Knightscope - Q2 2024

Transcript

William Santana Li (Chairman and CEO)

Welcome! Thank you everyone for attending the Knightscope Town Hall, as well as the 2024 Annual Stockholder Meeting. We're grateful to each and every one of our investors, and genuinely appreciate you taking time to tune in today. Let me get straight to the point. Almost every company goes through difficult times, and the last couple of years have been quite challenging for Knightscope as a public company. I can tell you it's an odd situation because internally, we believe we're doing profoundly better than when we were private. But as I often say, I believe Wall Street can be, quote, unquote, "wrong" in the short term, and typically, quote, "right" in the long term. In the meantime, we'll continue to relentlessly work the issues, and I am confident, highly confident, we'll have a very, very bright future. This too shall pass.

We're making solid progress on our, all our internal goals and key ingredients to reach profitability, and I'm excited about the future of Knightscope and driving long-term stockholder value. A good amount of that has to do with the sweeping changes we're making to the business. Honestly, some days it feels like we're changing everything except the color of the logo. Our aim is to leave no stone unturned, and we're focusing on various opportunities to improve the company and its financial position. We still have a lot of work ahead for us, and we believe that we just need to focus on execution. As Knightscope's largest stockholder, I have an unwavering belief in and support for the Knightscope team.

Geez, our team shows up every day, no matter how hard or how complex the challenges we face may be, and just keep pushing forward our progress towards a brighter future. That relentless nature is what helped, actually helped get Knightscope off the ground 11 years ago, and led to us being one of the 5% of startups that succeed in getting off the ground and staying off the ground. Listen, the sky is blue. Tomorrow is just another sunset away. We just need to work the solutions, including instilling investor confidence and executing our plans. We have a plan, we have the right team working the plan, and are making progress every single day. I believe the future is extremely bright for Knightscope, and I love our company, our team, and our investors.

I don't wanna be working on anything else, and it is my honor and privilege to be fighting for Knightscope and our country every single day. Today, I'll focus on my four personal reasons why I'm long on Knightscope and absolutely and certainly short on the criminals: market, technology, operations, and people. Let's get into that now. Market. Investors love to hear, love to hear that there's a large market ripe for disruption, especially if there's a unique technology and a business model to go with it. Well, in our case, we believe we're not just targeting a very large market, but one that has a recurring need. The public safety, law enforcement, security markets are not only ripe for disruption, but we believe they're ripe for disruption utilizing robotics, AI, and automation.

So let's work through maybe 3 different angles on sizing what we believe can be a multi-billion-dollar opportunity. So first, we often say, or I often say, "Robots will be everywhere." We believe the market potential is very large, and in our case, we think it's a market that will not only... will not collapse, as crime is an ongoing, recurring problem, unlike markets that can disappear. Think about typewriters, pagers, fax machines, flip phones, and station wagons. Remember, a property crime occurs every 4 seconds in our country, and a violent crime every 26 seconds. We do not have to live this way. I believe every American has a basic and fundamental right to live in a safe community, in a safe country. Second, another angle will be some sort of unique triangulation or taking a few different data points to help draw a conclusion.

So let me give you some numbers. There are approximately 1 million law enforcement professionals, about 1.5 million security guards, approximately 300,000 law enforcement vehicles, and about 80 million security cameras in operation in the US. The answer, in my eyes, is certainly not small. It requires a large technology portfolio that we're just getting started building. So I don't believe it's tens or hundreds or thousands of robots. Millions is where we're focused in the long term. Third, you can take a percent augmentation approach to some of the numbers above, and long term, in our eyes, there's a potential for a $40 billion recurring revenue opportunity once everything's in place. And you can download the deck at knightscope.com/rise if you wanna take a closer look, but here's a screenshot of the relevant slide for you.

Now that you understand this is huge opportunity, how do we tackle it, and what progress have we made? Well, here's some things for you to think about. Potential for recurring revenue. Well, with our machine-as-a-service subscriptions, we're demonstrating that a recurring revenue business model for a recurring societal problem can work and has already generated millions and millions of dollars of revenue. High margins. We've demonstrated greater than 60% margins over a 5-year period by analyzing data from numerous, numerous of our longest-serving clients for our autonomous security robots, which is a major, major milestone, confirming our projections with real-world results. Now, we just need to scale things up.... Renewals. Clients have renewed our subscription services, including for 2, 3, 4, 5, 6, 7, even 8 years, 8 consecutive years. Clients don't stick around that long without us providing real value for them. Dwindling competition.

We believe every major effort by a competitor, either a major corporation or a startup, has effectively failed thus far, granting Knightscope a genuine first-mover advantage. FedRAMP. We believe we are currently the only autonomous security provider authorized to do business with the U.S. federal government, and we have successfully deployed our first K5 Gov machine at a U.S. Department of Veterans Affairs hospital in Texas. Super excited about that. Moat. We've begun to build a strong moat with a combination of approximately 3 million hours of operating in the field, the FedRAMP authorization I just mentioned from the U.S. federal government, a growing technology and advanced technology portfolio, and more than a decade of real-world experience. Crime fighting wins. Our machines have done a lot of good for society already, and we're just getting started.

We've helped apprehend an armed gunman, helped with a domestic abuse case, aided a victim of kidnapping, helped issue an arrest warrant for a sexual predator, stopped numerous car thefts, and the list goes on and on and on. You can check it out at Knightscope.com/crime. We envision that in the future, we'll be required to have autonomous security, no different than having a, I don't know, a smoke alarm or a fire detector, and that will be the tipping point for robots to be everywhere. RTX, our newly established risk and threat exposure department, has proven to be a resounding success with keeping your loved ones safe, and the number of robot selfies continues to grow. So to sum it up, what's not to love?

A massive market with a real problem every American can relate to, a potential path to recurring revenue with potential for high margins at scale, proven technology, and a competitive landscape where none of our competitors have not yet succeeded. Interesting times. Let's move on to technology. Knightscope is a technology company focused on public safety, building new tools to fight against those that seek to cause harm to everyday Americans. What we have achieved is not only technologically extremely difficult to build, but even more challenging to operate 24/7, 365, across an entire nation. To emphasize this fact, literally 3 major corporations and just as many funded startups have failed, given up, or gone bankrupt. We now have a real advantage. We believe we got it working. Now we just need to optimize.

Now it's time to scale things up with a focus on driving growth, cost reductions, efficiencies, process improvements, et cetera. Kind of maybe the less glamorous stuff, but extremely important. And we'll continue to build our moat as we develop our portfolio of software, hardware, and unique services that, combined together, will uniquely position us as leaders of public safety technology. We believe that in order to address the nation's public safety problem, we need to put at least 1 million machines in network that can see, feel, hear, smell, speak, and autonomously cooperate. They need to work 24/7, 365, and give the 2.5 million officers and guards real tools for them to be able to do their jobs effectively and keep you and your loved ones safe.

I'll say it again: I believe that robots will be everywhere, and anyone who thinks that that is not the case is in for a very, very rude, autonomous awakening. To give you a flavor of the future that we're planning for Knightscope, I thought it'd be helpful to highlight our current portfolio of technologies and equally as important, as a technology company, share what the future might hold for Knightscope. We currently have 8 different machines and devices in the field, as well as two software platforms. K1 Hemisphere. When size and price matter, the K1 Hemisphere can be had for as low as $0.75 per hour, including being monitored remotely by our RTX team. K1 Tower has been popular at ingress and egress points where there is a good amount of human or vehicle traffic.

K3 Indoor has been proudly patrolling indoors at a large hospital in Houston for many, many years. K5 Outdoor, our most popular ASR, and now on our fifth generation of the technology, providing both a physical deterrence to negative behavior, but also giving officers and guards eyes, ears, and voice on the ground in multiple locations at the same time. K1 Blue Light Tower, a beacon of public safety across schools and corporate campuses. K1 Blue Light Emergency Phone. It's a compact emergency calling solution, very popular in parking structures. The K1 Call Box. Thousands and thousands of these deployed for emergency roadside assistance and remote locations. Hey, listen, no cellular, no problem. That's our thing with our K1 Call Boxes.

The K1 Retrofit Kit, it's an opportunity to upgrade solar power, wireless connectivity with self-monitoring software and support. On the software side of things, we've got the Knightscope Security Operations Center. This is our browser-based user interface that provides a unique format for humans to interact with our autonomous security robots and the over 90 terabytes of data they generate annually. Knightscope Emergency Management Systems, or KEMS, launched a year ago, that helps monitor our nearly 10,000 fleet of K1B devices in the field, operating 24/7. Additionally, and through strategic partnerships, we've added automated gunshot detection. 100% automated for indoor or outdoor usage, reporting a gunshot within 2 seconds, providing the 3D shooter location accuracy within 2 meters. Autonomous drones: a partnership with our friends at Draganfly, forming a unified offering both in the air and on the ground.

The recently announced K1 Laser, using lasers to fight against criminals, especially for perimeter security. The K1 lasers operate under adverse weather conditions and low or no light, reliably delivering advanced details that the 80 million-plus security cameras in the U.S. cannot. All of these actions enhance our offerings for our clients on our mission to better securing our country. This is just the start of what we anticipate will be a wide, a very wide portfolio of technologies to better protect the places people live, work, study, and visit. We plan to do that by building new technologies organically, through partnerships, and through acquisitions. In the near future, we're focused on two key strategic initiatives. First one being platform commonality.

