Knightscope, Inc 10-Q for FY2024 Q3
Knightscope, Inc. (KSCP)
About this 10-Q
Knightscope, Inc filed this 10-Q on November 14, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.54M
- down 23.7% from $3.32M a year earlier
- Net loss
- $10.9M
- compared with a net loss of $8.34M a year earlier
- Diluted EPS
- -$3.58
- compared with -$5.36 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
EXCHANGE ACT OF 1934
For the quarterly period ended
or
EXCHANGE ACT OF 1934
For the transition period from to
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(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | |
Large accelerated filer | ☐ | Accelerated filer | ☐ | | |
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☒ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 13, 2024, there were
TABLE OF CONTENTS
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| Condensed Balance Sheets as of September 30, 2024 and December 31, 2023 (Unaudited) | 5 |
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| Condensed Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 (Unaudited) | 9 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 | |
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Cautionary Note on Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, including profitability, our business strategy and plans, market growth, product and service releases, the status of product development, compliance with applicable listing requirements or standards of The Nasdaq Capital Market, demand for our products and services, and our objectives for future operations, are forward-looking statements. In some cases the words “believe,” “may,” “will,” “estimate,” “potential,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “target,” or the negative of these terms and similar expressions are intended to identify forward-looking statements.
Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
| ● | The success of our products and product candidates, which will require significant capital resources and years of development efforts; |
| ● | Our deployments and market acceptance of our products; |
| ● | Our ability to protect our intellectual property and to develop, maintain and enhance a strong brand; |
| ● | Our limited operating history by which performance can be gauged; |
| ● | Our ability to continue as a going concern; |
| ● | Our ability to comply with all applicable listing requirements or standards of The Nasdaq Capital Market; |
| ● | Our ability to operate and collect digital information on behalf of our clients, which is dependent on the privacy laws of jurisdictions in which our Autonomous Security Robots (“ASR”) and Emergency Communication Devices (“ECD”) operate, as well as the corporate policies of our clients, which may limit our ability to fully deploy our technologies in various markets; |
| ● | Our ability to raise capital; and |
| ● | Our ability to manage our research, development, expansion, growth, and operating expenses. |
We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties, and assumptions and other important factors that could cause actual results to differ materially from those stated, including:
| ● | 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 report of our independent registered public accounting firm expresses substantial doubt about our ability to continue as a going concern, and we may not be able to continue to operate the business if we are not successful in securing additional funding. |
| ● | We expect to experience future losses as we implement our business strategy and will need to generate significant revenues to achieve profitability, which may not occur. |
| ● | We are subject to potential fluctuations in operating results due to our sales cycle. |
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| ● | If we are unable to acquire new customers, our future revenues and operating results will be harmed. Likewise, potential customer turnover in the future, or costs we incur to retain our existing customers, could materially and adversely affect our financial performance. |
| ● | We are subject to the loss of contracts, due to terminations, non-renewals or competitive re-bids, which could adversely affect our results of operations and liquidity, including our ability to secure new contracts from other customers. |
| ● | Our future operating results are difficult to predict and may be affected by a number of factors, many of which are outside of our control. |
| ● | Our financial results will fluctuate in the future, which makes them difficult to predict. |
| ● | 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. |
| ● | 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. |
| ● | We have a limited number of deployments, and limited market acceptance of our products could harm our business. |
| ● | We cannot assure you that we will effectively manage our growth. |
| ● | Our costs may grow more quickly than our revenues, harming our business and profitability. |
| ● | 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. 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. |
| ● | The other risks, uncertainties, and important factors described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Quarterly Report on Form 10-Q and “Risk Factors” in Part I, Item 1A of our most recent Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“the SEC”) on April 1, 2024, as amended by our Annual Report on Form 10-K/A, filed with the SEC on April 29, 2024 (together, our “Annual Report”), as updated in our other filings with the SEC. |
Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. Our forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations, except as required by applicable law.
In this Quarterly Report on Form 10-Q, the words “we,” “us,” “our,” “the Company” and “Knightscope” refer to Knightscope, Inc., unless the context requires otherwise.
4
PART I —FINANCIAL INFORMATION
Item 1. Financial Statements
KNIGHTSCOPE, INC.
Condensed Balance Sheets
(In thousands, except share and per share data)
| | September 30, |
| December 31, | ||
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| 2024 |
| 2023 | ||
| | (unaudited) | | (1) | ||
ASSETS | | | | | | |
Current assets: |
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Cash and cash equivalents | | $ | | | $ | |
Restricted cash | |
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Accounts receivable, net of allowance for credit losses of $ | |
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Inventory | | | | | | |
Prepaid expenses and other current assets | |
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Total current assets | |
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Autonomous Security Robots, net | |
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Property, equipment and software, net | |
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Operating lease right-of-use-assets | |
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Goodwill | | | | | | |
Intangible assets, net | | | | | | |
Other assets | |
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Total assets | | $ | | | $ | |
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LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) | |
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Current liabilities: | |
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Accounts payable | | $ | | | $ | |
Accrued expenses | |
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Deferred revenue | |
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Operating lease liabilities, current | |
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Debt obligations, current | | | | | | — |
Other current liabilities | |
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Total current liabilities | |
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Non-current liabilities: | |
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Debt obligations, net of debt issuance costs of $ | |
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Preferred stock warrant liability | |
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Derivative liability | | | — | | | |
Other noncurrent liabilities | | | | | | |
Operating lease liabilities, noncurrent | |
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Total liabilities | |
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Commitments and contingencies (Note 8) | |
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Preferred Stock, $ | |
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Stockholders’ equity (deficit) (2): | |
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Class A Common Stock, $ | |
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Class B Common Stock, $ | |
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Additional paid-in capital | |
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Accumulated deficit | |
| ( | |
| ( |
Total stockholders’ equity (deficit) | |
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| ( |
Total liabilities, preferred stock and stockholders’ equity (deficit) | | $ | | | $ | |
| (1) | The condensed balance sheet as of December 31, 2023 was derived from the audited balance sheet as of that date. |
| (2) | Share amounts as of December 31, 2023 have been adjusted to reflect the impact of a -for-50 reverse stock split of the Company’s common stock effected in September 2024 as discussed in Note 1. |
The accompanying notes are an integral part of these condensed financial statements.
5
KNIGHTSCOPE, INC.
Condensed Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Revenue, net | | | | | | | | | | | | |
Service | | $ | | | $ | | | $ | | | $ | |
Product | | | | | | | | | | | | |
Total revenue, net | | | | | | | | | | | | |
Cost of revenue, net | |
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Service | | | | | | | | | | | | |
Product | | | | | | | | | | | | |
Total cost of revenue, net | | | | | | | | | | | | |
Gross profit (loss) | | | ( | | | | | | ( | | | ( |
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Operating expenses: | |
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Research and development | |
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Sales and marketing | |
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General and administrative | |
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Restructuring charges | | | | | | — | | | | | | |
Total operating expenses | |
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Loss from operations | |
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Other income (expense): | |
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Change in fair value of warrant and derivative liabilities | |
| ( | |
| ( | |
| ( | |
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Interest income (expense), net | | | ( | | | ( | | | ( | | | ( |
Other income (expense), net | |
| ( | |
| ( | |
| ( | |
| ( |
Total other income (expense) | |
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| ( | |
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Net loss before income tax expense | |
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| ( | |
| ( | |
| ( |
Income tax expense | |
| — | |
| — | |
| — | |
| — |
Net loss | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Basic and diluted net loss per common share | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Weighted average shares used to compute basic and diluted net loss per share (1) | | | | | | | | | | | | |
| | | | | | | | | | | | |
| (1) | Share amounts for the periods ended September 30, 2023 have been adjusted to reflect the impact of a -for-50 reverse stock split of the Company’s common stock effected in September 2024 as discussed in Note 1. |
The accompanying notes are an integral part of these condensed financial statements.
6
KNIGHTSCOPE, INC.
Condensed Statements of Preferred Stock and Stockholders’ Equity (Deficit)
(In thousands, except share and per share data)
(Unaudited)
| | Series m | | Series m-2 | | Series S | | Series A | | Series B | | Class A | | Class B | | | | | | | | |||||||||||||||||||||||
| | Preferred | | Preferred | | Preferred | | Preferred | | Preferred | | Common | | Common | | Additional | | | | Total | ||||||||||||||||||||||||
| | Stock | | Stock | | Stock | | Stock | | Stock | | Stock | | Stock | | Paid-in | | Accumulative | | Stockholders’ | ||||||||||||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| capital |
| Deficit |
| Deficit | ||||||||||
Balance as of June 30, 2023 | | | | $ | | | | | $ | | | | | $ | | | | | $ | | | | | $ | | | | | $ | | | | | $ | — | | $ | | | $ | ( | | $ | ( |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Offering proceeds, net of issuance costs |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| |
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| — | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Share conversion to common stock | | ( | | | ( | | — | | | — | | ( | | | ( | | — | | | — | | — | | | — | | | | | — | | ( | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Share conversion costs | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | ( | | | — | | | ( |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — | | | — | | | — | | | ( | | | ( |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2023 |
| | | $ | |
| | | $ | |
| | | $ | |
| | | $ | |
| | | $ | |
| | | $ | |
| | | $ | — | | $ | | | $ | ( | | $ | ( |
| | Series m | | Series m-2 | | Series S | | Series A | | Series B | | Class A | | Class B | | | | | | | | | | |||||||||||||||||||||
| | Preferred | | Preferred | | Preferred | | Preferred | | Preferred | | Common | | Common | | Additional | | | | | Total | |||||||||||||||||||||||
| | Stock | | Stock | | Stock | | Stock | | Stock | | Stock | | Stock | | Paid-in | | Accumulative | | Stockholders’ | ||||||||||||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| capital |
| Deficit |
| Deficit | ||||||||||
Balance as of December 31, 2022 | | | | $ | | | | | $ | | | | | $ | | | | | $ | | | | | $ | | | | | $ | | | | | $ | — | | $ | | | $ | ( | | $ | ( |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of debt obligations to Class A Common Stock | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | | | — | | — | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock options exercised | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | | | — | | | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from Equity Sale, net of issuance costs | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | | | | | — | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Share conversion to common stock | | ( | | | ( | | — | | | — | | ( | | | ( | | ( | | | ( | | ( | | | ( | | | | | — | | ( | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Share conversion costs | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | ( | | | — | | | ( |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2023 | | | | $ | | | | | $ | | | | | $ | | | | | $ | | | | | $ | | | | | $ | | | | | $ | — | | $ | | | $ | ( | | $ | ( |
Note: Share amounts have been adjusted to reflect the impact of a -for-50 reverse stock split of the Company’s common stock effected in September 2024 as discussed in Note 1.
