Knightscope, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 31, 2023. Knightscope develops and sells autonomous security robots and emergency communication products. ASRs are generally offered through annual Machine-as-a-Service subscriptions; CASE-acquired blue-light towers and call boxes are sold and serviced. Comparisons are with FY2021 unless noted.
Financial results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $5.63 million | $3.41 million |
| Gross loss / gross margin | $(3.32) million / (59)% | $(2.06) million / (60)% |
| Operating loss | $(31.97) million | $(24.56) million |
| Net loss | $(25.64) million | $(43.84) million |
| Net cash used in operating activities | $(24.06) million | $(20.11) million |
| Cash and cash equivalents at year-end | $4.81 million | $10.75 million |
- Revenue increased 65%: service revenue rose to $5.16 million, while $0.47 million of product revenue came from CASE, acquired in October 2022. Service revenue growth reflected CASE, ASR renewals, and new deployments.
- Cost of revenue was $8.95 million, or 159% of revenue. Service cost alone was 171% of service revenue; the company remained loss-making before operating expenses.
- Operating expenses increased to $28.65 million: R&D rose 51% to $8.45 million; sales and marketing fell 29% to $8.50 million; G&A rose 140% to $11.70 million.
- Net loss narrowed despite a larger operating loss, primarily because the change in fair value of warrant and derivative liabilities produced $20.86 million of income in 2022 versus $15.72 million of expense in 2021. Interest expense increased to $9.24 million from $4.33 million. Net loss is therefore affected by substantial non-cash fair-value movements.
- Cash used in investing was $9.93 million, including $5.42 million net cash paid for CASE and $4.40 million invested in ASRs. Financing provided $27.96 million, including equity proceeds and convertible-note financing.
Liquidity, debt, and capital
- At December 31, 2022, current assets were $10.09 million and current liabilities $10.51 million, resulting in negative working capital of $0.42 million. Accumulated deficit was $139.34 million and stockholders’ deficit $43.59 million.
- Reported debt obligations totaled $8.70 million: $8.15 million in convertible notes, net of fees and discount, and a $0.55 million CASE promissory note. The senior secured 2022 convertible notes had $6.075 million principal, a September 2024 maturity, and assets—including intellectual property—pledged as collateral. The notes include a minimum-cash covenant, reduced to $1.5 million in December 2022, and conversion terms that can create dilution.
- The auditor’s report and management state that recurring losses, cash use, and available cash raise substantial doubt about the company’s ability to continue as a going concern. Management projected average operating losses and negative cash flows of about $1.5 million per month for the next several months and said additional financing was needed within 12 months. No assurance was given that funding would be available on acceptable terms.
- Cash was approximately $3.5 million on March 13, 2023. The company disclosed that all cash had been held at Silicon Valley Bank when it closed; access was restored after the government’s intervention, and funds were subsequently moved to another bank.
- Financing options included a $100 million B. Riley committed equity facility and a February 2023 at-the-market offering of up to $20 million. By March 10, 2023, the ATM had raised $2.4 million net through issuance of 2.15 million shares. Further equity or convertible financing could dilute existing holders.
Material changes, outlook, and risks
- CASE acquisition: Completed October 14, 2022, for consideration of approximately $6.20 million after adjustments. It added emergency communications products, customer access, facilities, inventory, and workforce; the company reported $1.34 million of goodwill and $2.06 million of acquired intangible assets at year-end. Integration and realization of expected benefits remain uncertain.
- Cost reduction: Announced January 6, 2023, with an approximately 20% workforce reduction. Headcount was 111 full-time and one part-time employee at year-end; by March 30, 2023, it was 92 full-time and one part-time employee.
- Demand and backlog: Orders outstanding were approximately $4.7 million at December 31, 2022, versus $1.1 million a year earlier. As of March 19, 2023, orders were approximately $5.2 million, including $2.7 million of ASR MaaS agreements and $2.5 million of blue-light and call-box orders; the company expected delivery within one year.
- Outlook: The filing gives no formal revenue or earnings guidance. Management expected some supply-chain delays to continue in 2023, affecting the ability to build and deploy products and potentially revenue timing. It targeted Federal Risk and Authorization Management Program (FedRAMP) authorization during 2023, but acknowledged it might not achieve authorization or win federal business.
- Other key risks: Limited deployments and unproven market acceptance; persistently negative margins and cash burn; reliance on future financing; component shortages, inflation, and supplier delays; privacy and data-security regulation; lengthy and unpredictable sales cycles; robot safety and liability; and potential dilution and Nasdaq listing risk. On March 29, 2023, Nasdaq notified the company it did not meet the $50 million minimum market-value requirement and provided until September 25, 2023 to regain compliance. Super-voting securities controlled approximately 79% of voting rights as of February 24, 2023.
- The company reported no litigation it believed was material. It recorded sales and use tax liabilities of approximately $0.4 million at year-end and noted potential additional exposure depending on tax-authority interpretations.
Most important facts for investors to verify
- Current cash, monthly cash burn, financing availability, and progress addressing the going-concern uncertainty.
- Outstanding principal, conversion mechanics, covenant compliance, collateral rights, and actual dilution from convertible notes, warrants, and equity facilities.
- Whether revenue growth and the CASE acquisition translate into improving service economics and gross margins.
- Actual conversion of the reported backlog into deployed products, recognized revenue, and customer collections amid supply constraints.
- Progress on the workforce plan, FedRAMP authorization, and Nasdaq market-value compliance deadline.