UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2022~~March 31, 2023

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-41248

Knightscope, Inc.

(Exact name of registrant as specified in its charter)

Delaware

46-2482575

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

1070 Terra Bella Avenue

Mountain View, CA 94043

(Address of Principal Executive Offices)

(650) 924-1025

(Registrant’s telephone ~~number, including area code)~~number)

~~Securities registered pursuant to Section 12(b) of the Act:~~


~~Title of Each Class~~	~~Trading symbol~~	~~Name of Exchange on which registered~~
~~Class A Common Stock, par value $0.001 per share~~	~~KSCP~~	~~Nasdaq~~ ~~Global Market~~

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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	☐

Non-accelerated filer	☒	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 ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Trading symbol		Name of Exchange on which registered
Class A Common Stock, par value $0.001 per share		KSCP		Nasdaq Global Market

As of ~~November 8, 2022,~~May 5, 2023, there were ~~27,210,824~~43,917,405 shares of the registrant’s Class A ~~common stock~~Common Stock outstanding.

Table of Contents

TABLE OF CONTENTS


		Page
Part I	Financial Information	5

Item 1.	Financial Statements	5

	Condensed Consolidated Balance Sheets as of ~~September 30, 2022~~March 31, 2023 (Unaudited) and December 31, ~~2021~~2022	5

	Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	6

	Condensed Consolidated Statements of ~~Preferred Stock and~~ Stockholders’ Deficit for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	~~7-8~~7

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	98

	Notes to Condensed Consolidated Financial Statements (Unaudited)	109

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2623

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3530

Item 4.	Controls and Procedures	3630

Part II	Other Information	3731

Item 1.	Legal Proceedings	3731

Item 1A.	Risk Factors	3731

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3831

Item 3.	Defaults Upon Senior Securities	3831

Item 4.	Mine Safety Disclosures	3831

Item 5.	Other Information	3831

Item 6.	Exhibits	3932

Signatures		4133

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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 but not limited to, statements regarding our future operating results and financial position, including projections of our future financial performance, our business strategy and plans, market growth, our objectives for future operations, industry trends, anticipated trends in our business and other characterizations of future events or circumstances are forward-looking statements. Words such as “believe,” “may,” “will,” “estimate,” “potential,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “target,” 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 will require significant capital resources and years of development efforts;

●

Our limited number of deployments and the risk of limited 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 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”) 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 the availability of future financing; and

●

Unpredictable events, such as the COVID-19 pandemic, banking failures, and a rise in the inflation rate resulting in supply chain constraints, increased operating costs, and associated business disruptions could seriously harm our future revenues and financial condition, delay our operations, increase our costs and expenses, and impact our ability to raise capital.

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 risks, uncertainties, and assumptions and other factors that could cause actual results to differ materially from those stated, including those described in “Risk Factors” in Part I, Item 1A of our most recent Annual Report on Form 10-K, in Part II, Item 1A of this Quarterly Report on Form 10-Q, as such factors may be updated in our filings with the Securities and Exchange Commission, (“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. In particular, disruptions and delays with certain vendors in our supply chain, as a result of the COVID-19 pandemic as well as increased operating costs resulting from a rise in the inflation rate, may adversely impact component manufacturers’ ability to meet our client demand timely. Additionally, the prioritization of shipments of certain products, as a result of the pandemic, could cause delays in our ability to deploy our ASRs. Such disruptions could result in a delay in our ability to recognize revenue on sales. The physical security industry in general and our financial position and operating results, in particular, have been material, are changing rapidly, and cannot be predicted.

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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,” and “Knightscope” refer to Knightscope, Inc., unless the context requires otherwise.

Table of Contents

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

KNIGHTSCOPE, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

September 30,

December 31,

2022

2021
ASSETS

(Unaudited)

(1)
Current assets:





Cash and cash equivalents

$
11,069

$
10,749
Restricted cash

—

100
Accounts receivable (net of allowance for doubtful accounts $229 as of September 30, 2022 and $250 as of December 31, 2021)

312

1,189
Prepaid expenses and other current assets

1,957

1,299
Total current assets

13,338

13,337

Autonomous security robots, net

4,605

2,971
Property, equipment and software, net

158

117
Operating lease right-of-use-assets

620

1,077
Other assets

78

78

Total assets

$
18,799

$
17,580

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT




Current liabilities:




Accounts payable

$
1,702

$
1,514
Accrued expenses

1,156

1,191
Deferred revenue

1,359

889
Debt obligations

—

7,109
Operating lease liabilities

657

648
Other current liabilities

553

893
Total current liabilities

5,427

12,244

Preferred stock warrant liabilities

12,006

30,566
Operating lease liabilities

—

485
Total liabilities

17,433

43,295

Commitments and contingencies (Note 8)





Preferred stock, $0.001 par value; 43,405,324 shares authorized as of September 30, 2022 and December 31, 2021; 11,426,068 and 19,617,107 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively; aggregate liquidation preference of $38,041 as of September 30, 2022

36,072

57,218

Stockholders’ deficit:




Class A common stock, $0.001 par, 114,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 27,152,912 and 5,936,929 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

27

6
Class B common stock, $0.001 par, 30,000,000 shares authorized as of September 30, 2022 and December 31, 2021, 10,319,884 and 13,131,197 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

10

13
Additional paid-in capital

92,921

30,745
Accumulated deficit

(127,664)

(113,697)
Total stockholders’ deficit

(34,706)

(82,933)
Total liabilities, preferred stock and stockholders’ deficit

$
18,799

$
17,580


	March 31,		December 31,
	2023		2022
	(unaudited)		(1)
ASSETS
Current assets:
Cash and cash equivalents	$	2,375	$	4,810
Restricted cash		100		—
Accounts receivable (net of allowance for credit losses of $22 as of March 31, 2023 and $229 as of December 31, 2022)		1,856		1,370
Inventory		2,698		2,560
Prepaid expenses and other current assets		1,365		1,349
Total current assets		8,394		10,089

Autonomous Security Robots, net		5,804		5,850
Property, equipment and software, net		1,007		614
Operating lease right-of-use-assets		1,849		2,012
Goodwill		1,344		1,344
Intangible assets, net		1,919		2,056
Other assets		95		117
Total assets	$	20,412	$	22,082

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	1,688	$	2,457
Accrued expenses		1,843		2,403
Deferred revenue		2,386		1,711
Debt obligations		866		2,144
Operating lease liabilities, current		807		731
Other current liabilities		1,423		1,063
Total current liabilities		9,013		10,509
Debt obligations		4,112		6,554
Preferred stock warrant liability		6,068		10,011
Derivative liability		467		1,146
Other noncurrent liabilities		334		356
Operating lease liabilities, noncurrent		1,130		1,309
Total liabilities		21,124		29,885

Commitments and contingencies (Note 8)

Preferred Stock, $0.001 par value; 43,405,324 shares authorized as of March 31, 2023 and December 31, 2022, 9,579,238 and 11,351,841 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively; aggregate liquidation preference of $35,858 and $37,733 as of March 31, 2023 and December 31, 2022, respectively		34,693		35,783

Stockholders’ deficit:
Class A Common Stock, $0.001 par, 114,000,000 shares authorized as of March 31, 2023 and December 31, 2022, 37,314,704 and 28,029,238 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		37		28
Class B Common Stock, $0.001 par, 30,000,000 shares authorized as of March 31, 2023 and December 31, 2022, 10,357,822 and 10,319,884 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		10		10
Additional paid-in capital		106,332		95,716
Accumulated deficit		(141,784)		(139,340)
Total stockholders’ deficit		(35,405)		(43,586)
Total liabilities, preferred stock and stockholders’ deficit	$	20,412	$	22,082

(1)	The condensed consolidated balance sheet as of December 31, ~~2021~~2022 was derived from the audited consolidated balance sheet as of that date.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

KNIGHTSCOPE, INC.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

Three Months Ended September 30,

Nine months ended September 30,


2022

2021

2022

2021
Revenue, net

$
1,296

784

$
3,281

2,561
Cost of revenue, net

2,195

1,309

5,420

3,826
Gross loss

(899)

(525)

(2,139)

(1,265)

Operating expenses:

Research and development

2,070

1,238

5,983

3,894
Sales and marketing

1,907

697

6,905

7,327
General and administrative

2,899

1,534

8,185

3,199
Total operating expenses

6,876

3,469

21,073

14,420

Loss from operations

(7,775)

(3,994)

(23,212)

(15,685)

Other income (expense):

Change in fair value of warrant liabilities

2,543

—

18,190

(10,737)
Interest income (expense), net

—

(858)

(8,910)

(1,992)
Other income (expense), net

(6)

(43)

(35)

778
Total other income (expense)

2,537

(901)

9,245

(11,951)

Net loss before income tax expense

(5,238)

(4,895)

(13,967)

(27,636)
Income tax expense

—

—

—

—
Net loss

(5,238)

(4,895)

(13,967)

(27,636)
Preferred stock dividends

—

(186)

—

(545)
Net loss attributable to common stockholders

$
(5,238)

(5,081)

$
(13,967)

(28,181)
Basic and diluted net loss per common share

$
(0.14)

$
(0.50)

$
(0.40)

$
(2.77)
Weighted average shares used to compute basic and diluted net loss per share

36,941,848

10,189,000

34,803,126

10,189,000


	Three Months Ended March 31,
	2023		2022
Revenue, net
Service	$	1,748	$	944
Product		1,149		—
Total revenues		2,897		944
Cost of revenue, net
Service		2,242		1,493
Product		868		—
Total cost of revenues, net		3,110		1,493
Gross loss		(213)		(549)

Operating expenses:
Research and development		1,397		1,838
Sales and marketing		1,128		3,490
General and administrative		3,639		2,326
Restructuring charges		144		—
Total operating expenses		6,308		7,654

Loss from operations		(6,521)		(8,203)

Other income (expense):
Interest expense, net		(502)		(8,911)
Change in fair value of warrant liabilities		4,622		7,522
Change in fair value of convertible notes		43		—
Other (expense) income, net		(86)		(5)
Total other income (expense)		4,077		(1,394)

Loss before income tax expense		(2,444)		(9,597)
Income tax expense		—		—
Net loss	$	(2,444)	$	(9,597)
Basic and diluted net loss per common share	$	(0.06)	$	(0.30)
Weighted average shares used to compute basic and diluted net loss per share		42,746,330		31,702,815

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

KNIGHTSCOPE, INC.

Condensed Consolidated Statements of ~~Preferred Stock and~~ Stockholders’ Deficit

(In thousands, except share and per share data)

(Unaudited)

Series m

Series m‑2

Series m‑3

Series m‑4

Series S

Series A

Series B

Class B


Preferred

Preferred

Preferred

Preferred

Preferred

Preferred

Preferred

common

Additional

Total


stock

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

Shares

Amount

capital

Deficit

Deficit
Balance as of June 30, 2021

5,339,215

$
13,866

1,660,756

$
4,982

16,757

$
46

1,432,786

$
6,185

5,567,171

$
43,522

8,936,015

$
3,865

4,653,583

$
9,442

10,189,000

$
10

$
3,523

$
(92,346)

$
(88,813)

Stock based compensation



405

405

Issuance of Series s Preferred stock, net of issuance costs

19,981

164

—

Series m‑4 accrued dividend

186



(186)

(186)

Net loss



(4,895)

(4,895)

Balance as of September 30, 2021

5,339,215

$
13,866

1,660,756

$
4,982

16,757

$
46

1,432,786

$
6,371

5,587,152

$
43,686

8,936,015

$
3,865

4,653,583

$
9,442

10,189,000

$
10

$
3,928

$
(97,427)

$
(93,489)

Series m

Series m‑2

Series m‑3

Series m‑4

Series S

Series A

Series B

Class B




Preferred

Preferred

Preferred

Preferred

Preferred

Preferred

Preferred

common

Additional

Total


stock

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

Shares

Amount

capital

Deficit

Deficit
Balance as of December 31, 2020

5,339,215

$
13,866

1,660,756

$
4,982

16,757

$
46

1,432,786

$
5,826

3,731,248

$
27,135

8,936,015

$
3,865

4,653,583

$
9,442

10,189,000

$
10

$
3,051

$
(69,246)

$
(66,185)

Stock based compensation





863



863

Warrants expired

14



14

Issuance of Series s Preferred stock, net of issuance costs

1,855,904

16,551









Series m‑4 accrued dividend

545







(545)

(545)

Net loss







(27,636)

(27,636)

Balance as of September 30, 2021

5,339,215

$
13,866

1,660,756

$
4,982

16,757

$
46

1,432,786

$
6,371

5,587,152

$
43,686

8,936,015

$
3,865

4,653,583

$
9,442

10,189,000

$
10

$
3,928

$
(97,427)

$
(93,489)

~~Table of Contents~~


	Series m			Series m‑1			Series m‑2			Series m‑3			Series S			Series A			Series B			Class A			Class B										Series m			Series m‑1			Series m‑2			Series m‑3			Series S			Series A			Series B			Class A			Class B
	Preferred			Preferred			Preferred			Preferred			Preferred			Preferred			Preferred			common			common				Additional				Total		Preferred			Preferred			Preferred			Preferred			Preferred			Preferred			Preferred			common			common				Additional				Total
	stock			stock			stock			stock			stock			stock			stock			stock			stock				Paid-in-		Accumulative		Stockholders’		stock			stock			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		Shares	Amount		Shares		Amount		capital		Deficit		Deficit		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares		Amount		capital		Deficit		Deficit
June 30, 2022	1,932,021	$	5,017	—	$	—	160,000	$	480	—	$	—	2,783,404	$	22,532	3,249,104	$	1,406	3,541,767	$	7,185	26,085,487	$	26		10,362,170	$	10	$	89,314	$	(122,426)	$	(33,076)
Balance as of December 31, 2021																																			4,574,917	$	11,881	186,872	$	1,319	1,251,666	$	3,755	16,757	$	46	3,705,239	$	29,995	6,155,564	$	2,663	3,726,092	$	7,559	5,936,929	$	6		13,131,197	$	13	$	30,745	$	(113,697)	$	(82,933)

Stock based compensation																														1,119				1,119																														725				725

Warrants exercised																																																								156,483								370				370

Conversion of debt obligations to Class A Common Stock																																																								6,513,385		7						16,004				16,011

Stock options exercised																						221,686								330				330																						73,001				25,000				97				97

Shares issued for consulting services																						236,567								653				653
Offering proceeds, net of issuance costs																																																								2,236,619		2						19,454				19,456

Share conversion to Class A common stock	(52,075)		(135)										(42,063)		(341)	(139,944)		(61)	(6,146)		(11)	285,874				(42,286)				548				548
Share conversion to common stock																																			(2,537,007)		(6,589)	(186,872)		(1,319)	(425,000)		(1,275)	(16,757)		(46)	(849,496)		(6,877)	(1,846,752)		(799)	(168,721)		(342)	8,961,400		9		(2,777,946)		(3)		17,241				17,247

Proceeds from equity sale, net of issuance costs																						323,298		1						973				974

Share Conversion costs																														(16)				(16)
Share conversion costs																																																																(50)				(50)

Net loss																																(5,238)		(5,238)																																(9,597)		(9,597)

Balance as of September 30, 2022	1,879,946	$	4,882	—	$	—	160,000	$	480	—	$	—	2,741,341	$	22,191	3,109,160	$	1,345	3,535,621	$	7,174	27,152,912	$	27		10,319,884	$	10	$	92,921	$	(127,664)	$	(34,706)
Balance as of March 31, 2022																																			2,037,910	$	5,292	—	$	—	826,666	$	2,480	—	$	—	2,855,743	$	23,118	4,308,812	$	1,864	3,557,371	$	7,217	23,877,817	$	24		10,378,251	$	10	$	84,586	$	(123,294)	$	(38,674)