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| | Series m | | Series m-2 | | Series S | | Series A | | Series B | | Class A | | Class B | | | | | | | | | | |||||||||||||||||||||
| | Preferred | | Preferred | | Preferred | | Preferred | | Preferred | | Common | | Common | | Additional | | | | | Total | |||||||||||||||||||||||
| | Stock | | Stock | | Stock | | Stock | | Stock | | Stock | | Stock | | Paid-in | | Accumulative | | Stockholders’ | ||||||||||||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| capital |
| Deficit |
| Equity (Deficit) | ||||||||||
Balance as of June 30, 2024 | | — | | $ | — | | — | | $ | — | | — | | $ | — | | — | | $ | — | | — | | $ | — | | | | $ | | | | | $ | — | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock options exercised |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| ( |
| | — |
| | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fractional share adjustment due to reverse stock split | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | ( | | | — | | ( | | | — | | | ( | | | | | | ( |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Offering proceeds, net of issuance costs | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | | | | | — | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — | | | — | | | — | | | ( | | | ( |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2024 |
| — | | $ | — | | — | | $ | — | | — | | $ | — | | — | | $ | — | | — | | $ | — | | | | $ | | | | | $ | — | | $ | | | $ | ( | | $ | |
| | Series m | | Series m-2 | | Series S | | Series A | | Series B | | Class A | | Class B |
| | | | | | | | | |||||||||||||||||||||
| | Preferred | | Preferred | | Preferred | | Preferred | | Preferred | | Common | | Common |
| Additional | | | | | Total | |||||||||||||||||||||||
| | Stock | | Stock | | Stock | | Stock | | Stock | | Stock | | Stock |
| Paid-in |
| Accumulative | | Stockholders’ | ||||||||||||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| capital |
| Deficit |
| Equity (Deficit) | ||||||||||
Balance as of December 31, 2023 | | | | $ | | | | | $ | | | | | $ | | | | | $ | | | | | $ | | | | | $ | | | | | $ | — | | $ | | | $ | ( | | $ | ( |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Reclassification of warrant liabilities | | — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock options exercised | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fractional share adjustment due to reverse stock split | | | | | | | | | | | | | | | | | | | | | | | | | | | ( | | | — | | ( | | | — | | | ( | | | | | | ( |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Offering proceeds, net of issuance costs | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | | | | | — | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Share conversion to common stock | | ( | | | ( | | ( | | | ( | | ( | | | ( | | ( | | | ( | | ( | | | ( | | | | | — | | | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Share conversion costs | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | ( | | | — | | | ( |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2024 | | — | | $ | — | | — | | $ | — | | — | | $ | — | | — | | $ | — | | — | | $ | — | | | | $ | | | | | $ | — | | $ | | | $ | ( | | $ | |
Note: Share amounts have been adjusted to reflect the impact of a -for-50 reverse stock split of the Company’s common stock effected in September 2024 as discussed in Note 1.
The accompanying notes are an integral part of these condensed financial statements.
8
KNIGHTSCOPE, INC.
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
| | Nine Months Ended September 30, | ||||
|
| 2024 |
| 2023 | ||
Cash Flows From Operating Activities | | | | | | |
Net loss |
| $ | ( |
| $ | ( |
Adjustments to reconcile net loss to net cash used in operating activities: | |
|
| |
|
|
Depreciation and amortization | |
| | |
| |
Loss on disposal of Autonomous Security Robots | |
| | |
| — |
Stock compensation expense | |
| | |
| |
Change in fair value of warrant and derivative liabilities | |
| | |
| ( |
Accrued interest | | | | | | |
Common stock issued in exchange for consulting services | | | — | | | |
Amortization of debt discount | |
| | |
| — |
Changes in operating assets and liabilities: | |
| | |
| |
Accounts receivable, net | |
| ( | |
| ( |
Prepaid expenses and other current assets | |
| | |
| ( |
Inventory | | | ( | | | ( |
Other assets | |
| | |
| |
Accounts payable | |
| | |
| ( |
Accrued expenses | |
| | |
| ( |
Deferred revenue | |
| | |
| ( |
Other current and noncurrent liabilities | |
| ( | |
| |
Net cash used in operating activities | |
| ( | |
| ( |
| | | | | | |
Cash Flows From Investing Activities | |
|
| |
|
|
Purchases and related costs incurred for Autonomous Security Robots | |
| ( | |
| ( |
Purchases of property and equipment | |
| ( | |
| ( |
Net cash used in investing activities | |
| ( | |
| ( |
| | | | | | |
Cash Flows From Financing Activities | |
|
| |
|
|
Proceeds from stock options exercised | |
| | |
| |
Cash paid for fractional shares | | | ( | | | — |
Proceeds from equity sale, net of issuance costs | |
| | |
| |
Proceeds from issuance of Public Safety Infrastructure Bonds, net of issuance costs | |
| | |
| — |
Repayments of debt obligations | | | ( | | | ( |
Share conversion costs | | | ( | | | ( |
Net cash provided by financing activities | |
| | |
| |
Net change in cash, cash equivalents and restricted cash | |
| | |
| ( |
Cash, cash equivalents and restricted cash at beginning of the period | |
| | |
| |
Cash, cash equivalents and restricted cash at end of the period | | $ | | | $ | |
| | | | | | |
Supplemental Disclosure of Non-Cash Financing and Investing Activities | |
|
| |
|
|
Conversion of preferred stock to common stock | | $ | | | $ | |
Conversion of debt obligations to Class A Common Stock | | $ | — | | $ | |
Goodwill adjustment | | $ | — | | $ | |
Capital expenditures in accounts payable and other long-term liabilities | | $ | | | $ | — |
Preferred stock warrant reclassification to equity | | $ | | | $ | — |
Promissory note issued in exchange for cancellation of Class A Common Stock Warrants | | $ | | | $ | — |
The accompanying notes are an integral part of these condensed financial statements.
9
KNIGHTSCOPE, INC.
Notes to Condensed financial statements
(Dollars in thousands, unless otherwise stated)
(Unaudited)
NOTE 1: The Company and Summary of Significant Accounting Policies
Description of Business
Knightscope, Inc. was incorporated on April 4, 2013 under the laws of the State of Delaware.
Knightscope, Inc. (the “Company”) is an innovator in robotics and artificial intelligence (“AI”) technologies focused on public safety. 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 United States and allow public safety professionals to more effectively identify, deter, intervene, capture, and prosecute criminals.
To support our mission to make the United States the safest country in the world, we design, develop, manufacture, market, deploy and support Autonomous Security Robots (“ASRs”), the proprietary Knightscope Security Operations Center (“KSOC”) software user interface, Blue Light emergency communication devices (“ECDs”), and the proprietary Knightscope Emergency Management System (“KEMS”) software platform.
Basis of Presentation and Liquidity
The unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures have been condensed or omitted pursuant to such rules and regulations. The unaudited condensed financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair presentation of the period presented. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31,
Since its inception, the Company has incurred significant operating losses and negative cash flows from operations which is principally the result of scaling the business and significant research and development activities related to the development, continued improvement, and deployment of the Company’s ASRs (hardware and software).
Cash and cash equivalents on hand were $
Basic and Diluted Net Loss per Share
Net loss per share of common stock is computed using the two-class method required for participating securities based on their participation rights. All series of convertible preferred stock are participating securities as the holders are entitled to participate in common stock dividends with common stock on an as converted basis. The voting, dividend, liquidation and other rights and powers of the common stock are subject to and qualified by the rights, powers and preferences of any series of preferred stock as may be designated by the Company’s Board of Directors and outstanding from time to time. In accordance with the two-class method, earnings allocated to these participating securities, which include participation rights in undistributed earnings with common stock, are subtracted from net loss to determine net loss attributable to common stockholders upon their occurrence.
10
Basic net loss per share is computed by dividing net loss attributable to common stockholders (net adjusted for preferred stock dividends declared or accumulated) by the weighted average number of common shares outstanding during the period. All participating securities are excluded from basic weighted average shares outstanding. In computing diluted net loss attributable to common stockholders, undistributed earnings are re-allocated to reflect the potential impact of dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by diluted weighted average shares outstanding, including potentially dilutive securities, unless anti-dilutive. Potentially dilutive securities that were excluded from the computation of diluted net loss per share for the three and nine months ended September 30, 2024 and 2023 consist of the following:
|
| September 30, | | September 30, |
| | 2024 |
| 2023 |
Series A Preferred Stock (convertible to Class B Common Stock) |
| — |
| |
Series B Preferred Stock (convertible to Class B Common Stock) |
| — |
| |
Series m Preferred Stock (convertible to Class A Common Stock) |
| — |
| |
Series m-2 Preferred Stock (convertible to Class B Common Stock) |
| — |
| |
Series S Preferred Stock (convertible to Class A Common Stock) |
| — |
| |
Warrants to purchase Class A Common Stock | | | | |
Warrants to purchase Series m-3 Preferred Stock |
| — |
| |
Warrants to purchase Series S Preferred Stock |
| — |
| |
Stock options |
| |
| |
Total potentially dilutive shares |
| |
| |
As all potentially dilutive securities are anti-dilutive as of September 30, 2024 and 2023, diluted net loss per common share is the same as basic net loss per common share for each period.
On May 15, 2024 (the “Preferred Stock Conversion Date”), pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation, as amended to date (the “Certificate of Incorporation”) each share of the Company’s Super Voting Preferred Stock was automatically converted into fully-paid, non-assessable shares of Class B common stock and each share of the Company’s Ordinary Preferred Stock (together with the Super Voting Preferred Stock, the “Preferred Stock”) was automatically converted into fully-paid, non-assessable shares of Class A Common Stock, in each case at the then effective applicable Conversion Rate, (as defined in the Certificate of Incorporation), as a result of the receipt by the Company of a written request for such conversion from the holders of a majority of the voting power of the Preferred Stock then outstanding (the “Automatic Conversion”). As a result of the Automatic Conversion, no shares of previously authorized Preferred Stock remain outstanding.
Segments
The Company has
Comprehensive Loss
Net loss was equal to comprehensive loss for the three month and nine month periods ended September 30, 2024 and 2023.
11
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Specific accounts that require management estimates include, but are not limited to, estimating the useful lives of the Company’s ASRs, property and equipment and intangible assets, certain estimates required within revenue recognition, warranty and allowance for credit losses, determination of deferred tax valuation allowances, estimating fair values of the Company’s share-based awards, warrant liability, and derivative liabilities, inclusive of any contingent assets and liabilities. Actual results could differ from those estimates and such differences may be material to the financial statements.
Reclassifications
Certain reclassifications have been made to the condensed balance sheet as of December 31, 2023 to conform to the fiscal year 2024 presentation. The reclassifications had no impact on total assets, total liabilities, or stockholders’ equity (deficit).
Accounting Pronouncements Adopted in 2024
None.
Accounting Pronouncements Not Yet Adopted
In November 2023, Financial Accounting Standards Board (“FASB”) released Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting. The amendment improves financial reporting by requiring disclosure of incremental segment information on an annual and interim basis. It is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Management does not believe the
In December 2023, FASB released ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU enhances income tax disclosures for the effective tax rate reconciliation and income taxes paid. This ASU is effective for fiscal periods beginning after December 15, 2024, with early adoption permitted. The Company is currently
Management has reviewed other recently issued accounting pronouncements issued or proposed by the FASB and does not believe any of these accounting pronouncements has had or will have a material impact on the condensed financial statements.
