116 % ​ 8,950 ​ 159 % Gross loss ​ (2,024) (16) % (3,319) (59) % Operating Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ 6,351 50 % 8,449 150 % Sales and marketing ​ 5,179 40 % 8,500 151 % General and administrative ​ 12,585 98 % 11,700 208 % Restructuring costs ​ ​ 149 ​ 1 % ​ — ​ — % Total operating expenses ​ 24,264 190 % 28,649 509 % Loss from operations ​ (26,288) (205) % (31,968) (568) % Interest expense, net ​ (551) (4) % (9,235) (164) % Change in fair value of warrant and derivative liability ​ 4,910 38 % 20,857 370 % Change in fair value of convertible note ​ ​ — ​ — % ​ (4,650) ​ (83) ​ Other expense, net ​ (189) (1) % (647) (11) % Total other income, net ​ 4,170 33 % 6,325 112 % Loss before income tax expense ​ (22,118) (173) % (25,643) (455) % Income tax expense ​ — — % — — % Net loss ​ $ (22,118) (173) % $ (25,643) (455) % ​ Revenue, net Service revenue, net, which includes revenue generated through MaaS agreements for our ASRs and maintenance and support contracts for our K1B portfolio of ECDs, increased by approximately $2.0 million to $7.2 million, or approximately 39%, for the year ended December 31, 2023, from $5.2 million for the year ended December 31, 2022.
On April 20, 2021, the Company entered into a Referral Agreement with Dimension Funding, LLC (“Dimension”), whereby the Company can generate up to $10 million of immediate cash flow by referring its clients to Dimension for financing of their annual fees over the MaaS subscription term.
Referral Agreement with Dimension On April 20, 2021, the Company entered into a Referral Agreement with Dimension Funding, LLC (“Dimension”), whereby the Company can generate up to $10 million of immediate cash flow by referring its clients to Dimension for financing of their annual fees over the MaaS subscription term.
In connection with the placement of the Series m-3 Preferred Stock during the years ended December 31, 2017 and 2018, the Company issued to the purchasers warrants to purchase an aggregate of 1,432,786 shares of Series m-3 Preferred Stock. These warrants have an exercise price of $4.00 per share.
Warrants to Purchase Shares of, Series m-3 Preferred Stock In connection with the placement of the Series m-3 Preferred Stock during the years ended December 31, 2017 and 2018, the Company issued to the purchasers warrants to purchase an aggregate of 1,432,786 shares of Series m-3 Preferred Stock. These warrants have an exercise price of $4.00 per share.
These common stock warrants are not considered derivative liabilities are accounted for at fair value at the date of issuance in additional paid-in capital and were fully exercised in 2022 and none remain outstanding as of December 31, 2022. The fair value of these common stock warrants is determined using the Black-Scholes option pricing model.
These common stock warrants are not considered derivative liabilities are accounted for at fair value at the date of issuance in additional paid-in capital and were fully exercised in 2022 and none remain outstanding as of December 31, 2023. The fair value of these common stock warrants is determined using the Black-Scholes option pricing model.
Share-Based Compensation The Company accounts for stock-based compensation in accordance with Accounting Standards Codification 718, Compensation - Stock Compensation , which requires that the estimated fair value on the date of grant be determined using the Black-Scholes option pricing model with the fair value recognized over the requisite service period of the awards, which is generally the option vesting period.
Stock-Based 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.
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 consolidated financial statements and notes thereto included herein as Item 8. This discussion contains forward-looking statements.
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.
The preparation of these consolidated 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 consolidated financial statements.
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.
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 consolidated statements of operations.
The preferred stock warrants are recorded at fair value upon issuance and are subject to remeasurement to their respective estimated fair values. At the end of each reporting period, changes in the estimated fair value of the preferred stock warrants are recorded in the statements of operations.
The 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 consolidated statements of operations.
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.
We sell our ASR and stationary multi-purpose security solutions under an annual subscription, Machine-as-a-Service business model, which includes the ASR rental as well as maintenance, service, support, data transfer, KSOC access, charging stations, and unlimited software, firmware and select hardware upgrades.
We sell our ASR and stationary multi-purpose security solutions under an annual subscription, Machine-as-a-Service (“MaaS”) business model, which includes the ASR machine as well as maintenance, service, support, data transfer, KSOC access, charging stations, and unlimited software, firmware and select hardware upgrades.