	Series m			Series m‑1			Series m‑2			Series m‑3			Series S			Series A			Series B			Class A			Class B										Series m			Series m‑1			Series m‑2			Series m‑3			Series S			Series A			Series B			Class A			Class B
	Preferred			Preferred			Preferred			Preferred			Preferred			Preferred			Preferred			common			common				Additional				Total		Preferred			Preferred			Preferred			Preferred			Preferred			Preferred			Preferred			common			common				Additional				Total
	stock			stock			stock			stock			stock			stock			stock			stock			stock				Paid-in-		Accumulative		Stockholders’		stock			stock			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		Shares	Amount		Shares		Amount		capital		Deficit		Deficit		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares		Amount		capital		Deficit		Deficit
Balance as of December 31, 2021	4,574,917	$	11,881	186,872	$	1,319	1,251,666	$	3,755	16,757	$	46	3,705,239	$	29,995	6,155,564	$	2,663	3,726,092	$	7,559	5,936,929	$	6		13,131,197	$	13	$	30,745	$	(113,697)	$	(82,933)
Balance as of December 31, 2022																																			1,855,328	$	4,818	—	$	—	160,000	$	480	—	$	—	2,714,732	$	21,977	3,086,160	$	1,335	3,535,621	$	7,173	28,029,238	$	28		10,319,884	$	10	$	95,716	$	(139,340)	$	(43,586)

Stock based compensation																														2,571				2,571																														446				446

Warrants exercised																						156,483								370				370

Conversion of debt obligations to class A common stock																						6,513,385		7						16,004				16,011
Conversion of debt obligations to Class A Common Stock																																																								2,893,824		3						4,171				4,174

Stock options exercised																						349,432				25,000				532				532																						213,020								225				225

Offering proceeds, net of issuance costs																						2,236,619		2						19,623				19,625
Proceeds from Equity Sale, net of issuance costs																																																								4,424,645		4						4,690				4,694

Share conversion to Class A common stock	(2,694,971)		(6,999)	(186,872)		(1,319)	(1,091,666)		(3,275)	(16,757)		(46)	(963,898)		(7,804)	(3,046,404)		(1,318)	(190,471)		(385)	11,205,577		11		(2,836,313)		(3)		21,138				21,146

Shares issued for consulting services																						236,567								653				653

Proceeds from equity sale, net of issuance costs																						517,920		1						1,351				1,352
Share conversion to common stock																																			(46,830)		(122)										(21,232)		(172)	(1,667,779)		(721)	(36,762)		(75)	1,753,977		2		37,938				1,088				1,090

Share conversion costs																														(66)				(66)																														(4)				(4)

Net loss																																(13,967)		(13,967)																																(2,444)		(2,444)
																																																																		.
Balance as of September 30, 2022	1,879,946	$	4,882	—	$	—	160,000	$	480	—	$	—	2,741,341	$	22,191	3,109,160	$	1,345	3,535,621	$	7,174	27,152,912	$	27		10,319,884	$	10	$	92,921	$	(127,664)	$	(34,706)
Balance as of March 31, 2023																																			1,808,498	$	4,696	—	$	—	160,000	$	480	—	$	—	2,693,500	$	21,805	1,418,381	$	614	3,498,859	$	7,098	37,314,704	$	37		10,357,822	$	10	$	106,332	$	(141,784)	$	(35,405)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

KNIGHTSCOPE, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Nine months ended September 30,


2022

2021
Cash Flows From Operating Activities




Net loss

$
(13,967)

$
(27,636)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

1,157

1,141
Stock compensation expense

2,571

863
Change in fair value of warrant liabilities

(18,190)

10,737
Accrued interest

24

—
Amortization of debt discount

8,878

1,378
PPP loan and interest forgiveness

—

(832)
Common stock issued in exchange for consulting services

67

Loss from damage of autonomous security robots

—

5
Changes in operating assets and liabilities:


Accounts receivable, net

877

(97)
Prepaid expenses and other current assets

(72)

(352)
Other assets

—

142
Accounts payable

188

332
Accrued expenses

(35)

34
Deferred revenue

470

337
Other current and noncurrent liabilities

(359)

329
Net cash used in operating activities

(18,391)

(13,619)
Cash Flows From Investing Activities




Purchases and related costs incurred for Autonomous Security Robots

(2,756)

(1,712)
Purchase of property and equipment

(76)

(107)
Net cash used in investing activities

(2,832)

(1,819)
Cash Flows From Financing Activities




Proceeds from stock options exercised

532

—
Proceeds from issuance of Series S Preferred Stock, net of issuance costs

—

16,551
Offering proceeds, net of issuance costs

19,625

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

—

1,500
Proceeds from equity sale, net of issuance costs

1,352

—
Share conversion costs

(66)

—
Net cash provided by financing activities

21,443

18,051
Net change in cash and cash equivalents and restricted cash

220

2,613
Cash, cash equivalents and restricted cash at beginning of the period

10,849

7,157
Cash, cash equivalents and restricted cash at end of the period

$
11,069

$
9,770
Supplemental Disclosure of Non-Cash Financing Activities




Conversion of preferred stock to common stock

$
21,146

$
—
Conversion of debt obligations to Class A common stock

$
16,011

$
—
Series m-4 accrued dividend

$
—

$
545
PPP Loan and interest forgiveness

$
—

$
832
Issuance of series s preferred stock warrant

$
—

$
1,654
Cashless exercise of warrants

$
370

$
—
Common stock issued for consulting services

$
586

$
—


	Three months ended March 31,
	2023		2022
Cash Flows From Operating Activities
Net loss	$	(2,444)	$	(9,597)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		557		351
Stock compensation expense		446		725
Change in fair value of warrant liabilities		(4,622)		(7,522)
Change in fair value of convertible notes		(43)		—
Accrued interest		497		24
Common stock issued in exchange for consulting services		168		—
Amortization of debt discount		—		8,878

Changes in operating assets and liabilities:
Accounts receivable		(486)		(783)
Prepaid expenses and other current assets		(184)		142
Inventory		(138)		—
Other assets		22		—
Accounts payable		(769)		(434)
Accrued expenses		(560)		(741)
Deferred revenue		675		410
Other current and noncurrent liabilities		398		195
Net cash used in operating activities		(6,483)		(8,352)

Cash Flows From Investing Activities
Purchases and related costs incurred for Autonomous Security Robots		(328)		(764)
Purchase of property and equipment		(439)		(41)
Net cash used in investing activities		(767)		(805)

Cash Flows From Financing Activities
Proceeds from stock options exercised		225		97
Proceeds from equity sale, net of issuance costs		4,694		—
Offering proceeds, net of issuance costs		—		19,456
Share conversion costs		(4)		(50)
Net cash provided by financing activities		4,915		19,503
Net change in cash and cash equivalents		(2,335)		10,346
Cash, cash equivalents and restricted cash at beginning of the period		4,810		10,849
Cash, cash equivalents and restricted cash at end of the period	$	2,475	$	21,195
Supplemental Disclosure of Non-Cash Financing Activities
Conversion of preferred stock to common stock	$	1,090	$	17,247
Conversion of debt obligations to Class A Common Stock	$	4,174	$	16,011

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

KNIGHTSCOPE, INC.

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(Unaudited)

NOTE 1: The Company and Summary of Significant Accounting Policies

Description of Business

Knightscope, Inc. ~~(the “Company”)~~, was incorporated on April 4, 2013 under the laws of the State of Delaware.

Knightscope, Inc. (the “Company”) is a leading provider of autonomous security robots. The Company’s technologies are “Made in the USA” and allow public safety professionals to more effectively deter, intervene, capture, and prosecute criminals. The Company’s mission is to make the United States of America the safest country in the world by helping to protect the people, places, and assets where we live, work, study and visit.

To support this mission, the Company designs, develops, ~~builds,~~manufactures, markets, deploys, and supports ~~advanced physical security technologies. The Knightscope solution to reducing crime combines the physical presence of its proprietary~~ Autonomous Security Robots (“ASRs”) ~~with real-time, on-site data collection and analysis coupled with a~~, autonomous charging stations, the proprietary user interface. Two of the Company’s ASRs, the outdoor/indoor “K5” and the indoor “K3”, autonomously patrol client sites, without the need for remote control, to provide a visible, force multiplying, physical security presence to help protect assets, monitor changes in the environment, and deter crime. They gather real-time data using a large array of sensors. The data is accessible through the Knightscope Security Operations Center (“KSOC”)~~, an intuitive, browser-based~~ software user interface, ~~that enables security professionals~~ and ~~law enforcement officers to review events generated, allowing them to have their eyes, ears, and voice on the ground 24/7/365 in multiple locations at the same time.~~blue light emergency communication devices.

Basis of Presentation and Liquidity

The unaudited condensed consolidated 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 consolidated financial statements have been prepared on the same basis as the annual consolidated 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, 2022~~March 31, 2023 are not necessarily indicative of the results to bethe expected for the year ending December 31, ~~2022~~2023 or for other future periods. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the year ended December 31, ~~2021~~2022 included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed with the SEC on March 31, ~~2022.~~2023. The Company’s significant accounting policies are described in Note 1 to those audited consolidated financial statements.

Since its inception, the Company has incurred significant operating losses and negative cash flows from operations which is principally the result of significant research and development activities related to the development and continued improvement of the Company’s ASRs and KSOC (hardware and software) ~~as well as fulfillment of client demand.~~.

Cash and cash equivalents on hand were ~~$11.1~~$2.4 million as of ~~September 30, 2022,~~March 31, 2023, compared to ~~$10.7~~$4.8 million as of December 31, ~~2021.~~2022. The Company has historically incurred losses and negative cashflows from operations. As of ~~September 30, 2022,~~March 31, 2023, the Company also had an accumulated deficit of approximately ~~$127.7~~$141.8 million and stockholders’ deficit of ~~$34.7~~$35.4 million. The Company is dependent on additional fundraising in order to sustain its ongoing operations. Based on current operating levels, the Company will need to raise additional funds in the next twelve months by selling additional equity or incurring debt. These factors ~~led to substantial doubt related to the Company’s ability to continue as a going concern. The following factors alleviated the~~raise substantial doubt about the Company’s ability to continue as a going ~~concern. In connection with its listing on~~concern for the ~~Nasdaq Global Market on January 27, 2022,~~twelve months from the ~~Company completed its Regulation A Offering on January 26, 2022, issuing 2,236,619 shares~~date of Class A common stock and generating net proceeds of approximately $19.6 million. Management plans to seek additional financing activities to support its operations, such as issuances of equity, issuances of debt and convertible debt instruments and other financing instruments. To address this plan, on April 4, 2022, the Company entered into a committed equity financing facility with B Riley Principal Capital, LLC (“B Riley Principal Capital”) that provides the Company with the right, without obligation, to issue and sell up to $100 million of its Class A common stock over a period of 24 months (see Note 6 for details). The Company’s projected cash flows related to its core operations as well as acquisition costs are subject to various risks and uncertainties, and the unavailability or inadequacy of financing to meet future capital needs could force it to modify, curtail, delay, or suspend some or all aspects of its planned operations. Sales of additional equity securities, convertible debt and/or warrants by the Company could result in the dilution of the interests of existing stockholders (See Note 9 – Subsequent Events for details).report.

109

Table of Contents

Basic and Diluted Net ~~Income (Loss)~~Loss per Share

Net ~~income (loss)~~loss per share of common stock is computed using the two-class method required for participating securities based on their participation rights. All series of convertible preferred stock are participating securities as the holders are entitled to participate in common stock dividends with common stock on an as converted basis. Holders of Series m-4 Preferred Stock were entitled to receive cumulative dividends payable semi-annually in arrears at the rate per share of Series m-4 Preferred Stock equal to the ~~Dividend Rate~~dividend rate for the Series m-4 Preferred Stock, in each case subject to compliance with applicable law. Dividends to holders of Series m-4 Preferred Stock ~~were~~are paid in kind as a dividend of additional shares of Series m-4 Preferred Stock for each ~~Dividend Period~~dividend period on the applicable ~~Dividend Payment Date~~dividend payment date using a price per share equal to the original issue price, provided that the Company shall not issue any fractional shares of Series m-4 Preferred Stock. The holders of the Company’s preferred stock, other than m-4 preferred stock, are also entitled to noncumulative dividends prior and in preference, to ~~our~~the Company’s common stock and do not have a contractual obligation to share in the losses of the Company. ~~During 2021, all~~All shares of Series m-4 Preferred Stock ~~were~~have converted to Class A ~~common stock,~~Common Stock, leaving no outstanding balance of the Series m-4 Preferred Stock as of ~~September 30, 2022.~~March 31, 2023. 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 ~~income (loss)~~loss to determine net ~~income (loss)~~loss attributable to common stockholders upon their occurrence.

Basic net ~~income (loss)~~loss per share is computed by dividing net ~~income (loss)~~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~~weighted average shares outstanding. In computing diluted net ~~income (loss)~~loss attributable to common stockholders, undistributed earnings are re-allocated to reflect the potential impact of dilutive securities. Diluted net ~~income (loss)~~loss per share attributable to common stockholders is computed by dividing net ~~income (loss)~~loss attributable to common stockholders by diluted ~~weighted-average~~weighted average shares outstanding, including potentially dilutive securities, unless anti-dilutive. Potentially dilutive securities that were excluded from the computation of diluted net ~~income (loss)~~loss per share consist of the following:

September 30,

September 30,

2022

2021
Series A Preferred Stock (convertible to Class B common stock)

3,109,160

8,936,015
Series B Preferred Stock (convertible to Class B common stock)

3,535,621

4,653,583
Series m Preferred Stock (convertible to Class A common stock)

1,879,946

5,339,215
Series m-2 Preferred Stock (convertible to Class B common stock)

160,000

1,660,756
Series m-3 Preferred Stock (convertible to Class A common stock)

—

16,757
Series m-4 Preferred Stock (convertible to Class A common stock)

—

1,432,786
Series S Preferred Stock (convertible to Class A common stock)

2,741,341

5,587,152
Warrants to purchase common stock (convertible to Class B common stock)

—

121,913
Warrants to purchase Series B (convertible to Class B common stock)

—

53,918
Warrants to purchase of Series m-1 (convertible to Class A common stock)

—

266,961
Warrants to purchase of Series m-3 (convertible to Class A common stock)

1,432,786

1,432,786
Warrants to purchase of Series s (convertible to Class A common stock)

4,441,814

2,825,714
Convertible Notes

—

2,651,428
Stock options

9,624,595

9,019,814
Total potentially dilutive shares

26,925,263

43,998,798


	March 31,		March 31,
	2023		2022
Series A Preferred Stock (convertible to Class B Common Stock)		1,418,381		4,308,812
Series B Preferred Stock (convertible to Class B Common Stock)		3,498,859		3,557,371
Series m Preferred Stock (convertible to Class A Common Stock)		1,808,498		2,037,910
Series m-2 Preferred Stock (convertible to Class B Common Stock)		160,000		826,666
Series S Preferred Stock (convertible to Class A Common Stock)		2,693,500		2,855,743
Warrants to purchase Class A Common Stock		1,138,446		—
Warrants to purchase Series m-3 Preferred Stock		1,432,786		1,432,786
Warrants to purchase Series s Preferred Stock		4,441,814		4,441,814
2022 Convertible Notes		5,191,966		—
Stock options		9,053,683		8,493,831
Total potentially dilutive shares		30,837,933		27,954,933

As all potentially dilutive securities are anti-dilutive as of ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ diluted net loss per share is the same as basic net loss per share for each period.

Comprehensive Loss

~~Comprehensive loss represents the changes in equity of an enterprise, other than those resulting from stockholder transactions.~~ Net loss was equal to comprehensive loss for the ~~three and nine month~~three-month periods ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

~~Table of Contents~~

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 and property, equipment and ~~equipment,~~software, certain estimates required within revenue recognition, estimating fair values of Company’s common stock, share-based awards and warrant liabilities, inclusive of any contingent assets and liabilities. Actual results could differ from those estimates and such differences may be material to the condensed consolidated financial statements.

~~Recent~~ 10

Table of Contents

Accounting Pronouncements ~~Not Yet Effective~~Adopted in 2023

In ~~August 2020,~~June 2016, the Financial Accounting Standards Board ~~“(FASB)” issued~~released Accounting Standards Update ~~(“ASU”) No. 2020-06,~~ ~~Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)~~. The update simplifies the accounting for convertible instruments by removing certain separation models in Subtopic 470-20. This amendment is effective for fiscal years beginning after December 15, 2023, for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition, including interim periods within those fiscal years. The Company is currently in the process of evaluating the impact of adoption on its financial statements.

~~In September 2016, the FASB released ASU~~ No. 2016-13,~~, Financial~~ “Financial Instruments – Credit ~~Losses (“ASU 2016-03”)~~.Losses.” The amendment revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including but not limited to available-for-sale debt securities and accounts receivable. ~~ASU 2016-03~~The Company’s implementation of this pronouncement did not have a material impact on the Company’s condensed consolidated financial statements.