Inventory
Inventory, principally purchased components, is stated at the lower of cost or net realizable value. Cost is determined using an average cost, which approximates actual cost on a first-in, first-out basis. Inventory in excess of salable amounts and inventory which is considered obsolete based upon changes in existing technology is 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.
| | September 30, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Raw materials | | $ | | | $ | |
Work in process | |
| | |
| |
Finished goods | |
| | |
| |
| | $ | | | $ | |
12
Autonomous Security Robots, net
ASRs consist of materials, ASRs in progress and finished ASRs. ASRs in progress and finished ASRs include materials, labor and other direct and indirect costs used in their production. Finished ASRs are valued using a discrete bill of materials, which includes an allocation of labor and direct overhead based on assembly hours. Depreciation expense on ASRs is recorded using the straight-line method over their estimated expected lives, which currently ranges from
ASRs, net, consisted of the following:
| | September 30, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Raw materials | | $ | | | $ | |
ASRs in progress | |
| | |
| |
Finished ASRs | |
| | |
| |
| |
| | |
| |
Less: accumulated depreciation on Finished ASRs | |
| ( | |
| ( |
ASRs, net | | $ | | | $ | |
In the first quarter of 2024, the Company discontinued the K5 v3 machines and as a result, in the first nine months of 2024, wrote off approximately $
The components of the Finished ASRs, net are as follows:
| | September 30, | | December 31, | ||
|
| 2024 |
| 2023 | ||
ASRs on lease or available for lease | | $ | | | $ | |
Demonstration ASRs | |
| | | | |
Research and development ASRs | |
| | | | |
Charge boxes | | | | | | |
| |
| | | | |
Less: accumulated depreciation | |
| ( | | | ( |
Finished ASRs, net | | $ | | | $ | |
Intangible Assets
The gross carrying amounts and accumulated amortization of the intangible assets with determinable lives are as follows:
| | | | September 30, 2024 | |||||||
| | Amortization | | Gross | | | | | | | |
| | Period | | carrying | | Accumulated | | Carrying | |||
Intangible assets with determinable lives |
| (years) |
| amount |
| amortization |
| amount, net | |||
Developed technology |
| | $ | | | $ | ( | | $ | | |
Customer relationships |
| |
| | |
| ( | |
| | |
Total | | | | $ | | | $ | ( | | $ | |
13
|
| |
| December 31, 2023 | |||||||
| | Amortization | | Gross | | | | | |||
| | Period | | carrying | | Accumulated | | Carrying | |||
Intangible assets with determinable lives | | (years) |
| amount |
| amortization |
| amount, net | |||
Developed technology |
| | $ | | | $ | ( |
| $ | | |
Customer relationships |
| |
| | |
| ( |
|
| | |
Total | | | | $ | | | $ | ( |
| $ | |
Intangible assets amortization expense totaled $
Intangible assets amortization expense totaled $
As of September 30, 2024, future intangible assets amortization expense for each of the next five years and thereafter is as follows:
Year ending December 31, |
| Amount | |
2024 (remaining three months) | | $ | |
2025 | |
| |
2026 | |
| |
2027 | |
| |
2028 | |
| |
2029 and thereafter | | | |
Total | | $ | |
Other Current Liabilities
Other current liabilities consisted of the following:
|
| September 30, |
| December 31, | ||
| | 2024 | | 2023 | ||
Sales tax | | $ | | | $ | |
Customer deposits | |
| | |
| |
Warranty liability | |
| | |
| |
Other | |
| | |
| |
| | $ | | | $ | |
Warranty Liability
The liability for estimated warranty claims is accrued at the time of sale and the expense is recorded in the condensed statements of operations in cost of revenue, net - product. The liability is established using historical warranty claim experience. The current provision may be adjusted to take into account unusual or non-recurring events in the past or anticipated changes in future warranty claims. Adjustments to the warranty accrual are recorded if actual claim experience indicates that adjustments are necessary. Warranty reserves are reviewed to ensure critical assumptions are updated for known events that may impact the potential warranty liability.
14
Change in the warranty liability for the nine months ended consisted of the following:
|
| September 30, | ||||
| | 2024 |
| 2023 | ||
Balance January 1, | | $ | | | $ | |
Provision for warranties issued | |
| | |
| |
Warranty services provided | |
| ( | |
| ( |
| | $ | | | $ | |
Accrued Expenses
Accrued expenses consisted of the following:
|
| September 30, |
| December 31, | ||
| | 2024 | | 2023 | ||
Legal, consulting and financial services | | $ | | | $ | |
Payroll and payroll taxes | |
| | |
| |
Credit cards | |
| | |
| |
Accrued interest | | | | | | |
Other | |
| | |
| |
| | $ | | | $ | |
Convertible Preferred Warrant Liabilities and Common Stock Warrants
Freestanding warrants to purchase shares of the Company’s preferred stock were classified as liabilities on the balance sheets at their estimated fair value because the underlying shares of preferred stock were contingently redeemable and, therefore, may have obligated the Company to transfer assets at some point in the future. The preferred stock warrants were recorded at fair value upon issuance and were subject to remeasurement to their respective estimated fair values. At the end of each reporting period, changes in the estimated fair value of the preferred stock warrants were recorded in the condensed statements of operations. The Company adjusted the liability associated with the preferred stock warrants for changes in the estimated fair value until the earlier of the exercise or conversion. On May 15, 2024, the preferred stock warrants converted into warrants to purchase common stock and any liabilities recorded for the preferred stock warrants were reclassified to additional paid-in capital and are no longer subject to remeasurement.
Common stock warrants that are not considered derivative liabilities are accounted for at fair value at the date of issuance in additional paid-in capital.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with Accounting Standards Codification (“ASC”) 718, Compensation - Stock Compensation, which requires that the estimated fair value on the date of grant be determined using the Black-Scholes option pricing model with the fair value recognized over the requisite service period of the awards, which is generally the option vesting period. The Company’s determination of the fair value of the stock-based awards on the date of grant, using the Black-Scholes option pricing model, is affected by the fair value of the Company’s common stock as well as other assumptions regarding a number of highly complex and subjective variables. These variables include but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee option exercise behaviors. Because there is insufficient historical information available to estimate the expected term of the stock-based awards, the Company adopted the simplified method of estimating the expected term of options granted by taking the average of the vesting term and the contractual term of the option. The Company recognizes forfeitures as they occur when calculating stock-based compensation for its equity awards.
15
Reverse Stock Split
16
NOTE 2: Revenue and Deferred Revenue
Revenue Recognition
ASR related revenues
The Company generates revenue primarily through the lease of its ASRs, along with access to the browser-based interface, KSOC. These revenues are recognized under the lease accounting framework, with contracts typically having an initial term of 12 months and an automatic renewal provision. The ASR lease agreements, which include access to KSOC, are classified as leases for revenue recognition purposes, with revenue being recognized over the lease term as the service is provided.
ECD related revenues
The Company also derives revenues from sales of its ECDs and related services, such as installation, maintenance, and upgrades. Revenue is recognized when clients sign a full or partial certificate of completion, at which point, Knightscope can generate an invoice for its products and services. Clients also have the option to sign up for ongoing preventative and maintenance agreements. The maintenance revenue is recognized in the period the service is performed and the Company has determined that the term of the contracts has been fulfilled. Installation or upgrades revenue are recognized upon completion of the project/contracts. In certain cases, deferred revenue is recognized to account for unfinished contracts.
The Company determines revenue recognition through the following steps:
| ● | identification of the contract, or contracts, with a client; |
| ● | identification of the performance obligations in the contract; |
| ● | determination of the transaction price; |
| ● | allocation of the transaction price to the performance obligations in the contract; and |
| ● | recognition of revenue when, or as, the Company satisfies a performance obligation. |
ASR subscription revenue
The Company recognizes ASR subscription revenue as follows:
ASR subscription revenue is generated from the lease of proprietary ASRs along with access to the browser-based interface KSOC through contracts that typically have 12 month terms. These revenue arrangements adhere to lease accounting guidance and are classified as leases for revenue recognition purposes. Currently, all revenue arrangements qualify as operating leases where consideration allocated to the lease deliverables is recognized ratably over the lease term.
Deferred revenue
In connection with the Company’s Machine-as-a-Service (“MaaS”) subscription for the Company’s ASRs, the Company’s standard billing terms are annual in advance. In these situations, the Company records the invoices as deferred revenue and amortizes the subscription amount when the services are delivered, which generally is a 12 month period. In addition, the Company refers certain transactions to financing companies, whereby the financing company advances the full value of the MaaS subscription to the Company, less a processing fee. The advanced payment is recorded in deferred revenue and amortized over the term of the subscription once the ASR is delivered to the deployment site.
The Company derives its revenue from the lease subscription of its proprietary ASRs along with access to its browser and mobile based software interface, KSOC. MaaS subscription agreements typically have a 12 month term.
17
The Company also records deferred revenue from unfinished contracts for certain ECD related services.
Deferred revenue includes billings in excess of revenue recognized. Revenue recognized at a point in time generally does not result in significant increases in deferred revenue. Revenue recognized over a period generally results in a majority of the increases in deferred revenue as the performance obligations are fulfilled after the billing event. Deferred revenue was as follows:
|
| September 30, 2024 | |
Deferred revenue - short term | | $ | |
Revenue recognized in the nine months ended related to amounts included in deferred revenue as of January 1, 2024 | | $ | |
Deferred revenue represents amounts invoiced to customers for contracts for which revenue has yet to be recognized based for subscription services to be delivered to the Company’s clients. Typically, the timing of invoicing is based on the terms of the contract.
Customer Deposits
Customer deposits primarily relate to sales of ECDs to certain customers dependent upon creditworthiness. The customer deposits are recorded as current liabilities and reclassed as a contra accounts receivable account at the time that the final invoice for the sale is generated following the completion of the revenue recognition criteria.
Disaggregation of revenue
The Company disaggregates revenue from contracts with customers into the timing of the transfers of goods and services by product line.
The following table summarizes revenue by product line and timing of recognition:
| | Three Months Ended September 30, | ||||||||||||||||
| | 2024 | | 2023 | ||||||||||||||
|
| Point in time |
| Over time |
| Total |
| Point in time |
| Over time |
| Total | ||||||
ASRs | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
ECDs | | | | | | | |
| | | | | | | | |
| |
Total | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
| | Nine Months Ended September 30, | ||||||||||||||||
| | 2024 | | 2023 | ||||||||||||||
|
| Point in time |
| Over time |
| Total |
| Point in time |
| Over time |
| Total | ||||||
ASRs | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
ECDs | | | | | | | |
| | | | | | | | |
| |
Total | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Other revenue, net
Other non-ASR service-related revenues such as deployment services, decals and training revenue are recognized when services are delivered. Revenue from these transactions has been immaterial for all periods presented and is included in service revenue, net.
NOTE 3: Fair Value Measurement
The Company determines the fair market values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following are three levels of inputs that may be used to measure fair value:
18
| ● | Level 1 – Quoted prices in active markets for identical assets or liabilities. The Company considers a market to be active when transactions for the asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
| ● | Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| ● | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The valuation of Level 3 investments requires the use of significant management judgments or estimation. |
In certain cases where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3. Level 3 liabilities that are measured at fair value on a recurring basis consist of the convertible preferred stock warrant liabilities. The inputs used in estimating the fair value of the warrant liabilities are described in Note 6 - Capital Stock and Warrants.