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.
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.
A discussion of the changes in our results of operations between the years ended December 31, 2021 and, 2020 has been omitted from this Annual Report on Form 10-K but may be found in Item 7.
A discussion of the changes in our results of operations between the years ended December 31, 2022 and 2021 has been omitted from this Annual Report on Form 10-K but may be found in Item 7.
Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations is based upon our accompanying consolidated financial statements, which have been prepared in accordance with U.S. GAAP.
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.
We believe the following critical accounting estimates affect our more significant judgments and estimates used in preparing our consolidated financial statements. Please see Note 1 to our consolidated financial statements, which are included in Item 8 “Consolidated Financial Statements and Supplementary Data” of this Annual Report.
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.
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 26 Table of Contents options granted by taking the average of the vesting term and the contractual term of the option.
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.
Towered devices are tall, highly visible and recognizable apparatuses that provide emergency communications using cellular and satellite communications with solar power for additional safety in remote locations. E-Phones and Call Boxes offering a smaller, yet still highly visible, footprint than the stationary security towers, but with the same reliable communication capabilities.
Tower devices are tall, highly visible and recognizable apparatuses that provide emergency communications using cellular and satellite communications with solar power for additional safety in remote locations. E-Phones and Call Boxes offer a smaller, yet still highly visible, footprint than the towers, but with the same reliable communication capabilities.
Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Once the purchase accounting is finalized, any subsequent adjustments are reflected in the consolidated statements of operations.
Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable, and as a result, actual results may differ from estimates. Once the purchase accounting is finalized, any subsequent adjustments are reflected in the statements of operations. Acquisition costs, such as legal and consulting fees, are expensed as incurred.
Depreciation expense of finished ASRs included in research and development expense amounted to $66 thousand and $82 thousand, depreciation expense of finished ASRs included in sales and marketing expense amounted to $46 thousand and $71 thousand, and depreciation expense included in cost of revenue, net amounted to $1.4 million and $1.4 million for the years ended December 31, 2022 and 2021, respectively.
Depreciation expense of finished ASRs included in research and development expense amounted to $8 thousand and $66 thousand, depreciation expense of finished ASRs included in sales and marketing expense amounted to $15 thousand and $46 thousand, and depreciation expense included in cost of revenue, net amounted to $1.6 million and $1.4 million for the years ended December 31, 2023 and 2022, respectively.
Net cash used in operating activities for the year ended December 31, 2022 increased by $4.0 million to $24.1 million, compared to $20.1 million for the year ended December 31, 2021.
Net cash used in operating activities for the year ended December 31, 2023 increased by $0.1 million to $24.2 million, compared to $24.1 million for the year ended December 31, 2022.
Common Stock Purchase Agreement with B. Riley On April 4, 2022, the Company entered into the Purchase Agreement and a Registration Rights Agreement with B. Riley Principal Capital. Pursuant to the Purchase Agreement, the Company has the right to sell to B.
The 2022 Common Stock Warrants remain outstanding. 45 Table of Contents Common Stock Purchase Agreement with B. Riley On April 4, 2022, the Company entered into the Purchase Agreement and a Registration Rights Agreement with B. Riley Principal Capital. Pursuant to the Purchase Agreement, the Company has the right to sell to B.
Refer to “Forward-Looking Statements” on page 3 and “Risk Factors” beginning on page 10, for a discussion of the uncertainties, risks and assumptions associated with these statements. The historical results presented below are not necessarily indicative of the results that may be expected for any future period. A discussion of our comparison between 2022 and 2021 is presented below.
Refer to “Forward-Looking Statements” and “Risk Factors” herein, for a discussion of the uncertainties, risks, assumptions, and other important factors associated with these statements. The historical results presented below are not necessarily indicative of the results that may be expected for any future period. A discussion of our comparison between 2023 and 2022 is presented below.
