Knightscope, Inc.: Form 10-Q for the period ended Jun 30, 2025

The following discussion of our financial condition and results of operations should be read in conjunction with the (1) unaudited condensed financial statements and the related notes thereto included elsewhere in this report, and (2) the audited financial statements and the related notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2024 included in our Annual Report on Form 10-K.

The historical results presented below are not necessarily indicative of the results that may be expected for any future period. Forward-looking statements about our business, results of operations, cash flows, financial condition and prospects based on current expectations that involve risks, uncertainties, and assumptions, and other important factors. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K, as updated by our other filings with the SEC, and the section titled “Cautionary Note on Forward-Looking Statements” included elsewhere herein.

Overview

Knightscope is dedicated to transforming public safety through AI-driven robotics, emergency communication solutions, and real-time monitoring. Our comprehensive suite of solutions includes Autonomous Security Robots (“ASR”), advanced AI-powered detection, emergency communication devices (“ECD”), and the cloud-based Knightscope Security Operations Center (“KSOC”), providing organizations with scalable, 24/7 autonomous monitoring. Our products are manufactured in the United States and are designed to protect people and assets across various environments, including workplaces, schools, and public areas.

Our core technologies are a unique combination of autonomy, robotics, artificial intelligence and electric vehicle technology:

Business Environment

Knightscope operates in a dynamic and evolving trade environment that can impact both material sourcing and manufacturing costs. Knightscope strongly supports efforts to revitalize domestic manufacturing and is committed to scaling U.S.-based engineering and production operations. While we strive to manufacture our ASRs and ECDs domestically, global material availability and supplier delivery performance continue to present challenges. These supply chain constraints have, at times, impacted the timing of equipment production and delivery to our clients.

In addition, the evolving global tariff environment continues to influence input costs for certain components and materials. While the overall financial impact to date has been immaterial, we remain vigilant and proactive in mitigating future cost pressures.

To address these challenges, we are actively investing in our new, larger production facility in Sunnyvale, California, and taking targeted actions to enhance throughput, strengthen yield, and improve overall delivery performance. We are optimizing our procurement and production strategies, leveraging existing supplier relationships, and evaluating alternative sourcing options where appropriate. Additionally, Knightscope continues to maintain disciplined cost controls and may implement selective pricing adjustments as needed to offset residual tariff-related pressures while preserving value for our clients.

Recent Developments

Extinguishment of Warrants with Anti-Dilution Features - On October 10, 2022, the Company issued senior secured convertible notes and warrants to purchase 22,768 Class A shares under a Securities Purchase Agreement with Alto Opportunity Master Fund. The warrants included anti-dilution provisions adjusting the exercise price and share quantity if lower-priced stock was later issued. On August 1, 2024, the Company and the holder entered into a waiver agreement, canceling the 2022 warrants in exchange for a $3.0 million senior secured promissory note due July 1, 2025.

As of June 30, 2025, the senior secured promissory note was paid in full.

Strengthened Liquidity

As of June 30, 2025, cash and cash equivalents of approximately $8.2 million, represent a $5.6 million year-over-year increase. This improvement is largely attributable to disciplined expense management and strategically executed financing.

Investment in growth and innovation

New, Larger Facility - In April 2025, Knightscope signed a lease for a newly expanded corporate headquarters at 305 North Mathilda Avenue, Sunnyvale, California, securing approximately 33,355 square feet—more than double our former facility. This expanded footprint establishes a strategic hub for enhanced engineering, manufacturing, and client support efforts while the consolidation enables improved internal collaboration and streamlined deployment workflows.

Focused Investment in Innovation - Consistent with our long-term growth strategy, research and development (“R&D”) investments remain strategically directed toward development of the K7 platform and ECD products, advancements in autonomous navigation, and integration of AI-powered analytics. These efforts are designed to drive sustainable, high-margin growth as we enhance our product roadmap and competitive differentiation.

Operational Efficiency

The Company is focused on scaling its business and on implementing strategies to decrease net loss over time.

Production Scheduling - We have staffed a second production shift—resulting in overtime labor cost reduction, improved capacity utilization, and shorter delivery timelines. Our attention remains focused on converting backlog into billings and cash receipts in the coming periods.

Cost Discipline - Despite continued investment in R&D for the next-generation technology platforms, overall operating expense growth remains tightly managed, aligning with our financial strategy of controlling overhead while investing in innovation.