The following tables summarize, for each category of assets or liabilities carried at fair value, the respective fair value as of September 30, 2024 and December 31, 2023, and the classification by level of input within the fair value hierarchy:
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||
September 30, 2024 |
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Assets |
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| |
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| |
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Cash equivalents: |
| |
|
| |
|
| |
|
| |
|
Money market funds | | $ | | | $ | | | $ | — | | $ | — |
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||
December 31, 2023 |
| |
|
| |
|
| |
|
| |
|
Assets |
| |
|
| |
|
| |
|
| |
|
Cash equivalents: |
| |
|
| |
|
| |
|
| |
|
Money market funds | | $ | | | $ | | | $ | — | | $ | — |
Liabilities | |
|
| |
|
| |
|
| |
|
|
Warrant liability – Series m-3 Preferred Stock | | $ | | | $ | — | | $ | — | | $ | |
Warrant liability – Series s Preferred Stock | | $ | | | $ | — | | $ | — | | $ | |
Derivative liability – Class A Common Stock warrants | | $ | | | $ | — | | $ | — | | $ | |
During the nine month period ended September 30, 2024 and 2023, there were
As of September 30, 2024, there were
The following table sets forth a summary of the changes in the fair value of Company’s Level 3 warrant and derivative liabilities during the nine month periods ended September 30, 2024 and 2023, which were measured at fair value on a recurring basis:
| | September 30, | | September 30, | ||
| | 2024 | | 2023 | ||
Beginning Balance |
| $ | |
| $ | |
Warrants cancelled | |
| ( | |
| ( |
Revaluation of Series m-3 and S Preferred Stock warrants | | | ( | | | ( |
Reclassification of Series m-3 and S Preferred Stock warrants | | | ( | | | — |
Revaluation of common stock warrants | | | | | | ( |
Ending Balance | | $ | — | | $ | |
19
The following table sets forth a summary of the changes in the fair value of Company’s Level 3 convertible note liabilities during the nine month periods ended September 30, 2024 and 2023, which were measured at fair value on a recurring basis:
|
| September 30, | | September 30, | ||
| | 2024 | | 2023 | ||
Beginning Balance | | $ | — | | $ | |
Notes converted | | | — | | | ( |
Interest accretion | |
| — | |
| |
Ending Balance | | $ | — | | $ | — |
NOTE 4: Debt Obligations
Public Safety Infrastructure Bonds
On September 29, 2023, the Company filed an Offering Circular on Form 1-A/A (File No. 024-12314) (the “Offering Circular”) for the issuance of up to $
August 2024 Note
On October 10, 2022, the Company entered into a Securities Purchase Agreement (the “2022 Purchase Agreement”) with Alto Opportunity Master Fund, SPC - Segregated Master Portfolio B (the “Holder”), pursuant to which the Company issued and sold to the Holder in a private placement (i) senior secured convertible notes (the “2022 Notes”), and (ii) warrants (the “2022 Warrants”) to purchase up to
On
Additionally, pursuant to the Waiver, the Holder agreed that the Company’s obligations under the 2022 Notes, the 2022 Purchase Agreement, the 2022 Registration Rights Agreement, the 2022 Warrants, and the other Transaction Documents (as defined in the 2022 Purchase Agreement) have been satisfied in full and such documents are terminated, except that the Company shall continue to
20
comply with and perform Section 4.10 of the 2022 Purchase Agreement and Section 6 of the 2022 Registration Rights Agreement, in each case which provide for indemnification, and which in each case survive and shall remain in full force and effect.
The Waiver and August 2024 Note contain various representations and warranties, affirmative and negative covenants, financial covenants, events of default and other provisions and obligations.
In connection with the entry into the Waiver and the August 2024 Note, on the Issuance Date, the Company and the Holder entered into a security agreement, pursuant to which the Company granted to the Holder a security interest in substantially all current and future properties, assets, and rights of the Company.
As of September 30, 2024, the outstanding balance of the August 2024 Note is $
The amortized carrying amount of the Company’s debt obligations consists of the following:
|
| September 30, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Bonds, net of unamortized issuance costs of $ | | $ | | | $ | |
August 2024 Note | | | | | | — |
Total debt | |
| | |
| |
Less: current portion of debt obligations | |
| ( | |
| — |
Non-current portion of debt obligations | | $ | | | $ | |
The Company issued Bonds with a total principal amount of approximately $
NOTE 5: Stock-Based Compensation
Equity Incentive Plans
In April 2014, the Board of Directors adopted the 2014 Equity Incentive Plan (the “2014 Plan”) allowing for the issuance of up to
On June 23, 2022, following approval by the Board of Directors, the Company’s stockholders adopted the 2022 Equity Incentive Plan (the “2022 Plan”) allowing for the issuance of up to
21
The Board of Directors may grant stock options under the 2022 Plan at an exercise price of not less than
Stock option activity under all of the Company’s equity incentive plans for the nine month period ended September 30, 2024 is as follows:
|
| |
| |
| | |
| Weighted |
| | |
| | | | | | Weighted | | Average | | | | |
| | Shares | | Number of | | Average | | Remaining | | Aggregate | ||
| | Available for | | Shares | | Exercise | | Contractual | | Intrinsic | ||
| | Grant | | Outstanding | | Price | | Life (Years) | | Value (000’s) | ||
Available and outstanding as of December 31, 2023 | | | | | | $ | | | | $ | | |
2022 Equity incentive plan increase | | | | — | | | | | | | | |
Granted |
| ( |
| | |
| |
| |
| | |
Exercised | | 2,260 | | ( | | | | | | | | |
Forfeited |
| |
| ( | |
| |
| |
| | |
Expired | | | | ( | | | | | | | | |
Available and outstanding as of September 30, 2024 | | | | | | $ | | | | $ | — | |
Vested and exercisable as of September 30, 2024 |
| | | | | $ | |
| | $ | — | |
The weighted average grant date fair value of options granted during the nine month period ended September 30, 2024 was $
As of September 30, 2024, the Company had unamortized stock-based compensation expense of $
The assumptions utilized for option grants during the three and nine months ended September 30, 2024 and 2023 are as follows:
|
| Three Months Ended | |
| Nine Months Ended | | ||||
| | September 30, | | | September 30, | | ||||
| | 2024 |
| 2023 |
| | 2024 |
| 2023 |
|
Risk-free interest rate |
| | % | | % |
| | % | | % |
Expected dividend yield |
| | % | | % |
| | % | | % |
Expected volatility | | | % | | % |
| | % | | % |
Expected term (in years) |
|
| |
|
| | ||||
22
A summary of stock-based compensation expense recognized in the Company’s condensed statements of operations is as follows:
|
| Three Months Ended |
| Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
| | 2024 |
| 2023 | | 2024 |
| 2023 | ||||
Cost of revenue, net | | $ | | | $ | | | $ | | | $ | |
Research and development | |
| | |
| | |
| | |
| |
Sales and marketing | |
| | |
| | |
| | |
| |
General and administrative | |
| | |
| | |
| | |
| |
Total | | $ | | | $ | | | $ | | | $ | |
NOTE 6: Capital Stock and Warrants
On the Preferred Stock Conversion Date, pursuant to the terms of the Company’s Certificate of Incorporation, each share of the Company’s Super Voting Preferred Stock (as defined in the Certificate of Incorporation) was automatically converted into fully-paid, non-assessable shares of Class B Common Stock and each share of the Company’s Ordinary Preferred Stock (as defined in the Certificate of Incorporation) was automatically converted into fully-paid, non-assessable shares of Class A Common Stock, in each case at the then effective applicable Conversion Rate (as defined in the Certificate of Incorporation), as a result of the receipt by the Company of a written request for such conversion from the holders of a majority of the voting power of the Preferred Stock then outstanding (the “Automatic Conversion”). As a result of the Automatic Conversion, there were
For periods subsequent to May 15, 2024, the preferred warrants were no longer subject to contractual modification provisions and were reclassified from a liability classification to an equity classification on the condensed balance sheet.
As described further in Note 1, on August 16, 2024, the Company held an annual meeting of stockholders at which the Company’s stockholders approved, among other items, amendments to the Certificate of Incorporation, to authorize
A summary of the Company’s outstanding warrants as of September 30, 2024 is as follows:
Class of shares |
| Number of Warrants |
| Exercise Price |
| Expiration Date | |
Class A Common Stock (previously Series m-3 Preferred Stock) |
| | | $ | | | December 31, 2027 |
Class A Common Stock (previously Series S Preferred Stock) |
| | | $ | | | December 31, 2027 |
Common Stock Reserved for Future Issuance
Shares of common stock reserved for future issuance relate to outstanding preferred stock, warrants and stock options as follows:
|
| September 30, |
| | 2024 |
Stock options to purchase common stock |
| |
Warrants outstanding for future issuance of common stock |
| |
Stock options available for future issuance |
| |
Total shares of Class A Common Stock reserved |
| |
At-the-Market Offering Program
In February 2023, the Company commenced an at-the-market offering program with H.C. Wainwright & Co., LLC (“Wainwright”), as sales agent, in connection with which the Company filed a prospectus supplement filed on February 9, 2023 (the “February Prospectus
23
Supplement”), allowing the Company to offer and sell from time to time up to $
NOTE 7: Related parties and related-party transactions
One of the Company’s vendors, Konica Minolta, Inc. (“Konica Minolta”), is a stockholder of the Company. Konica Minolta provides the Company with repair services to its ASRs. The Company paid Konica Minolta $
NOTE 8: Commitments and contingencies
Leases
The Company leases facilities for office space under non-cancelable operating lease agreements. The Company leases space for its corporate headquarters in Mountain View, California through August 2025.
As of September 30, 2024 and December 31, 2023, the components of leases and lease costs are as follows:
|
| September 30, 2024 |
| December 31, 2023 | ||
Operating lease right-of-use assets | | $ | | | $ | |
| | | | | | |
Operating lease liabilities, current portion | | $ | | | $ | |
Operating lease liabilities, non-current portion | |
| — | |
| |
Total operating lease liabilities | | $ | | | $ | |
Operating lease costs were approximately $
As of September 30, 2024, future minimum operating lease payments for each of the next three years and thereafter is as follows:
Years ending December 31, | | Amount | |
2024 (remaining three months) | | $ | |
2025 | | | |
Total future minimum lease payments | |
| |
Less – Interest | |
| ( |
Present value of lease liabilities | | $ | |
Weighted average remaining lease term is
24
Purchase Commitments
The Company executed a purchase agreement on September 13, 2024, in order to secure the acquisition of essential to ASR production. This agreement stipulates monthly purchases of $
Legal Matters
The Company may be subject to pending legal proceedings and regulatory actions in the ordinary course of business; however, no such claims have been identified as of September 30, 2024 that would have a material adverse effect on the Company’s financial position, results of operations or cash flows.
The Company from time to time enters into contracts that contingently require the Company to indemnify parties against third party claims. These contracts primarily relate to: (i) arrangements with clients which generally include certain provisions for indemnifying clients against liabilities if the services infringe a third party’s intellectual property rights, (ii) the Regulation A Issuer Agreement where the Company may be required to indemnify the placement agent for any loss, damage, expense or liability incurred by the other party in any claim arising out of a material breach (or alleged breach) as a result of any potential violation of any law or regulation, or any third party claim arising out of any investment or potential investment in the offering, and (iii) agreements with the Company’s officers and directors, under which the Company may be required to indemnify such persons from certain liabilities arising out of such persons’ relationships with the Company. The Company has not incurred any material costs as a result of such obligations and has not accrued any liabilities related to such obligations in the condensed financial statements as of September 30, 2024 and December 31, 2023.