ASRs, net, consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2022 ​ 2021 Raw materials ​ $ 2,732 ​ $ 1,041 ASRs in progress ​ 773 ​ 427 Finished ASRs ​ 10,198 ​ 7,695 ​ ​ 13,703 ​ 9,163 Accumulated depreciation on Finished ASRs ​ (7,853) ​ (6,192) ASRs, net ​ $ 5,850 ​ $ 2,971 ​ 25 Table of Contents The components of the Finished ASRs, net at December 31, 2022 and 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ASRs on lease or available for lease $ 9,002 $ 6,489 Demonstration ASRs ​ 622 ​ 585 Research and development ASRs ​ 194 ​ 320 Charge boxes ​ 380 ​ 301 ​ ​ 10,198 ​ 7,695 Less: accumulated depreciation ​ (7,853) ​ (6,192) Finished ASRs, net ​ $ 2,345 ​ $ 1,503 ​ 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.
ASRs, net, consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2023 2022 Raw materials ​ $ 3,841 ​ $ 2,732 ASRs in progress ​ 1,575 ​ 773 Finished ASRs ​ 12,130 ​ 10,198 ​ ​ 17,546 ​ 13,703 Accumulated depreciation on Finished ASRs ​ (8,701) ​ (7,853) ASRs, net ​ $ 8,845 ​ $ 5,850 ​ The components of the Finished ASRs, net at December 31, 2023 and 2022 are as follows: ​ ​ ​ ​ ​ ​ ​ ASRs on lease or available for lease $ 10,804 $ 9,002 Demonstration ASRs ​ 607 ​ 622 Research and development ASRs ​ 194 ​ 194 Charge boxes ​ 525 ​ 380 ​ ​ 12,130 ​ 10,198 Less: accumulated depreciation ​ (8,701) ​ (7,853) Finished ASRs, net ​ $ 3,429 ​ $ 2,345 ​ 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.
Research and Development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ ​ 2022 2021 ​ $ Change ​ % Change Research and development ​ $ 8,449 ​ $ 5,601 ​ $ 2,848 51 % Percentage of total revenue ​ 150 % 164 % ​ ​ Research and development (“R&D”) expense for the year ended December 31, 2022 was approximately $8.5 million, or 150% of revenue, compared to R&D expense of $5.6 million, or 164% of revenue, for the year ended December 31, 2021.
Research and Development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ ​ 2023 2022 ​ $ Change ​ % Change Research and development ​ $ 6,351 ​ $ 8,449 ​ $ (2,098) (25) % Percentage of total revenue ​ 50 % 150 % ​ ​ Research and development (“R&D”) expense for the year ended December 31, 2023 was approximately $6.4 million, or 50% of revenue, compared to R&D expense of $8.4 million, or 150% of revenue, for the year ended December 31, 2022.
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. In 2022, we invested $5.4 million, net of cash acquired for the CASE acquisition.
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.
General and administrative ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ ​ 2022 2021 ​ $ Change ​ % Change General and administrative ​ $ 11,700 ​ $ 4,880 ​ $ 6,820 140 % Percentage of total revenue ​ 208 % 143 % ​ ​ General and administrative (“G&A”) expense for the year ended December 31, 2022 was approximately $11.7 million, or 208% of revenue, compared to G&A expense of $4.9 million, or 143% of revenue, for the year ended December 31, 2021.
General and administrative ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ ​ 2023 2022 ​ $ Change ​ % Change General and administrative ​ $ 12,585 ​ $ 11,700 ​ $ 885 8 % Percentage of total revenue ​ 98 % 208 % ​ ​ General and administrative (“G&A”) expense for the year ended December 31, 2023 was approximately $12.6 million, or 98% of revenue, compared to G&A expense of approximately $11.7 million, or 208% of revenue, for the year ended December 31, 2022.
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.
Inventory in excess of salable amounts and inventory which is considered obsolete based upon changes in existing technology is written off. 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.
Change in fair value of warrant and derivative liability The change in the fair value of warrant and derivative liability changed by approximately $36.6 million for the year ended December 31, 2022 resulting in other income of $20.9 million compared to an expense of $15.7 million for the year ended December 31, 2021.
Change in fair value of warrant and derivative liability The change in the fair value of warrant and derivative liability for the year ended December 31, 2023 resulting in other income of approximately $4.9 million compared to other income of approximately $20.9 million for the year ended December 31, 2022.