To drive engineering efficiencies, improve quality, speed up manufacturing throughput, increase economies of scale, and drive innovation, we must consolidate our wide range of technical architectures, hardware, software, firmware, telecom, and electrical systems into a single, common, company-wide platform. To that end, we've kicked off a very ambitious project called ICM, or Intelligence Control Module, that we intend to eventually become the backbone of the entire lineup, handling all things AI, all things video, audio, lighting control, and telecommunications. We believe this software, firmware, hardware platform, designed to provide a seamlessly unified customer and operating experience across all our products, will not only drive significant cost reductions, but numerous benefits in manufacturing, quality, and operations at scale. We're targeting the ICM to go into production during 2025. Portfolio expansion. In the medium term, we intend for the aforementioned ICM module to go into the future K1 Super Tower.

In the all-new and super exciting K7 ASR that we highlighted during our innovation week. Concurrently, we intend to tackle additional growth opportunities through a methodical approach, long term, in some cases, organically, and as I mentioned, in other cases, through partnerships and acquisitions. We certainly have our sights set on the K10 Patrol and future K15 tactical vehicles. Although the industry is not yet ready for this level of technology, Knightscope seeks to become that trusted advisor, that trusted technology advisor over time for our clients to help bridge the gap between those on the front lines and cutting-edge new technologies. We need to work in the future to deliver the future. This is an exciting time where we think technology can genuinely and positively help society, help our communities, and help your community and your loved ones.

We believe all that we envision is technically possible with the right people, cash, and time to execute. You may be asking: What about artificial intelligence? How does AI play a role in Knightscope's future? Well, first, some of the basics involved in AI already have been implemented at Knightscope and working in the field. I often kid around or tease folks, like: "Do you think there's, like, a little guy inside our robots and pedaling away like crazy to get the machine to move around by itself?" That's all AI. That is real-world, practical implementation of AI, and so is autonomous recharging, facial recognition, license plate detection, people detection, object tracking. All that is AI. We intend to integrate AI into everything we do, as we have already, and it is part of our core.

The exciting part, in my mind, is the latest breakthroughs in AI are only gonna accelerate our efforts at Knightscope. When we say we need 1 million machines in network, and they need to see, feel, hear, smell, speak, and autonomously cooperate, we believe that will all, all of it, will be accelerated dramatically by AI. So let's go through them. What do we mean by see? Well, process vast amounts of video data for object and scene classification to detect humans, vehicles, animals, bicycles, behaviors, and threats. Feel.... Run machine learning models on live streaming thermal data or analyze emotions in a crowd of people, or detect a fire. Hear, automatically conduct sound classification and localization for acoustic event detection, which could include gunshots, cars starting, glass breaking, a yell for help, or an accident.

Smell, figuratively place a dog's nose on a chip to detect pathogens or chemical, biological, radiation, or other similar risks. Speak, utilize generative AI to allow the public to conduct a value-added conversation with the robots, which could be used for basic information, directions, call for help, or details on a point of interest. And what do we mean by autonomously cooperate? Well, utilize AI to enable autonomous cooperation, swarming, data transfer, and data sharing for scene or incident analysis, planning, and investigation amongst all the machines. For example, imagine the FBI putting up their most wanted list and the machines being able to track that suspect down anywhere in the country within minutes. Here's another example: We need to build a state-of-the-art, AI-driven mission control software platform to be able to facilitate cooperation between all these machines.

Today, there's a standalone user interface for each of the autonomous security robots, our K1B portfolio, the drones, Automated Gunshot Detection, and the recently announced K1 Laser. For our clients and our team to get the most out of all these systems, we need them to be able to effectively communicate, share data, plan missions, conduct investigations, and autonomously cooperate with each other. That is gonna be a hell of a software marvel to build. We think the opportunities with our AI are endless, and the possibility to build game-changing technology for the benefit of our communities and our country is invigorating, and what gets us up every morning here in Silicon Valley. Operations. The team spent years and years getting all this stuff to work, and we were not necessarily focused on optimizing for material costs, labor efficiencies, processes, et cetera.

Honestly, the priority was just to get all this stuff to work and prove that a client would pay for it. Now, having done that, we can now focus on refining. The work to optimize things is not glamorous, as I mentioned, but it is a known quantity. We know what to do and are doing it. Now we simply need to increase revenue, reduce costs, and scale up, after which we believe the profits will come. Let me provide you some specifics so you get a better understanding or flavor of where we're focused and the progress we're making. Reduction in machine downtime across the fleet through design changes, material changes, improved quality assurance, burn-in testing, and software and firmware improvements. Reduction in service calls through more carefully managing the service process, documentation, and escalation procedures.

Reduction in service costs through outsourcing technician work and eliminating our fleet of trucks. Reduction in false positives through improvements in machine learning and algorithms, as well as diagnostics. Reduction in the Bill of Materials through changing suppliers, changing materials, eliminating parts, and significant design changes. Reduction in labor hours through improved processes, documentation, and use of contract manufacturing for select subassemblies. A reduction in number of facilities through ongoing consolidation. A reduction in cellular costs through contract negotiations and technical changes, as well as an increased usage of Private LTE. Reduction in operating expenses through numerous optimization techniques, elimination of processes, and headcount optimization. At the same time, as we're making all those reductions, we've also made the following improvements. Improvement in purchasing controls and improvements in production planning and sign-off authorities.

Improvements in production throughput, where, for example, we used to ship maybe one K5, perhaps every week or two, and now consistently shipping about three a week. Improvements in QA processes throughout the production process, end-of-line tests, documentation again and again and again. Strict controls on authority to ship. Improvement in decision-making by eliminating a significant portion of the management team. Improvement in root cause analysis by driving decisions based on improved collection of data from the field, and not just going to fix the problem and not analyzing it. Improvement in client retention through both upgrades to the 5th generation K5, but also implementation of the aforementioned RTX team or the Risk and Threat Exposure team. Improvement in team alignment, which is really important, where we now have a solid cadence of engineering and production changes underway.

We want to work to squeeze out as many efficiencies as possible, cleaning house, improving business and technical processes while focusing on the bottom line. As a result, we think that these improvements will begin to show up in the financials in the coming months, quarters, and years, setting ourselves for what we believe will be profitable growth and in a very exciting future. People. One of the keys to success here is the absolute relentless nature of the Knightscope team. We've made a lot of changes, but not limited to cutting a third of the management team to streamline decision-making, recruited an all-new board of directors, on track to cut up to 30% of the payroll expense, and we're focused on building a very cohesive team. One team, one fight....

And did you know that a third of Knightscope employees have been with the company between 3 and 11 years? Frankly, that is a bit of a miracle here in Silicon Valley, where typically folks last maybe a year or two at max at an employer. These are smart, driven people that could work anywhere, but they're giving it their all, against all odds, to make Knightscope successful and achieve our mission. My bet is and will always be on the Knightscope team. I also consider our thousands of retail investors part of our team. Without your steadfast support, we wouldn't have had the fuel to build the company and get this far in the first place. A heartfelt thank you to you all. My motto has been: Life is short, do what you love, and make a big impact.

What I love is working on our honorable mission here at Knightscope, that everyone says is impossible. That fuels a deep fire within me and the entire team. This country gave my parents a chance for a better life coming from South America and Asia. My mom was from Bogotá, Colombia, and my dad was from outside of Shanghai, China, and they met in the melting pot of New York City, where I was born. Here in America, they were able to build a positive life together and provide me a chance to grow, learn, and succeed. I feel a deep need to repay that debt to our country. I believe in America, and I believe we can make it the safest in the world. But for that to potentially happen, I need you to continue to believe in Knightscope and the Knightscope team.

Together, we can do this. What many investors don't understand is that after 9/11, I committed to dedicate the rest of my life to better securing the U.S., and so the drive here is deeply personal with me. We're not going away, no matter how hard so many try to trip us up. I'm willing to do whatever it takes, so long as it's legal, ethical, and moral, to force a win for our country and for our stockholders. If we can't run, we will walk. If we can't walk, we will crawl, but nothing is going to stop us from moving forward, and I mean nothing. Having put in over a decade working the same problem over and over and over again, gets us several steps closer to a victory.

What is crazy, it's actually indeed possible to achieve the mission, as crazy as that might sound, in making the U.S. the safest country in the world. Sounds outrageous. But that deep change in public safety requires investment and building of new technologies. You're not just gonna download the solution off the cloud, and the federal, state, and local government are not going to fix this problem. It requires real work by serious people, backed by serious investors, and I know we can do it together. Listen, Americans love a comeback story, and I hope you'll be a meaningful part of it. So join us and be a force for good. Onward!

Apoorv Dwivedi (EVP and CFO)

Thanks, Bill. We know that this journey is challenging, but Knightscope is well positioned for long-term success. With that, let's jump into our Q2 financial performance results. I'm Apoorv Dwivedi, EVP and CFO at Knightscope. For the Q2 of 2024, we reported total net revenues of $3.2 million. This represents a decrease of $0.4 million or a 10% decline compared to the same period prior year. Primarily because the gain in our services business was offset by lower year-over-year product revenue. Services revenue increased by $0.1 million to reach approximately $2 million for the quarter, primarily due to ASR subscriptions and as more clients in the K1B product line signed up for recurring maintenance.