Sales Tax Contingencies
The Company has historically not collected state sales tax on the sale of its MaaS product offering but has paid sales tax and use tax on all purchases of raw materials and in conjunction with the financing arrangement of the Company’s ASRs with Farnam Street Financial. The Company’s MaaS product offering may be subject to sales tax in certain jurisdictions. If a taxing authority were to successfully assert that the Company has not properly collected sales or other transaction taxes, or if sales or other transaction tax laws or the interpretation thereof were to change, and the Company was unable to enforce the terms of their contracts with Clients that give the right to reimbursement for the assessed sales taxes, tax liabilities in amounts that could be material may be incurred. Based on the Company’s assessment, the Company has recorded a use tax liability of $
NOTE 9: Subsequent Events
At-the-market offering program
From October 1, 2024 to November 13, 2024, the Company sold
On October 11, 2024, the Company filed a prospectus supplement (the “October Prospectus Supplement”) to amend the June Prospectus Supplement to increase the issuance and sale from time to time to up to $
August 2024 Note
From October 1 and November 13, 2024, the Company paid approximately $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with the (1) unaudited condensed financial statements and the related notes thereto included elsewhere in this report, and (2) the audited financial statements and the related notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended
The historical results presented below are not necessarily indicative of the results that may be expected for any future period. Forward-looking statements about our business, results of operations, cash flows, financial condition and prospects based on current expectations that involve risks, uncertainties, and assumptions, and other important factors. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in “Risk Factors” in Part I, Item 1A of our Annual Report, as updated by our other filings with the SEC, and the section titled “Cautionary Note on Forward-Looking Statements” included elsewhere herein.
Overview
Knightscope builds robotics and artificial intelligence (“AI”) technologies focused on public safety. Our products are manufactured in the United States and are designed to protect people and assets across various environments, including workplaces, schools, and public areas.
Our Autonomous Security Robots (“ASRs”) are designed to enhance perimeter security by acting as a force multiplier for security teams, providing improved situational awareness. The ASRs perform real-time, on-site video-audio data collection and provide incident alerts for security personnel via the Knightscope Security Operations Center (“KSOC”). The KSOC is a real-time dashboard connected to each K5 robot and K1 Hemisphere unit, allowing clients to access data for instant action or for investigative and evidence collection purposes.
Our Emergency Communication Devices (“ECDs”) include the K1 Blue Light Tower, K1 E-Phone, and K1 Call Box. These devices provide emergency communication services using cellular and satellite networks. The towers, powered by solar energy, are highly visible, while the smaller E-Phones and Call Boxes offer the same communication capabilities with a more compact footprint, with options for solar or plug-in power.
We offer our ASR and stationary security solutions under an annual subscription, Machine-as-a-Service (“MaaS”) model. This model includes the provision of the ASR unit, maintenance, support, data transfer, access to the KSOC, charging stations, and software, firmware, and hardware updates. Our ECD devices are sold to our clients either directly or through partners who also install and manage them. The ECDs also provide a recurring revenue opportunity through the Emergency Monitoring System platform.
The Knightscope Emergency Monitoring System (“KEMS”), integrated into our ECDs, includes a self-diagnostic, alarm monitoring software solution that provides system owners with daily reports on the operational status of their emergency devices. The cloud-based application monitors the overall system's health, alerts users to operational issues, provides real-time error detection and diagnostics, and generates system performance reports.
In the third quarter of 2024, the management team focused on regaining compliance with the listing standards of The Nasdaq Stock Market LLC (Nasdaq) while we continued to implement changes to deliver on the Company’s path to profitability.
Nasdaq Listing Rules Compliance
On October 26, 2023, the Company was listed on The Nasdaq Global Market and received written notice (the “Notice”) from Nasdaq indicating that the Company was no longer in compliance with Nasdaq Listing Rule 5450(a)(1) which requires that a company must maintain a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”) and had 180 calendar days, or until April 23, 2024, to regain compliance. Effective on March 4, 2024, the Company transferred to The Nasdaq Capital Market and was afforded the remainder of the compliance period to regain compliance.
On April 24, 2024, the Company received a delisting determination letter (the “Delisting Determination Letter”) from the Nasdaq Listing Qualifications staff (the “Staff”) of Nasdaq indicating that the Company had not regained compliance with the Minimum Bid Price
26
Requirement. On April 30, 2024, the Company appealed and requested a hearing before the Nasdaq Hearings Panel (“Panel”). Pursuant to Nasdaq Listing Rule 5815(a)(1)(B), the hearing request stayed the suspension of trading and delisting of the Company’s Class A Common Stock pending the conclusion of the hearing process.
On June 4, 2024, the Panel granted the Company an exception until October 4, 2024, to regain compliance with the Minimum Bid Price Requirement, subject to certain milestones which included obtaining shareholder approval for a reverse stock split (“RSS”), effecting the RSS, and maintaining the Minimum Bid Price Requirement for a minimum of ten consecutive business days by October 4, 2024.
On August 16, 2024, the Company held its annual meeting of stockholders (the “Annual Meeting”). At the Annual Meeting, the stockholders of the Company approved the RSS of the Company’s Class A and its Common B Common Stock at a ratio ranging from any whole number between 1-for-5 and 1-for-50.
Subsequently, on September 4, 2024, the Company’s Board of Directors (the “Board”) approved a RSS of both the Class A Common Stock and the Class B Common Stock at a final ratio of 1-for-50. On September 13, 2024, the Company filed a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) with the Secretary of State of the State of Delaware to effect the RSS, which became effective at 5:00 p.m. Eastern Time. The Class A Common Stock began trading on an as-adjusted basis on September 16, 2024.
On October 1, 2024, Knightscope received written notice from the Nasdaq Office of General Counsel informing the Company that, from September 16, 2024 to September 30, 2024, the Company’s minimum bid price had been $1.00 per share or higher and, accordingly, it had regained compliance with the bid price requirement and that the matter was now closed.
Reverse Stock Split
On August 16, 2024, the Company held an annual meeting of stockholders (the “Annual Meeting”) at which the Company’s stockholders approved, among other items, amendments to the Certificate of Incorporation, to effect a reverse stock split of the Company’s Class A Common Stock at a ratio ranging from any whole number between 1-for-5 and 1-for-50, as determined by the Company’s Board in its discretion, subject to the Board’s authority to abandon such amendments (the “Class A Reverse Stock Split Amendment”), and effect a reverse stock split of the Company’s Class B Common Stock at a ratio ranging from any whole number between 1-for-5 and 1-for-50 (which ratio shall be the same ratio as the reverse stock split determined by the Board with respect to the Class A Common Stock), as determined by the Board in its discretion, subject to the Board’s authority to abandon such amendments (the “Class B Reverse Stock Split Amendment” and, together with the Class A Reverse Stock Split Amendment, the “Reverse Stock Split Amendment”). On September 4, 2024, the Board selected a reverse stock split of the Class A Common Stock at a final ratio of 1-for-50 and a reverse stock split of the Class B Common Stock at a final ratio of 1-for-50 and abandoned all other reverse stock split amendments at different ratios. On September 13, 2024, the Company filed a Certificate of Amendment to the Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Delaware to effect the Amendments. The Reverse Stock Split Amendment became effective at 5:00 p.m. Eastern Time on the date of filing of the related Certificate of Amendment.
Capital Structure
The Company has prioritized restructuring Knightscope’s capital structure to better align with its public company peers. Below is a summary of actions taken, which we believe, set up the Company for long term success.
Increase in Authorized Shares - On April 5, 2024, we held a special meeting of stockholders (the “Special Meeting”) at which the Company’s stockholders approved an amendment (the “Share Increase Amendment”) to the Certificate of Incorporation to increase the number of authorized shares of the Company’s Class A Common Stock, par value $0.001 per share from 114,000,000 to 228,000,000 shares. Our Board believes it is in the best interests of the Company and our stockholders to have additional shares available for use as our Board deems appropriate or necessary. As such, the primary purpose of the Share Increase Amendment was to provide the Company with greater flexibility with respect to managing its Class A Common Stock in connection with such corporate purposes as may, from time to time, be considered advisable by our Board. These corporate purposes could include, without limitation, (i) financing activities, including the at-the-market offering program that we commenced in February 2023, as amended in August 2023, with H.C. Wainwright & Co., LLC as sales agent; (iii) stock dividends or splits; (iv) conversions of convertible securities; (v) issuance of stock options and other equity awards pursuant to our incentive plans; and (vi) establishing strategic relationships. Having an increased number of authorized but unissued shares of Class A Common Stock allows the Company to take prompt action with respect to corporate
27
opportunities that develop, without the delay and expense of convening a special meeting of stockholders for the purpose of approving an increase in our capitalization. Our Board will determine whether, when and on what terms the issuance of shares of Class A Common Stock may be warranted in connection with any of the foregoing purposes.
Preferred Stock Conversion to Common - On May 15, 2024 (the “Preferred Stock Conversion Date”), pursuant to the terms of the Certificate of Incorporation, each share of the Company’s Super Voting Preferred Stock was automatically converted into fully-paid, non-assessable shares of Class B common stock and each share of the Company’s Ordinary Preferred Stock (together with the Super Voting Preferred Stock, the “Preferred Stock”) was automatically converted into fully-paid, non-assessable shares of Class A common stock, in each case at the then effective applicable Conversion Rate, as a result of the receipt by the Company of a written request for such conversion from the holders of a majority of the voting power of the Preferred Stock then outstanding (the “Automatic Conversion”). As a result of the Automatic Conversion, no shares of previously authorized preferred stock remain outstanding. Management believes this change helps the Company maintain compliance with Nasdaq listing rules by helping the Company meet the minimum stockholders’ equity requirement under the Equity Standard for continued listing pursuant to Nasdaq Listing Rule 5550(b)(1) on The Nasdaq Capital Market.
On August 16, 2024, at its Annual Meeting, the Company received stockholder approval to authorize 40,000,000 shares of “blank check” preferred stock, issuable in one or more series, and (ii) implement ancillary and conforming changes in connection with the authorization of “blank check” preferred stock and to remove provisions related to the Company’s former Super Voting Preferred Stock and Ordinary Preferred Stock, which are no longer outstanding. The term “blank check” preferred stock refers to preferred stock, the creation and issuance of which is authorized in advance by a company’s stockholders and the terms, rights and features of which are determined by the Board of Directors of a company without seeking further actions or vote of the stockholders.
Extinguishment of Warrants with Anti-Dilution Features - On October 10, 2022, the Company entered into a Securities Purchase Agreement (the “2022 Purchase Agreement”) with Alto Opportunity Master Fund, SPC - Segregated Master Portfolio B (the “Holder”), pursuant to which the Company issued and sold to the Holder in a private placement (i) senior secured convertible notes (the “2022 Notes”), and (ii) warrants (the “2022 Warrants”) to purchase up to 22,768 shares of the Company’s Class A common stock. The 2022 Warrants included an adjustment mechanism, whereby the exercise price and number of shares issuable upon the exercise of the 2022 Warrants (the “Warrant Exercise Price”) were subject to adjustment from time to time, such that immediately after an issuance of shares of Common Stock (a “Stock Issuance”) at any price per share of Common Stock that was lower than the then in effect Warrant Exercise Price (the “Reset Price”), the Warrant Exercise Price would be reduced to equal the Reset Price, and number of shares issuable upon the exercise of the 2022 Warrants would be increased to the number necessary to maintain the value of the 2022 Warrants immediately prior to such Stock Issuance. In connection with the entry into the 2022 Purchase Agreement, the Company and the Holder also entered into a registration rights agreement (the “2022 Registration Rights Agreement”), pursuant to which the Company agreed to provide the Holder with certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder. Capitalized terms not defined herein have the meaning assigned to them in the 2022 Purchase Agreement.