Inventory

Inventory, principally purchased components, is ~~effective~~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 ~~fiscal years beginning after December 15, 2022 for SEC filers~~ that ~~are eligible to be smaller reporting companies under the SEC’s definition. The Company~~inventory is ~~currently~~established and subsequent changes in facts and circumstances do not result in the ~~process of evaluating~~restoration or increase in the ~~impact of adoption on its financial statements.~~new cost basis.


	March 31,		December 31,
	2023		2022
Raw materials	$	2,235	$	2,032
Work in process		—		—
Finished goods		463		528
	$	2,698	$	2,560

Autonomous Security Robots, net

ASRs consist of ~~raw~~ materials, ASRs in progress and finished ASRs. ASRs in progress and finished ASRs include materials, labor and other direct and indirect costs used in their production. Finished ASRs are valued using a discrete bill of materials, which includes an allocation of labor and direct overhead based on assembly hours. Depreciation expense on ASRs is recorded using the straight-line method over their estimated expected lives, which currently ranges from 3 to ~~4.5~~5 years. Depreciation expense of finished ASRs included in research and development expense amounted to ~~$52~~$2 and ~~$61,~~$20, depreciation expense of finished ASRs included in sales and marketing expense amounted to ~~$37~~$12 and ~~$53,~~$14, and depreciation expense included in cost of revenue, net amounted to ~~$1 million~~$361 and $307 for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

ASRs, net, consisted of the following:


	September 30,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
Raw materials	$	1,987	$	1,041	$	2,157	$	2,732
ASRs in progress		553		427		990		773
Finished ASRs		9,678		7,695		10,884		10,198
		12,218		9,163		14,031		13,703
Accumulated depreciation on Finished ASRs		(7,613)		(6,192)		(8,227)		(7,853)

ASRs, net	$	4,605	$	2,971	$	5,804	$	5,850

Table of Contents

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


	March 31,		December 31,
	2023		2022
ASRs on lease or available for lease	$	9,595	$	9,002
Demonstration ASRs		648		622
Research and development ASRs		194		194
Docking stations		447		380
		10,884		10,198
Less: accumulated depreciation		(8,227)		(7,853)
Finished ASRs, net	$	2,657	$	2,345

Intangible Assets

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


		March 31, 2023
	Amortization	Gross
	Period	carrying		Accumulated		Carrying
Intangible assets with determinable lives	(years)	amount		amortization		amount, net
Developed technology	5	$	990	$	(91)	$	899
Customer relationships	8		950		(55)		895
Trademark	1		230		(105)		125
Total		$	2,170	$	(251)	$	1,919


		December 31, 2022
	Amortization	Gross
	Period	carrying		Accumulated		Carrying
Intangible assets with determinable lives	(years)	amount		amortization		amount, net
Developed technology	5	$	990	$	(41)	$	949
Customer relationships	8		950		(25)		925
Trademark	1		230		(48)		182
Total		$	2,170	$	(114)	$	2,056

Intangible assets amortization expense totaling $137 for the three months ended March, 31, 2023 was recorded in sales and marketing and cost of revenue, net - service in the amounts of $87 and $50, respectively.

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


Year ending December 31,	Amount
2023	$	362
2024		317
2025		317
2026		317
2027		275
Thereafter		331
Total	$	1,919

Table of Contents

~~The components~~

Other Current Liabilities

Other current liabilities consisted of the ~~Finished ASRs,~~following (thousands):


	March 31,		December 31,
	2023		2022
Sales tax	$	463	$	419
Customer and vendor deposits		406		50
Warranty liability		109		145
Lease liability – short term		88		92
Other		357		357
	$	1,423	$	1,063

Accrued Warranty

The liability for estimated warranty claims is accrued at the time of sale and the expense is recorded in the condensed consolidated statements of operations in cost of revenue, net as- 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.

Change in the warranty liability for the three months ended consisted of ~~September 30, 2022 and December 31, 2021 are as follows:~~the following (thousands):

ASRs on lease or available for lease

$
8,331

$
6,489
Demonstration ASRs

606

585
Research and development ASRs

380

320
Docking stations

361

301

9,678

7,695
Less: accumulated depreciation

(7,613)

(6,192)
Finished ASRs, net

$
2,065

$
1,503


	March 31,
	2023		2022
Balance January 1,	$	145	$	—
Provision for warranties issued during the quarter		—		—
Warranty services provided		(36)		—
	$	109	$	—

Accrued Expenses

Accrued expenses consisted of the following (thousands):


	March 31,		December 31,
	2023		2022
Bonuses earned during 2022	$	961	$	961
Payroll and payroll taxes		311		696
Legal, consulting, and financial services		344		542
Other		227		204
	$	1,843	$	2,403

Convertible Preferred Warrant Liabilities and Common Stock Warrants

Freestanding warrants to purchase shares of the Company’s preferred stock are classified as liabilities on the balance sheets at their estimated fair value because the underlying shares of preferred stock are contingently redeemable and, therefore, may obligate the Company to transfer assets at some point in the future. The preferred stock warrants are recorded at fair value upon issuance and are subject to remeasurement to their respective estimated fair values. At the end of each reporting period, changes in the estimated fair value of the preferred stock warrants are recorded in the condensed consolidated statements of operations. The Company will continue to adjust the liability associated with the preferred stock warrants for changes in the estimated fair value until the earlier of the exercise or expiration of the preferred stock warrants, the completion of a sale of the Company or an initial public offering (“IPO”). Upon an

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IPO, the preferred stock warrants will convert into warrants to purchase common stock and any liabilities recorded for the preferred stock warrants will be reclassified to additional paid-in capital and will no longer be subject to remeasurement.

Common stock warrants that are not considered derivative liabilities are accounted for at fair value at the date of issuance in additional paid-in capital. The fair value of these common stock warrants is determined using the Black-Scholes option-pricing model.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ~~ASU~~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. ~~Stock-based~~The Company’s determination of the fair value of the stock-based awards ~~made to nonemployees are measured and recognized based~~ on the ~~estimated fair value on~~date of grant, using the ~~vesting date and are re-measured at each reporting~~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. ~~For awards with graded vesting, the Company recognizes stock-based compensation expense over the service period using the straight-line method, based on shares ultimately expected to vest.~~ The Company recognizes forfeitures as they occur when calculating stock-based compensation for its equity awards.

NOTE 2: Revenue and Deferred Revenue

Revenue Recognition

ASR related revenues

The Company derives its revenues ~~primarily~~ from lease of proprietary ASRs along with access to the browser-based interface KSOC through contracts under the lease accounting that typically have a twelve (12) month term. In addition, the Company derives non-lease revenue items such as professional services related to ASRs’ deployments, special decals, shipping costs and training if any, recognized when control of these services is transferred to the ~~Clients,~~clients, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

Blue light Towers, ephones and Call Boxes related revenues

The Company also derives revenues from fees from Blue light Towers, ephones and Call Boxes related services, such as installation, maintenance, and upgrades. The maintenance revenue is recognized in the period the service is performed and the Company has determined that 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;

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●

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.

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The Company recognizes ASR subscription revenue as follows:

ASR subscription revenue

ASR subscription revenue is generated from lease of proprietary ASRs along with access to the browser-based interface KSOC through contracts that typically have ~~12-month~~twelve (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~~12 month period. In addition, the Company refers certain transactions to Dimension and Balboa Capital, whereby Dimension or Balboa Capital advances the full value of the MaaS subscription to the Company, less a processing fee. 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. ~~See “Liquidity and Capital Resources”.~~

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 twelve (12) ~~month~~-month term.

The Company ~~estimates its~~also records deferred revenue ~~in the periods in which the licensee uses the licensed technology. Payments are received in the subsequent period.~~from unfinished contracts for certain Call Box related services.

~~The following table summarizes revenue by timing of recognition:~~

Three Months Ended

Three Months Ended


September 30, 2022

September 30, 2021
Point in time

$
23

$
16
Transferred over time

1,273

768

$
1,296

$
784

Nine Months Ended

Nine Months Ended

September 30, 2022

September 30, 2021
Point in time

$
69

$
2
Transferred over time

3,212

2,559

$
3,281

$
2,561

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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 for the period ended September 30, 2022 and December 31, 2021:~~follows:


	September 30, 2022		December 31, 2021		March 31, 2023
Deferred revenue - short term	$	1,359	$	889	$	2,386
Revenue recognized in the nine months ended related to amounts included in deferred revenue as of the beginning of the year.	$	803
Revenue recognized in the three months ended related to amounts included in deferred revenue as of January 1, 2023					$	638

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.

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 March 31,
	2023						2022
	Point in time		Over time		Total		Point in time		Over time		Total
ASRs	$	20	$	1,002	$	1,022	$	15	$	929	$	944
Blue light Towers, ephones and Call Boxes		1,787		88		1,875		—		—		—
Total	$	1,807	$	1,090	$	2,897	$	15	$	929	$	944

Other revenue

Other non-ASR related revenue such as deployment services, decals, shipping, and training revenue is recognized when services are delivered.

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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:

●

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, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, and the classification by level of input within the fair value hierarchy:


	Total		Level 1			Level 2		Level 3		Total		Level 1		Level 2		Level 3
September 30, 2022
March 31, 2023
Assets
Cash equivalents:
Money market funds	$	9,024	$	9,024		$	—	$	—	$	100	$	100	$	—	$	—
Liabilities
Warrant liability – Series m-3 Preferred Stock	$	1,756	$	—		$	—	$	1,756	$	514	$	—	$	—	$	514
Warrant liability – Series S Preferred Stock	$	10,250	$	—	��	$	—	$	10,250	$	5,554	$	—	$	—	$	5,554
Derivative liability – Class A Common Stock warrants										$	467	$	—	$	—	$	467
2022 Convertible Notes										$	4,432	$	—	$	—	$	4,432


	Total		Level 1		Level 2		Level 3
December 31, 2022
Assets
Cash equivalents:
Money market funds	$	3,025	$	3,025	$	—	$	—
Liabilities
Warrant liability – Series m-3 Preferred Stock	$	1,282	$	—	$	—	$	1,282
Warrant liability – Series s Preferred Stock	$	8,729	$	—	$	—	$	8,729
Derivative liability – Class A Common Stock warrants	$	1,146	$	—	$	—	$	1,146
2022 Convertible Notes	$	8,152	$	—	$	—	$	8,152

During the three-month periods ended March 31, 2023 and 2022, there were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis and the valuation techniques used did not change compared to the Company’s established practice.

1516

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Total

Level 1

Level 2

Level 3
December 31, 2021








Assets








Cash equivalents:








Money market funds

$
6,623

$
6,623

$
—

$
—
Liabilities






Warrant liability – Series B Preferred Stock

$
370

$
—

$
—

$
370
Warrant liability – Series m-3 Preferred Stock

$
7,156

$
—

$
—

$
7,156
Warrant liability – Series S Preferred Stock

$
23,040

$
—

$
—

$
23,040

~~During~~The following table sets forth a summary of the ~~nine month~~changes in the fair value of Company’s Level 3 warrant liabilities during the three-month periods ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, there~~which were ~~no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported~~measured at fair value on a recurring ~~basis and the valuation techniques used did not change compared to the Company’s established practice.~~basis:


	March 31,		March 31,
	2023		2022
Beginning Balance	$	11,157	$	30,566
Warrants exercised		—		(370)
Revaluation of Series m-3 and S Preferred Stock warrants		(4,622)		(7,522)
Ending Balance	$	6,535	$	22,674

The following table sets forth a summary of the changes in the fair value of Company’s Level 3 ~~financial~~convertible note liabilities during the ~~nine month~~three-month periods ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ which were measured at fair value on a recurring basis:

September 30,

September 30,
Warrant liability

2022

2021
Beginning Balance

$
30,566

$
5,617
Initial fair value of Series S Preferred stock warrants issued

—

1,654
Warrants exercised

(370)

—
Revaluation of Series m-3 and S Preferred Stock warrants

(18,190)

10,737
Warrants expired

—

(14)
Ending Balance

$
12,006

$
17,994


	March 31,		March 31,
	2023		2022
Beginning Balance	$	8,152	$	—
Notes converted		(4,174)		—
Interest accretion		497		—
Revaluation of 2022 Convertible Notes		(43)		—
Ending Balance	$	4,432	$	—

NOTE 4: Debt Obligations

~~Term Loan Agreement~~

In May 2018, the Company entered into a term loan agreement which allowed for individual term loans to be drawn in amounts totaling up to $3.5 million until January 10, 2019 (the “Loan Agreement”). Each individual term loan called for 18 equal monthly payments of principal plus accrued interest which would fully amortize the term loan. Outstanding borrowings under the term loan agreement bear interest at 1.75% above the prime rate per annum. Only one individual term loan in the amount of $0.4 million was drawn by the Company in May 2018. The loan was fully repaid in February 2019.

A warrant for 77,413 shares of Class B common stock was also issued to the lender in conjunction with the Loan Agreement, which was fully exercised during the nine months period ended September 30, 2022.

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~~Convertible Note Financing~~

On April 30, 2019, the Company signed a Note and Warrant Purchase Agreement under the form of which the Company can issue up to $15 million of convertible promissory notes and warrants to purchase up to 3,000,000 shares of Series S Preferred Stock (the “Convertible Note Financing”). Pursuant to the terms of the Convertible Note Financing, the Company became obligated, to the same group of Convertible Note Financing investors, to exchange their outstanding shares of Series m-3 Preferred Stock for newly authorized shares of Series m-4 Preferred stock upon the closing of at least $1 million in aggregate principal amount of convertible promissory notes under the Convertible Note Financing. These warrants to purchase shares of Series S Preferred Stock of the Company were also issued to investors who invested in the Convertible Note Financing. The warrants to purchase shares of Series S Preferred Stock have an exercise price of $4.50 per share and expire on the earlier of December 31, 2021 or 18 months after the closing of the Company’s first firm commitment underwritten initial public offering of the Company’s common stock pursuant to a registration statement filed under the Securities Act. The convertible promissory notes have a maturity date of January 1, 2022, provide for payment of accrued interest at a rate of 12% per annum upon the maturity date, are generally the most senior company security (subject to limited subordination carve-outs) and provide for significant discounts upon a qualified financing or an initial public offering, and for a premium upon a change of control. The convertible notes automatically convert under various scenarios including a qualified financing or IPO. As of January 1, 2020, the convertible notes became convertible at the investors’ option at prices as follows: (i) on or before June 30, 2020, $4.50 per share; (ii) after June 30, 2020, but on or before December 31, 2020, $4.00 per share; (iii) after December 31, 2020, but on or before September 30, 2021, $3.50 per share; and (iv) after September 30, 2021, $2.50 per share.

On November 18, 2021, the Company agreed to amend the Note and Warrant Purchase Agreement and the convertible notes and warrants to purchase Series S Preferred Stock issued thereunder principally as follows: (i) the scheduled maturity date of the convertible notes was extended from January 1, 2022 to January 1, 2024, (ii) the interest rate of the convertible notes was reduced from 12% per annum to 3% per annum starting on January 1, 2022, (iii) the conversion terms of the convertible notes were revised so that the convertible notes would automatically convert into Class A common stock upon the listing of the Company’s Class A common stock for trading on a nationally recognized securities exchange (e.g., the New York Stock Exchange) or inter-dealer quotation system (e.g., Nasdaq), (iv) the exercise period of the warrants was extended from December 31, 2021 to December 31, 2024 and will commence on January 1, 2023, and (v) the cashless exercise feature was removed from the warrants. The conversion price of the convertible notes for conversion into Class A common stock was not changed and remains at $2.50 per share and the exercise price of the warrants to purchase Series S Preferred Stock was not changed and remains at $4.50 per share.

As of December 31, 2021, the Company had issued convertible notes in the aggregate principal amount of approximately $14.7 million (out of $15 million). Warrants for the purchase of up to 2,941,814 shares of Series S Preferred Stock were also issued and accrued for, respectively, to the same convertible note holders. The warrants have an exercise price of $4.50 per share, originally set to expire on December 31, 2021. On January 5, 2022, all convertible notes and accumulated interest were converted into 6,513,385 shares of Class A Common Stock, leaving no outstanding convertible notes as of September 30, 2022.

All of the Company’s outstanding convertible notes and accrued interest, totaling $16 million, net of $0.3 million of debt discount, were converted into Class A common stock during the nine months period ended September 30, 2022. The remaining debt discount related to the notes in the amount of $8.9 million was amortized and recorded as interest expense during the nine months period ended September 30, 2022.