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, 2021, filed with the SEC on March 31, 2022, which is available free of charge on the SEC’s website at www.sec.gov and our corporate website (www.knightscope.com). Overview Knightscope is a leading provider of autonomous security robots.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 31, 2023, which is available free of charge on the SEC’s website at www.sec.gov and our corporate website (www.knightscope.com). 35 Table of Contents Overview Knightscope is a public safety advanced technology company that builds fully autonomous security robots and blue light emergency communications systems.
Cost of revenue, net Service cost of revenue, net, representing the cost of supporting ASR MaaS and maintenance and support agreements related to call box and blue light tower installations, for the year ended December 31, 2022 was approximately $9.0 million, as compared to approximately $5.5 million for the year ended December 31, 2021, representing an increase of approximately $3.5 million, or approximately 64%.
Cost of revenue, net Service cost of revenue, net, representing the cost of supporting ASR MaaS and maintenance and support agreements related to ECD installations, for the year ended December 31, 2023, was approximately $9.9 million, as compared to approximately $8.8 million for the year ended December 31, 2022, representing an increase of approximately $1.1 million, or approximately 12%.
Sales and marketing ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ ​ 2022 2021 ​ $ Change ​ % Change Sales and marketing ​ $ 8,500 ​ $ 12,017 ​ $ (3,517) (29) % Percentage of total revenue ​ 151 % 353 % ​ ​ Sales and marketing expense for the year ended December 31, 2022 was approximately $8.5 million, or 151% of revenue, compared to sales and marketing expense of $12.0 million, or 353% of revenue, for the year ended December 31, 2021.
Sales and marketing ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ ​ 2023 2022 ​ $ Change ​ % Change Sales and marketing ​ $ 5,179 ​ $ 8,500 ​ $ (3,321) (39) % Percentage of total revenue ​ 40 % 151 % ​ ​ Sales and marketing expense for the year ended December 31, 2023 was approximately $5.2 million, or 40% of revenue, compared to sales and marketing expense of $8.5 million, or 151% of revenue, for the year ended December 31, 2022.
Liquidity and Capital Resources As of December 31, 2022, and 2021, we had $4.8 million and $10.7 million, respectively, of cash and cash equivalents. As of December 31, 2022, the Company also had an accumulated deficit of $139.3 million, negative working capital of $0.4 million and stockholders’ deficit of $43.6 million.
Liquidity and Capital Resources As of December 31, 2023 and 2022, we had $2.3 million and $4.8 million, respectively, of cash and cash equivalents. As of December 31, 2023, the Company also had an accumulated deficit of $161.5 million, working capital of $1.3 million and stockholders’ deficit of $26.6 million.
In addition, the cashless exercise feature was removed from the warrants. 2022 Convertible Notes and Common Stock Warrants On October 10, 2022, we entered into a securities purchase agreement with an accredited investor (the “Buyer”), pursuant to which we sold and issued to the Buyer in a private placement (i) senior secured convertible notes in an aggregate principal amount of $6.075 million (the “2022 Convertible Notes”), at an initial conversion price of $5.00 per share of Class A Common Stock, subject to adjustment upon the occurrence of specified events described in the 2022 Convertible Notes, and (ii) warrants to purchase up to 1,138,446 shares of Class A Common Stock with an initial exercise price of $3.25 per share of Class A Common Stock, exercisable immediately and expiring five years from the date of issuance (the “2022 Common Stock Warrants” and, together with the 2022 Convertible Notes, the “2022 Convertible Notes Offering”), for $5.0 million of gross proceeds.
Under the terms of the agreement, the expiration date for warrants to purchase 1,432,786 shares of Series m-3 Preferred Stock and 2,941,814 shares of Series S Preferred Stock was extended to the earlier of December 31, 2027 or eighteen (18) months after the closing of the Company’s first firm commitment underwritten initial public offering of the Company’s common stock pursuant to a registration statement filed under the Securities Act of 1933, as amended, in exchange for the cancellation of warrants to purchase 1,500,000 shares of Series S Preferred Stock. 2022 Convertible Notes and Common Stock Warrants On October 10, 2022, we entered into a securities purchase agreement with an accredited investor (the “Buyer”), pursuant to which we sold and issued to the Buyer in a private placement (i) senior secured convertible notes in an aggregate principal amount of $6.075 million (the “2022 Convertible Notes”), at an initial conversion price of $5.00 per share of Class A Common Stock, subject to adjustment upon the occurrence of specified events described in the 2022 Convertible Notes, and (ii) warrants to purchase up to 1,138,446 shares of Class A Common Stock with an initial exercise price of $3.25 per share of Class A Common Stock, exercisable immediately and expiring five years from the date of issuance (the “2022 Common Stock Warrants” and, together with the 2022 Convertible Notes, the “2022 Convertible Notes Offering”), for $5.0 million of gross proceeds.