However, total product revenue, which currently consists mainly of the K1B products, declined by $0.5 million, coming in at approximately $1.3 million, because a large one-time sale in the prior year did not repeat. Moving on to costs. If you recall, the company made a few strategic changes in the Q1, aimed at setting a path to profitability. Many of these were directly aimed at reducing our cost of goods and our cost of services. We also acknowledged that these initiatives would initially result in higher short-term costs, and that we also expect the disruptions in the impacted activities of the business to directly affect our PNL throughout the year. As a result, we fully expect 2024 to continue to be a transition year.

Our cost of revenues came in at $3.8 million, which is an increase of approximately $200,000 from the prior year. This was driven primarily by cost savings that include $0.5 million in lower cost of materials and $0.5 million-- $0.4 million in headcount savings that were offset by $0.6 million in higher third-party costs, $0.3 million in scrap fees, and $0.2 million in other costs associated with the transition. On to gross profit. This quarter, we recorded a gross loss of $0.6 million. A significant change from the gross profit of $9,000 reported in the prior year, Q2. The decrease in gross margin was driven by $0.4 million in lower year-over-year revenues and $0.2 million in higher cost of revenues.

It's important to note that our gross loss would have been between $0.1 million and $0.3 million if we exclude the one-time scrap fees of $0.3 million and the one-time transition costs of $0.2 million. Moving on to OpEx. Total operational expenses came in at $6.2 million for the quarter ended June 30th. Excluding the $0.3 million in restructuring charges that we took, our OpEx was flat to prior year as it came in at $5.9 million for this quarter. Overall, we saw a headcount savings of $0.6 million, offset by $0.4 million in higher third-party expenses, primarily legal and financial support costs, and $0.2 million in higher R&D costs related to product development as the firm explores a new generation of product design.

Restructuring charges of $0.3 million were primarily related to severance costs and moving fees as we closed down the Irvine, California, facility to move our production to Mountain View, California. Loss from operations of $6.8 million was approximately $0.9 million higher than prior year because of the drivers discussed earlier. It's important to note that excluding the one-time restructuring costs of $0.3 million and the scrap fees of $0.3 million and investment in new product development of $0.2 million, our OpEx or operating loss would be flat to prior year on $0.4 million in lower revenues, indicating that the company is working hard to deliver on its operational efficiencies.

Net loss of $6.3 million for the quarter came in approximately $1.5 million higher than prior year, primarily due to the $0.7 million increase in other expenses, coupled with the $0.8 million higher OpEx versus prior year. The increase in other expenses includes $0.5 million in higher non-cash warrant valuation losses and $0.2 million in interest on the bonds that we closed in the Q1. Finally, Knightscope's basic and diluted net loss per common share was $0.05, as compared to a loss per share of $0.08 prior year. With that, I'll pass it back to Bill.

Stacy Stephens (EVP and Chief Client Officer)

Good afternoon, everybody. Thank you so much for joining the Knightscope Q2 Town Hall. I'm Stacy Stephens, the Executive Vice President and Chief Client Officer here at Knightscope. I want to thank Bill and Apoorv, they're going to be joining us live momentarily. I wanted to go through some quick housekeeping measures. First and foremost, all of your questions, please put them into the chat window so that we can address them. If it's stuff that it's just comments and things like that, I'm just... If you see your comments disappear, it's only because I'm deleting them so I can keep track of the questions, and then I will tee those up for Bill and Apoorv so you guys can ask them the live questions. So let's go ahead and get started.

Bill, why don't you and Apoorv talk about some of the highlights and accomplishments for the quarter that we're talking about right now, just so people kinda know some of the positive stuff. Obviously, you know, we gotta go through all the financials and everything else, but it's not all doom and gloom. So let's talk about some of the positive changes that have been made. Bill?

William Santana Li (Chairman and CEO)

Hey, good to see you, Stace. Apoorv. Thanks, everybody. Only a few hundred people online with only a few hundred questions, so we're gonna be here a little bit. We'll try to answer as many as possible. As we mentioned, we're—this year is a kind of a clean house turnaround year to make a lot of fundamental changes. We expect that those numbers will be choppy. It's not gonna be a linear, you know, kind of progression as we make substantial changes throughout the entire organization. And as I mentioned in the video, some days, honestly, it feels like we're changing everything except the color of the logo. But I think Apoorv and I, and the team are pretty excited despite all the red stuff that you see on the share price side of things.

I think the future is looking pretty good, and we're, we're excited to to move things forward. There are things that are less obvious that don't show up in regulatory filings. Obviously, we're not gonna share any material, non-public information here, but we may highlight a few things. Sometimes in all the regulatory filings, things get lost or frankly, a little too complicated. But I'll turn it over to Apoorv, if you wanna kick off some things that will help answer a ton of questions that are flying in here on things that we have changed that may not be so obvious for folks.

Apoorv Dwivedi (EVP and CFO)

Absolutely. Absolutely. You know, we started off this quarter by focusing on cleaning up our cap table. Primarily, when we looked at our balance sheet, if you look at prior years, you saw that there was this on our shareholders' equity section, there was just about $34 million in preferred shares that kinda sat there. And what that did is, that's normally not common when you are a public company. Most preferred shares convert automatically into common upon an IPO or liquidation event. In our case, because we did a direct listing, that did not occur. So that kind of made us a little bit of a anomaly in it being a public company. So the first thing we did in Q2 was convince all the majority of the preferred shareholders to vote to convert.

By doing so, a couple of things happened. One, we aligned ourselves more with the public company structure. Secondly, we also were allowed to, or able to put that $34 million into our stockholders' equity number. So that wasn't, before, that wasn't being calculated, so we had this negative stockholders' equity or stockholders' deficit on our balance sheet. By making that change and cleaning that up, we were able to now show, as you guys can probably see on our recent filings, we had $11.2 million, you know, of shareholders' equity. Now, what's good about that is that, one, it, again, cleans up our balance sheet. Two, on a NASDAQ perspective, it allows us to show qualify for or continue listing under their stockholders' equity requirement.

NASDAQ has three requirements: a market cap requirement, an equity requirement, and a net income requirement. We were previously only able to qualify under the market cap requirement, now we have this equity requirement, which is great for us. On top of that, we also, you know, on NASDAQ, moved to capital markets tier, which better aligns us for our company. We raised over $5 million in funding. We continue to do so. I see many questions on how do you continue to, you know, stay funded. We have an active ATM program that we use whenever we can, and we continue to find that to be useful. It's the cheapest form of capital you can get without going into some of the more exotic types of fundings that are available sometimes.

We have, you know, some of the best quarter, this quarter, actually, in terms of revenue, it was the best quarter in the last three quarters, 40% growth versus prior quarter. Again, this is, some of this is choppiness that we're seeing, timing, but we think, you know, we're taking the right steps to get there. And then some of the things, Bill, maybe you want to talk about our, our partnerships and product developments and some of the things we're doing on the experience side.

William Santana Li (Chairman and CEO)

Yeah, I think we need to obviously get the revenues up and the costs down, and you can't just put band-aids on some of this stuff. Some of this through acquisition or through our own organic technology development. You know, we're a technology company, and there are significant opportunities as we scale up, where, you know, perhaps we were 3D printing stuff before, now we should, you know, do something a little bit more efficient and low cost and better for higher volumes and get some consistency. One of the things I'm super excited about is the Intelligence Control Module.

Because if you look at all the products that we have, that are behind me here, we have different architectures, different software, different firmware, and everything else, and that requires a lot of staff and a lot of engineering, maintenance, service support, production, QA, and it's a huge drag on throughput, on addressing service issues, service costs, et cetera. And so with one fell swoop, we're looking to commonize that across the entire platform so we can build faster, we can QA faster, we can ship faster, we service a lot less, and then that starts and has with the K5 V5 replacing the K5 V3. I saw a question on here, well, how are you gonna do all this with, you know, no massive incremental resources?

Well, if we can be a lot more efficient with what we're doing here and not have people working on older technology that needs a lot of babysitting, and we can permanently fix that stuff, that alleviates and, you know, relieves the team to go work on actual new product development. I think that's gonna be certainly one of the most exciting things for me. I, you know, used to be an engineer in, you know, former life, gets me kind of excited, but it's gonna have a dramatic effect, I think, on overall quality, throughput, and our financial performance. So there's a...

As we keep saying, this is gonna be a little choppy, 'cause you go make a change like that, but it doesn't necessarily time with when we're gonna shut down, you know, a certain facility, and then when that lease is up versus when you terminated that person. And so it's gonna be a little messy, but overall, I think we're trending in the right direction, and we're gonna take some lumps along the way, but we need to set this up for long-term success, and I think we've got the right strategy with the right team. Now it's just, you know, time to execute.

Apoorv Dwivedi (EVP and CFO)

Let's get into some of the questions then.

William Santana Li (Chairman and CEO)

Yeah, 'cause there is a lot of questions, and thanks, everybody, for tuning in. I know all of you are pretty busy and have pretty busy lives, so we are grateful for that. The two videos that we just played will show up on YouTube here in a couple of hours or so, on our YouTube channel, and we'll post them on social media. So in case you missed something, or you wanted to go back, or like, "What did Apoorv say?" You know, rewind, you'll be able to do that here shortly. But let's get to the questions you've got here.

Apoorv Dwivedi (EVP and CFO)

All right, so just so everybody knows, I'm not gonna be coming back on video just simply because I'm navigating multiple screens here, and I don't want to be a distraction. Starting at the top, what were the orders for, I'm assuming this means Hemisphere, H1, K- K1 Hemisphere, versus a year ago?