On August 1, 2024 (the “Issuance Date”), the Company and the Holder entered into an Agreement and Waiver (the “Waiver”) pursuant to which, on the Issuance Date, the Company issued to the Holder a Senior Secured Promissory Note due on July 1, 2025, in an aggregate amount equal to $3.0 million (the “Principal”), in exchange for the cancellation of the Holder’s 2022 Warrants (the “August 2024 Note”) . The Company has agreed to pay the Principal in two separate installments: the first installment in an amount equal to $2,500,000 payable in 11 equal consecutive monthly installments beginning on September 1, 2024, and the second installment in an amount equal to $500,000, payable on the earlier of (x) October 15, 2024, and (y) upon any issuance by the Company or any of its subsidiaries of common stock or common stock equivalents for cash consideration, indebtedness or a combination of units thereof (other than pursuant to a customary at-the-market offering program and equity lines of credit). Upon the occurrence of a Change of Control (as defined in the August 2024 Note), the Holder may, at its option, require the Company to repay the Note in full, starting from the public announcement of such a Change of Control until 30 days after its completion. The August 2024 Note does not bear interest under normal circumstances; however, if an Event of Default occurs (as defined in the August 2024 Note), the outstanding principal will automatically bear interest at a rate of 10% per annum until the default is resolved or the Note is paid in full. As of November 13, 2024, approximately $1.8 million of the note is remaining.
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Financial Efficiency
The Company is focused on scaling its business and on implementing strategies to decrease gross margin loss over time. We have continued our focus on controlling costs with steps that include
| ● | decreasing expenditures for real estate leases – we exited two long-term leases; |
| ● | optimizing team composition and size – we increased the size of the sales team to drive growth; |
| ● | optimizing the manufacturing process through leverage of third-party manufacturers; |
| ● | reducing telecommunication service and cloud costs to further reduce our ongoing support, repair and maintenance costs; and |
| ● | continuing to streamline our ASR and ECD production processes towards a more traditional assembly line workflow for improved quality, efficiency, and throughput. |
In the third quarter of 2024, Knightscope continued to streamline operations of the ECD product line which was acquired when the Company purchased the assets of CASE Emergency Management. Although the disruptions from restructuring changes we made in the first half of this year continue to impact operations, we are beginning to see benefits, primarily as we work closely with our third-party partners to streamline field services for our ECD clients.
Additionally, we believe our efforts to improve the ASR K5 v5 are showing promise as we see increased customer retention and a resulting increase in install base. The Company plans to invest in what management believes will be revenue-generating activities such as expansion of the sales team, developing channel partnerships and updating its website to attract new leads.
Our strategy is to try to keep fixed costs low while minimizing variable costs in conjunction with pursuing our overall growth objectives.
As of October 31, 2024, the Company had a total backlog of approximately $2.9 million, comprised of $2.4 million related to orders for ECDs and $0.5 million related to ASR orders.
29
Results of Operations
Comparison of the Three Months Ended September 30, 2024 and 2023
The following table sets forth selected Condensed Statements of Operations data (in thousands) and such data as a percentage of total revenue.
|
| Three Months Ended September 30, |
| ||||||||
| | 2024 |
| % of Revenue |
| 2023 |
| % of Revenue |
| ||
Revenue, net | | | | | | | | | | | |
Service | | $ | 1,861 | | 73 | % | $ | 1,915 | | 58 | % |
Product | | | 674 | | 27 | % | | 1,409 | | 42 | % |
Total revenue, net | | | 2,535 | | 100 | % | | 3,324 | | 100 | % |
Cost of revenue, net | | | | | | | | | | | |
Service | | | 2,382 | | 94 | % | | 2,488 | | 75 | % |
Product | | | 853 | | 34 | % | | 786 | | 24 | % |
Total cost of revenue, net | | | 3,235 | | 128 | % | | 3,274 | | 98 | % |
Gross profit (loss) | |
| (700) |
| (28) | % |
| 50 |
| 2 | % |
Operating expenses: | | | | | | | | | | | |
Research and development | |
| 1,770 |
| 70 | % |
| 1,903 |
| 57 | % |
Sales and marketing | |
| 1,000 |
| 39 | % |
| 1,395 |
| 42 | % |
General and administrative | |
| 4,238 |
| 167 | % |
| 3,235 |
| 97 | % |
Restructuring charges | | | 33 | | 1 | % | | — | | — | % |
Total operating expenses | |
| 7,041 |
| 278 | % |
| 6,533 |
| 197 | % |
Loss from operations | |
| (7,741) |
| (305) | % |
| (6,483) |
| (195) | % |
Other income (expense): | | | | | | | | | | | |
Change in fair value of warrant and derivative liabilities | |
| (2,966) |
| (117) | % |
| (1,800) |
| (54) | % |
Interest income (expense), net | | | (130) | | (5) | % | | (8) | | (0) | % |
Other income (expense), net | |
| (67) |
| (3) | % |
| (51) |
| (2) | % |
Total other income (expense) | |
| (3,163) |
| (125) | % |
| (1,859) |
| (56) | % |
Net loss before income tax expense | |
| (10,904) |
| (430) | % |
| (8,342) |
| (251) | % |
Income tax expense | |
| — |
| — | % |
| — |
| — | % |
Net loss | | $ | (10,904) |
| (430) | % | $ | (8,342) |
| (251) | % |
Revenue, net
Total revenue, net for the three months ended September 30, 2024 decreased by approximately $0.8 million compared to the same period in the prior year due to a $0.7 million decrease in product revenue and $0.1 million decrease in Service revenue. Product revenue decreased by approximately $0.7 million or approximately 52% in the three months ended September 30, 2024 compared to the same period in the prior year, primarily due to lower sales of ECD products which were impacted by the Company’s decision to move production from Irvine, CA to its headquarters location in Mountain View, CA. As a result, there were significant disruptions in our ability to build and deliver units to customers. The Company expects some disruptions to continue in the near future as it evaluates opportunities to optimize production and operations, which may include seeking a new, larger facility. Service revenue, net for the three months ended September 30, 2024 remained relatively flat compared to the same period in the prior year.
Cost of revenue, net
In the first quarter of 2024, the Company made a strategic decision to outsource its ECD field services function to third-party service and maintenance organizations with technicians better able to efficiently support our clients. We expect that this outsourcing will allow the Company to better focus on its technology and innovation while reducing costs related to non-core business functions. However, we also expect that the short-term impact of these significant changes will result in higher costs and a decline in gross margin yield.
30
Total cost of revenue, net of $3.2 million for the three months ended September 30, 2024 remained relatively flat compared to the same period in the prior year primarily due to $0.2 million in reduced headcount and $0.1 million of reduced cellular costs, partially offset by $0.4 million higher costs related to third party field services.
Service cost of revenue, net for the three months ended September 30, 2024 decreased by approximately $0.1 million to approximately $2.4 million, compared to the three months ended September 30, 2023. This was primarily due to a $0.2 million decline in headcount related expenses due to outsourcing of field services partially offset by a $0.4 million increase in third-party costs. Additionally, there was a $0.1 million decrease in cellular fees as the Company continues to innovate around data usage and associated costs. The service cost of revenue, net includes the average service cost per unit, depreciation of the ASRs, and third-party fees. Additional costs relate to the ongoing maintenance and support of our installed base of ECDs which consists primarily of service personnel, vehicle expense, and warranty repair costs.
Product cost of revenue, net was approximately $0.9 million for the three months ended September 30, 2024 compared to approximately $0.8 million for the prior year period.
Gross Profit (Loss)
The revenue and cost of revenue described above resulted in a gross loss for the three months ended September 30, 2024 of approximately $0.7 million, net, compared to a gross profit of $0.1 million for the three months ended September 30, 2023.
Research and Development
|
| Three Months Ended |
| | |
|
|
| ||||
| | September 30, | | | | | |
| ||||
| | 2024 |
| 2023 | | $ Change | | % Change |
| |||
Research and development | | $ | 1,770 | | $ | 1,903 | | $ | (133) |
| (7) | % |
Percentage of total revenue | |
| 70 | % |
| 57 | % |
|
|
|
| |
Research and development expenses decreased by approximately $0.1 million, or approximately 7% for the three months ended September 30, 2024, as compared to the same period in the prior year. The decrease is primarily due to $0.3 million lower compensation and material expenses partially offset by $0.2 million in higher consulting fees.
Sales and Marketing
|
| Three Months Ended |
| | |
|
|
| ||||
| | September 30, | | | | | |
| ||||
| | 2024 |
| 2023 | | $ Change | | % Change |
| |||
Sales and marketing | | $ | 1,000 | | $ | 1,395 | | $ | (395) |
| (28) | % |
Percentage of total revenue | |
| 39 | % |
| 42 | % |
|
|
|
| |
Sales and marketing expenses decreased by approximately $0.4 million, or approximately 28%, for the three months ended September 30, 2024, as compared to the same period in the prior year. The decrease was primarily due to $0.3 million in lower advertising and promotional costs and $0.1 million lower expenses related to compensation and allocation of amortization expense compared to the same period in the prior year.
General and Administrative
|
| Three Months Ended |
| | |
|
|
| ||||
| | September 30, | | | | | |
| ||||
| | 2024 |
| 2023 | | $ Change | | % Change |
| |||
General and administrative | | $ | 4,238 | | $ | 3,235 | | $ | 1,003 |
| 31 | % |
Percentage of total revenue | |
| 167 | % |
| 97 | % |
|
|
|
| |
General and administrative expenses increased by approximately $1.0 million or approximately 31% for the three months ended September 30, 2024, as compared to the same period in the prior year. The increase was primarily related to a $0.9 million increase in
31
investor relations costs and $0.7 million increase in third-party professional fees, primarily legal and finance services. These increases were partially offset by a decline in payroll expenses of $0.5 million and decline of $0.1 in stock compensation expense driven by a headcount reduction in the first quarter of 2024.
Restructuring Charges
| | Three Months Ended | | | | | |
| ||||
| | September 30, | | | | | |
| ||||
|
| 2024 |
| 2023 |
| $ Change |
| % Change |
| |||
Restructuring Charges | | $ | 33 | | $ | — | | $ | 33 |
| 100 | % |
Percentage of total revenue | |
| 1 | % |
| — | % |
|
|
|
| |
Restructuring charges were approximately $33 thousand for the three month period ended September 30, 2024 compared to none for the same period in the prior year.
Other Income (expense)
| | Three Months Ended | | | | | |
| ||||
| | September 30 | | | | | |
| ||||
|
| 2024 |
| 2023 |
| $ Change |
| % Change |
| |||
Change in fair value of warrant and derivative liability | | $ | (2,966) | | $ | (1,800) | | $ | (1,166) |
| (65) | % |
Interest income (expense), net | | | (130) | | | (8) | | | (122) | | (1,525) | % |
Other income (expense), net | | | (67) | | | (51) | | | (16) | | (31) | % |
Total other income (expense) | | $ | (3,163) | | $ | (1,859) | | $ | (1,304) | | (70) | % |
Total other income (expense) decreased by approximately $1.3 million, or 70% for the three months ended September 30, 2024 as compared to the same period in the prior year, resulting in other income (expense), net of approximately $3.2 million for the three months ended September 30, 2024 compared to total other income (expense), net of approximately $1.9 million for the same period in the prior year. Interest expense increased by $0.1 million due to a higher interest-bearing debt balance in the current year period as compared to the same period in the prior year. The increase in the fair value of warrant and derivative liabilities for the three months ended September 30, 2024 was approximately $1.2 million more than in the same period in the prior year. We recorded $22 thousand in lease termination costs in the third quarter of fiscal 2024, resulting from the early termination of two long-term lease arrangements.