Our technologies are Made in the USA and allow public safety professionals to more effectively deter, intervene, capture, and prosecute criminals. Our mission is to make the United States of America the safest country in the world by helping to protect the people, places, and things where we live, work, study and visit.
Our technologies are designed to help our clients protect the people, places, and things where we live, work, study, and visit. Our technologies are made in the USA and allow public safety professionals to more effectively identify, deter, intervene, capture, and prosecute criminals.
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 consolidated 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.
None of the Company’s ASRs, property, equipment and software or intangible assets were determined to be impaired during the years ended December 31, 2023 and 2022. 39 Table of Contents 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.
If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable to it, the Company may have to significantly reduce its operations, delay, scale back or discontinue the development of one or more of its platforms or discontinue operations completely.
If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable to it, the Company may have to significantly reduce its operations, delay, scale back or discontinue the development of one or more of its platforms or discontinue operations completely. 43 Table of Contents Share Increase Amendment We are currently authorized to issue 114,000,000 shares of Class A common stock.
If the assets are determined to be recoverable, but the useful lives are shorter than originally estimated, the Company will depreciate or amortize the net book value of the assets over the newly determined remaining useful lives. None of the Company’s ASRs or property and equipment was determined to be impaired during the year ended December 31, 2022 and 2021.
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.
Occasionally, such reviews and other events result in the movement of funds to more stable institutions such as the movement of our cash deposits out of Silicon Valley Bank to Comerica Bank. 29 Table of Contents Cash Flow The table below, for the periods indicated, provides selected cash flow information: ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2022 2021 ​ ​ (In thousands) Net cash used in operating activities ​ $ (24,064) ​ $ (20,106) Net cash used in investing activities ​ (9,931) ​ (2,333) Net cash provided by financing activities ​ 27,956 ​ 26,131 Net (decrease) increase in cash and cash equivalents ​ $ (6,039) ​ $ 3,692 ​ 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 blue light ePhone towers and call boxes, the amount and timing of accounts receivable collections, as well as the amount and timing of disbursements to our vendors.
Cash Flow The table below, for the periods indicated, provides selected cash flow information: ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2023 2022 ​ ​ (In thousands) Net cash used in operating activities ​ $ (24,155) ​ $ (24,064) Net cash used in investing activities ​ (5,122) ​ (9,931) Net cash provided by financing activities ​ 26,849 ​ 27,956 Net (decrease) increase in cash, cash equivalents, and restricted cash ​ $ (2,428) ​ $ (6,039) ​ 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.
During the three months and full year ended December 31, 2022, we sold 790,030 and 1,209,062 shares of Class A Common Stock, respectively, under the Purchase Agreement. Net proceeds from such sales totaled $1.5 million and $2.9 million, respectively. At the Market Offering Program In February 2023, we commenced an At the Market offering program with H.C.
During the year ended December 31, 2023 we sold and issued 851,109 shares of Class A Common Stock under the Purchase Agreement for total net proceeds of $1.3 million. At-the-Market Offering Program In February 2023, we commenced an at-the-market offering program with H.C.
Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur. Incorrect estimates could result in future impairment charges, and those charges could be material to our results of operations. Inventory Inventory, principally purchased components, is stated at the lower of cost or net realizable value.
Incorrect estimates could result in future impairment charges, and those charges could be material to our results of operations. 38 Table of Contents 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.
Our stationary blue light, E-Phone, and Call Box towers are sold as point-of-sale modular systems, including Knightscope’s exclusive, self-diagnostic, alarm monitoring system firmware that provides system owners daily email reports on the operational status of their system, a one-year parts warranty, and optional installation services. Modular upgrades are available for the blue light towers, such as public announcement speaker systems.