William Santana Li (Chairman and CEO)

... Well, a year ago, we didn't have it in production, so it's been an initial growth driver. I think we're also learning where the best applications might be. We've had, you know, apartment complexes, warehouses, monitoring mailboxes for HOAs, and there's more coming. So we've delivered more than a bunch, and there's a bunch more to go out, and we wanna make improvements to that, but I think there's a genuine market there for the hemisphere. Took a little longer than we wanted to get out the door, but I guess versus yet last year, last year was zero.

Stacy Stephens (EVP and Chief Client Officer)

For those of you raising your hands, please, just put your questions into the chat window. We do not have the video enabled this time, like we have in times past. So raising your hand, unfortunately, will not get us to be able to interact with you directly. What percentage of sales are ASRs versus the blue light products?

William Santana Li (Chairman and CEO)

So obviously, we would refer you to for the specific numbers to our regulatory filings, but and this varies every quarter, but plus or minus, just to give you a flavor, about. And Apoorv is gonna correct me here in a minute. About two-thirds of the business is K1B related, and about a third of it is ASR related. It'll be fascinating what that looks like, you know, three or five years from now, depending on how things mature, but two-thirds versus one-third. Did I get that right?

Apoorv Dwivedi (EVP and CFO)

Yeah, you did. It's about 68% for this quarter. And the reality is our K1, you know, base of customers is much higher. So, you know, the sales team does a really great job of going out and selling to existing clients, selling more services, and continue to expand on that just because of the branding. The ASR side is still a new technology, and we continue to sell those as well, but from a revenue perspective, the check sizes sometimes seem to be bigger on the K1B.

Stacy Stephens (EVP and Chief Client Officer)

How much cash on hand on the balance sheet at the end of Q2?

William Santana Li (Chairman and CEO)

Again, we refer you to the regulatory filings for the exact number, but I think the cash on hand over the last 18 months or every filing that we've had, has oscillated somewhere between $2+ million to maybe $5 million and kinda oscillates along the way. And everyone keeps like, "Oh, well, you know, you guys don't have enough cash. You don't have enough..." Yes, we need more funding, but, you know, I've heard this line of attack of, "You're gonna run out of money. You're gonna run..." We're not running out of money. Everyone needs to just calm down. And we have been public for 2.5 years, haven't run out of money. We were private for 9 years, haven't run out of money.

We continue to try to raise capital as efficiently as possible and try to reduce our burn. And I would remind folks that, you know, 3 major corporations and 3 funded large startups have failed at this. And so there is a level of technical difficulty to get all this stuff to work and commercialized. We're at the bleeding edge of technology, and everyone expecting some sort of overnight change very quickly done in 30 days, and everything's gonna be fine is kidding themselves. This is gonna take some time, but I think the fundamental thesis of what we're trying to do and where we're gonna go, and now really focused on profitable growth is really important. And I said it in the video, I'll just restate it for the group here.

You know, the first 10 plus years, we're focused on just getting the technology to work. Remember what I just said. Half a dozen companies failed at this, and including three major corporations, and probably, I'm gonna guess, $250 million-$500 million burned and nothing to show for it. That speaks a little bit to the level of, of difficulty here. Now that we've got it working, now it's time to do the blocking and tackling. Like, okay, can we optimize what material we use for that part? Did we pick the right architecture? Maybe we should change how we build these machines. So now we're in the optimization mode, now that we've proven that there is a market there. Now we just need to do it more efficiently. And this is gonna sound a little odd. That's actually the easier part, right?

Where there's not a, "I don't know how to get from A to B. I don't know how to cost reduce that part." That's not the case. So that's just work that needs to get done. And, folks, I just ask you to continue to be supportive and be patient. We are working very hard to turn this into a big success. And like I often say, Wall Street's typically, in my opinion, wrong in the short term and right in the long term. And our goal here is to make for a lucrative business, but also make for a big impact on the country.

Apoorv Dwivedi (EVP and CFO)

And I'll just follow up, Bill. It was $2.6 million of cash at the end of the quarter. Again, as you mentioned, it's, that's kind of where we hover, just between the $5 million and $2 million every quarter.

William Santana Li (Chairman and CEO)

Yeah, I think, I think maybe now would be a good time to talk about, you know, cleaning up some, the balance sheet and, you know, some toxic financings that, you know, were put in place. And without getting too much into the weeds here, you know, we had a convertible debt offering or financing that was done a few years back and had a lot of toxicity that was not helpful overall. And then there were some blockers in those agreements that precluded us from doing normal financings or raising capital that, like any other company, would be able to do. You can refer to the 8-K that we filed maybe a few weeks back.

We have now kind of cleared that up, and now we have freedom to raise capital in any form that we deem favorable for our shareholders and not pigeonholed only to be able to rely on one or two forms of capital. I don't know if you want to add anything else to that, Apoorv.

Apoorv Dwivedi (EVP and CFO)

Yeah, absolutely. I think I saw a question come up earlier about this. It's very important to kind of talk through this. So what we did is we had this fund that, you know, we had given warrants out to as part of their convertible note. It was 1.3 million warrants struck at $3.25. What we found is that as we looked through the details of this transaction, was that the warrants themselves were actually extremely toxic for the company. Toxic how? In that they have these clauses. There's one clause called the reset clause. So basically, if we do financing, their warrants, you know, the strike price comes down to whatever we finance at. The second part of that warrant language was that as ...

If we do a financing event and the price of the stock, the strike price drops, we have to keep the value of that arrangement the same. So if you think about $3.25, 1.3 million shares or warrants equals $3.7 million of value, right? We would have had to essentially award them $3.7 million worth of warrants, divided by whatever the new strike price is. And as we looked at that, we thought that, you know, in terms of dilution, that's a highly dilutive instrument, and we had to get rid of that, not only for ourselves, but also for our shareholders who were concerned about this dilution.

So yes, the 8- K states that we were able to basically convince and get an agreement with the fund to extinguish the warrants. They also had things like participation rights. So if we did a funding deal in the future, they could step in and participate, which we didn't think was a great idea for us. And as a result of that, we were able to convince them to take about $3 million of this debt that we have on our books, but get rid of those warrants. And we think it's the best deal that the company could come up with and do.

Now it frees us to go out and have the freedom to do, as Bill said earlier, to go out and get other types of funding, to be able to attract other investors, to work with partners and our bankers to capitalize the company in a way that's potentially less dilutive than what that arrangement was contemplating.

William Santana Li (Chairman and CEO)

All right, Stacy, what you got next? They keep flooding in.

Stacy Stephens (EVP and Chief Client Officer)

Can you give us a status, sorry, of the investigation into the possible legal actions of the short seller?

William Santana Li (Chairman and CEO)

This is regarding the Capybara suit. It's an ongoing investigation and an ongoing lawsuit. There is no update to provide other than that. When and if something does change, we will certainly let you know, but nothing new to report.

Stacy Stephens (EVP and Chief Client Officer)

Most of the Knightscope press releases mention new contracts or new sales, but it gives zero indication of impact on profit loss.

William Santana Li (Chairman and CEO)

Okay. So, the announcements is a fun internal discussion, 'cause we have a lot of investors, which is awesome, but we also get a lot of input and opinions, and in some cases, folks are like: I don't want to hear anything until, like, it's actually deployed and money's coming in the door. Okay, well, that's the financial statements. Well, I wanna know where these are deployed. Okay, well, that's a different thing. Well, I wanna know when a contract is signed. So we've played around with different when and how we do this, but what we kinda ... The best thing was for us to announce when we have a new contract, and that, in a lot of cases, is not for the investor relations perspective, is actually to help the sales team.

So that if, you know, the contract happened in, I don't know, North Carolina, that might help the client development team that might be talking to another prospective client in that area. So we typically do the announcement of that. Then there's this whole long process of getting the site ready or doing site surveys or what have you, building all the machine or devices, and then deploying it. So there is a time difference between when it shows up in the financials and when we announce. What we're hoping to do as we increase production is, one, to get rid of, finish retiring all the V3 K5s that have been a financial drain and operational drain on us.

Second, clear out as much of the backlog as we can, and we made a good amount of progress on that. And the third is to actually build some finished goods inventory. So one of the ways to improve the financial performance of the company is thinking through the order to cash. When you get an order and when do you deliver? And you don't want this to be a very long period. So if we had some finished goods inventory, or sub-assemblies completed, you know, the dream here is get a contract on Friday and ship the next Friday, right?

So we're working our way towards that, and that's one of the other reasons why we're focused on throughput and cycle times and efficiencies, and in some cases, having to redo the technology so we can actually see that. But all those contracts that we sign, you know, especially since Apoorv got on board here, we're very much focused on making sure it's lucrative for the company, makes sense for us to do, and frankly, in a lot of cases, going back to some existing clients where we have some very ancient old contracts that need to get redone. So we're going through that process as well.

Stacy Stephens (EVP and Chief Client Officer)

Okay, so we're getting a lot of questions about specific numbers. How many robots? How many blue light—how many blue lights? How many—Where's the profit? Where's this? Where's that on the numbers side? As Bill said earlier, and Apoorv also echoed, if you're looking for those specific numbers, be sure to go to the Knightscope investor relations site and look at the SEC filings. The 10-Q was filed yesterday, so we got to make sure that you're pulling that information directly from the legally available-

William Santana Li (Chairman and CEO)

Yeah, it's ir.knightscope.com, ir.knightscope.com, and then you can just click there, and all the regulatory filings are there, and all the specifics are there to a nauseating level of detail, with 32,000 footnotes to go along with them. It's an arduous process to do all this stuff, so, if you have that level of interest, you know, kindly ask you to go, please look at the numbers directly.