Facility Consolidation and Inventory Assessment – As part of our transition to the new, larger Sunnyvale facility, we are undertaking a comprehensive review and clean-up of our inventory, manufacturing processes, and legacy systems. This effort is expected to enhance operational efficiency and support long-term scalability. However, during this transition, we anticipate identifying a meaningful amount of obsolete, slow-moving, or excess inventory. As a result, the Company expects to incur non-cash inventory write-offs in future periods, which may adversely impact gross margin and operating results in the near term. These actions are part of a broader initiative to streamline operations and align inventory with current and future product roadmaps.

Supply Chain Challenges

The Company was adversely affected by material shortages on certain ECD product deliveries, ultimately resulting in lower-than-expected Q2 product revenues. In response, the Company has proactively mitigated future supply shortages by diversifying our supply base for certain electronic components used in ECD assemblies. Additionally, the Company has implemented proactive material replenishment mechanisms to minimize impact. As a result, we are now better positioned to accelerate backlog conversion to cash, with shortened delivery times to our valued ECD clients.

As of August 8, 2025, the Company had a total backlog of approximately $2.9 million, comprised of $2.2 million related to orders for ECDs and $0.7 million related to ASR orders.

Legislative and Regulatory Developments

On July 4, 2025, President Trump signed the tax law referred to as One-Big-Beautiful-Bill-Act (“OBBBA”), which includes comprehensive U.S. corporate tax legislation. The legislation includes the modification and extension of prior tax law under the Tax Cuts and Jobs Act (“TCJA”) and the introduction of new provisions. Examples include the extension of so-called permanently restoring bonus depreciation allowances, permanent changes in the limitations for deducting business interest expense and permanent expensing of domestic research and development costs. The impact on current and deferred taxes for tax law changes is reported in continuing operations in the interim period which includes the enactment date. The Company has done a preliminary analysis of the changes impacting its business and has determined that the aggregate impact, assuming various state tax legislation conforms to the OBBBA, would not have a material impact to the Company. The Company will continue to assess the tax accounting impacts as more information is made available and will record the tax impact, if any, in the third quarter of 2025.

Results of Operations

Comparison of the Three Months Ended June 30, 2025 and 2024

The following table sets forth selected condensed statements of operations data and such data as a percentage of total revenue.

(in thousands, except percentages)

Revenue, net

Total revenue, net for the three months ended June 30, 2025 decreased by approximately $0.5 million compared to the same period in the prior year as a $0.6 million decrease in product revenue was partially offset by a $0.1 million increase in service revenue. Service revenue grew as we continued to deploy ASRs into our network. However, this growth was partially offset by a decline in Product revenue primarily due to component shortages across the ECD portfolio.

Cost of revenue, net

Total cost of revenue, net of $3.7 million for the three months ended June 30, 2025, decreased approximately $0.1 million compared to the same period in the prior year. This was due to $0.1 million lower product cost, partially offset by slightly higher service cost.

Gross Loss

The revenue and cost of revenue described above resulted in a gross loss for the three months ended June 30, 2025 of approximately $0.9 million net, compared to $0.6 million or for the three months ended June 30, 2024.

As a percentage of net revenue, gross loss increased to approximately 33% from 17% for the three months ended June 30, 2025 and 2024 respectively. The increase in loss was primarily due to lower ECD revenue.

Research and Development

(in thousands, except percentages)

Research and development expenses increased by approximately $0.5 million, or approximately 28% for the three months ended June 30, 2025, as compared to the same period in the prior year. The increase is primarily due to third-party engineering services as the Company continues to invest in the development of new products.

Sales and Marketing

(in thousands, except percentages)

Sales and marketing expenses decreased by approximately $0.5 million, or approximately 31%, for the three months ended June 30, 2025, as compared to the same period in the prior year. The decrease was primarily due to a decline in advertising and promotional costs compared to the same period in the prior year.

General and Administrative

(in thousands, except percentages)

General and administrative expenses decreased by approximately $0.6 million or approximately 21% for the three months ended June 30, 2025, as compared to the same period in the prior year. The decrease was primarily due to $0.3 million lower investor relations fees and $0.7 million lower third-party professional fees, primarily legal and finance services. These decreases were partially offset by $0.3 million higher costs in rent expense.

Restructuring Charges

(in thousands, except percentages)

Restructuring charges were immaterial for the three-month period ended June 30, 2025 compared to $0.3 million for the same period in the prior year.

Other Income (expense)

(in thousands, except percentages)

Total other income (expense) decreased by approximately $0.6 million, or 112% for the three months ended June 30, 2025 as compared to the same period in the prior year as non-cash income from change in the fair value of warrant and derivative liabilities in 2024 was not repeated in 2025. The Company extinguished its outstanding warrant liability in 2024.

Comparison of the Six Months Ended June 30, 2025 and 2024

The following table sets forth selected condensed statements of operations data and such data as a percentage of total revenue.