Our stationary ECD technologies are sold as point-of-sale modular systems, including Knightscope’s exclusive, self-diagnostic, alarm monitoring software solution that provides system owners daily email reports on the operational status of their system, a one-year parts warranty, and optional installation services which was announced in 2023 as the Knightscope Emergency Communication System (“KEMS”) platform.
The KSOC enables clients with appropriate credentials and user permissions to access the data for investigative and evidence collection purposes. Our blue light emergency communication devices consist of emergency blue light towers, blue light emergency phone (“E-Phone”) towers, fully integrated, solar-powered cellular emergency phone towers, and emergency call box systems (“Call Box”).
The KSOC enables clients with appropriate credentials and user permissions to access the data for investigative and evidence collection purposes. Our ECDs that comprise our K1B portfolio of products consist of the K1 Blue Light Tower, E-Phone, and the K1 Call Box.
For the Company, these estimates include, but are not limited to: deriving the useful lives of ASRs, determination of the cost of ASRs, assessing assets for impairment, and the valuation of convertible preferred stock warrants and stock options. Actual results could differ from those estimates.
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.
Other income (expense), net Other expense, net for the year ended December 31, 2022 was approximately $0.6 million, attributable to transaction costs related to the CASE acquisition, as compared to other income, net of $0.8 million for the year ended December 31, 2021 primarily resulting from forgiveness of a PPP loan in May 2021.
Other expense, net Other expense, net for the year ended December 31, 2023 was approximately $0.2 million, and was incurred in connection with the Referral Agreement with Dimension Funding, LLC (see below), as compared to other expense, net of $0.6 million for the year ended December 31, 2022 attributable to transaction costs related to the CASE acquisition.
To support this mission, we design, develop, manufacture, market, deploy and support Autonomous Security Robots (“ASRs”), autonomous charging stations, the proprietary Knightscope Security Operations Center (“KSOC”) software user interface, and blue light emergency communication devices.
To support our mission to make the USA the safest country in the world, we design, develop, manufacture, market, deploy and support ASRs, autonomous charging stations, the KSOC software user interface, Blue Light emergency communication devices, and our newly released KEMS software platform.
Net cash used in investing activities for the year ended December 31, 2022 was approximately $9.9 million compared to $2.3 million for the year ended December 31, 2021, an increase of $7.6 million. The increase was primarily a result of the CASE acquisition and a $2.2 million increase in the investment in ASRs.
Net cash used in investing activities for the year ended December 31, 2023 was $5.1 million compared to $9.9 million for the year ended December 31, 2022, a decrease of $4.8 million.
Fair value of these assets is determined primarily using the income approach, which requires us to project future cash flows and apply an appropriate discount rate. We amortize intangible assets with finite lives over their expected useful lives. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.
We amortize intangible assets with finite lives over their expected useful lives. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.
These 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.
Under the terms of the agreement, the expiration date for warrants to purchase 1,432,786 shares of Series m-3 Preferred Stock and 2,941,814 shares of Series S Preferred Stock was extended to the earlier of December 31, 2027 or eighteen (18) months after the closing of the Company’s first firm commitment underwritten initial public offering of the Company’s common stock pursuant to a registration statement filed under the Securities Act of 1933, as amended, in exchange for the cancellation of warrants to purchase 1,500,000 shares of Series S Preferred Stock.
Wainwright & Co., LLC, as sales agent, which allows us to sell and issue shares of up to approximately $20 million of our Class A Common Stock from time-to-time.
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.
Net Cash Provided by Financing Activities Net cash provided by financing activities was approximately $28.0 million for the year ended December 31, 2022, an increase of approximately $1.8 million as compared to the prior year.
The decrease was primarily a result of the CASE acquisition in the prior year for $5.4 million partially offset by higher investments in ASRs and equipment of $0.6 million in the current year. 44 Table of Contents Net Cash Provided by Financing Activities Net cash provided by financing activities was approximately $26.8 million for the year ended December 31, 2023, a decrease of approximately $1.1 million as compared to the prior year.
There can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its future operations.
These factors raise substantial doubt about our ability to continue as a going concern. 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.
Acquisition costs, such as legal and consulting fees, are expensed as incurred. 24 Table of Contents Acquired Intangible Assets When we acquire a business, a portion of the purchase price is typically allocated to identifiable intangible assets, such as trademarks, acquired technology and customer relationships.