Stacy Stephens (EVP and Chief Client Officer)

Yeah. Just didn't want anybody thinking I was... You know, when they see their question disappeared, that's the reason, because you can find that, without taking this time. Next question is, given that you'll probably do a reverse stock split, okay, that's an assumption. Sorry, but, that's not a definite yet. What actions will Knightscope take to prevent the stock from being driven back down to a penny stock by sellers and or short sellers after the split?

William Santana Li (Chairman and CEO)

Okay, so Apoorv and I will do this one together, and I know it's top of mind for everyone. So we have until October fourth.

Stacy Stephens (EVP and Chief Client Officer)

Oh, sorry. Also, Bill, just reading the next question, and it dovetails into this. Also explain what the vote was, 'cause I think there's still misconception as to the vote being for the split versus the opposite.

William Santana Li (Chairman and CEO)

Yep. Yep.

Stacy Stephens (EVP and Chief Client Officer)

Sorry.

William Santana Li (Chairman and CEO)

So a few bullet points on this, and we're gonna take a little extra time because, you know, there's a flood of questions on this. One, we have a deficiency notice with NASDAQ, that basically, in order to cure, we need the stock price to be over $1 for a minimum 10 trading days, in a row, in order to cure that. We have until October fourth, as negotiated with NASDAQ, to do that, and you've got to kind of back up from that time, and there's some processes and the like to, enact it, if we decide to go forward. So that's bullet point one.

Bullet point two is, the annual shareholder meeting, the formal part is actually tomorrow, at 1:00 P.M. Pacific, and that's kind of the formal forum where we count all the votes for all the resolutions that are in the proxy statement. With respect to the reverse stock split itself, what NASDAQ requested, and we agreed to, and the board agreed to, is we are requesting the shareholders to approve and delegate the authority to do a reverse stock split to the board. It is not to enact the reverse stock split. So this is basically, the shareholder saying, "Okay, looks like we may have to do this. We support management and the board.

Here's the authority to go do this only if you have to do it and you have no other choice." And we still obviously have some time before that. I, as the... You know, on the personal side, as the largest shareholder, I am the significantly not interested in doing a Reverse Stock Split unless we absolutely have to. And the primary reason is, a majority of the time, and you can, we can argue as to how often. So a minority of the time, it goes fine, and the stock may trade up after a Reverse Stock Split. You can look at the numbers, I don't know, 10, 20, 30% of the time, let's just say, big round numbers. It works out fine and actually in favor of the shareholders.

But there is that 50%-70% of the time, like, it doesn't work well, and in some cases, the companies did it to themselves. Like they did a financing right on top of a reverse stock split or put out a bunch of bad news or whatever it is, and kind of shot themselves in the foot. And then every company is different, right? There's all kinds of circumstances. So we're trying to avoid this, if we can. So the vote tomorrow is to give the authority to the board and delegate if we need it. And then there's a ratio as to, you know, what that number should be. Is it a 5-to-1 or 50-to-1?

And that's another thing that the board will need to decide, based on market conditions, and the like. I'll pause there, Apoorv, if you wanted to kind of add anything else to that.

Apoorv Dwivedi (EVP and CFO)

Yeah, I think, you know, the goal here is not to rush into a Reverse Stock Split, right? I know someone just asked: How can investors, you know, help prevent this? Really, it's about three things, right? One, buy more shares. Two, hold those shares. Three, you know, direct your brokers to basically that they should be prevented or stop them from borrowing your shares to short sellers. You know, one of the things we did, this deal that we put together with the fund to the promissory note fund, actually will help us in the long term against further dilution of that share price. One of the things that would kept happening is, because they had this exploding warrant,

William Santana Li (Chairman and CEO)

... feature, they could always just continue to short sell because they knew that they would get their shares back from us whenever there was a financing event. Now, effectively, by doing this deal, we've been able to effectively stop them from actively short selling our shares. So those type of things, you know, are things we're hoping to continue to keep doing. They take time, unfortunately. But you know, we have until October fourth. Actually, we probably have about, we'll say, until mid-September, to get the share price above $1 organically. After that, we'll have to make some tough decisions. But again, our goal is not to go down that path. Our goal is to continue to be successful organically.

There are several questions related to, well, what are you guys doing about it? There's effectively only three things that we can do. Again, we don't directly control the share price. You know, not to be funny about it, but you all do. It's supply and demand. If a bunch of people buy more shares and very few are selling, then likelihood the price goes up, and the opposite is likely true. The three things that we can do, we are doing. You know, improving the financial performance of the company, and setting ourselves up for successful long-term growth. And then lastly, just communicate, communicate, communicate.

The more we inform you, the more we answer your questions, the more we spend time like this, the better you're informed, and then you can decide if you believe in the management team, do you believe in the market, and do you believe in the technology, and either decide to hold your shares, buy more shares, or decide, you know, you, you'd rather sell them, and that will have a direct impact on the price. So this is not a, you know, just the Knightscope team on their own is going to turn this around. We're gonna need the active support of our investors and supporters and fans and, and the like, to make this a, a success. But, again, this is a kind of two-way street.

It's not, it's not just us, and we are working very hard to do our part.

Stacy Stephens (EVP and Chief Client Officer)

All right, next up, can you describe the background of your sales force?

William Santana Li (Chairman and CEO)

So our head of sales, Jason Gonzalez, has been with us now, geez, six years. He's ex, Honeywell. He's a CEO of a guarding company. We've got folks that have you know, spent almost their entire career selling, K1, kind of, blue light tower stuff. Most of the folks on the team, in some form or fashion, have, law enforcement, security, or, you know, military veteran, background. I think on the K1B side,

Stacy Stephens (EVP and Chief Client Officer)

Sorry, as well as technology.

William Santana Li (Chairman and CEO)

Yeah, and obviously. And as well as technology. I think on the K1B side, the sales process is a lot more straightforward. I don't want to say commodity-like, but the transaction's easier, the implementation's sometimes a little bit of a project. The ASR side of things does require a very technologically astute salesperson that also understands public safety, law enforcement, and security. The complexities of the technology and the questions you get from clients and where it's applicable and the like is somewhat intense process, and having personally sold a few of these, it can be a bit challenging.

Stacy Stephens (EVP and Chief Client Officer)

How does Knightscope plan to help mitigate the risk of school shootings? Love that one.

William Santana Li (Chairman and CEO)

So I think there's two answers. One, you know, more technically focused, and then the other one's, you know, cash or budgets. So the technology side of things, I think, you need to provide more of a deterrence. You know, putting up a camera somewhere, you know, above your head is not gonna deter anybody from doing anything. So that's why the robots can be very important. Doing Automated Gunshot Detection, adding visible weapon detection in the future, and treating that school, I like to think, like, the more like a data center. In my view, only the people authorized should be there, meaning the parents, the faculty, and the students. Anyone else should be flagged. And there's technologies to be able to do that, both outdoors and indoors.

I think my bigger concern, especially K through 12, put the universities aside, is the budgets. I mean, to be frank, you know, we, as a country, don't pay our school, our teachers anywhere near what they're actually contributing to society, and in a lot of cases, the, the teachers themselves are covering for school supplies and all kinds of needs that the, the students have. And where exactly is that school supposed to come up with a six-figure or seven-figure budget to now properly harden and secure the facility? So I think there's a fundamental budget problem, and both a budget problem and a technical solution.

I think as Knightscope grows, you know, at some point in time, not now, we're gonna need to spend some time in Washington, D.C., and speaking to Congress, and there's no way the... I forgot how many it is, 22,000 schools are gonna fend for themselves and figure this out by themselves. I think the private schools might be a little bit different, but the budget's a huge, huge problem.

Stacy Stephens (EVP and Chief Client Officer)

... How's the fact that many cities are not enforcing and prosecuting, uh, criminal activities, i.e., shoplifting, et cetera, impacting the sale of the robots? I'll speak from a law enforcement standpoint.

William Santana Li (Chairman and CEO)

Stacy, you, I think you need to answer this one, 'cause I'm gonna lose my temper.

Stacy Stephens (EVP and Chief Client Officer)

I'll speak from a law enforcement standpoint for a moment on that. First and foremost, the number of cities that are doing that are very, very, very small in the grand scheme of things. Secondly, we've not seen an impact primarily because our focus on end users, the primary is not law enforcement. They are secondary, tertiary, as far as the targets are concerned, for many of the same reasons as the schools that Bill just mentioned a moment ago.

So, we're not seeing a lot of that, but what we are seeing are private companies taking the security more seriously now, and being more proactive about how they are able to collect information and deliver that information to law enforcement professionals, so that we have, we law enforcement, have better, tools to investigate those crimes and prosecute them when able to do so. So we've not seen that impact, and I haven't, you know, I'm still obviously very close to the sales process and everything that's going on there, but I've not seen anybody say, "Oh, well, this is not important." It's quite the opposite. Anything to add, Bill?

William Santana Li (Chairman and CEO)

Mm, mm.

Stacy Stephens (EVP and Chief Client Officer)

Okay, how do you get the T-shirt that you were wearing in the video?

