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| PART I |
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| Item 1. Business | | 7 |
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| Item 1A. Risk Factors | | 13 |
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| Item 1B. Unresolved Staff Comments | | 31 |
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| Item 1C. Cybersecurity | | 31 |
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| Item 2. Properties | | 32 |
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| Item 3. Legal Proceedings | | 33 |
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| Item 4. Mine Safety Disclosures | | 33 |
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| PART II |
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| Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | | 33 |
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| Item 6. Reserved | | 33 |
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| Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 33 |
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| Item 7A. Quantitative and Qualitative Disclosures About Market Risk | | 43 |
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| Item 8. Financial Statements and Supplementary Data | | 43 |
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| Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | | 44 |
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| Item 9A. Controls and Procedures | | 44 |
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| Item 9B. Other Information | | 44 |
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| Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | | 44 |
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| PART III |
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| Item 10. Directors, Executive Officers and Corporate Governance | | 45 |
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| Item 11. Executive Compensation | | 48 |
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| Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | | 52 |
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| Item 13. Certain Relationships and Related Transactions, and Director Independence | | 54 |
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| Item 14. Principal Accountant Fees and Services | | 54 |
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| PART IV |
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| Item 15. Exhibits and Financial Statement Schedules | | 55 |
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| Signatures | | 58 |
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| Index to Financial Statements | | F-1 |
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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Annual Report”) 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 Annual Report other than statements of historical fact, including statements regarding our future operating results and financial position, including profitability, our business strategy and plans, market growth, product and service releases, the status of product development, demand for our products and services, and our objectives for future operations, are forward-looking statements. In some cases the words “believe,” “may,” “will,” “estimate,” “potential,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “target,” or the negative of these terms and similar expressions are intended to identify forward-looking statements.
Forward-looking statements contained in this Annual Report include, but are not limited to, statements about:
| ● | The success of our products, which will require significant capital resources and years of development efforts; |
| ● | Our deployments and market acceptance of our products; |
| ● | Our ability to protect our intellectual property and to develop, maintain and enhance a strong brand; |
| ● | Our limited operating history by which performance can be gauged; |
| ● | Our ability to continue as a going concern; |
| ● | Our ability to acquire companies; |
| ● | Our ability to comply with all applicable listing requirements or standards of The Nasdaq Capital Market; |
| ● | Our ability to operate and collect digital information on behalf of our clients, which is dependent on the privacy laws of jurisdictions in which our Autonomous Security Robots (“ASRs”) and Emergency Communication Devices (“ECDs”) operate, as well as the corporate policies of our clients, which may limit our ability to fully deploy our technologies in various markets; |
| ● | Our ability to raise capital; and |
| ● | Our ability to manage our research, development, expansion, growth, and operating expenses. |
We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties, and assumptions and other important factors that could cause actual results to differ materially from those stated, including those described in the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 and “Risk Factors” in Part I, Item 1A of this Annual Report, 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 Annual Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. Our forward-looking statements speak only as of the date of this Annual Report, and we undertake no
obligation to update any of these forward-looking statements for any reason after the date of this Annual Report or to conform these statements to actual results or revised expectations, except as required by law.
In this Annual Report, the words “we,” “us,” “our,” “the Company” and “Knightscope” refer to Knightscope, Inc., unless the context requires otherwise.