The amortized carrying amount of the Company’s debt obligations consists of the following:


	September 30,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
Convertible notes, net of fees and discount	$	—	$	7,109	$	4,432	$	8,152
Promissory notes						546		546
Total debt		—		7,109		4,978		8,698
Less: current portion of debt obligations		—		(7,109)		866		2,144
Non-current portion of debt obligations	$	—	$	—	$	4,112	$	6,554

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NOTE 5: Stock-Based Compensation

Equity Incentive Plans

In April 2014, the Company adopted the 2014 Equity Incentive Plan (the “2014 Plan”) allowing for the issuance of up to 2,000,000 shares of common stock through grants of options, stock appreciation rights, restricted stock or restricted stock units. In December 2016, the 2014 Plan was terminated, and the Company adopted ~~a new equity incentive plan,~~ the 2016 Equity Incentive Plan (the “2016 Plan”) in which the remaining 1,936,014 shares available for issuance under the 2014 Plan at that time were transferred to the Company’s 2016 Plan. Awards outstanding under the 2014 Plan at the time of the 2014 Plan’s termination will continue to be governed by their existing terms. The shares underlying any awards that are forfeited, canceled, repurchased or are otherwise terminated by the Company under the 2014 Plan will be added back to the shares of common stock available for issuance under the Company’s 2016 Plan. The 2016 Plan provides for the granting of stock awards such as incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock or restricted stock units to employees, directors and outside consultants as determined by the Board of Directors.

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The Board may grant stock options under the 2016 Plan at a price of not less than 100% of the fair market value of the Company’s common stock on the date the option is granted. The option exercise price generally may not be less than the underlying stock’s fair market value at the date of grant and generally have a term of ten years. Incentive stock options granted to employees who, on the date of grant, own stock representing more than 10% of the voting power of all of the Company’s classes of stock, are granted at an exercise price of not less than 110% of the fair market value of the Company’s common stock. The maximum term of incentive stock options granted to employees who, on the date of grant, own stock having more than 10% of the voting power of all the Company’s classes of stock, may not exceed five years. The Board of Directors also determines the terms and conditions of awards, including the vesting schedule and any forfeiture provisions. Options granted under the 2016 Plan may vest upon the passage of time, generally four years, or upon the attainment of certain performance criteria established by the Board of Directors. The ~~Company may from time-to-time grant options to purchase common stock to nonemployees for advisory and consulting services The~~ amounts granted each calendar year to an employee or non-employee is limited depending on the type of award. Stock options comprise all of the awards granted since the Plan’s inception.

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 5,000,000 shares of Class A ~~common stock~~Common Stock through grants of options, stock appreciation rights, restricted stock awards, restricted stock units, performance awards, and other stock or cash-based awards. In connection with the adoption of the 2022 Plan, shares previously available for new grants under the 2016 Plan are available for new grants under the 2022 Plan, and shares subject to outstanding stock options under the prior plans as of the date of stockholder approval of the 2022 Plan, subsequently cease to be subject to such stock options (other than by reason of exercise of such stock options). ~~As of September 30, 2022, 9,624,595 shares of Class A common stock and Class B common stock were subject to outstanding stock options under all plans.~~ The number of shares authorized under the 2022 Plan will be increased each January 1^st, beginning January 1, 2023 and ending on (and including) January 1, 2032, by an amount equal to the lesser of (a) 5% of our outstanding Class A ~~common stock~~Common Stock and Class B ~~common stock~~Common Stock outstanding on December 31^st of the immediately preceding calendar year (rounded up to the nearest whole share) and (b) a number of shares determined by the committee. Shares subject to awards that lapse, expire, terminate, or ~~a re~~are canceled prior to the issuance of the underlying shares or that are subsequently forfeited to or otherwise ~~reaquired~~reacquired by us will be added back to the shares of common stock available for issuance under the 2022 Plan.

The Board of Directors also determines the terms and conditions of awards, including the vesting schedule and any forfeiture provisions. Options granted under the 2022 Plan may vest upon the passage of time, generally four years, or upon the attainment of certain performance criteria established by the Board of Directors. The Company may from time-to-time grant options to purchase common stock to nonemployees for advisory and consulting services. The amounts granted each calendar year to an employee or non-employee is limited depending on the type of award. Stock options comprise all of the awards granted since the Plan’s inception.

Stock option activity under all of the Company’s equity incentive plans for the three-month period ended of March 31, 2023 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, 2022	3,538,268	10,081,915	$	3.11	7.61	$	4,099
2022 Equity incentive plan increase	1,917,456
Granted	(20,000)	20,000		1.67
Exercised		(213,020)		1.05
Forfeited	835,212	(835,212)		5.03
Available and outstanding as of March 31, 2023	6,270,936	9,053,683	$	2.98	7.27	$	333
Vested and exercisable as of March 31, 2023		5,405,758	$	2.15	6.36	$	333

The weighted average grant date fair value of options granted during the three-month period ended March 31, 2023 was $0.92 per share. There were 213,020 options exercised during the three-month period ended March 31, 2023 compared to 98,001 options exercised in the prior year period. The fair value of the options that vested during the three months ended March 31, 2023 and 2022 was $793 and $284, respectively.

As of March 31, 2023, the Company had unamortized stock-based compensation expense of $7.0 million that will be recognized over the weighted average remaining vesting term of options of 2.20 years.

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The assumptions utilized for option grants during the three months ended March 31, 2023 and 2022 are as follows:


	Three months ended
	March 31,
	2023		2022
Risk-free interest rate	3.76	%	0.96	%
Expected dividend yield	—	%	—	%
Expected volatility	54.09	%	53.84	%
Expected term (in years)	5.99		6.08

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


	Three months ended
	March 31,
	2023		2022
Cost of services	$	93	$	80
Research and development		—		227
Sales and marketing		53		71
General and Administrative		300		347
Total	$	446	$	725

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~~Stock option activity under all of the Company’s equity incentive plans for the nine month period ended of September 30, 2022 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, 2021

216,003

8,799,415

$
3.07

8.12

$
60,924
2022 Equity incentive plan

5,000,000

Granted

(1,717,299)

1,717,299

3.48

Exercised

(374,432)

1.42

Expired

11,666

(11,666)

2.34

Forfeited

506,021

(506,021)

3.81

Available and outstanding as of September 30, 2022

4,016,391

9,624,595

$
3.17

7.74

$
6,689
Vested and exercisable as of September 30, 2022

4,505,212

$
1.49

6.51

$
5,181
Awards expected to vest as of September 30, 2022

5,119,383

$
4.66

8.83

$
1,508

The weighted average grant date fair value of options granted during the nine month period ended September 30, 2022 was $2.20 per share. The fair value of the options that vested during the nine months ended September 30, 2022 and 2021 was $1.4 million and $489, respectively. All options available and outstanding at September 30, 2022 are vested or expected to vest.

~~As of September 30, 2022, the Company had unamortized stock-based compensation expense of $10,390 that will be recognized over the average remaining vesting term of options of 2.64 years.~~

~~The assumptions utilized for option grants during the three and nine months ended September 30, 2022 and 2021 are as follows:~~

Three months ended

Nine months ended

September 30,

September 30,

2022

2021

2022

2021

Risk-free interest rate

3.13
%
0.77
%
8.54
%
0.39
%
Expected dividend yield

—
%
—
%
—
%
—
%
Expected volatility

52.76
%
51.84
%
52.82
%
25.92
%
Expected term (in years)

5.99

6.03

6.00

5.05

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

Three months ended

Nine months ended

September 30,

September 30,

2022

2021

2022

2021
Cost of revenue, net

$
85

$
50

$
247

$
151
Research and development

311

82

781

257
Sales and marketing

52

53

184

114
General and Administrative

671

220

1,359

341
Total

$
1,119

$
405

$
2,571

$
863

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NOTE 6: Capital Stock and Warrants

~~Preferred Stock~~

In connection with the Convertible Note Financing, later amended on November 18, 2021, William Santana Li, Chairman and Chief Executive Officer of the Company, was granted a voting proxy to vote substantially all of the shares of the Company’s Series m-4 Preferred Stock, the stock issued upon the conversion of warrants to purchase all of the shares of the Company’s Series m-3 Preferred Stock, the stock issued upon the conversion of warrants to purchase shares of the Company’s Series S Preferred Stock, and the stock issued upon conversion of theThe following tables summarize convertible promissory notes issued as part of the Convertible Note Financing, in each case to the extent that such shares are held by participants in the Convertible Note Financing (the “Voting Proxy”). The votes held by Mr. Li, as a result of the Voting Proxy and related to the outstanding securities to which the Voting Proxy applies, represents approximately 0.86% of the Company’s aggregate voting power as of September 30, 2022.

The Series S Preferred Stock has a right to convert at any time into Class A common stock. The initial conversion rate was 1:1, which conversion rate will continue to be adjusted pursuant to the broad-based weighted average anti-dilution adjustment provisions provided for in the Company’s amended and restated certificate of incorporation, including without limitation as a result of the issuance of warrants to purchase Series S Preferred Stock in connection with the Convertible Note Financing referenced in the paragraph above, which may continue to have closings simultaneously with the Regulation D Offering of Series S Preferred Stock. As of December 31, 2021, the conversion rate has been adjusted to approximately 1.1069 shares of Class A common stock for every 1 share of Series S Preferred Stock, and remains subject to further adjustment.

In connection with the placement of the Series m-3 Preferred Stock during the years ended December 31, 2017 and 2018, the Company issued to the purchasers warrants to purchase an aggregate of 1,432,786 shares of Series m-3 Preferred Stock. These warrants have an exercise price of $4.00 per share. Pursuant to a second amendment to the Warrants to Purchase Shares of Series M-3 Preferred Stock Agreement dated November 18, 2021, the exercise period of the warrants was extended from December 31, 2021 to December 31, 2024 and shall be exercisable, in whole or in part, beginning January 1, 2023. In addition, the cashless exercise feature was removed from the warrants.

~~Common Stock~~

Each share of Class B Common Stock is convertible into one fully paid and non-assessable share of Class A common stock at the option of the holder at any time. Each share of Class B Common Stock will automatically convert into one fully paid and non-assessable share of Class A Common Stock upon the sale, assignment, transfer or disposition of the share or any interest in the share, except for certain permitted transfers to related persons.

On October 15, 2021, the Company filed an offering statement in connection with a proposed offering of up to $40 million of its Class A common stock pursuant to Regulation A of the Securities Act, to raise additional capital for operations (the “2021 Regulation A Offering”). The offering statement was qualified by the SEC on November 29, 2021, and the Company commenced the 2021 Regulation A Offering shortly thereafter, and terminated on January 26, 2022, issuing 2,236,619 shares of Class A common stock with net proceeds generated through this offering of $19.6 million. Outstanding Class A common stock will increase as the various classes of Preferred Stock elect to convert from preferred stock ~~to Class A common stock.~~

~~On April 4, 2022, the Company entered into a Common Stock Purchase Agreement (as amended to date, the “Purchase Agreement~~”)authorized and ~~a Registration Rights Agreement (the “Registration Rights Agreement”) with B. Riley Principal Capital. Pursuant to the Purchase Agreement, the Company has the right to sell to B. Riley Principal Capital, up to the lesser of (i) $100,000,000 of newly~~ issued ~~shares of the Company’s Class A common stock,~~ and (ii) the Exchange Cap (as defined in the Purchase Agreement) (subject to certain conditions and limitations), from time to time during the term of the Purchase Agreement. Sales of Class A common stock pursuant to the Purchase Agreement, and the timing of any sales, are solely at the option of the Company, and the Company is under no obligation to sell any securities to B. Riley Principal Capital under the Purchase Agreement. The per share purchase price for the shares of Class A common stock that B. Riley Principal Capital is required to purchase pursuant to the Purchase Agreement, if any, will be determined by reference to the volume weighted average price of the Class A common stock calculated in accordance with the Purchase Agreement, and subject to the terms and conditions set forth in the Purchase Agreement.

~~Table of Contents~~

As consideration for B. Riley Principal Capital’s commitment to purchase shares of Class A common stock at the Company’s direction upon the terms and subject to the conditions set forth in the Purchase Agreement, upon execution of the Purchase Agreement, the Company issued 98,888 shares of Class A common stock to B. Riley Principal Capital as initial commitment shares. In addition, (i) upon the Company’s receipt of total aggregate gross cash proceeds equal to $25,000,000 as payment by B. Riley Principal Capital for all shares of Class A common stock purchased under the Purchase Agreement, the Company will issue 59,333 additional shares of Class A common stock to B. Riley Principal Capital as additional commitment shares, and (ii) upon the Company’s receipt of total aggregate gross cash proceeds equal to $50,000,000 from B. Riley Principal Capital under the Purchase Agreement, the Company will issue an additional 39,555 shares of Class A common stock to B. Riley Principal Capital as additional commitment shares, totaling 98,888 additional commitment shares (in addition to the 98,888 initial commitment shares the Company issued to B. Riley Principal Capital upon execution of the Purchase Agreement).

Pursuant to the Registration Rights Agreement, the Company filed a registration statement on Form S-1 to register the resale of 12,197,776 shares of Class A common stock by B. Riley Principal Capital, which was declared effective by the SEC on May 11, 2022.

During the three and nine months ended September 30, 2022, we sold 323,298 and 419,032 shares, respectively, of Class A common stock under the Purchase Agreement. Net proceeds from such sales for the three and nine months ended September 30, 2022 totaled $1.0 million and $1.4 million, respectively.

~~Warrants~~

On April 30, 2019, the Company entered into the “Convertible Note Financing”. Pursuant to the terms of the Convertible Note Financing, the Company became obligated to exchange its outstanding shares of Series m-3 Preferred Stock for the newly authorized shares of Series m-4 Preferred stock upon the closing of at least $1 million in aggregate principal amount of convertible promissory notes under the Convertible Note Financing. Warrants to purchase shares of Series S Preferred Stock of the Company were also issued to investors who invested in the Convertible Note Financing. The warrants to purchase shares of Series S Preferred Stock have an exercise price of $4.50 per share and expire on the earlier of December 31, 2024, or 18 months after the closing of the Company’s first firm commitment underwritten initial public offering of the Company’s common stock pursuant to a registration statement filed under the Securities Act. As of September 30, 2022, the Company had issued warrants to purchase up to 2,941,814 shares of Series S Preferred Stock. These warrants issued qualify as liability instruments as the warrants are exercisable into Series S Preferred Stock which are redeemable upon a change of control or any liquidation or winding up of the Company whether voluntary or involuntary. The warrants have been classified as a current liability on the Company’s balance sheets and were recorded as a component of the issuance costs related to Convertible Note. The Series S warrant is valued at market at the end of every reporting period until the warrant is exercised or expires with the change in fair value being recorded in other income (expense), net on the Company’s condensed statements of operations.

Pursuant to the terms of the Convertible Note Financing, the Company became obligated to exchange certain of its outstanding shares of Series m-3 Preferred Stock for the newly authorized shares of Series m-4 Preferred Stock. On September 10, 2019, the Company issued 1,432,786 shares of its Series m-4 Preferred Stock in exchange for 1,432,786 shares of its shares of Series m-3 Preferred Stock, which remained outstanding as of ~~September 30, 2022.~~

On July 23, 2019, the Company issued a warrant to purchase 1,500,000 shares of its Series S Preferred Stock, (the “Warrant”), to Proud Productions LLC (“Proud”) pursuant to the terms of a Distribution Assignment and Warrant Purchase Agreement, dated as of July 22, 2019 (the “Purchase Agreement”). The Warrant is exercisable at $8.00 per share beginning July 24, 2021 and expiring on JulyMarch 31, ~~2024. The Warrant was issued in connection with an upcoming television series to be produced by Proud featuring the Company’s products.~~2023:

During the nine months ended September 30, 2022, warrants to purchase 121,913 shares of Class B common stock and 53,919 warrants to purchase Series B Preferred Stock were cashless exercised resulting in the issuance of 156,483 shares of Class A common stock and the reclassification of $370 from the warrant liability to additional paid-in capital.