32
Comparison of the Nine Months Ended September 30, 2024 and 2023
The following table sets forth selected Condensed Statements of Operations data (in thousands) and such data as a percentage of total revenue.
|
| Nine Months Ended September 30, |
| ||||||||
| | 2024 |
| % of Revenue |
| 2023 |
| % of Revenue |
| ||
Revenue, net | | | | | | | | | | | |
Service | | $ | 5,502 | | 69 | % | $ | 5,488 | | 56 | % |
Product | | | 2,490 | | 31 | % | | 4,296 | | 44 | % |
Total revenue, net | | | 7,992 | | 100 | % | | 9,784 | | 100 | % |
Cost of revenue, net | | | | | | | | | | | |
Service | | | 8,256 | | 103 | % | | 7,020 | | 72 | % |
Product | | | 2,439 | | 31 | % | | 2,918 | | 30 | % |
Total cost of revenue, net | | | 10,695 | | 134 | % | | 9,938 | | 102 | % |
Gross loss | |
| (2,703) |
| (34) | % |
| (154) |
| (2) | % |
Operating Expenses: | | | | | | | | | | | |
Research and development | |
| 4,976 |
| 62 | % |
| 4,782 |
| 49 | % |
Sales and marketing | |
| 4,043 |
| 51 | % |
| 3,716 |
| 38 | % |
General and administrative | |
| 10,613 |
| 133 | % |
| 10,148 |
| 104 | % |
Restructuring charges | | | 447 | | 6 | % | | 149 | | 2 | % |
Total operating expenses | |
| 20,079 |
| 251 | % |
| 18,795 |
| 192 | % |
Loss from operations | |
| (22,782) |
| (285) | % |
| (18,949) |
| (194) | % |
Other income (expense): | | | | | | | | | | | |
Change in fair value of warrant and derivative liabilities | |
| (1,515) |
| (19) | % |
| 4,015 |
| 41 | % |
Interest income (expense), net | | | (323) | | (4) | % | | (462) | | (5) | % |
Other income (expense), net | |
| (147) |
| (2) | % |
| (188) |
| (2) | % |
Total other income (expense) | |
| (1,985) |
| (25) | % |
| 3,365 |
| 34 | % |
Net loss before income tax expense | |
| (24,767) |
| (310) | % |
| (15,584) |
| (159) | % |
Income tax expense | |
| — |
| — | % |
| — |
| — | % |
Net loss | | $ | (24,767) |
| (310) | % | $ | (15,584) |
| (159) | % |
Revenue, net
Total revenue, net for the nine months ended September 30, 2024 of approximately $8.0 million was a decrease of approximately $1.8 million or 18% as compared to the same period in the prior year. The decrease was due to lower production and installation of the ECD products as the Company has been restructuring the formerly CASE Emergency Management business it acquired in 2022.
Service revenue, net, comprised of ASR MaaS agreements and ECD maintenance agreements remained relatively flat for the nine months ended September 30, 2024 compared to the same period in the prior year. ASR services were impacted by the Company’s decision to replace ASR K5 v3 machines with K5 v5 machines due to quality and reliability of the older version.
Product revenue, primarily composed of the ECD line of products, decreased by approximately $1.8 million or approximately 42% in the nine months ended September 30, 2024 compared to the same period in the prior year, primarily due to a decline in product production and installations. In addition, the structural changes implemented during the first quarter of 2024 and the resulting disruption also led to a period-over-period decline in installations across the ECD products.
Cost of revenue, net
Service cost of revenue, net for the nine months ended September 30, 2024 increased by approximately $1.2 million to approximately $8.3 million, compared to the nine months ended September 30, 2023, primarily due to write-offs related to K5 v3 machines. A high percentage of K5 v3 ASRs did not meet expected quality standards resulting in high service, maintenance and repair costs and low customer satisfaction. During the first quarter of 2024, we decided to discontinue the K5 v3 machines and replace them with the
33
improved, better performing K5 v5 machines. K5 v3 machines, totaling approximately $1.1 million, were written off and recorded in service cost of revenue, net in the current year period and we expect this trend to continue throughout the year as we replace existing client machines. In addition, the Company made the decision to outsource its ECD field services function to third-party service and maintenance organizations with technicians better able to efficiently support our clients. As a result of this change, we saw a $1.2 million increase in third-party fees year-over-year. We expect that this outsourcing will allow the Company to better focus on its technology and innovation while reducing costs related to non-core business functions. Higher costs were partially offset by a $0.4 million reduction in headcount costs, a $0.2 million decline in cellular fees and a $0.1 million decline in software related expenses. The service cost of revenue, net is primarily related to the average service cost per unit, depreciation of the ASRs, and third-party fees. Additional costs relate to the ongoing maintenance and support of our installed base of ECDs which consists primarily of service personnel, vehicle expense, and warranty repair costs.
Product cost of revenue, net was approximately $2.4 million for the nine months ended September 30, 2024 compared to approximately $2.9 million for the same period in the prior year. The approximate $0.5 million period over period decrease is primarily attributable to lower sales of ECD products.
Gross Loss
The revenue and cost of revenue described above resulted in a gross loss for the nine months ended September 30, 2024 of approximately $2.7 million, net, compared to a gross loss of approximately $0.2 million, net, for the nine months ended September 30, 2023. The gross loss for the nine months ended September 30, 2024 included a non-recurring expense of approximately $1.1 million attributed to the retirement of the K5 v3 machines.
Research and Development
|
| Nine Months Ended |
| | |
|
|
| ||||
| | September 30, | | | | | |
| ||||
| | 2024 |
| 2023 | | $ Change | | % Change |
| |||
Research and development | | $ | 4,976 | | $ | 4,782 | | $ | 194 |
| 4 | % |
Percentage of total revenue | |
| 62 | % |
| 49 | % |
|
|
|
| |
Research and development expenses increased by approximately $0.2 million, or 4% for the nine months ended September 30, 2024, as compared to the same period in the prior year. The increase is primarily due to higher headcount than in the same period in the prior year which were lower following a workforce reduction in January 2023.
Sales and Marketing
|
| Nine Months Ended |
| | |
|
|
| ||||
| | September 30, | | | | | |
| ||||
| | 2024 |
| 2023 | | $ Change | | % Change |
| |||
Sales and marketing | | $ | 4,043 | | $ | 3,716 | | $ | 327 |
| 9 | % |
Percentage of total revenue | |
| 51 | % |
| 38 | % |
|
|
|
| |
Sales and marketing expenses increased by approximately $0.3 million, or approximately 9%, for the nine months ended September 30, 2024, as compared to the same period in the prior year. The increase was primarily due to increased advertising costs related to the marketing of our Public Safety Infrastructure Bond Offering that closed in March 2024.
General and Administrative
|
| Nine Months Ended |
| | |
|
|
| ||||
| | September 30, | | | | | |
| ||||
| | 2024 |
| 2023 | | $ Change | | % Change |
| |||
General and administrative | | $ | 10,613 | | $ | 10,148 | | $ | 465 |
| 5 | % |
Percentage of total revenue | |
| 133 | % |
| 104 | % |
|
|
|
| |
34
General and administrative expenses increased by approximately $0.5 million or approximately 5% in the nine months ended September 30, 2024, as compared to the same period in the prior year. This was primarily driven by a $1.2 million increase in investor relations costs, partially offset by a reduction in payroll expense of $0.9 million, reduction in stock compensation expense of $0.6 million, and a $0.2 million reduction in corporate insurance fees. Third-party professional fees, primarily legal and finance, increased nearly $1.1 million, partially offset by a reduction in consulting fees of $0.2 million.
Restructuring Charges
| | Nine Months Ended | | | | | |
| ||||
| | September 30, | | | | | |
| ||||
|
| 2024 |
| 2023 |
| $ Change |
| % Change |
| |||
Restructuring Charges | | $ | 447 | | $ | 149 | | $ | 298 |
| 200 | % |
Percentage of total revenue | |
| 6 | % |
| 2 | % |
|
|
|
| |
Restructuring charges were approximately $0.4 million for the nine month period ended September 30, 2024 compared to approximately $0.1 million for the same period in the prior year. These charges are related to the Company’s strategic decision to outsource its field services team and to consolidate product production in one location.
Other Income (expense)
| | Nine Months Ended | | | | | |
| ||||
| | September 30 | | | | | |
| ||||
|
| 2024 |
| 2023 |
| $ Change |
| % Change |
| |||
Change in fair value of warrant and derivative liabilities | | $ | (1,515) | | $ | 4,015 | | $ | (5,530) |
| (138) | % |
Interest income (expense), net | | | (323) | | | (462) | | | 139 | | 30 | % |
Other income (expense), net | | | (147) | | | (188) | | | 41 | | 22 | % |
Total other income (expense) | | $ | (1,985) | | $ | 3,365 | | $ | (5,350) | | (159) | % |
Total other income (expense) decreased by approximately $5.4 million, or 159% for the nine months ended September 30, 2024 as compared to the same period in the prior year, resulting in other income (expense), net of approximately ($2.0) million for the nine months ended September 30, 2024 compared to total other income, net of approximately $3.4 million for the same period in the prior year. Interest expense decreased by $0.1 million due to a lower debt balance in the current year period as compared to the same period in the prior year. The increase in the fair value of warrant and derivative liabilities for the nine months ended September 30, 2024 was approximately $5.5 million more than in the same period in the prior year.
Liquidity and Capital Resources
As of September 30, 2024, and December 31, 2023, we had $5.2 million and $2.3 million, respectively, of cash and cash equivalents. As of September 30, 2024, the Company had paid-in capital of $195.5 million, partially offset by an accumulated deficit of approximately $186.2 million, working capital of approximately $0.0 million and total stockholders’ equity of approximately $9.3 million. 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. Sales of additional equity securities, convertible debt and/or warrants by the Company could result in the dilution of the interests of existing stockholders. The Company will require significant additional financing to meet its planned capital and operational needs and is pursuing opportunities to obtain additional financing through equity and/or debt alternatives. However, there can be no assurance that financing will be available when required in sufficient amounts, on acceptable terms or at all. If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable to it, the Company may have to significantly reduce its operations, delay, scale back or discontinue the development of one or more of its platforms or discontinue operations completely.
At-the-Market Offering Program
In February 2023, we commenced an at-the-market offering program with H.C. Wainwright & Co., LLC (“Wainwright”), 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,
35
SEC rules. Pursuant to General Instruction I.B.6 of Form S-3, the February Prospectus Supplement provided that in no event would we sell any securities in a public primary offering with a value exceeding one-third of our non-affiliated public float in any 12 month period unless our non-affiliated public float subsequently rose to $75.0 million or more.
On August 18, 2023, after our non-affiliated public float subsequently rose to an amount greater than $75.0 million, we filed a new prospectus supplement (the “August Prospectus Supplement”) providing for the offer and sale from time to time of up to $25.0 million in shares of Class A Common Stock subject to, and in accordance with, SEC rules.
On April 8, 2024, we filed the April Prospectus Supplement, relating to the issuance and sale from time to time of up to $6.4 million in shares of Class A Common Stock, subject to, and in accordance with, SEC rules.