(in thousands, except percentages)

Revenue, net

Total revenue, net for the six months ended June 30, 2025 increased by approximately $0.2 million compared to the same period in the prior year due to a $0.5 million increase in service revenue partially offset by $0.3 million decrease in product revenue, primarily driven by supply chain issues related to availability of ECD components in the second quarter. Service revenue increased across both product lines as ASR deployments increased year-over-year and ECD services revenue grew due to pricing changes and the increased use of full service maintenance plans by our clients.

Cost of revenue, net

Total cost of revenue, net of $7.3 million for the six months ended June 30, 2025 decreased approximately $0.2 million compared to the same period in the prior year. This decrease was primarily due to lower cost of revenue in services of $0.3 million, partially offset by higher costs of revenues in product of $0.1 million.

Service cost of revenue, net came in $0.3 million lower as compared to the same period in 2024 due to $1.1 million in savings from one-time scrap fees in 2024 and $0.1 million in savings from cellular fees, partially offset by $0.6 million in higher third-party expenses. Third party expenses are related to the strategic decision we made in March 2024 to outsource field services to third party partners. The higher expense in 2025 reflects two full quarters of expenses compared to only one quarter of expenses in 2024.

Product cost of revenue, net for the six months ended June 30, 2025 of $1.7 million was $0.1 million higher than the prior year.

Gross Loss

The revenue and cost of revenue described above resulted in a gross loss for the six months ended June 30, 2025 of approximately $1.6 million, net, compared to $2.0 million for the six months ended June 30, 2024.

As a percentage of net revenue, gross loss decreased to 28% from 37% for the six months ended June 30, 2025 and 2024 respectively. This decrease was primarily driven by approximately $1.1 million in savings from one-time scrap fees in 2024 related to the write-off of discontinued K5 v3 machines which were replaced with the improved, better performing K5 v5 ASRs.

Research and Development

(in thousands, except percentages)

Research and development expenses increased by approximately $1.0 million, or approximately 32% for the six months ended June 30, 2025, as compared to the same period in the prior year. The increase is primarily due to third-party engineering services as the Company continues to invest in the development of new products.

Sales and Marketing

(in thousands, except percentages)

Sales and marketing expenses decreased by approximately $0.7 million, or approximately 23%, for the six months ended June 30, 2025, as compared to the same period in the prior year. The decrease was primarily due to a decline in advertising and promotional costs compared to the same period in the prior year.

General and Administrative

(in thousands, except percentages)

General and administrative expenses decreased by approximately $1.4 million or approximately 23% for the six months ended June 30, 2025, as compared to the same period in the prior year. The decrease was primarily due to $1.4 million lower investor relations fees that the Company spent in the prior year to support its funding efforts, including the Public Safety Infrastructure Bonds and $0.9 million lower third-party professional fees, primarily legal and finance services. These decreases were partially offset by $0.2 million higher consulting costs and $0.3 million higher rent expense related to our new, larger facility in Sunnyvale, CA.

Restructuring Charges

(in thousands, except percentages)

Restructuring charges were immaterial for the six months ended June 30, 2025 compared to $0.4 million for the same period in the prior year.

Other Income (expense)

(in thousands, except percentages)

Total other income (expense) decreased by approximately $1.3 million, or 111% for the six months ended June 30, 2025 as compared to the same period in the prior year as non-cash income from change in the fair value of warrant and derivative liabilities in 2024 was not repeated in 2025. The Company extinguished its outstanding warrant liability in 2024.

Liquidity and Capital Resources

Our operations have been financed primarily through net proceeds from the sale of securities and from borrowings.

As of June 30, 2025 and December 31, 2024, we had $8.2 million and $11.1 million, respectively, of cash and cash equivalents. As of June 30, 2025, the Company had additional paid-in capital of $221.5 million, partially offset by an accumulated deficit of approximately $206.4 million, working capital of approximately $6.3 million and total stockholders’ equity of approximately $15.1 million.

We have generated significant losses from operations as reflected in our accumulated deficit. Additionally, we have generated negative cash flows from operations and investing activities as we continue to support the growth of our business. We anticipate continuing to make significant capital investments over the next several years to focus on ramping up production to support anticipated growth. We also anticipate continuing to make investments in future growth initiatives, including new product development across ASRs and ECDs as well as other technology and software.

Our future operating losses and capital needs may differ materially from current plans and will depend on factors such as revenue growth, R&D and growth-related spending, manufacturing scale-up, cost-reduction efforts, product launch timing, customer adoption, and broader economic conditions. We may require additional financing through debt or equity. Equity sales could dilute existing stockholders, while debt could impose repayment obligations and restrictive covenants. There is no assurance we can obtain financing on favorable terms or at all, and failure to do so could adversely impact our business objectives.