William Santana Li (Chairman and CEO)

Oh, that one I made personally for our, our internal, for our employees. So that one's not in the store, but if you're interested in, in getting some swag, go to knightscope.com, and just hit the swag button. There's a bunch of stuff there, and at some point in time, we, we'll, we'll put up some new stuff as well. And I'll think about maybe seeing if we can add that one, Stacy.

Stacy Stephens (EVP and Chief Client Officer)

What efficiencies are being implemented in Q3 to reduce cost and improve earnings per share?

William Santana Li (Chairman and CEO)

Executing all the stuff that was in the video. We don't want to keep hammering the same thing over and over again, but we had a massive change in telecommunications. What does that mean? Okay, well, imagine you had 4 cell phones, and you wanted to live stream high-definition video of YouTube kind of 24/7. You know, the bill you're gonna get from Verizon or T-Mobile or Sprint or whoever is gonna be rather large at the end of the month. So we go through terabytes of data a month, actually. We made a ton of significant technical changes and contractual changes that are gonna go literally straight to the bottom line. There's some headcount impacts that will start hitting.

There are some throughput, QA type of things and, you know, reduction in cost. In a lot of cases, it's not always the bill of material that's important, like how much does it cost to build a machine or the labor hours? But remember, these things are running 24/7, and the field service work, the maintenance and service, the parts, the shipping of parts, if stuff's breaking, like, it costs a lot of money. And that was a huge driver for why we wanted to retire the K5V3, some time ago, because it was costing a lot of money to build, taking too long to build, and, oh, by the way, when it's out in the field, it's kind of eating up a lot of the team's time.

Back to someone's question on how the heck are you gonna go work on new stuff, and eating a lot of monies. So we're still in transition, right? We've retired well over 50% of the V3s. There's still more to go. So I think that will also end up going to the bottom line. Apoorv, is there anything else you want to add?

Apoorv Dwivedi (EVP and CFO)

Yeah, I mean, I think obviously, somebody mentioned this, right? We're taking a multi-pronged approach and, you know, I think Bill had put together a 2024 path to profitability, which I think would be a great framework for you guys to look at on what we're trying to do. You know, if you think about it, we need top-line growth. That's gonna continue to happen as we invest in sales and invest in our products and invest in our the suite of product designs and product development that we're working in. Simultaneously, we have to cut costs. It still costs us quite a bit to build these things because we're doing it by hand, because we're doing it at low scale.

So changing that out, and as we continue to start investing in that scale, we'll start to increase our margins, and those margins, well, they'll help drive some of that path to profitability. Finally, you know, becoming more efficient on the OpEx side, right? I think we did a really good job, Bill, of cutting our headcount and our expenses down. If you look at, you know, just the Q2, I think we saved over $500,000 in just, you know, cost, where we thought it was a good idea to do so, and we'll continue to evaluate those. So again, it's both.

It's gotta, you gotta grow the top line, and you gotta decrease your cost, and you gotta run lean, and we'll continue to hit on those fronts while introducing products that we think are gonna be successful in this industry.

William Santana Li (Chairman and CEO)

Yeah, and I was just glancing at one of the questions earlier. You know, some folks are worried that we might have terminated folks that were spent a lot of time with us during Innovation Week. I think from memory, I don't think anyone that was on camera has left the team. So everyone's kind of waking up every morning, putting their heart and soul into the company and taking all the inbound beatings that we get. I don't think you'd probably want to see my inbox. You know, I can take the criticisms and all that. Don't appreciate the death threats. I can pass on those, but we are working genuinely very hard to make this a big success. It will take some time. We do have a path.

We are not gonna run out of money, and we're doing an honorable thing for the country, and this will work out. It's just gonna take a little bit of time, to get a very difficult set of technologies, to work at scale, now that we've got them working in low volume.

Stacy Stephens (EVP and Chief Client Officer)

What's your IP or patents deck?

William Santana Li (Chairman and CEO)

We've got maybe a dozen patents. I'm not a huge fan, you know, of patents. This is not the pharmaceutical industry, where your recipe is, like, the most important thing, and you're gonna protect it for 17 years. Like, the technology changes so fast. You know, when we first started, I often say we had 1 Intel i7 or i8 CPU in the machine, we're like: "How the heck are we gonna use all this stuff?" And now we don't have enough compute, and we've got, like, 2 NVIDIA GPUs, a CPU, and we're wanting to add more capability. And, you know, a lot of cases, the technology changes so fast that it's not really worth spending staff time, legal time to go get a large portfolio of IP, or patents rather.

You know, could we have patented probably 100 items? Sure. Not good use of shareholder money.

Stacy Stephens (EVP and Chief Client Officer)

I'm surprised we still get this question: How do you plan to incorporate AI into your business?

William Santana Li (Chairman and CEO)

Ah! Okay.

Stacy Stephens (EVP and Chief Client Officer)

Sorry, not poking, not poking fun at the question. It's a legitimate question, but I don't-- I just don't think people will realize how much-

William Santana Li (Chairman and CEO)

Okay.

Stacy Stephens (EVP and Chief Client Officer)

it's already there.

William Santana Li (Chairman and CEO)

Yeah. There's... I think maybe there's a different way to answer the question. So, there's a ton of AI just to get the machines to do what they do today, right? They move on their own, they're replanning, they're remapping, they autonomously recharge on their own. There's no one sitting around, you know, remote controlling them. So this is the automotive equivalent of level five, completely hands-off. So there's a ton of AI to be able to do that. It requires AI and machine learning to detect a license plate and then read the license plate. It takes AI to detect a person. It takes AI to do facial recognition, for example. If you're speaking of generative AI, I think now that...

I think there still needs some work on telecom speeds and the speeds of the, you know, LLMs. But, I think enabling the machines to be able to have a thoughtful, relevant conversation with someone, would be something that's, certainly on our, on our roadmap.

Where, you know, instead of just pushing a button or just, you know, looking for an alert or something, you can actually have a conversation with the machine, and that could be a citizen out in the wild, out in public somewhere, or it could be internally, for us, for our own Risk and Threat Exposure people to have a dialogue with the next future version of a user interface, where, you know, instead of typing away what we're looking for, and for an investigation, is to be able to do that real time via speech.

So there's a ton of opportunities, but yeah, I think for a technology company that's in Silicon Valley that, you know, has got AI working before it was a huge, big thing, it is a little awkward to get still that question, but I will continue to answer and continue to communicate.

Stacy Stephens (EVP and Chief Client Officer)

Just a quick time check. We had 35 minutes left in the scheduled time. Bill, I know you typically say, "Hey, we'll stay till we get all the questions answered." But there's, if I had to guess-

William Santana Li (Chairman and CEO)

I will stay.

Stacy Stephens (EVP and Chief Client Officer)

Questions.

William Santana Li (Chairman and CEO)

Let me look at my calendar. I will stay, if we have to punt the next meeting, but Apoorv, if you need to go, I think sometimes you're a little busy.

Apoorv Dwivedi (EVP and CFO)

No, I can, I can stay for the next half an hour, but after that, I'll probably-

William Santana Li (Chairman and CEO)

Yeah. I think there's so many questions that, you know-

Apoorv Dwivedi (EVP and CFO)

Yeah

William Santana Li (Chairman and CEO)

We're happy to stay on, and if folks are-

Apoorv Dwivedi (EVP and CFO)

Absolutely.

William Santana Li (Chairman and CEO)

We're happy to invest the time.

Stacy Stephens (EVP and Chief Client Officer)

We may need to do some speed round type answers then.

William Santana Li (Chairman and CEO)

Okay, FedEx, let's go.

Stacy Stephens (EVP and Chief Client Officer)

Is privacy a big market adoption concern? If so, how are you addressing them? What are other adoption headwinds?

William Santana Li (Chairman and CEO)

Not really. We're typically operating in public, and privacy typically is more of a question that we get from the media than we get from clients. And then, remember, contractually, the client owns the security-related data. All the machine data is owned by us. Other headwinds, I think to be fair, you know, one of the reasons we have the robot roadshow going across the country, we've done now, Stacy, help me here, more than 120 stops.

Stacy Stephens (EVP and Chief Client Officer)

Over 125.

William Santana Li (Chairman and CEO)

125 stops is that education curve getting people comfortable. They can watch a video, they can get on a Zoom, PowerPoint people to death, but they still wanna see the robots in action. And that mobile trade show can be really helpful in the marketing and sales process. So I think just there's still that comfort level needed for some folks. I would think that would be a little bit of a headwind.

Stacy Stephens (EVP and Chief Client Officer)

... All right. What's happening with the Draganfly partnership?

William Santana Li (Chairman and CEO)

So Draganfly owes us a prototype of what they think could work. For us, they had filmed something that I think we put on our social media that they're working on it. So, once they're ready to go, then we'll be ready to go.

Stacy Stephens (EVP and Chief Client Officer)

Has Knightscope considered going into the residential market?

William Santana Li (Chairman and CEO)

We're already in the residential market in a lot of cases. If you mean an HOA or an apartment complex. If you meant, like, literally consumer residential, someone's specific home other than a large estate for a multimillionaire or billionaire, we haven't really spent too much time there. We do need to be careful here. We intentionally did a, you know, big focus on business to business. Now we're adding business to government. Business to consumer is a very, very, very different business, maybe requiring different technology and certainly different sales, marketing, and distribution techniques. So that likely is on our roadmap, but likely last.

Stacy Stephens (EVP and Chief Client Officer)

What do you consider to be the biggest obstacle preventing the stock price from going over $1 per share?