Acquired Intangible Assets When we acquire a business, a portion of the purchase price is typically allocated to identifiable intangible assets, such as trademarks, acquired technology and customer relationships. Fair value of these assets is determined primarily using the income approach, which requires us to project future cash flows and apply an appropriate discount rate.
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 consolidated statements of operations. 31 Table of Contents The 2022 Convertible Notes are senior secured obligations of the Company.
The derivative liability will be marked to market each reporting period with changes in fair value recorded in changes in fair value of warrant and derivative liability on the statements of operations. On April 7, 2023, the Company entered into an Amendment and Cancellation Agreement with certain holders of warrants to purchase Series m-3 and Series S Preferred Stock.
The service cost of revenue, net is primarily related to the depreciation and service costs for ASRs and support and maintenance of the blue light towers and call boxes.
The increase was due to increased warranty costs and higher service revenue volume over the prior year. As a percentage of service revenue, service cost of revenue, net decreased to 138% from 171%. The service cost of revenue, net is primarily related to the depreciation and service costs for ASRs and support and maintenance of the ECDs.
The increase in interest expense, net of $4.9 million resulted from the write off of the remaining debt discount upon the conversion of convertible notes on January 5, 2022 and new note issuances in connection with the CASE acquisition.
The decrease in interest expense, net resulted from the full amortization of the debt discount in the year ended December 31, 2022 from the conversion of all of the notes outstanding in 2022 and paying off the promissory note issued in connection with the CASE acquisition in 2022, partially offset by interest on the Bonds issued in 2023.
Gross loss Gross loss for the year ended December 31, 2022 was approximately $3.3 million, as compared to $2.1 million for the year ended December 31, 2021, representing an increase of approximately $1.3 million, or 61%.
Our net loss was $22.1 million for the year ended December 31, 2023 and $25.6 million for the year ended December 31, 2022. As of December 31, 2023, we had an accumulated deficit of $161.5 million. Cash and cash equivalents on hand were $2.3 million as of December 31, 2023, compared to $4.8 million as of December 31, 2022.
Recent Developments 23 Table of Contents On October 14, 2022, the Company completed the acquisition of Case Emergency Systems (“CASE”) pursuant to an asset purchase agreement entered into on October 10, 2022 (the “CASE Acquisition”). The Company purchased and assumed substantially all the assets and certain specified liabilities of CASE’s emergency call box and communications business.
In October 2022, we completed the acquisition of substantially all of the assets of Case Emergency Systems (the “CASE Acquisition”), which consisted of their emergency call box and communications business.
The increase was primarily due to the reduction in the change in fair value of warrants of $36.6 million, a reduction in interest expense related to warrants for preferred stock of $1.0 million and a decrease in non-cash interest of $0.6 million, partially offset by a decrease in net loss of $18.2 million, an increase in amortization of debt discount of $6.4 million upon the conversion of convertible notes in January 2022, a change in the fair value of convertible notes of $4.7 million, an increase in stock compensation expense of $2.3 million, changes in the operating assets and liabilities, net of $1.4 million, a decrease of $0.8 million of forgiveness of the Paycheck Protection Program loan and interest, and issuance of common stock in exchange for services in 2022 of $0.3 million.
These increases were partially offset by a decrease in net loss of $3.5 million, a decrease in the change in the fair value of warrant liabilities of $15.9 million, an increase in depreciation and amortization expense of $0.7 million, an increase in stock issued for consulting services of $0.1 million and an increase in accrued interest of $0.1 million.
Product cost of revenue, net of approximately $0.1 million is related to the costs of call boxes and blue light towers sold pursuant to the CASE Acquisition during the fourth quarter of 2022.
Product cost of revenue, net of approximately $4.9 million and $0.1 million for the years ended December 31, 2023 and 2022, respectively, increased primarily due to the costs of ECDs sold pursuant to the CASE Acquisition during the fourth quarter of 2022. 41 Table of Contents Gross loss Gross loss for the year ended December 31, 2023 was approximately $2.0 million, as compared to $3.3 million for the year ended December 31, 2022, representing a decrease of approximately $1.3 million, or 39%.
Removed
Knightscope also offers an extended warranty on this series of stationary security towers. Our current strategy for all products and services is to focus solely on United States sales and deployments for the foreseeable future before considering global expansion.