These factors raise substantial doubt about our ability to continue as a going concern. There can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its future operations. If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable to it, the Company may have to significantly reduce its operations, delay, scale back or discontinue the development of one or more of its platforms or discontinue operations completely.

At-the-Market Offering Program

On February 1, 2023, we entered into an At The Market Offering Agreement with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which we may offer and sell from time-to-time shares of Class A Common Stock through or to Wainwright acting as sales agent or principal (the “ATM Facility”). We initially filed a prospectus supplement on February 9, 2023, for sales under the ATM Facility up to $20.0 million, which was further supplemented on April 8, 2024, June 7, 2024, October 11, 2024, and November 14, 2024.

On April 4, 2025, we filed a new shelf registration statement on Form S-3, pursuant to which we may, from time to time in one or more offerings, offer and sell up to $100.0 million in the aggregate of Class A common stock, preferred stock, debt securities, warrants and/or units, in any combination. The new shelf registration statement was declared effective on April 11, 2025. On July 18, 2025, we filed a new prospectus supplement for additional sales under the ATM Facility up to $50.0 million of shares of Class A Common Stock. As of August 8, 2025, we have approximately $44.2 million remaining to be sold pursuant to the new prospectus supplement and the accompanying prospectus related to the ATM Facility.

For the three months ended June 30, 2025, we have sold an aggregate of 531,884 shares of Class A Common Stock under the ATM Facility for net proceeds of approximately $2.9 million, after deducting sales agent fees and expenses of approximately $0.1 million.

For the six months ended June 30, 2025, we have sold an aggregate of 1,779,720 shares of Class A Common Stock under the ATM Facility for net proceeds of approximately $10.3 million, after deducting sales agent fees and expenses of approximately $0.3 million.

Securities Purchase Agreement

On March 27, 2025, the Company entered into a securities purchase agreement with a certain institutional investor, pursuant to which the Company agreed to issue and sell in a registered direct offering, 625,000 shares of the Company’s Class A Common Stock, par value $0.001 per share, at a purchase price of $2.75 per share. The gross proceeds to the Company from the offering were approximately $1.7 million before deducting placement agent fees and other offering expenses paid by the Company.

Cash Flow

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

(in thousands)

Net Cash Used in Operating Activities

Net cash used in operating activities represents use of cash to pay our suppliers, employees and local, state and federal government organizations. This is partially offset by customer-related activities, the largest of which is collecting cash resulting from product or services sales.

Net cash used in operating activities was approximately $11.9 million for the six months ended June 30, 2025. Net cash used in operating activities resulted from a net loss of approximately $13.2 million and changes in working capital and non-cash charges.

Net cash used in operating activities for the six months ended June 30, 2025 decreased by approximately $0.8 million as compared to the same period of the prior year. This was primarily a result of a decrease in the net loss of approximately $0.6 million, an increase in stock-based compensation of approximately $0.2 million, and a decrease in the change in fair value of warrant and derivative liabilities of approximately $1.5 million, partially offset by changes in assets and liabilities of approximately $0.6 million and a loss on disposal of ASRs and related inventory of approximately $1.0 million.

Net Cash Used in Investing Activities

Our primary investing activities have consisted of capital expenditures and investment in ASRs. As our business grows, we expect our capital expenditures to continue to increase.

Net cash used in investing activities for the six months ended June 30, 2025 and 2024 was approximately $1.2 million and $1.8 million, respectively.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was approximately $10.0 million for the six months ended June 30, 2025, a decrease of approximately $4.7 million as compared to the same period of the prior year. Our financing activities for the six months ended June 30, 2025, consisted primarily of net proceeds from the issuance of Class A Common Stock under our at-the-market offering program with Wainwright of approximately $10.3 million, net proceeds from the issuance of common stock under a direct registration offering of approximately $1.4 million, partially offset by repayments of debt obligations of $1.7 million. In the prior year period, our financing activities consisted primarily of net proceeds resulting from our at-the-market agreement with Wainwright of approximately $12.1 million and the issuance of our Public Safety Infrastructure Bonds of approximately $2.6 million.

Critical Accounting Estimates

There have been no material changes to our critical accounting estimates from what was reported in the Annual Report on Form 10-K. Please see Note 1 to our condensed financial statements elsewhere in this Quarterly Report on Form 10-Q.

As we are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act we are not required to provide information under this item.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures, (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2025, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

You should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our 2024 Annual Report on Form 10-K which could materially affect our business, financial condition, cash flows or future results. There have been no material changes in our risk factors included in our Annual Report on Form 10-K. The risks described in our Annual Report on Form 10-K 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.