SUMMARY RISK FACTORS
Our business is subject to numerous risks and uncertainties, including those described in Part I, Item 1A. “Risk Factors” in this Annual Report. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:
| ● | We have not yet generated any profits and anticipate that we will incur continued losses for the foreseeable future and may never achieve profitability. |
| ● | The report of our independent registered public accounting firm expresses substantial doubt about our ability to continue as a going concern, and we may not be able to continue to operate the business if we are not successful in securing additional funding. |
| ● | We expect to experience future losses as we implement our business strategy and will need to generate significant revenues to achieve profitability, which may not occur. |
| ● | Investment in new products and services may not achieve expected returns and could disrupt our ongoing business, present risks not originally contemplated and materially adversely affect our business, reputation, results of operations and financial condition. |
| ● | We are subject to potential fluctuations in operating results due to our sales cycle. |
| ● | We are subject to the loss of contracts, due to terminations, non-renewals or competitive re-bids, which could adversely affect our results of operations and liquidity, including our ability to secure new contracts from other customers |
| ● | The failure to identify, consummate, effectively integrate or realize the expected benefits from acquisitions could adversely affect our growth and our business, financial condition, and results of operations. |
| ● | Our future operating results are difficult to predict and may be affected by a number of factors, many of which are outside of our control. |
| ● | Our financial results will fluctuate in the future, which makes them difficult to predict. |
| ● | Changes in global economic conditions, including, but not limited to, those driven by inflation, international trade restrictions and interest rates, may adversely affect customer spending and the financial health of our customers and others with whom we do business, which may adversely affect our financial condition, results of operations, and cash resources. |
| ● | Our business could be adversely affected by trade tariffs or other trade barriers. |
| ● | Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions, could adversely affect our business, financial condition or results of operations. |
| ● | We cannot assure you that we will effectively manage our growth. |
| ● | Our costs may grow more quickly than our revenues, harming our business and profitability. |
| ● | Any debt arrangements that we enter into may impose significant operating and financial restrictions on us, which may prevent us from capitalizing on business opportunities. A breach of any of the restrictive covenants under such debt arrangements may cause us to be in default under our debt arrangements, and our lenders could foreclose on our assets. |
| ● | The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could harm our business. |
| ● | We may be subject to claims, disputes or legal proceedings in the ordinary course of our business. If the outcome of these proceedings is unfavorable to us, then our business, results of operations and financial condition could be adversely affected. |
| ● | Our ability to operate and collect digital information on behalf of our clients is dependent on the privacy laws of jurisdictions in which our ASRs operate, as well as the corporate policies of our clients, which may limit our ability to fully deploy our technologies in various markets. Actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations, standards and other requirements could adversely affect our business, results of operations, and financial condition. |
| ● | Our business and operations may suffer in the event of information technology system failures, cyberattacks or deficiencies in our cybersecurity. |
| ● | We have limited experience in operating our ASRs in a variety of environments and increased interactions may lead to collisions, possible liability and negative publicity. |
| ● | Our brand, reputation and ability to attract, retain, and serve our customers are dependent in part upon the reliable performance of our products, infrastructure, and employees. |
| ● | Our failure to implement and maintain effective internal control over financial reporting may result in material misstatements in our financial statements, which could in the future require us to restate financial statements, cause investors to lose confidence in our reported financial information and could have an adverse effect on our ability to fundraise. |
| ● | The private security industry is undergoing structural changes in technology and services. |
| ● | We have a government customer and are seeking additional government customers, which would subject us to risks including early termination, audits, investigations, sanctions, or penalties. |
| ● | We are dependent on the global supply chain and have experienced supply chain constraints, as well as increased costs on components and shipping. |
| ● | We may not be able to comply with all applicable listing requirements or standards of The Nasdaq Capital Market, and The Nasdaq Stock Market LLC (“Nasdaq”) could delist our Class A Common Stock. |
| ● | We will need to seek additional funds in the future. |
| ● | Our stock price may be volatile. |
| ● | If financial securities industry analysts cease to publish reports on us or publish unfavorable reports on us, then the market price and market trading volume of our Class A Common Stock could be negatively affected. |
| ● | Future issuances of debt securities, which would rank senior to our common equity in bankruptcy or liquidation, or future issuances of preferred stock, which would rank senior to our common equity for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able to achieve from an investment in our Class A Common Stock. |
| ● | We are subject to complex and changing laws and regulations, which expose us to potential liabilities, increased costs and other adverse effects on our business. |
| ● | Substantial future sales or issuances of our securities, or the perception in the public markets that these sales may occur, may depress our stock price. |
| ● | Increasing attention to, and evolving expectations for, environmental, social, and governance (“ESG”) initiatives could increase our costs, harm our reputation, or otherwise adversely impact our business. |
| ● | The Event Risk Acquisition may not achieve its intended results. |