		Shares	Proceeds Net		Aggregate
	Shares	Issued and	of Issuance		Liquidation
	Authorized	Outstanding	Costs		Preference
Series A Preferred Stock	8,936,015	1,418,381	$	614	$	1,267
Series B Preferred Stock	4,707,501	3,498,859		7,098		7,138
Series m Preferred Stock	6,666,666	1,808,498		4,696		5,425
Series m-1 Preferred Stock	333,334	—		—		—
Series m-2 Preferred Stock	1,660,756	160,000		480		480
Series m-3 Preferred Stock	3,490,658	—		—		—
Series m-4 Preferred Stock	4,502,061	—		—		—
Series S Preferred Stock	13,108,333	2,693,500		21,805		21,548
Total Preferred Stock	43,405,324	9,579,238	$	34,693	$	35,858

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A summary of the Company’s outstanding warrants as of ~~September 30, 2022~~March 31, 2023 is as follows:


Class of shares	Number of Warrants		Exercise Price	Expiration Date	Number of Warrants	Exercise Price		Expiration Date
Series m-3 Preferred Stock	1,432,786	$	4.0000	December 31, 2024	1,432,786	$	4.0000	December 31, 2024
Series S Preferred Stock	2,941,814	$	4.5000	December 31, 2024	2,941,814	$	4.5000	December 31, 2024
Series S Preferred Stock	1,500,000	$	8.0000	July 31, 2024	1,500,000	$	8.0000	July 31, 2024
Class A Common Stock					1,138,446	$	3.2500	October 13, 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,~~March 31,
		~~2022~~2023
Series A Preferred Stock		~~3,109,160~~1,418,381
Series B Preferred Stock		~~3,535,621~~3,498,859
Series m Preferred Stock		~~1,879,946~~1,808,498
Series m-2 Preferred Stock		160,000
Series S Preferred Stock		~~2,741,341~~2,693,500
Stock options to purchase common stock		~~9,624,595~~9,053,683
Warrants outstanding for future issuance of convertible preferred stock and common stock		~~5,874,600~~7,013,046
2022 Convertible Notes		5,191,966
Stock options available for future issuance		~~4,016,391~~6,270,936
Total shares of ~~common stock~~Class A Common Stock reserved		~~30,941,654~~37,108,869

At-the-Market Offering Program

In February 2023, the Company commenced an at-the-market offering program with H.C. Wainwright & Co., LLC, as sales agent, which allows the Company to sell and issue shares of Class A Common Stock from time-to-time of up to approximately $20.0 million, subject to, and in accordance with, SEC rules.

During the three months ended March 31, 2023, the Company issued 3,573,536 shares of Class A Common Stock under the at-the-market offering program for net proceeds of approximately $3.4 million, net of brokerage and placement fees of approximately $0.1 million.

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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 ~~$127~~$99 and ~~$114 and $319 and $254~~$91 in service fees for ~~the three and nine-month~~three-month periods ended ~~September 30, 2022~~March 31, 2023 and ~~2021, respectively.~~2022. The Company had payables of ~~$31~~$114 and ~~$29~~$117 owed to Konica Minolta as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

The Company paid $60 and $0 for rent for the three months ended March 31, 2023 and 2022, respectively, for a building owned by Sebastian Gutierrez, Senior VP Public Safety Infrastructure Development.

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 ~~2023.~~2025.

~~Lease~~As of March 31, 2023 and December 31, 2022, the components of leases and lease costs ~~for the three and nine month periods ended September 30, 2022~~ are as follows:


	Three months ended		Nine months ended		March 31, 2023		December 31, 2022
Operating leases
Operating lease right-of-use assets					$	1,849	$	2,012
	September 30, 2022		September 30, 2022
Operating lease costs
Operating lease right-of-use assets	$	204	$	576
Operating lease liabilities, current portion					$	807	$	731
Operating lease liabilities, non-current portion						1,130		1,309
Total operating lease liabilities					$	1,937	$	2,040

Operating lease costs were approximately $0.2 million for the three-month periods ended March 31, 2023 and 2022.

As of ~~September 30, 2022,~~March 31, 2023, future minimum operating lease payments for each of the next three years and thereafter is as follows:


Years ending December 31,	Amount		Amount
2022 (remaining)	$	190
2023		507
2023 (remaining)			$	755
2024				806
2025				608
2026				15
Total future minimum lease payments		697		2,184
Less — Interest		(40)
Less - Interest				(247)
Present value of lease liabilities	$	657	$	1,937

Weighted average remaining lease term is ~~0.9~~2.5 years as of ~~September 30, 2022~~March 31, 2023 and the weighted average discount rate is ~~12.0%~~11.1%.

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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, 2022~~March 31, 2023 that would have a material adverse effect on the Company’s financial position, results of operations or cash flows.

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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~~clients which generally include certain provisions for indemnifying ~~Clients~~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 consolidated financial statements as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

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~~financing arrangement of the Company’s ASRs with ~~Farnam.~~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 ~~$0.4~~$0.5 million and ~~$0.5~~$0.4 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, which has been included in other current liabilities on the accompanying condensed consolidated balance sheets. The Company continues to analyze possible sales tax exposure but does not currently believe that any individual claim or aggregate claims that might arise will ultimately have a material effect on its results of operations, financial position or cash flows.

NOTE 9: Subsequent Events

~~Acquisition~~From April 1, 2023 to April 28, 2023, the Company issued 1,954,344 shares of common stock to holders of the 2022 Convertible Notes for settlement of conversion of an aggregate principal amount of approximately $1.0 million.

From April 1, 2023 to May 11, 2023, the Company sold 5,404,207 shares of Class A Common Stock, generating approximately $3.2 million of proceeds, net of commissions and other issuance costs, under the Company’s at-the-market offering program.

On ~~October 10, 2022,~~April 7, 2023, the Company entered into an ~~Asset Purchase~~Amendment and Cancellation Agreement ~~(the “APA”)~~ with ~~Case Emergency Systems, a California corporation (the “Seller”), pursuant to which the Company agreed to purchase and assume from the Seller substantially all the assets and~~ certain ~~specified liabilities~~holders of ~~the Seller's emergency call box and communications business, subject to the terms and conditions set forth in the APA (the “Closing”).~~

Pursuant to the APA, the purchase price paid at the Closing consisted of (i) $6.16 million in cash, subject to a working capital and indebtedness adjustment, less the Indemnification Holdback Amount (as defined below), and (ii) $560,000 in the form of an unsecured, non-negotiable promissory note that (a) bears simple interest at the applicable federal rate per annum, (b) will mature on the 6-month anniversary of the Closing, with principal and accrued interest to be paid on the maturity date, and (c) is subordinated to all senior indebtedness of the Company to the extent required by the holders thereof.

In addition, $672,000 (the “Indemnification Holdback Amount”) was held back from the purchase price paid at the Closing and retained by the Company as security (but not the sole source of recovery) for the performance of the indemnification and other covenants, obligations and agreements of the Seller arising under the APA, any other transaction agreement or otherwise. Any portion of the Indemnification Holdback Amount not used to satisfy indemnification claims will be released to the Seller on the 12-month anniversary of the Closing.

~~The Company funded a portion of the cash consideration payable at Closing with the net proceeds of the 2022 Notes (as defined and described below), and the remainder from cash on hand.~~

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~~2022 Convertible Notes Offering~~

On October 10, 2022, the Company entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor (the “Buyer”), pursuant to which the Company issued and sold to the Buyer in a private placement (i) senior secured convertible notes in an aggregate principal amount of $6.075 million (the “2022 Notes”), at an initial conversion price of $5.00 per share of the Company's Class A common stock, subject to adjustment upon the occurrence of specified events described in the 2022 Notes, and (ii) warrants to purchase upSeries m-3 and Series S Preferred Stock. Under the terms of the agreement, the expiration date for warrants to ~~1,138,446~~purchase 1,432,786 shares of ~~Class A common stock with an initial exercise price~~Series m-3 Preferred Stock and 2,941,814 shares of ~~$3.25 per share~~Series S Preferred Stock were extended to the earlier of ~~Class A common stock, exercisable immediately and expiring five years from~~December 31, 2027 or eighteen (18) months after the ~~date of issuance (the “2022 Warrants” and, together with the 2022 Notes, the “2022 Notes Offering”), for $5.0 million of gross proceeds.~~

The 2022 Notes are senior secured obligations of the Company and issued with an original issue discount of approximately 17.65%. The 2022 Notes bear no interest until an event of default has occurred, upon which interest will accrue at 12.5% per annum. The 2022 Notes mature on September 15, 2024 unless earlier converted (upon the satisfaction of certain conditions) (the “2022 Notes Maturity Date ”). The 2022 Notes are secured by a first priority security interest in substantially allclosing of the Company’s ~~assets.~~

~~Principal payments~~first firm commitment underwritten initial public offering of the Company’s common stock pursuant to a registration statement filed under the ~~2022 Notes are payable~~Securities Act of 1933, as amended, in ~~equal monthly installments beginning on April 5, 2023 and ending on~~exchange for the ~~2022 Notes Maturity Date. Amortization payments are payable, at the Company’s election, in cash or, subject~~cancellation of warrants to ~~certain limitations, in~~purchase 1,500,000 shares of ~~Class A common stock valued at~~Series S Preferred Stock.

On May 11, 2023, the ~~lower of (i)~~Company received notice from The Nasdaq Stock Market (“Nasdaq”) that the ~~Conversion Price (as defined~~Company is not in compliance with Nasdaq Listing Rule 5450(a)(1), as the 2022 Notes) then in effect, and (ii) the greater of (x) $0.496, subject to adjustment as described in the 2022 Notes, (y) 92% of the VWAP (as defined in the 2022 Notes) of the Class A common stock as of the trading day immediately preceding the applicable installment payment date and (z) 92% of the quotient of (A) the sum of the VWAP of the Class A common stock for each of the three trading days with the lowest VWAP of the Class A common stock during the 20 consecutive trading day period ending and including the trading day immediately prior to the applicable installment payment date, divided by (B) 3, subject to adjustment as described in the 2022 Notes.

The Company may, subject to certain conditions, redeem all, or any portion not less than $1.0 million (or such lesser amount then outstanding thereunder), of the Conversion Amount (as defined in the 2022 Notes) then remaining under the 2022 Notes (the “Company Optional Redemption Amount”) on the applicable redemption date (a “Company Optional Redemption”) in cash at a price equal to 100% (or 115% if an event of default exists) of the greater of (i) the Conversion Amount being redeemed, and (ii) the sum of (A) the product of (1) the Conversion Rate with respect to the Conversion Amount being redeemed multiplied by (2) the highest closing saleminimum bid price of the Company’s Class A ~~common stock during~~Common Stock has been below $1.00 per share for 30 consecutive business days. The Company has 180 calendar days, or until November 7, 2023, to regain compliance with the ~~period commencing~~minimum bid price requirement. To regain compliance, the trading day that is immediately prior to the date on which the Company delivers a notice of redemption and ending upon the Company’s payment of the applicable redemption amount in full. The 2022 Notes can also be redeemed by either the Company or the Buyer, as applicable, under various other circumstances, such as a change of control, events of default, subsequent financings, or at the option of the Buyer under certain circumstances, with any such redemption subject to certain terms and conditions as set forth in the 2022 Notes.

Furthermore, the 2022 Notes provide that the holders thereof are entitled to, among other things, effectuate an Alternate Conversion (as defined in the 2022 Notes), defer or accelerate certain installment payments, participate in certain future offeringsminimum bid price of the Company’s ~~securities, in each case, subject to various limitations and conditions and at~~Class A Common Stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during this 180-calendar day grace period. In the ~~prices set forth in~~event the ~~2022 Notes, as applicable. The 2022 Notes contain certain conversion limitations, providing that no conversion~~Company does not regain compliance with the minimum bid price requirement by November 7, 2023, the Company may be ~~made~~eligible for an additional 180-calendar day compliance period if ~~after giving effect~~it elects to ~~the conversion, the holder, together with any of its affiliates, would own in excess of 4.99%~~transfer to The Nasdaq Capital Market to take advantage of the ~~Company’s outstanding shares of Class A common stock.~~

The 2022 Notes contain certain customary affirmative and negative covenants regarding the incurrence of indebtedness, the existence of liens, the repayment of indebtedness, the payment of cash in respect of dividends, distributions or redemptions and the transfer of assets, among other matters, as well as a financial covenant to maintain available cash at all times of $3.0 million. The 2022 Notes also contain certain customary events of default, including, among other things, the failure to file and maintain an effective registration statement covering the Registrable Securities (as defined below), subject to certain exceptions.

~~The 2022 Warrants contain certain conversion limitations, providing~~additional compliance period offered on that a holder thereof may not exercise such 2022 Warrant to the extent (but only to the extent) that, if after giving effect to such conversion, the holder or any of its affiliates would beneficially own in excess of 4.99% of the outstanding shares of the Class A common stock immediately after giving effect to such conversion or exercise.

~~Table of Contents~~

The Company agreed to seek stockholder approval for the issuance of all of the Securities (as defined in the SPA), and, under certain circumstances, to allow for additional shares of Class A common stock to be issued under a Permitted Equity Line (as defined in the SPA), in each case in accordance with the rules and regulations of the Principal Market (as defined in the SPA).

In connection with the entry into the SPA, the Company agreed that until 90 calendar days after the effective date of the registration statement referred to below, the Company will be subject to a customary lock-up period, subject to certain exceptions, including, among other things, issuances of shares of Class A common stock in connection with the Permitted Equity Line or a Permitted ATM, or the issuance of equity awards under the Company’s equity incentive plans.market.

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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 of 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 December 31, ~~2021~~2022 included in our 2022 Annual Report on Form~~10-K for the year ended December 31, 2021.~~ 10-K.

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

Overview

Knightscope ~~Inc. was founded~~is a leading provider of autonomous security robots. Our technologies are Made in ~~Mountain View, California~~the USA and allow public safety professionals to more effectively deter, intervene, capture, and prosecute criminals. Our mission is to make the United States of America the safest country in ~~April 2013~~the world by helping to protect the people, places, and ~~has since developed revolutionary~~things where we live, work, study and visit.

To support this mission, we design, develop, manufacture, market, deploy and support Autonomous Security Robots (“~~ASR”~~ASRs”), autonomous charging stations, the proprietary Knightscope Security Operations Center (“KSOC”) ~~with~~software user interface, and blue light emergency communication devices.

Our core technologies are suitable for most environments that require security patrol coverage and designed to be force multipliers that offer security teams improved situational awareness. ASRs conduct real-time on-site data collection and analysis in both indoor and ~~an interface, primarily~~outdoor spaces delivering alerts to security professionals through ~~funding from both strategic~~the KSOC. The KSOC enables clients with appropriate credentials and ~~private investors. Knightscope currently offers three products: (1)~~user permissions to access the ~~K5 ASR~~data for investigative and evidence collection purposes.

Our blue light emergency communication devices consist of emergency blue light towers, blue light emergency phones (“K5”) for outdoor and indoor usage, (2) the K3 ASR (“K3”) for indoor usage, and (3) the K1 ASR (“K1”) for stationary usage indoors or outdoors. In June 2022, the Company announced a new model, the K1 Hemisphere (“Hemisphere”E-Phone”), ~~which includes~~fully integrated, solar-powered cellular emergency phone towers, and emergency call box systems (“Call Box”). Tower devices are tall, highly visible and recognizable apparatuses that provide emergency communications using cellular and satellite communications with solar power for additional safety in remote locations. E-Phones and Call Boxes offering a smaller, yet still highly visible, footprint than the ~~majority of capabilities Knightscope clients already enjoy today~~stationary security towers, but with ~~its existing suite of technologies, but in a much more compact size, and is currently accepting pre-orders for this new model. The Company also provides access to~~ the Knightscope Security Operations Center (“KSOC”) to all its clients, a proprietary, browser-based interface that allows clients real-time data access. The Company works continuously to improve and upgrade thesame reliable communication capabilities.

We sell our ASR and ~~KSOC, and their precise specifications may change over time.~~

~~The Company operates on a~~stationary multi-purpose security solutions under an annual subscription, Machine-as-a-Service ~~(“MaaS”)~~ business ~~model. The Company’s standard subscription term is twelve months and~~model, which includes the ASR rental as well as maintenance, service, support, data transfer, KSOC access, ~~docking~~charging stations, and unlimited software, firmware and select hardware upgrades. ~~In 2021,~~

Our stationary Blue Light Towers, E-Phones, and Call Boxes are sold as point-of-sale modular systems, including Knightscope’s exclusive, self-diagnostic, alarm monitoring system firmware that provides system owners daily email reports on the ~~Company added “Knightscope+” remote monitoring services~~operational status of their system, a one-year parts warranty, and optional installation services. Modular upgrades are available for the Blue Light Towers, such as public announcement speaker systems. Knightscope also offers an ~~optional service that can be bundled into its MaaS subscriptions, primarily for clients that operate without a fully staffed 24/7 Security Operation Center (“SOC”).~~extended warranty on this series of stationary security towers.