William Santana Li (Chairman and CEO)

People buying shares. I mean, I can't, this is the way I can't legally tell people to go buy shares, but to answer your question, why would a share price in general go up? 'Cause a bunch of people all bought shares roughly in the same timeframe, and very few people sold shares for on any company, not just Knightscope, the share price would likely go up. And we don't control that. We don't control behavior of everyone on this call or other investors that we have. But, you know, I think we have, I'm gonna guess, 15,000 investors or 20,000, something like that. If everybody went and bought or sold, would have a, you know, material impact on the share price, or getting new investors.

I think one thing that we at Knightscope need to improve as we make more progress in our financial performance is attracting larger institutional investors. This is a big challenge for any company less than a $500 million or billion dollar market cap: getting large institutions to participate. I think we're 95% retail last time I checked. I think as we grow and improve our financial performance, we obviously will be spending a lot more time on attracting some larger institutional investors. I think that's something we certainly want to do.

Stacy Stephens (EVP and Chief Client Officer)

Has any company approached us for potential acquisition and/or significant investment?

William Santana Li (Chairman and CEO)

I don't think I legally can answer that. Can I answer that, Apoorv? I don't think I can answer that.

Apoorv Dwivedi (EVP and CFO)

Yeah, I would ask-

William Santana Li (Chairman and CEO)

Well, a different way to answer is the company's not for sale, but I am an officer of the company, and I work for you, the shareholders. So I have to look at every single offer, every single opportunity to maximize shareholder value. So legally, I have to look at everything, but I don't think legally I can comment one way or the other. Please don't infer something from me not answering. It's just, we need to be careful how we answer questions.

Apoorv Dwivedi (EVP and CFO)

I mean, I think, Bill, you know, the company is... We're a business, right? So I think as a business, you know, we have to be open to anything and everything, right? And we are. But whether anything materially is happening or not is something you're absolutely right. When the time is right, and if there is something to be announced, we will do so.

William Santana Li (Chairman and CEO)

On the flip side, we have stated since we went public, that we are always actively looking at acquisitions, and you know, obviously preferably accretive, that can help on the top line revenue side, on technology, et cetera. And so we continue to have those ongoing discussions, which we had previously disclosed.

Stacy Stephens (EVP and Chief Client Officer)

Accounts receivable has gone up significantly. What is the strategy to collect on AR? Would there be a better source for cash other than using the ATM?

Apoorv Dwivedi (EVP and CFO)

I can answer that question. Yes, we have... So basically, you know, the AR increase is a reflection of kind of some of the things that were happening when the finance team was getting reorganized. We had a transition that occurred in the Q1 when I joined, and as part of that, I, you know, we were slow to jump into the AR side. Since then, we've, we have a team in place that's focused primarily on AR. They work closely with the sales team. They work closely with our CX team to reach out to clients, to work with clients, to get the AR down.

One of the other things to think about is, you know, on the AR, there's a portion of that AR that actually is related to our case, what we call the municipal clients, that we are working through to actually, what I would call Rightsize the relationships or at least the business aspects. As Bill mentioned a while ago, some of these contracts are 10, 15 years old, and some of the terms, including payment terms, are, were designed in such a way that although they might have been profitable to the company, you know, 10 years ago, they are no longer profitable or sustainable.

William Santana Li (Chairman and CEO)

So we are working closely and partnering with our clients on the municipal side to right-size some of those contracts, and that's taking a little bit of time as well. Because again, as you guys might know, working with governments is not as easy or quick as resolving things on the commercial side. But we hope to get those resolved, and by doing so, not only will we obviously shrink our AR down, but also set up the business such that those contracts become profitable in the long run. All right, let's do. I think we're doing both of us. Let's pick up the pace on the length of the answers. Otherwise, we're never gonna get through all these, and we really want to answer.

Stacy Stephens (EVP and Chief Client Officer)

What's the status of the New York City robot installation?

William Santana Li (Chairman and CEO)

As disclosed by the New York Times, the city is looking at redeploying it at a different location, which has its own complications, 'cause the first location took, I don't know, a long time and dozens and dozens and dozens of people. So we're kind of going through that process again.

Stacy Stephens (EVP and Chief Client Officer)

Oh, it's me now.

William Santana Li (Chairman and CEO)

Yeah, we gotta do short. Come on, man.

Stacy Stephens (EVP and Chief Client Officer)

I was confused by the short answer. I am a scouter. Daryl, thank you so much. Wondering if you will get into alarm systems. Short answer, no. Sorry, I'll be blunt about it, but no, that's not our bailiwick. Please explain the discussion surrounding future stock split. We already did that one. During a previous town hall, it was mentioned manufacturing was being consolidated into Mountain View, and the goal was to ramp up production. What's the status of the consolidation and ramping up?

William Santana Li (Chairman and CEO)

As we disclosed in our 10-Q, we have not only started the process but pretty much finished up shutting down the Irvine, California, facility, consolidating everything into KHQ or Knightscope headquarters in Mountain View. And that process is underway to have improved labor flexibility. So, you know, ASRs and K1Bs can be built, you know, depending on, you know, what orders are coming in or what the priorities might be. There's a significant changes required in quality control. There's some engineering stuff that needs to get done, but that first huge step has already been taken. The balance of the facilities are warehousey type of things or smaller offices.

In a couple of instances or more, there's really annoying language, contractual, from some government stuff that may require some stuff to stay open, but we've been working through the process. So, the big one kind of got done already.

Stacy Stephens (EVP and Chief Client Officer)

What is the company doing to increase institutional awareness, to avoid the stock continuing to struggle so that the institutions begin investing?

William Santana Li (Chairman and CEO)

We need to improve the financial performance of the company. Institutions, typically, you know, wanna see a $5 above stock price, so we've got some work to do. I've been keeping almost half a dozen analysts up to speed, and hopefully, you know, we get an additional equity analyst to cover the stock. Then after we get through this cleaning house period, Apoorv and I will be, you know, spending some time with, you know, the typical conferences and the like to improve the awareness.

Stacy Stephens (EVP and Chief Client Officer)

How can the portfolio be expanded when there are no human or financial resources to undertake this?

William Santana Li (Chairman and CEO)

Through partnerships, through acquisition, through deletion of dumb processes, and so that people can actually be working on stuff that's productive, and improvements through quality. If the team is not having to babysit and, you know, maintain and service and support stuff, they can be working on new things. And then being very careful what battles we pick and what we wanna work on, so being kind of very surgical. I'm not gonna kid you, it's, it is tight. We don't have as much resources as we want to work through this, and the aforementioned toxic financing was a huge blocker for us for a very long time, to be able to get the additional resources. But the work is being done.

So, we're scrappy entrepreneurs, we kind of figure it out.

Stacy Stephens (EVP and Chief Client Officer)

What is being done to take key products international?

William Santana Li (Chairman and CEO)

Nothing. Absolutely not. As I've also mentioned, I've worked on four continents. I kind of know exactly what needs to get done. That is not the additional operational, financial, legal, insurance, and liability risk we wanna be doing right now.

Stacy Stephens (EVP and Chief Client Officer)

Can you offer any update on the bond offering?

William Santana Li (Chairman and CEO)

The bond was closed during the Q1 and was disclosed in the prior 10-Q. That got completed. I think we raised $4.2 million or so.

Stacy Stephens (EVP and Chief Client Officer)

What are you doing to sell more of your tech and services out in the marketplace?

William Santana Li (Chairman and CEO)

We need to overhaul the marketing sales process. I mean, no different than what we were just talking about. How do we more efficient on the manufacturing side of things, or how we making the product better or whatever. We're looking and turning everything, looking under every rock, and actually, Stacy's working on improving the upfront process on lead generation, you know, how the website flows or doesn't flow. When does the client experience analyst get involved in part of the sales process so that the sales team can be spending more time doing sales and not operational kind of sometimes back office or project managing work, a bunch of stuff to accelerate. And then we need to recruit, recruit, recruit.

If there's anyone on the call here that has some awesome sales candidates, please send them to knightscope.com/careers, 'cause we are recruiting.

Stacy Stephens (EVP and Chief Client Officer)

What is being done to mitigate cyberattacks?

William Santana Li (Chairman and CEO)

Having spent three years going through the, as I often say, nightmare cybersecurity process with the U.S. federal government, they put a lot of conditions on us, and we need to work to comply with those, and they're exorbitant. Second, we are ramping up a cyber team that Mercedes Soria is leading. Third, one of the other reasons to redo the entire technology stack is in order for, instead of just having one product that is suitable for federal use, is to have the entire portfolio be compliant. So there's a lot of strategic reasons as to, as to how we approach that.

Stacy Stephens (EVP and Chief Client Officer)

Is the ATM still active? How many shares are selling weekly? How many shares are outstanding now?

William Santana Li (Chairman and CEO)

We refer you to the 10-Q or 10-K. We don't do a play-by-play on that. That would not be appropriate. The ATM is available to us, but I'll turn it over to Apoorv.

Apoorv Dwivedi (EVP and CFO)

Yeah, again, it's difficult to give you a week by week, just because that's not how the ATM is intended to be used. We use it when, you know, our bankers advise us, and they use the ATM when they think the time is right, when the stock is doing certain things. So we don't generally, you know, disclose the week by week information, but you can definitely... I think in our disclosures, we disclose how much we raise in a given quarter.

Stacy Stephens (EVP and Chief Client Officer)

If any large orders came in for a government agency, do you have confidence in fulfilling them in a reasonable amount of time?