On June 7, 2024, we filed the June Prospectus Supplement to amend the April Prospectus Supplement to increase the issuance and sale from time to time to up to $11.66 million of shares of Class A Common Stock, subject to, and in accordance with, SEC rules. In the event that our public float increases or decreases, we may sell securities in public primary offerings on Form S-3 with a value up to one-third of our public float, in each case calculated pursuant to General Instruction I.B.6 and subject to the terms of the ATM Agreement. In the event that our public float increases above $75.0 million, we will no longer be subject to the limits in General Instruction I.B.6 of Form S-3.
On October 11, 2024, the Company filed a prospectus supplement (the “October Prospectus Supplement”) to amend the June Prospectus Supplement to increase the issuance and sale from time to time to up to $1.347 million in shares of Class A Common Stock subject to, and in accordance with, SEC rules.
During the nine months ended September 30, 2024, we issued 1,470,537 shares of Class A Common Stock under the at-the-market offering program for net proceeds of approximately $20.4 million, net of brokerage and placement fees of approximately $0.8 million. From October 1, 2024 to November 13, 2024, we sold 245,882 shares of Class A Common Stock, generating approximately $2.3 million of proceeds, net of commissions and other issuance costs.
August 2024 Note
As noted above, on October 10, 2022, the Company entered into a Securities Purchase Agreement (the “2022 Purchase Agreement”) with Alto Opportunity Master Fund, SPC - Segregated Master Portfolio B (the “Holder”), pursuant to which the Company issued and sold to the Holder in a private placement (i) senior secured convertible notes (the “2022 Notes”), and (ii) warrants (the “2022 Warrants”) to purchase up to 1,138,446 shares of the Company’s Class A Common Stock, par value $0.001 (the “Common Stock”). The 2022 Warrants included an adjustment mechanism, whereby the exercise price and number of shares issuable upon the exercise of the 2022 Warrants (the “Warrant Exercise Price”) were subject to adjustment from time to time, such that immediately after an issuance of shares of Class A Common Stock (a “Stock Issuance”) at any price per share of Class A Common Stock that was lower than the then in effect Warrant Exercise Price (the “Reset Price”), the Warrant Exercise Price would be reduced to equal the Reset Price, and number of shares issuable upon the exercise of the 2022 Warrants would be increased to the number necessary to maintain the value of the 2022 Warrants immediately prior to such Stock Issuance. In connection with the entry into the 2022 Purchase Agreement, the Company and the Holder also entered into a registration rights agreement (the “2022 Registration Rights Agreement”), pursuant to which the Company agreed to provide the Holder with certain registration rights under the Securities Act.
On August 1, 2024 (the “Issuance Date”), the Company and the Holder entered into an Agreement and Waiver (the “Waiver”), pursuant to which, on the Issuance Date, the Company issued to the Holder a Senior Secured Promissory Note due on July 1, 2025, in an aggregate amount equal to $3.0 million (the “Principal”) in exchange for the cancellation of the Holder’s 2022 Warrants (the “August 2024 Note”). The Company has agreed to pay the Principal in two separate installments: the first installment in an amount equal to $2,500,000 payable in 11 equal consecutive monthly installments beginning on September 1, 2024, and the second installment in an amount equal to $500,000 payable on the earlier of (x) October 15, 2024, and (y) upon any issuance by the Company or any of its subsidiaries of common stock or common stock equivalents for cash consideration, indebtedness or a combination of units thereof (other than pursuant to a customary at-the-market offering program and equity line of credits). Upon the occurrence of a Change of Control (as defined in the August 2024 Note), the Holder may, at its option, exercisable at any time commencing on the public announcement of such Change of Control until the 30th day after the consummation thereof, require the Company to repay the August 2024 Note in full. The August 2024 Note shall not bear interest; provided, however, upon the occurrence and during the continuance of an Event of Default (as defined in the August 2024 Note), the outstanding principal amount of the Principal shall, automatically upon the occurrence and during the
36
continuance of such Event of Default, bear interest at a rate equal to ten percent of the amount payable per annum until such date that the Event of Default is cured or the August 2024 Note is paid in full.
Additionally, pursuant to the Waiver, the Holder agreed that the Company’s obligations under the 2022 Notes, the 2022 Purchase Agreement, the 2022 Registration Rights Agreement, the 2022 Warrants, and the other Transaction Documents (as defined in the 2022 Purchase Agreement) have been satisfied in full and such documents are terminated, except that the Company shall continue to comply with and perform Section 4.10 of the 2022 Purchase Agreement and Section 6 of the 2022 Registration Rights Agreement, in each case which provide for indemnification, and which in each case survive and shall remain in full force and effect.
The Waiver and August 2024 Note contain various representations and warranties, affirmative and negative covenants, financial covenants, events of default and other provisions and obligations.
In connection with the entry into the Waiver and the August 2024 Note, on the Issuance Date, the Company and the Holder entered into a security agreement (the “Security Agreement”), pursuant to which the Company granted to the Holder a security interest in substantially all current and future properties, assets, and rights of the Company.
As of November 13, 2024, approximately $1.8 million of the August 2024 Note is outstanding.
Public Safety Infrastructure Bonds
On September 29, 2023, we filed an Offering Circular on Form 1-A/A (File No. 024-12314) (the “Offering Circular”) for the issuance of up to $10.0 million in Public Safety Infrastructure Bonds (the “Bonds”) pursuant to Regulation A of the Securities Act. The Offering Circular was qualified with the SEC on October 2, 2023. The price per Bond is $1,000. The Bonds are unsecured, bearing interest at 10% per annum, payable annually on December 31 each year, starting on December 31, 2024, with the Bonds maturing on the fifth anniversary of the initial issuance. We issued Bonds with a total principal amount of approximately $2.8 million, in aggregate, generating net proceeds us of approximately $2.6 million, net of issuance costs of approximately $0.2 million, during the nine months ended September 30, 2024.
Cash Flow
The table below, for the periods indicated, provides selected cash flow information:
|
| Nine Months Ended | ||||
| | September 30, | ||||
| | 2024 |
| 2023 | ||
Net cash used in operating activities | | $ | (17,377) | | $ | (18,158) |
Net cash used in investing activities | |
| (2,480) | |
| (3,583) |
Net cash provided by financing activities | |
| 22,776 | |
| 21,642 |
Net increase in cash, cash equivalents and restricted cash | | $ | 2,919 | | $ | (99) |
Net Cash Used in Operating Activities
Net cash used in operating activities is influenced by the amount of cash we invest in personnel, marketing, and infrastructure to support the anticipated growth of our business, the number of clients to whom we lease our ASRs, the amount and timing of accounts receivable collections, inventory procurement, as well as the amount and timing of disbursements to our vendors.
Net cash used in operating activities was approximately $17.4 million for the nine months ended September 30, 2024. Net cash used in operating activities resulted from a net loss of approximately $24.8 million and changes in working capital and non-cash charges.
Net cash used in operating activities for the nine months ended September 30, 2024 decreased by approximately $0.8 million as compared to the same period of the prior year. This was primarily a result of an increase in the net loss of approximately $9.2 million, changes in assets and liabilities of approximately $4.4 million, a decrease in accrued interest of approximately $0.2 million, a decrease in common stock issued in exchange for consulting services of $0.4 million, a decrease in stock based compensation of approximately
37
$0.7 million partially offset by a decrease in the change in fair value of warrant and derivative liabilities of approximately $5.5 million, a decrease in depreciation and amortization of $0.1 million and a loss on disposal of ASRs and related inventory of approximately $1.1 million.
Net Cash Used in Investing Activities
Our primary investing activities have consisted of capital expenditures and investment in ASRs. As our business grows, we expect our capital expenditures to continue to increase.
Net cash used in investing activities for the nine months ended September 30, 2024 and 2023 was approximately $2.5 and $3.6 million, respectively.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was approximately $22.8 million for the nine months ended September 30, 2024, an increase of approximately $1.1 million as compared to the same period of the prior year. Our financing activities for the nine months ended September 30, 2024, consisted primarily of net proceeds from the issuance of Class A Common Stock under our at-the-market offering program with Wainwright and issuance of Regulation A bonds. In the prior year period our financing activities consisted primarily of net proceeds resulting from our at-the-market agreement with Wainwright.
Critical Accounting Estimates
There have been no material changes to our critical accounting estimates from what was reported in the Annual Report. Please see Note 1 to our condensed financial statements elsewhere in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As we are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide information under this item.
Item 4. Controls and Procedures
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures, (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
38
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company may be subject to pending legal proceedings and regulatory actions in the ordinary course of business. The 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 1A. Risk Factors
You should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report which could materially affect our business, financial condition, cash flows or future results. There have been no material changes in our risk factors included in our Annual Report on Form 10-K. The risks described in our Annual Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
| (a) | Disclosure in lieu of reporting on a Current Report on Form 8-K. |
None.
(b) Material changes to the procedures by which security holders may recommend nominees to the Board of Directors
None.
(c) Insider trading arrangements and policies.
During the three months ended September 30, 2024, no director or officer of the Company
39
Item 6. Exhibits
Exhibit |
| Description |
| | |
3.1 | | |
| | |
3.2 | | |
| | |
3.3 | ||
| | |
3.4 | | |
| | |
3.5 | | |
| | |
3.6 | | |
| | |
3.7 | | |
| | |
10.1 | | |
| | |
10.2 | | |
| | |
31.1† | | |
| | |
31.2† | | |
| | |
32.1+ | | |
| | |
32.2+ | | |
| | |
101.INS† | | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| | |
101.SCH† | | Inline XBRL Taxonomy Extension Schema Document |
| | |
101.CAL† | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
40
| | |
101.DEF† | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| | |
101.LAB† | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| | |
101.PRE† | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
104† | | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
† | Filed herewith. |
+ | Furnished herewith. |
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto, duly authorized.
Date: November 14, 2024
| KNIGHTSCOPE, INC. | |
| | |
| By: | /s/ William Santana Li |
| Name: | William Santana Li |
| Title: | Chairman, Chief Executive Officer and President |
| | (Principal Executive Officer) |
| | |
| By: | /s/ Apoorv Dwivedi |
| Name: | Apoorv Dwivedi |
| Title: | Executive Vice President and Chief Financial Officer and Secretary |
| | (Principal Financial Officer) |
42
Exhibit 31.1
CERTIFICATION
I, William Santana Li, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Knightscope, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: November 14, 2024 | By: | /s/ William Santana Li | |
| | Name: | William Santana Li |
| | Title: | Chief Executive Officer and President |
| | | (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Apoorv Dwivedi, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Knightscope, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: November 14, 2024 | By: | /s/ Apoorv Dwivedi | |
| | Name: | Apoorv Dwivedi |
| | Title: | Executive Vice President, Chief Financial Officer and Secretary |
| | | (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Knightscope, Inc. (the “Company”) hereby certifies, to the best of my knowledge, that:
(i) | the accompanying Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended September 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934; and |
(ii) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: November 14, 2024 | By: | /s/ William Santana Li | |
| | Name: | William Santana Li |
| | Title: | Chief Executive Officer and President |
| | | (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Knightscope, Inc. (the “Company”) hereby certifies, to the best of my knowledge, that:
(i) | the accompanying Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended September 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934; and |
(ii) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: November 14, 2024 | By: | /s/ Apoorv Dwivedi | |
| | Name: | Apoorv Dwivedi |
| | Title: | Executive Vice President, Chief Financial Officer and Secretary |
| | | (Principal Financial Officer) |