Our current ~~primary~~strategy for all products and services is to focus issolely on United States sales and deployments for the ~~deployment and marketing~~foreseeable future before considering global expansion.

Nasdaq Listing Rules Compliance

On March 29, 2023, we received notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the we are no longer in compliance with the minimum market value of listed securities of $50,000,000 required for continued listing on The Nasdaq Global Market (the “MVLS Requirement”). In accordance with Nasdaq Listing Rules, we have a period of 180 calendar days, or until September 25, 2023, to regain compliance with the MVLS Requirement. If, at any time before September 25, 2023, the market value of our ~~core technologies. We continue to receive client orders~~listed securities closes at $50,000,000 or more for ~~K1, K3 and K5 ASRs, and production~~a minimum of ~~machines is expected to continue out~~ten consecutive business days, Nasdaq will provide written notification that we have regained compliance with the MVLS Requirement.

On May 11, 2023, we received further notice from Nasdaq that we are not in compliance with Nasdaq Listing Rule 5450(a)(1), as the minimum bid price of our ~~corporate headquarters in Mountain View, California.~~

~~Recent Developments~~

~~Acquisition~~

~~On October 10, 2022, the Company entered into an Asset Purchase Agreement~~Class A Common Stock has been below $1.00 per share for 30 consecutive business days (the ~~“APA”~~“Minimum Bid Price Requirement”). In accordance with ~~Case Emergency Systems (the “Seller”), pursuant~~Nasdaq Listing Rules, we have 180 calendar days, or until November 7, 2023, to which the Company agreed to purchase and assume from the Seller substantially all the assets and certain specified liabilities of the Seller's emergency call box and communications business, subject to the terms and conditions set forth in the APA (the “Acquisition”). On October 14, 2022, the Company completed the Acquisition pursuant to the APA (the “Closing”).

~~The Company funded a portion of the cash consideration payable at Closing with the net proceeds of the 2022 Notes (as defined and described below), and the remainder from cash on hand.~~regain

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~~2022 Convertible Notes Offering~~compliance with the Minimum Bid Price Requirement. To regain compliance, the minimum bid price of our Class A Common Stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during this 180-calendar day grace period. In the event we do not regain compliance with the Minimum Bid Price Requirement by November 7, 2023, we may be eligible for an additional 180-calendar day compliance period if we elect to transfer to The Nasdaq Capital Market to take advantage of the additional compliance period offered on that market.

~~On October 10, 2022,~~We intend to actively monitor our compliance with the ~~Company entered into a Securities Purchase Agreement~~MVLS Requirement and the Minimum Bid Price Requirement, and may, if appropriate, consider implementing available options to regain compliance with ~~an accredited investor (the “Buyer”), pursuant~~such listing requirements. There can be no assurance that we will be able to ~~which~~regain compliance MVLS Requirement, the ~~Company issued and sold~~Bid Price Requirement or maintain compliance with any other listing requirements, or satisfy the requirements necessary to transfer the listing of our Class A Common Stock to the Buyer in a private placement (i) senior secured convertible notes in an aggregate principal amount of $6.075 million (the “2022 Notes”), at an initial conversion price of $5.00 per share of the Company’s Class A common stock, subject to adjustment upon the occurrence of specified events described in the 2022 Notes, and (ii) warrants to purchase up to 1,138,446 shares of Class A common stock with an initial exercise price of $3.25 per share of Class A common stock, exercisable immediately and expiring five years from the date of issuance (the “2022 Warrants” and, together with the 2022 Notes, the “2022 Notes Offering”), for $5.0 million of gross proceeds.

The 2022 Notes are senior secured obligations of the Company and issued with an original issue discount of approximately 17.65%. The 2022 Notes bear no interest until an event of default has occurred, upon which interest will accrue at 12.5% per annum. The 2022 Notes mature on September 15, 2024 unless earlier converted (upon the satisfaction of certain conditions). The 2022 Notes are secured by a first priority security interest in substantially all of the Company’s assets.

See Note 9 — Subsequent Events in the accompanying notes to the condensed financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q for additional information.

~~Critical Accounting Estimates~~

~~There have been no changes to our critical accounting estimates from what was reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.~~Nasdaq Capital Market.

Known or Anticipated Trends

Our primary goal remains meeting client demand for additional orders of our technology, attracting new client orders, and ensuring consistent performance in the field. The Company is focused on scaling its business to meet incoming orders. Increasing demand through various marketing efforts, including our nationwide Robot Roadshow and media coverage, has driven and continues to drive an increase in orders and client inquiries.

Sales trends for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 showed demand across all of Knightscope’s product service lines. The sales pipeline continues to grow and is strong, though similar to many business-to-business transactions, the enterprise sales cycle is lengthy. Although we have executed contracts in less than 30 days, notionally these negotiations can range up to several months and years, taking into account the client’s budget, finance, legal, cyber security, human resources, facilities and other reviews. The sales process for this brand-new technology requires significant streamlining and improvements, and we are taking steps to ensure our sales processes are robust, repeatable, and can enable our products to move through the sales pipeline quicker.

~~During~~Delays due to supply chain issues and COVID-19 that negatively impacted the Company’s performance during the first ~~nine~~three months of 2022 ~~both limited resources, including supply chain delays, increased minimum order requirements~~had subsided by the first quarter of ~~raw materials~~2023, although can still be unpredictable and ~~components, increased costs attributed~~problematic. That, along with the acquisition of CASE Emergency Systems (“CASE”) contributed to ~~rising inflation, cash on-hand, as well as the COVID-19 pandemic had~~ a ~~negative impact on~~significant increase in the Company’s performance. Additionally, a portion of clients hardest hit by COVID-19 restrictions have had to terminate or place their service on hold due to budget constraints, and numerous others have had to delay deployments due to accessibility to their premises resulting from uncertainty regarding state and local guidelines related to granting facility access. However, the Company has continued to sign on new clients during the pandemic and throughout the first nine months of 2022. With the recent influx of new capital in January 2022 and continued use of the B Riley committed equity facility, the Company has continued to fund and build inventory, as well as recruit additional employees, which we believe will partially offset the negative impact on our performance.business.

Due to numerous geopolitical events and new safety requirements ~~and supply chain delays resulting from the COVID-19 pandemic,~~ as well as various high-profile incidents of violence across the United States, we believe that the market for our technologies will continue to grow. At the same time, we expect that competing products may be introduced in the near future, creating pressure on us to improve on our production methods, cost, quality and product features.

~~Table of Contents~~

As our business scales and becomes more streamlined, management expects gross loss to decrease, once a critical mass has been achieved. We are focusing our resources on growing the business to be able to generate both a gross profit and overall net income. We are continually evaluating and taking a number of near-term actions to facilitate this result, and expect that as the Company matures, we should obtain expertise, economies of scale and efficiency that would continue to increase revenue and reduce costs over the medium to long-term. For example, we continued to refine our sales strategy in 2021 and into the first nine months of 2022, which is expected to increase and enhance our revenue streams. The addition of new sales representatives during 2022 coupled with improvements to our sales process have positively impacted order rates during 2022. Our ASR materials sourcing, production, assembly, and manufacturing are expected to become more efficient over time, and the costs associated with these processes reduced as we grow. However, with global supply chain constraints resulting from the COVID-19 pandemic and the conflict in Ukraine, the Company experienced increased minimum order requirements, higher prices, and extended lead times for certain components used in our production during 2021 and throughout the first three quarters of 2022. The Company expects this to continue throughout the remainder of 2022 and 2023, which may impact timely delivery of ASRs and our ability to begin recognizing revenue. As operations scale, we believe we will be in a better position to negotiate volume-based pricing terms with suppliers as well as optimize our designs for design-for-assembly and design-for-service. We are also focused on controlling general overhead costs, such as expenditures for real estate leases and optimizing team composition and size. We believe that with the building of new internal tools, the Company will be able to streamline procedures and manage deployments more efficiently through the deployment of automation, alleviating the need for a dramatic increase in headcount. Additionally, new telecommunication service and cloud cost reduction initiatives are underway to further reduce our ongoing support, repair and maintenance costs. Additionally, we are transitioning our ASR production processes from a work cell environment to a more traditional assembly line process, for improved quality, efficiency and throughput. Our overall strategy is to try to keep our fixed costs as low as possible and minimize variable costs while achieving our overall growth objectives.

On October 14, 2022, the Company closed its acquisition of CASE ~~Emergency Systems~~ as a first step in executing upon a growth strategy that includes pursuing opportunities to improve the overall financial performance of the Company and long-term ~~mission (See Note 9 – Subsequent Events).~~mission. The Company typically seeks acquisition targets with strong top line revenue and synergistic technologies.

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Results of Operations

Comparison of the Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

The following table sets forth selected ~~statements~~Condensed Consolidated Statements of ~~operations~~Operations data (in thousands, other than share data) and such data as a percentage of total revenues.


	Three months ended September 30,						Three Months ended March 31,
	2022		% of Revenue	2021		% of Revenue	2023				2022
Revenue, net	$	1,296	100	$	784	100
Service							$	1,748	60	%	$	944	100	%
Product								1,149	40	%		—	—	%
Total revenue, net								2,897	100	%	$	944	100	%
Cost of revenue, net		2,195	169		1,309	167
Service								2,242	77	%		1,493	158	%
Product								868	30	%		—	—	%
Total cost of revenues								3,110	107	%		1,493	158	%
Gross loss		(899)	(69)		(525)	(67)		(213)	(7)	%		(549)	(58)	%
Research & development		2,070	160		1,238	158
Sales & marketing		1,907	147		697	89
General & administrative		2,899	224		1,534	196
Operating Expenses:
Research and development								1,397	48	%		1,838	195	%
Sales and marketing								1,128	39	%		3,490	370	%
General and administrative								3,639	126	%		2,326	246	%
Restructuring charges								144	5	%		—	—
Total operating expenses		6,876	531		3,469	442		6,308	218	%		7,654	811	%
Loss from operations		(7,775)	(600)		(3,994)	(509)		(6,521)	(225)	%		(8,203)	(869)	%
Interest income (expense), net		—	—		(858)	(109)
Change in fair value of warrant liabilities		2,543	196		—	—
Interest expense, net								(502)	(17)	%		(8,911)	(944)	%
Change in fair value of warrant and derivative liability								4,622	160	%		7,522	797	%
Change in fair value of convertible note								43	1	%		—	—	%
Other income (expense), net		(6)	—		(43)	(5)		(86)	(3)	%		(5)	(1)	%
Total other income (expense)		2,537	196		(901)	(115)
Net income (loss) before income tax		(5,238)	404		(4,895)	(624)
Total other expense, net								4,077	141	%		(1,394)	(148)	%
Loss before income tax expense								(2,444)	(84)	%		(9,597)	(1,017)	%
Income tax expense		—	—		—	—			—	%		—	—	%
Net income (loss)		(5,238)	404	$	(4,895)	(624)
Net loss							$	(2,444)	(84)	%	$	(9,597)	(1,017)	%

Revenue, net

Service revenue, net for the three months ended March 31, 2023 increased approximately $0.8 million versus revenue, net for the same period in 2022. The increase is primarily attributed to maintenance and service revenue of approximately $0.7 million associated with installed Blue light Towers, ephones and Call Boxes products as well as an increase in revenue for deployed ASRs of approximately $0.1 million. Product revenue of approximately $1.1 million is attributable to sales of Blue light Towers, ephones and Call Box products. As of April 28, 2023, the Company had a total backlog of approximately $4.7 million, comprised of $2.7 million related to ASR orders and $2.0 million related to orders for blue light emergency communication devices. The Company’s continued focus on addressing supply chain constraints and implementing operational efficiencies has contributed to a reduction in the backlog, which directly contributes to increased revenue, net.

Cost of revenue, net

Cost of revenue, net - service for the three months ended March 31, 2023 increased by approximately $0.7 million to $2.2 million, compared to the three months ended March 31, 2022, primarily due to an increase in personnel costs related to increased headcount resulting from the acquisition of CASE in October 2022 of approximately $0.4 million, as well as increased third party service costs of approximately $0.2 million and increased cellular fees of approximately $0.1 million attributed to the ongoing operation of deployed ASRs. The cost of revenue, net - service is primarily related to the average service cost per unit, depreciation of the ASRs, and stock-based compensation. Cost of revenue, net - product was approximately $0.9 million and is attributable to sales of blue light emergency communications devices.

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~~Revenue, net~~

Revenue, net increased by approximately $0.5 million to $1.3 million, or by 65%, in the three months ended September 30, 2022 from $0.8 million for the three months ended September 30, 2021. Despite the impact of COVID-19, which affected our existing client base, causing some contracts to be placed on hold or postponed during 2021 and into the first half of 2022, coupled with supply chain constraints, recently exacerbated by the conflict in Ukraine and global economic downturn, causing delays in our ability to source components to assemble and deploy ASRs during the third quarter of 2022, the Company was able to offset some of the financial impact with the addition of new clients later in 2021 and through September 30, 2022. As of November 2, 2022, the Company has a total backlog of orders, including orders attributed to CASE Emergency Systems (See Note 9 – Subsequent Events), to ship 289 units representing aggregated revenue of approximately $3.9 million. Of the 289 units, 240 are CASE units representing $1.4M of revenue and 49 are ASRs, representing an aggregate annual subscription value of approximately $2.5 million. While the Company believes the current backlog of work remains firm, prolonged delays in the receipt of critical supplies and materials or continued increases in costs related to the rise in inflation, could result in clients seeking to delay or terminate existing or pending agreements. Factors noted in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021 can cause revenues to be realized in periods and at levels that are different from originally projected.

~~Cost of revenue, net~~

Cost of revenue, net for the three months ended September 30, 2022 increased by approximately $0.9 million to $2.2 million, compared to $1.3 million for the three months ended September 30, 2021, primarily due to personnel costs related to increased headcount and increased costs attributed to service and ongoing support of the ASRs. The cost of revenue, net is primarily related to the depreciation and service costs for machines, including but not limited to the cost of ASR production, ASR related services, and ongoing maintenance and repairs, partially due to the impact of rising inflation.

Gross Loss

The revenue ~~net~~ and cost of revenue ~~net~~ described above resulted in a gross loss attributed to services partially offset by a gross profit attributed to product sales for the three months ended ~~September 30, 2022~~March 31, 2023 resulting in a gross loss of approximately ~~$0.9~~$0.2 million, net, compared to a gross loss of approximately $0.5 million, net, for the three months ended ~~September 30, 2021.~~March 31, 2022.

Research and Development


	Three Months Ended										Three Months Ended
	September 30,										March 31,
	2022			2021			$ Change		% Change		2023			2022			$ Change		% Change
Research and development	$	2,070		$	1,238		$	832	67	%	$	1,397		$	1,838		$	(441)	(24)	%
Percentage of total revenue		160	%		158	%						48	%		195	%

Research and development expenses ~~increased~~decreased by approximately ~~$0.8~~$0.4 million, or ~~67%~~24%, for the three months ended ~~September 30, 2022~~March 31, 2023, as compared to the respective period of the prior year. The ~~increase~~decrease is primarily due to ~~increase in headcount and~~decreased personnel related costs ~~continued investment~~following a workforce reduction in the FedRamp process, and investment in technology development relating to new and improved versions of our ASR models, such as the K1 Hemisphere and new version of the K5, currently being beta tested in the field.January 2023.

Sales and Marketing


	Three Months Ended										Three Months Ended
	September 30,										March 31,
	2022			2021			$ Change		% Change		2023			2022			$ Change		% Change
Sales and marketing	$	1,907		$	697		$	1,210	174	%	$	1,128		$	3,490		$	(2,362)	(68)	%
Percentage of total revenue		147	%		89	%						39	%		370	%

~~Table of Contents~~

Sales and marketing expenses ~~increased~~decreased by ~~$1.2~~approximately $2.4 million, or ~~174%~~68%, for the three months ended ~~September 30, 2022~~March 31, 2023, as compared to the respective period of the prior year. The ~~increase~~decrease was primarily ~~attributed~~due to ~~$1.0 million in commercial~~decreased advertising expenses, designed to increase public awareness of the Company and its products to potential customers and investors as well as its continued investment in the Robot Roadshow during 2022, which has continued to be well received and has resulted in new ASR orders. In addition, increased headcount, as comparedcosts related to the ~~same quarter~~Regulation A Offering that closed in ~~2021, resulted in higher personnel related costs of approximately $0.1 million for the three months ended September 30,~~January 2022.