Added
The cloud-based application monitors the system wide state-of-health, alerts users concerning operational issues, provides technicians real-time error detection/diagnostics, and collects/reports system performance statistics. Our current strategy for all products and services is to focus solely on USA sales and deployments for the foreseeable future before considering global expansion. The Company has incurred net losses since inception.
Removed
The purchase price paid at the closing of the CASE Acquisition consisted of (i) $6.16 million in cash, subject to a working capital and indebtedness adjustment, less an indemnification holdback amount of $672,000 and (ii) $560,000 in the form of an unsecured, non-negotiable promissory note.
Added
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 .
Removed
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) senior secured convertible notes in an aggregate principal amount of $6.075 million (the “Notes”), 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.
Added
Known or Anticipated Trends Our primary goal remains meeting client demand for additional orders of our technology, attracting new client orders, and ensuring consistent performance in the field.
Removed
On December 30, 2022, the Company and the holder of the Notes entered into an agreement and waiver, pursuant to which, among other things, the conversion price under the Note was reduced to equal the Alternate Conversion Price (as defined in the Notes) then in effect (but with 85% replacing 80% in such definition of Alternate Conversion Price, as applicable).
Added
The Company is focused on scaling its business to meet incoming orders and increasing demand through various marketing efforts, including our nationwide Robot Roadshow and media coverage, which continues to drive an increase in orders and client inquiries. Sales trends for the year ended December 31, 2023 showed demand across all of Knightscope’s product and service lines.
Removed
On January 6, 2023, following the completion of the CASE Acquisition, the Company announced a cost-reduction plan intended to reduce operating costs, improve operating margins, streamline its operations and right-size its combined workforce and continue advancing the Company’s ongoing commitment to profitable growth. The cost-reduction plan included a reduction of the Company’s workforce by approximately 20%.
Added
The sales pipeline continues to grow, however, due to the nature of business-to-business transactions, with enterprises and government municipalities, the sales cycle is lengthy.
Removed
In February 2023, the Company commenced an At The Market offering program with H.C. Wainwright & Co., LLC, acting as sales agent, under which we may offer and sell shares of our Class A Common Stock from time to time through the sales agent having an aggregate offering price of up to $20,000,000.
Added
Although we have executed some contracts in less than 30 days, in some cases negotiations can range up to several months and years, due to the client’s budget, finance, legal, cyber security, human resources, facilities and other 36 Table of Contents reviews.
Removed
There have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements.
Added
The sales process for brand-new technology as well as mature, trusted technology requires significant streamlining and improvements, and we are taking steps to improve our sales processes to move our products through the sales pipeline quicker.
Removed
Cost is determined using an average cost, which approximates actual cost on a first-in, first-out basis. Inventory in excess of salable amounts and inventory which is considered obsolete based upon changes in existing technology is written off.
Added
Delays due to supply chain issues and the COVID-19 pandemic that negatively impacted the Company’s performance during the first half of 2022 had largely subsided by the end of fiscal 2023, although supply chain constraints can still be unpredictable and problematic.
Removed
The Company recognizes forfeitures as they occur when calculating stock-based compensation for its equity awards.
Added
The CASE Acquisition also contributed to a significant increase in the Company’s revenues for the year ended December 31, 2023. Due to geopolitical events and safety requirements as well as various high-profile incidents of violence across the USA, we believe that the market for our technologies will continue to grow.
Removed
The increase was due to the Company’s acquisition of CASE during the fourth quarter of 2022 and ASR renewals and new deployments at a number of new clients in 2022 as the Company was able to conduct business with less disruption from COVID-19 and resulting supply chain issues, which negatively impacted the Company’s service revenue during 2021.
Added
We also expect that competing products may be introduced in the near future, creating pressure on us to improve on our production methods, cost, quality and product features. The Company is aiming to scale its business and become more streamlined, which management expects will decrease gross loss over time.
Removed
Product revenue of approximately $0.5 million from sales of call boxes and blue light security towers represents incremental new revenue to the Company resulting from the CASE Acquisition (see note 3 to the consolidated financial statements in Item 8). The Company had no product revenue in 2021.
Added
Therefore, we are focusing our resources on growing the business, in order to be able to generate both a gross profit and net income.

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