General and Administrative


	Three Months Ended										Three Months Ended
	September 30,										March 31,
	2022			2021			$ Change		% Change		2023			2022			$ Change		% Change
General and administrative	$	2,899		$	1,534		$	1,365	89	%	$	3,639		$	2,326		$	1,313	56	%
Percentage of total revenue		224	%		196	%						126	%		246	%

General and administrative expenses increased by ~~$1.4~~approximately $1.3 million, or approximately ~~89%~~56%, for the three months ended ~~September 30, 2022,~~March 31, 2023, as compared to the respective period of the prior year. The increase was primarily driven by ~~an increase~~increased legal, corporate, financial services, accounting and investor relations expenses, partially offset by savings in insurance costs resulting from the public listing of $0.4 million, $0.2 million in legal expenses, and approximately $0.9 million of personnel related costs resulting from an increase in headcount and $0.5 million of which relates to stock based compensationrent expense relating to ~~new stock option grants.~~the renegotiation of the Mountain View, California lease at the end of 2022.

~~Other Income (Expense), Net~~Restructuring Charges


	Three Months Ended								Three Months Ended
	September 30								March 31,
	2022		2021		$ Change		% Change		2023			2022			$ Change		% Change
Change in fair value of warrant liability	$	2,543	$	—	$	2,543	100	%
Interest income (expense), net		—		(858)		858	100	%
Other income (expenses), net		(6)		(43)		37	86	%
Total other income (expense)	$	2,537	$	(901)	$	3,438	382	%
Restructuring Charges									$	144		$	—		$	144	100	%
Percentage of total revenue										5	%		—	%

~~Total other income (expense), net increased by approximately $3.4 million, or 382%,~~We incurred restructuring charges for the ~~three months~~period ended ~~September 30, 2022,~~March 31, 2023 of $144 thousand as ~~compared to the respective period~~a result of ~~the prior year due primarily to the change~~a work force reduction in ~~fair value of warrant liability.~~January 2023

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~~Comparison of the Nine Months Ended September 30, 2022 and 2021~~

~~The following table sets forth selected statements of operations data (in thousands, other than share data) and such data as a percentage of total revenues.~~

Nine months ended September 30,

2022

% of Revenue

2021

% of Revenue
Revenue, net

$
3,281

100

$
2,561

100
Cost of revenue, net

5,420

165

3,826

149
Gross loss

(2,139)

(65)

(1,265)

(49)
Research & development

5,983

182

3,894

152
Sales & marketing

6,905

210

7,327

286
General & administrative

8,185

249

3,199

125
Total operating expenses

21,073

642

14,420

563
Loss from operations

(23,212)

(707)

(15,685)

(612)
Interest expense, net

(8,910)

(272)

(1,992)

(78)
Change in fair value of warrant liabilities

18,190

554

(10,737)

(419)
Other income (expense), net

(35)

(1)

778

30
Total other income (expense)

9,245

282

(11,951)

(467)
Net loss before income tax

(13,967)

426

(27,636)

(1,079)
Income tax expense

—

—

—

—
Net loss

(13,967)

426

$
(27,636)

(1,079)

~~Revenue, net~~

Revenue, net increased by approximately $0.7 million to $3.3 million, or by 28% in the nine months ended September 30, 2022, from $2.6 million for the nine months ended September 30, 2021. Despite the impact of COVID-19, which affected our existing client base, causing some contracts to be placed on hold or postponed during 2021 and into 2022, coupled with supply chain constraints and increased costs resulting from rising inflation, recently exacerbated by the conflict in Ukraine and global economic downturn, causing delays in our ability to source components to assemble and deploy ASRs during the nine months ended September 30, 2022, the Company was able to offset some of the financial impact with deployments to a number of new clients later in 2021 and through September 30, 2022.

~~Cost of revenue, net~~

~~Cost of revenue, net for the nine months ended September 30, 2022 was $5.4 million, compared to $3.8 million for the nine months ended September 30, 2021, an increase of 42%~~Other Income/(Expense), primarily due to personnel costs related to increased headcount and increased cost attributed to the production and service of the ASRs, partially due to increased costs resulting from rising inflation. The cost of revenue, net is primarily related to the depreciation and service costs for machines.

~~Gross Loss~~

The revenue, net and cost of revenue, net described above resulted in a gross loss for the nine months ended September 30, 2022 of approximately $2.1 million compared to $1.3 million for the nine months ended September 30, 2021.

~~Research and Development~~Net


	Nine Months Ended										Three Months Ended
	September 30,										March 31
	2022			2021			$ Change		% Change		2023		2022		$ Change		% Change
Research and development	$	5,983		$	3,894		$	2,089	54	%
Percentage of total revenue		182	%		152	%
Interest expense, net											$	(502)	$	(8,911)	$	8,409	94	%
Change in fair value of warrant liability												4,622		7,522		(2,900)	39	%
Change in fair value of convertible notes												43		—		43	(100)	%
Other income (expense), net												(86)		(5)		(81)	(1,620)	%
Total other income (expense)											$	4,077	$	(1,394)	$	5,471	392	%

~~Table of Contents~~

~~Research and development expenses~~Total other income (expense) increased by approximately ~~$2.1~~$5.5 million, or ~~54%~~392%, for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 as compared to the respective period of the prior ~~year. The increase is primarily due~~year, resulting in other income of approximately $4.1 million for the three months ended March 31, 2023 compared to ~~an increase in headcount and personnel~~other expense of approximately $1.4 million for the prior year period. Interest expense decreased by $8.4 million as the Company wrote off the debt discount related ~~costs focused on technology development, including but not limited to upgrades~~ to the ~~KSOC platform and existing ASR models, as well as development~~conversion of brand new ASR models, like the K1 Hemisphere announced in June 2022, as well as a continued focus on FedRamp. Beta versions of the upgraded K5 ASR and the new K1 Hemisphere are currently being testedconvertible notes in the ~~field.~~

~~Sales and Marketing~~

Nine Months Ended




September 30,

2022

2021

$ Change

% Change

Sales and marketing

$
6,905

$
7,327

$
(422)

(6)
%
Percentage of total revenue

210
%

286
%

~~Sales and marketing expenses decreased by $0.4~~prior year period while incurring approximately $0.5 million ~~or 6%, for~~of interest expense related to notes outstanding during the ~~nine months ended September 30, 2022, as compared to the respective period of the prior year.~~current year quarter. The decrease in ~~2022 was primarily due to a reduction of approximately $1.0 million in spending on commercial advertising in 2022 designed to increase public awareness of~~ the Company and its products to potential customers and investors, partially offset by continued investment in the Robot Roadshow during 2022, which has continued to be well received and has resulted in new ASR orders, as well as an increase in personnel related costs of $0.4 million in the nine months ended September 30, 2022.

~~General and Administrative~~

Nine Months Ended




September 30,

2022

2021

$ Change

% Change

General and administrative

$
8,185

$
3,199

$
4,986

156
%
Percentage of total revenue

249
%

125
%

General and administrative expenses increased by $5.0 million, or 156%, for the nine months ended September 30, 2022, as compared to the respective period of the prior year. The increase was primarily driven by an increase of approximately $2.7 million relating to professional service fees associated with legal, corporate, insurance, and financial service expenses related to the Company’s public listing on Nasdaq, regulatory filings, the Acquisition and associated Notes Offering (See Note 9 – Subsequent Events) and $2.0 million in personnel related costs in 2022 compared to the prior year, as a result of an increase in headcount and an increase in stock-based compensation expense of $1.0 million.

~~Other Income (Expense), Net~~

Nine Months Ended

September 30


2022

2021

$ Change

% Change

Change in fair value of warrant liabilities

$
18,190

$
(10,737)

$
28,927

269
%
Interest expense, net

(8,910)

(1,992)

(6,918)

(347)
%
Other income (expense), net

(35)

778

(813)

(104)
%
Total other income (expense)

$
9,245

$
(11,951)

$
21,196

177
%

Total other income (expense), net increased by $21.2 million, or 177%, for the nine months ended September 30, 2022, as compared to the respective period of the prior year. The increase is primarily due to the change in fair value of warrant ~~liability partially offset by an increase~~liabilities for the quarter ended March 31, 2023 was $2.9 million less than in ~~interest expense, net of $6.9~~the same prior year period. Other income (expense) increased approximately $0.1 million ~~resulting from~~related to referral fees paid to Dimension Funding LLC (“Dimension”) as described in the ~~write off of the remaining debt discount upon the conversion of the convertible notes on January 5, 2022.~~next paragraph.

~~Table of Contents~~

Liquidity and Capital Resources

As of ~~September 30, 2022~~March 31, 2023, and December 31, ~~2021,~~2022, we had ~~$11.1~~$2.4 million and ~~$10.7~~$4.8 million, respectively, of cash and cash ~~equivalents, respectively.~~equivalents. As of ~~September 30, 2022,~~March 31, 2023, the Company also had an accumulated deficit of approximately ~~$127.7~~$141.8 million, working capital deficit of ~~$7.9~~$0.6 million and stockholders’ deficit of ~~$34.7~~$35.4 million.

On April 4, 2022, the Company entered into a Common Stock Purchase Agreement (as amended to date, the “Purchase Agreement”) and a Registration Rights Agreement with B. Riley Principal Capital, LLC (“B. Riley Principal Capital”). Pursuant to the Purchase Agreement, the Company has the right to sell to B. Riley Principal Capital, up to the lesser of (i) $100,000,000 of newly issued shares of the Company’s Class A common stock and (ii) the Exchange Cap (as defined in the Purchase Agreement) (subject to certain conditions and limitations), from time to time during the term of the Purchase Agreement. Sales of Class A common stock pursuant to the Purchase Agreement, and the timing of any sales, are solely at the option of the Company, and the Company is under no obligation to sell any securities to B. Riley Principal Capital under the Purchase Agreement. During the three and nine months ended September 30, 2022, we sold 323,298 and 419,032 shares, respectively, of Class A common stock under the Purchase Agreement. Net proceeds from such sales totaled $1.0 and $1.4 million, respectively.

On April 20, 2021, the Company entered into a Referral Agreement with Dimension, ~~Funding, LC (“Dimension”),~~ whereby the Company can generate up to $10 million of immediate cash flow by referring its clients to Dimension for financing of their annual fees over the MaaS subscription term. This agreement enables the Company to quickly offset the up-front costs associated with building and deploying ~~ASR’s~~ASRs by accelerating collection of its accounts receivable. In 2022, the Company also began working with a second source for order financing for its ASRs to supplement its ability to finance its backlog.

AsIn February 2023, the Company filed a registration statement, on Form S-3, for the issuance of up to $20 approximately million of Class A Common Stock, and the ~~date of this report,~~Company entered into an At the Market Offering agreement on February 1, 2023 with H.C. Wainwright & Co., LLC as sales agent. This at-the-market offering program provides the Company with additional access to capital, as needed, subject to market conditions. Since February 10, 2023, the Company has ~~sufficient~~relied on the at-the-market offering program as a source of working capital ~~and access to cash via the committed equity facility~~ to fund operations. With the proceeds from the at-the-market offering program and continued collection of trade receivables, as of May 1, 2023, the Company’s cash balance was approximately $2.9 million. The Company has projected operating losses and negative cash flows of approximately $1.0 million per month, on average, for the next several months. 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 ~~least twelve months~~levels sufficient to fund its future operations. 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 ~~operations.~~one or more of its platforms or discontinue operations completely. We intend to monitor the stability of the financial institutions in which we keep our liquid funds to mitigate against the exposure to loss of funds and delays in accessing our cash. Occasionally, such reviews and other events result in the movement of funds to more stable institutions such as the movement of our cash deposits out of Silicon Valley Bank to Comerica Bank, and we plan to diversify our deposit accounts with the addition of nationally recognized banks.

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Cash Flow

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


	Nine Months Ended				Three Months Ended
	September 30,				March 31,
	2022		2021		2023		2022
Net cash used in operating activities	$	(18,391)	$	(13,619)	$	(6,483)	$	(8,352)
Net cash used in investing activities		(2,832)		(1,819)		(767)		(805)
Net cash provided by financing activities		21,443		18,051		4,915		19,503
Net increase in cash and cash equivalents	$	220	$	2,613
Net increase/(decrease) in cash and cash equivalents					$	(2,335)	$	10,346

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 ~~$18.4~~$6.5 million for the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. Net cash used in operating activities resulted from a net loss of ~~$14.0~~$2.4 million ~~adjusted by~~and changes in working capital and non-cash charges, such as the change in the fair value of warrants partially offset by the amortization of the debt discount written off upon the conversion of the convertible notes in January 2022, stock compensation expense, and depreciation and amortization.charges.

Net cash used in operating activities for the ~~nine~~three months ended ~~September 30, 2022 increased~~March 31, 2023 decreased by ~~$4.8~~approximately $1.9 million as compared to the respective period of the prior year. The ~~increase~~decrease was primarily ~~due to~~a result of a decrease in the ~~reduction~~net loss of approximately $7.2 million, a decrease in the change in fair value of ~~warrants~~warrant liabilities of ~~$28.9~~$2.9 million, an increase in accrued interest of approximately $0.5 million, an increase in depreciation and amortization of approximately $0.2 million, common stock issued in exchange for services of approximately $0.2 million and changes in operating assets and liabilities of approximately $0.2 million partially offset by a decrease in ~~net loss of $13.7 million, an increase in~~debt discount amortization of ~~debt discount of $7.5 million upon the conversion of convertible notes in January 2022, an increase~~$8.9, and a decrease in stock compensation expense of ~~$1.7 million, a decrease of $0.8 million of forgiveness of the Paycheck Protection Program loan and interest.~~approximately $0.3 million.

~~Table of Contents~~

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~~three months ended ~~September 30,~~March 31, 2023 and March 31, 2022 was approximately ~~$2.8 million compared to $1.8 million in the respective period last year, or $1.0 million higher. The increase was primarily a result of higher investment in ASRs.~~$0.8 million.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was approximately ~~$21.4~~$4.9 million for the ~~nine~~three months ended ~~September 30, 2022, an increase~~March 31, 2023, a decrease of approximately ~~$3.4~~$14.6 million as compared to the respective period of the prior year. Our financing activities for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, consisted primarily of net proceeds from the issuance of Class A Common Stock under our at-the-market offering program with H.C. Wainwright LLC (“Wainwright”). In the prior year period our financing activities consisted primarily of net proceeds resulting from ~~issuing stock in connection with our~~the Company’s 2021 Regulation A Offering that terminated on January 26, 2022, immediately prior to the Company’s listing on Nasdaq on January 27, 2022.

At-the-Market Offering Program

In ~~addition,~~February 2023, we commenced an at-the-market offering program with Wainwright, which allows us to sell and issue shares of our Class A Common Stock from time-to-time of up to approximately $20.0 million, subject to, and in accordance with, SEC rules.

During the ~~Company received net proceeds from the issuance and sale of~~three months ended March 31, 2023, we issued 3,573,536 shares of Class A ~~common stock to B. Riley Principal Capital~~Common Stock under the ~~Purchase Agreement~~at-the-market offering program for net proceeds of approximately ~~$1.4~~$3.4 million, ~~during the nine months ended September 30, 2022.~~

net of brokerage and placement fees of approximately $0.1 million. As of March 31, 2023, we had remaining capacity to issue up to approximately $16.5 million of Class A Common Stock ~~Regulation A Offering~~

On October 15, 2021, the Company filed an offering statement in connection with a proposed offering of up to $40 million for its Class A Common Stock pursuant to Regulation A of the Securities Act, to raise additional capital for operations (the “2021 Regulation A Offering”). The offering statement was qualified by the SEC on November 29, 2021, and the Company commenced the 2021 Regulation A Offering shortly thereafter, and terminated on January 26, 2022. Gross proceeds generated through this offering was $22.4 million.

~~Convertible Promissory Notes and Series S Preferred Stock Warrants, and the Related Conversion of Certain Series m-3 Preferred Stock into Series m-4 Preferred Stock~~

~~On April 30, 2019 the Company signed a Note and Warrant Purchase Agreement~~ under the form of which the Company can issue up to $15 million of convertible promissory notes and warrants to purchase up to 3,000,000 shares of Series S Preferred Stock (the “Convertible Note Financing”). Pursuant to the terms of the Convertible Note Financing, the Company became obligated to exchange certain of its outstanding shares of Series m-3 Preferred Stock for the newly authorized shares of Series m-4 Preferred Stock upon the closing of at least $1 million in aggregate principal amount of convertible promissory notes under the Convertible Note Financing. On September 10, 2019, the Company issued, to the same group of Convertible Note Financing investors, 1,432,786 shares of its Series m-4 Preferred Stock in exchange for 1,432,786 shares of its shares of Series m-3 Preferred Stock held by such investors. The Series m-4 Preferred Stock has a senior liquidation preference to all other Preferred Stock and Common Stock of the Company, has an accruing payment in kind dividend in the form of Series m-4 Preferred Stock of 12%, and has certain other preferential rights, including voting rights, as further explained in the Company’s amended and restated certificate of incorporation. Exchange of Series m-3 Preferred Stock for Series m-4 Preferred Stock was inclusive of inducement expenses of $0.9 million (see Note 4 to the audited financial statements for details). The convertible promissory notes had a maturity date of January 1, 2022, provide for interest at a rate of 12% per annum payable upon the maturity date, are generally the most senior company security (subject to limited subordination carve-outs) and provide for significant discounts upon a qualified financing or an initial publicat-the-market offering and for a premium upon a change of control. As of September 30, 2022, the Company had issued convertible notes in the aggregate principal amount of approximately $14.7 million (out of $15 million), all of which have converted during the nine months ended September 30, 2022. Warrants for the purchase of up to 2,941,814 shares of Series S Preferred Stock were also issued and accrued for, respectively, to the same convertible note holders. The warrants have an exercise price of $4.50 per share and expire on the earlier of December 31, 2024 or 18 months after the closing of the Company’s first firm commitment underwritten initial public offering of the Company’s common stock pursuant to a registration statement filed under the Securities Act (the “IPO”).program.

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2022 Convertible Notes and Common Stock Warrants

On ~~November 18, 2021,~~October 10, 2022, we entered into a securities purchase agreement with an accredited investor (the “Buyer”), pursuant to which we sold and issued to the ~~Company agreed to amend the Note and Warrant Purchase Agreement and the~~Buyer in a private placement (i) senior secured convertible notes ~~and warrants to purchase Series S Preferred Stock issued thereunder principally as follows: (i) the scheduled maturity date~~in an aggregate principal amount of ~~the convertible notes was extended from January 1, 2022 to January 1, 2024, (ii) the interest rate~~$6.075 million (the “2022 Convertible Notes”), at an initial conversion price of ~~the convertible notes was reduced from 12%~~$5.00 per ~~annum to 3% per annum starting on January 1, 2022, (iii) the conversion terms~~share of ~~the convertible notes were revised so that the convertible notes will automatically convert into~~ Class A Common Stock, subject to adjustment upon the ~~listing~~occurrence of specified events described in the ~~Company’s common stock for trading on a nationally recognized securities exchange (e.g., the New York Stock Exchange) or inter-dealer quotation system (e.g., Nasdaq), (iv) the exercise period~~2022 Convertible Notes, and (ii) warrants to purchase up to 1,138,446 shares of the warrants was extended from December 31, 2021 to December 31, 2024 and will commence on January 1, 2023, and (v) the cashless exercise feature was removed from the warrants. The conversion price of the convertible notes for conversion into Class A ~~common stock was not changed and remains at $2.50 per share and the~~Common Stock with an initial exercise price of $3.25 per share of Class A Common Stock, exercisable immediately and expiring five years from the ~~warrants~~date of issuance (the “2022 Common Stock Warrants” and, together with the 2022 Convertible Notes, the “2022 Convertible Notes Offering”), for $5.0 million of gross proceeds.

The 2022 Convertible Notes are senior secured obligations of the Company. The 2022 Convertible Notes were issued with an original issue discount of approximately 17.65%, bear no interest until an event of default has occurred, upon which interest will accrue at 12.5% per annum, and mature on September 15, 2024 unless earlier converted (upon the satisfaction of certain conditions). On December 30, 2022, we and the Buyer entered into an Agreement and Waiver (the “Waiver”), pursuant to ~~purchase Series S Preferred~~which we mutually agreed to reduce the minimum cash covenant to $1.5 million and to lower the conversion price in part, such that the conversion price in effect on any given time of determination will equal the Alternate Conversion Price (as defined in 2022 Convertible Notes) then in effect (but with 85% replacing 80% in such definition of Alternate Conversion Price, as applicable).

During the three months ended March 31, 2023, we issued 2,893,824 shares of Class A Common Stock in connection with various conversions of the 2022 Convertible Notes by the Buyer, representing an aggregate principal amount of approximately $3.1 million. As of March 31, 2023, the outstanding principal balance of the 2022 Convertible Notes was ~~not changed and remains at $4.50 per share.~~approximately $3.0 million.

Common Stock Purchase Agreement with B. Riley Principal Capital

On April 4, 2022, the Company entered into the Purchase Agreement and a Registration Rights Agreement with B. Riley Principal Capital. Pursuant to the Purchase Agreement, the Company has the right to sell to B. Riley Principal Capital, up to the lesser of (i) $100,000,000 of newly issued shares of the Company’s Class A ~~common stock~~Common Stock and (ii) the Exchange Cap (as defined in the Purchase Agreement) (subject to certain conditions and limitations), from time to time during the term of the Purchase Agreement. Sales of Class A ~~common stock~~Common Stock pursuant to the Purchase Agreement, and the timing of any sales, are solely at the option of the Company, and the Company is under no obligation to sell any securities to B. Riley Principal Capital under the Purchase Agreement. The per share purchase price for the shares of Class A ~~common stock~~Common Stock that B. Riley Principal Capital is required to purchase pursuant to the Purchase Agreement, if any, will be determined by reference to the volume weighted average price of the Class A ~~common stock~~Common Stock calculated in accordance with the Purchase Agreement, and subject to the terms and conditions set forth in the Purchase Agreement.

As consideration for B. Riley Principal Capital’s commitment to purchase shares of Class A ~~common stock~~Common Stock at the Company’s direction upon the terms and subject to the conditions set forth in the Purchase Agreement, upon execution of the Purchase Agreement, the Company issued 98,888 shares of Class A ~~common stock~~Common Stock to B. Riley Principal Capital as initial commitment shares. In addition, (i) upon the Company’s receipt of total aggregate gross cash proceeds equal to $25,000,000 as payment by B. Riley Principal Capital for all shares of Class A ~~common stock~~Common Stock purchased under the Purchase Agreement, the Company will issue 59,333 additional shares of Class A ~~common stock~~Common Stock to B. Riley Principal Capital as additional commitment shares, and (ii) upon the Company’s receipt of total aggregate gross cash proceeds equal to $50,000,000 from B. Riley Principal Capital under the Purchase Agreement, the Company will issue an additional 39,555 shares of Class A ~~common stock~~Common Stock to B. Riley Principal Capital as additional commitment shares, totaling 98,888 additional commitment shares (in addition to the 98,888 initial commitment shares the Company issued to B. Riley Principal Capital upon execution of the Purchase Agreement). Pursuant to the Registration Rights Agreement, the Company filed a registration statement on Form S-1 to register the resale of 12,197,776 shares of Class A ~~common stock~~Common Stock by B. Riley Principal Capital, which was declared effective by the SEC on May 11, 2022.

During the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, we sold ~~323,298 and 419,032~~851,109 shares of Class A ~~common stock, respectively,~~Common Stock under the Purchase Agreement. Net proceeds from such sales totaled ~~$1.0 million~~$1.3 million.

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Critical Accounting Estimates

There have been no changes to our critical accounting estimates from what was reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Effective the first quarter of fiscal year 2023, the Company implemented Accounting Standards Update No 2016-13, “Financial Instruments – Credit Losses.”, issued by the Financial Accounting Standards Board in June 2016. The amendment revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including but not limited to available-for-sale debt securities and ~~$1.4 million, respectively.~~accounts receivable. The Company’s implementation of this pronouncement did not have a material impact on the Company’s condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide this information.

~~Table of Contents~~

Item 4. Controls and Procedures₁

As required by Rule 13a-15 under the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~September 30, 2022.~~March 31, 2023. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. 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, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

Based upon their evaluation of these disclosure controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were ~~not~~ effective as of ~~September 30, 2022 due to a material weakness in our internal control over financial reporting as described below.~~

~~Material Weakness in Internal Control Over Financial Reporting~~

~~In connection with the audit of our financial statements for the year ended December~~March 31, 2021, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses related to certain corporate finance and accounting oversight functions specifically related to the need for technical accounting and SEC expertise, which was primarily the result of the accounting for the preferred stock warrant liability, evaluation of the features of the convertible notes payable and other equity accounting items, due to lack of sufficient accounting and finance resources throughout 2021. Commencing in the quarter ended December 31, 2020, the Company hired a full-time, in-house accounting team, including a chief financial officer (“CFO”), who has the requisite U.S. GAAP and SEC Commission reporting expertise, to transition the Company from private to publicly listed. To fully address this material weakness and to continue our implementation of new controls and procedures to address this material weakness in 2022, the Company intends to augment its accounting team with additional technical accounting professionals. As of September 30, 2022, the Company has hired additional accounting staff and has continued its efforts to implement process improvements to ensure the effectiveness of internal controls over financial reporting.

~~Evaluation of Changes in Internal Control over Financial Reporting~~

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, our president (our principal executive officer and our principal accounting officer and principal financial officer), to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of our company are being made only in accordance with authorizations of management and directors of our company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.2023.

Changes in Internal Control over Financial Reporting

As noted above, the Company intends to augment its in-house accounting team and continues to address the controls related to the material weakness, including corporate finance and accounting oversight functions. Except for these continued actions, thereThere were no changes in our internal control over financial reporting during the ~~quarter~~three months ended ~~September 30, 2022~~March 31, 2023 that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

We may be subject to litigation from time to time in the ordinary course of business. We are not currently party to any legal proceedings that we believe would reasonably have a material adverse impact on its business, financial results, and cash flows.

Item 1A. Risk Factors

You should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, which could materially affect our business, financial condition, cash flows or future results. ~~Except as set forth below, there~~There have been no material changes in our risk factors included in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. The risks described in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 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.

~~We may be unable to successfully integrate the businesses and personnel of acquired companies and businesses, and may not realize the anticipated synergies and benefits of such acquisitions.~~

From time to time, we may complete acquisitions of companies and certain businesses of companies, and we may not realize the expected benefits from such acquisitions because of integration difficulties or other challenges. For example, in October 2022, we completed the acquisition of Case Emergency Systems.

The success of any acquisition will depend, in part, on our ability to realize all or some of the anticipated synergies and other benefits from integrating the acquired businesses with our existing business. The integration process may be complex, costly and time-consuming. The potential difficulties we may face in integrating the operations of our acquisitions include, among others:

●

~~failure to implement our business plan for the combined businesses;~~

●

~~unexpected losses of key employees, customers or suppliers of acquired companies and businesses;~~

●

~~unanticipated issues in conforming our acquired companies’ and businesses’ standards, processes, procedures and internal controls with our operations;~~

●

~~coordinating new product and process development;~~

●

~~increasing the scope, geographic diversity and complexity of our operations;~~

●

~~diversion of management’s attention from other business concerns;~~

●

~~adverse effects on our or acquired companies’ and businesses’ existing business relationships;~~

●

~~unanticipated changes in applicable laws and regulations;~~

●

~~unanticipated expenses and liabilities; and~~

●

~~other difficulties in the assimilation of acquired companies and businesses operations, technologies, products and systems.~~

~~Table of Contents~~

We may not be able to maintain or increase the levels of revenue, earnings or operating efficiency that any acquired company and business and us had historically achieved or might achieve separately. In addition, we may not accomplish the integration of any acquired company and business smoothly, successfully or within the anticipated costs or timeframe. If we experience difficulties with the integration process or if the business of any acquired company or business deteriorates, the anticipated cost savings, growth opportunities and other synergies of any acquired company and business may not be realized fully or at all, or may take longer to realize than expected. If any of the above risks occur, our business, financial condition, results of operations and cash flows may be materially and adversely impacted, we may fail to meet the expectations of investors or analysts, and our stock price may decline as a result.

Item 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

None.

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Item 6. Exhibits

Exhibit No.		Description

2.1*		Asset Purchase Agreement, dated as of October 10, 2022, by and between Knightscope, Inc. and Case Emergency Systems (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on October 11, 2022).

3.1		Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 2.1 to Knightscope, Inc.’s Regulation A Offering Statement on Form 1-A (File No. 024-11004)).

3.2		Bylaws (incorporated by reference to Exhibit 2.2 to Knightscope, Inc.’s Regulation A Offering Statement on Form 1-A (File No. 024-11004)).

~~4.1~~10.1		~~Form of Senior Secured Convertible Note (incorporated by reference to Exhibit 4.1 to~~At the ~~Company’s Current Report on Form 8-K, filed on October 11, 2022).~~

~~4.2~~		~~Form of Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on October 11, 2022).~~

10.1**		~~Securities Purchase~~Market Offering Agreement, dated as of ~~October 10, 2022,~~February 1, 2023, by and between Knightscope, Inc. and ~~each purchaser identified on the signature pages thereto~~H.C. Wainwright & Co., LLC (incorporated by reference to Exhibit ~~10.1~~1.2 to ~~the Company’s Current Report~~our Registration Statement on Form ~~8-K~~S-3 (File No. 333-269493) filed on ~~October 11, 2022).~~

10.2*		~~Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 11, 2022)~~February 1, 2023).

31.1†		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2†		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1+		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2+		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS†		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†		XBRL Taxonomy Extension Schema Document

101.CAL†		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF†		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB†		XBRL Taxonomy Extension Label Linkbase Document

101.PRE†		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.

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Certain exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibits or schedules upon request; provided that the Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended

**	Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibits or schedules upon request

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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, 2022~~May 12, 2023


	KNIGHTSCOPE, INC.

	By:	/s/ William Santana Li
	Name:	William Santana Li
	Title:	Chairman and Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Mallorie Burak
	Name:	Mallorie Burak
	Title:	~~Executive Vice~~ President and Chief Financial Officer
		(Principal Financial Officer)

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	Three Months Ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Revenue, net	$	1,296		784	$	3,281		2,561
Cost of revenue, net		2,195		1,309		5,420		3,826
Gross loss		(899)		(525)		(2,139)		(1,265)

Operating expenses:
Research and development		2,070		1,238		5,983		3,894
Sales and marketing		1,907		697		6,905		7,327
General and administrative		2,899		1,534		8,185		3,199
Total operating expenses		6,876		3,469		21,073		14,420

Loss from operations		(7,775)		(3,994)		(23,212)		(15,685)

Other income (expense):
Change in fair value of warrant liabilities		2,543		—		18,190		(10,737)
Interest income (expense), net		—		(858)		(8,910)		(1,992)
Other income (expense), net		(6)		(43)		(35)		778
Total other income (expense)		2,537		(901)		9,245		(11,951)

Net loss before income tax expense		(5,238)		(4,895)		(13,967)		(27,636)
Income tax expense		—		—		—		—
Net loss		(5,238)		(4,895)		(13,967)		(27,636)
Preferred stock dividends		—		(186)		—		(545)
Net loss attributable to common stockholders	$	(5,238)		(5,081)	$	(13,967)		(28,181)
Basic and diluted net loss per common share	$	(0.14)	$	(0.50)	$	(0.40)	$	(2.77)
Weighted average shares used to compute basic and diluted net loss per share		36,941,848		10,189,000		34,803,126		10,189,000


ASRs on lease or available for lease	$	8,331	$	6,489
Demonstration ASRs		606		585
Research and development ASRs		380		320
Docking stations		361		301
		9,678		7,695
Less: accumulated depreciation		(7,613)		(6,192)
Finished ASRs, net	$	2,065	$	1,503


	September 30,		September 30,
Warrant liability	2022		2021
Beginning Balance	$	30,566	$	5,617
Initial fair value of Series S Preferred stock warrants issued		—		1,654
Warrants exercised		(370)		—
Revaluation of Series m-3 and S Preferred Stock warrants		(18,190)		10,737
Warrants expired		—		(14)
Ending Balance	$	12,006	$	17,994