William Santana Li (Chairman and CEO)

Yes. Short answer is, you know, it requires people and some real estate, but other than that, be happy to have that problem, and we're actually working on that, but yes.

Stacy Stephens (EVP and Chief Client Officer)

Also, most of the federal contracts like that will also phase it out. There will be a delivery schedule and things like that, that kind of come into play as well.

William Santana Li (Chairman and CEO)

Yep.

Stacy Stephens (EVP and Chief Client Officer)

Would appreciate some elaboration on changes in the board: strengths, weaknesses, what has been gained or lost?

William Santana Li (Chairman and CEO)

I think as Apoorv eloquently put it, you know, there's a time and place for certain skills, you know, we're grateful for the original board that helped us get through a public listing in the first couple of years. We're onto a new phase. We've got Will Billings, who's very extremely strong financial acumen. If you want to see, read their bios, please go to Knightscope.com/board. There are very few people in the world that have scaled up autonomous robotic technology and Mel Torrie leads and you know an entire organization that's been doing that for quite some time. So we've got the technical background.

And then, Bob Mocny is a former senior federal government official focused on the Department of Homeland Security, and as we continue to work on growing in the federal space, is super important. So we're part of the turnaround and work that we're doing is in you know, better aligning the governance structure. And if it helps, like, I worked with Bob some time ago, and so has Stacy. Apoorv has worked with Will, both are ex-GE finance people. So, you know, these strong caliber folks, and we expect real financial results by making strategic decisions and improving our operations.

Stacy Stephens (EVP and Chief Client Officer)

All right. Other than the current legal process taking place, is there a strategy to eliminate the shorts?

William Santana Li (Chairman and CEO)

Improve the financial performance of the company and try to instill confidence from our existing investors and get new investors. I mean, one of the reasons the South Koreans made shorting illegal is... I'm not gonna get into that. There's only certain things that we can do. It's a very opaque process. One thing that we can't provide financial advice, but as Apoorv mentioned earlier in the call, if you don't want your shares being used to short, you can literally call your broker up and tell them, like, call up Charles Schwab or Robinhood or ETRADE or whoever you use, and tell them that you would not like your shares to be lent out for shorting. And that also can be helpful.

But again, we can't provide financial advice, we're just providing a fact there for you.

Stacy Stephens (EVP and Chief Client Officer)

Can you provide some color on the future outlook for government and military contracts?

William Santana Li (Chairman and CEO)

Huge opportunity, gonna take a very, very long time. But I think the positive thing, since we're in this for the long haul, is, once you're in, it's kinda hard to get kicked out. I think the having spent a good amount of time looking at, not on stuff on the battlefield, but, you know, military, border patrol, NASA, FEMA, GSA, FPI, I mean, the list is very, very long and a humongous amount of opportunities for us. But it is very hard, and I think the opportunity is there. It's gonna take some time, but we got our foot in the door.

Or as one of our directors on the team said, "We didn't get our foot in the door, we got our whole body in the door." So we're working on it.

Stacy Stephens (EVP and Chief Client Officer)

Can you talk about some of the companies, competitive companies, large and small, that have failed on the robot side?

William Santana Li (Chairman and CEO)

Sure. Sharp failed, Switch failed, and Amazon failed. I believe Cobalt Robotics obviously has disclosed that they're no longer doing robots. Gamma 2, and I'm losing track of, of the rest. But I think it speaks to... If you have 6 teams with hundreds of people and hundreds of millions of dollars spent, and they couldn't get it to work, I just ask you all for a little bit of grace and cut us a little bit of slack, not a lot, just a little bit, to understand that the technology is extremely difficult to build and to operate. And we're now last, you know, last team standing, and we intend to make it to the finish line. But we do need your support to be able to do that.

Stacy Stephens (EVP and Chief Client Officer)

If blue lights account for 68% of the sales, what is the profit breakdown? And if robots are a drain, is it time to shift focus to the blue lights?

William Santana Li (Chairman and CEO)

Ooh, that's not a short answer, but I'll try really fast. So selling the K1B stuff outright as a product, it has a positive gross margin. Servicing the K1 blue light stuff needs a massive amount of work, and that's part of the cleaning house part that we've been working on. So we're working to get that to profitability. The ASR side of things can be profitable, but you need a certain critical mass for it to operate. So what I mean by that is, for example, we have a full-time 24/7 staff to monitor the machines. So if we double, triple the number of machines, do we need to double, triple that team? No. So because it's a kind of a subscription basis, the economics look a little... Sorry, the accounting looks a little odd.

But there is not, I think, a need to do that, especially since, you know, looking at our clients that have been around for half a decade plus, if you actually look at those margins, which we have, they're 60%+. So it takes time, and it needs scale, and no different than, frankly, a SaaS company.

Stacy Stephens (EVP and Chief Client Officer)

Why don't both the CEO and CFO buy some shares? Purchase of shares by insiders would give confidence for the investors to buy more shares.

William Santana Li (Chairman and CEO)

Yep. So I had 7 million shares. I didn't sell a single share in the public listing, haven't sold any shares since then, and you can check out the regulatory filings. I did buy more shares recently from my personal account. To me, this share, share price is absolutely ridiculous. Like you're, I don't know, one-fifth, one-sixth the invested capital. You're at a price that's below the Series A preferred, if I'm not mistaken, 10 years ago. You know, what if I didn't have my entire net worth in this, would I buy more? Sure, and already have done that. So hopefully, folks will take that as a positive indication and, and my confidence in, in the, and the team and the business going forward.

Stacy Stephens (EVP and Chief Client Officer)

Is your gunshot detection currently available? Yes. Anybody interested? Please go to knightscope.com/discover, fill out the form, and we will demo it for you. Sort of.

William Santana Li (Chairman and CEO)

Careful with that one.

Stacy Stephens (EVP and Chief Client Officer)

Could you incorporate 3D printing to lower costs and massively produce more machines?

William Santana Li (Chairman and CEO)

No, because 3D printing, we already use, it actually costs more, and it actually takes more time. It's very helpful for prototyping, but in terms of throughput and cycle time, not. And in a lot of cases, a lot of our parts are very big and causes another problem. So we're actually actively, as part of the bill of materials cost reduction exercise, you know, how do we delete a bunch of these 3D printed parts? Because it costs a lot of money.

Apoorv Dwivedi (EVP and CFO)

Also, I think, from my understanding, the 3D printed parts, especially at the size that we're trying to build them at, tend to... There's some structural issues sometimes that arise when basically you're kind of gluing and layering each part, right, each, each layer of that part. And, and I think 3D printing is good, to your point, for prototyping, but not necessarily for what we're trying to do.... But that, that technology is also evolving, so obviously, you know, as, if it becomes feasible.

William Santana Li (Chairman and CEO)

Trust me, I'm a fan, and I keep nagging the team. I spent, I had the team spend 4 months looking at, you know, even buying our own, setting up our own 3D printing in-house, and just the math doesn't work. But let's move on, 'cause I know there's more questions.

Stacy Stephens (EVP and Chief Client Officer)

Is it difficult to get cities with major serious crime, to order robots to help their police force? Yes, absolutely it is.

William Santana Li (Chairman and CEO)

I mean, that's another huge challenge, is just getting, not intended to be a negative comment, bureaucrats and the local, state, federal government to-

Stacy Stephens (EVP and Chief Client Officer)

Mm-hmm

William Santana Li (Chairman and CEO)

... rethink how they do public safety. And, that, I think someone asked about a headwind, is you're trying to change an entire country's way of doing things. And, yeah, because what we're doing right now is not working. You don't have to believe me. You know, a violent crime occurs every 26 seconds and a property crime every 4 seconds, and that's normal? Sorry, that's not okay.

Stacy Stephens (EVP and Chief Client Officer)

Can you discuss how you plan to reach net positive EBITDA, and profitability within the previous timeline mentioned? Are we still on track?

William Santana Li (Chairman and CEO)

I think we have some difficulties there because of the aforementioned financing problems with that blocker on terms of the toxic financing. Now that we got it resolved, we're trying everything to make up for the lost time. Because I think someone, you know, some people have mentioned here in the chat, you know, there's... You need resources to do this stuff, right? And so, I think one of the things that we really wanna focus on is, you know, showing a steady improvement. We'll see how things turn out, but I don't know, Apoorv, if you wanted to add anything, we're often careful to not be providing forward-looking statements or guidance, but-

Apoorv Dwivedi (EVP and CFO)

Yeah, sorry, can you, can you repeat the question, Bill? I was trying to answer-

William Santana Li (Chairman and CEO)

Timing of profitability.

Apoorv Dwivedi (EVP and CFO)

Yes. I mean, look, I think we are on the path to get there, right? It'd be, I think, for now, premature for us to give an exact timeline as we're cleaning up many of the aspects of the business, both on the operational front, as well as on the capital front, as well as on the balance sheet front. I think what we're asking for, as you mentioned earlier, is, you know, continue to support us, be patient, and we're gonna continue to execute. At this point, we don't give out that level of guidance, so but we are working towards that, and our goal is aligned with our investors, is to get to profitability as soon as we can.

William Santana Li (Chairman and CEO)

Yeah. So I think, well, there's three things we can do is, you know, grow the top line, lower the variable cost, and lower the fixed cost. I think we're at a point where there's some more fixed costs that we can reduce, but there's a certain amount of money to be able to be public, to run the company, to do everything else, and you can't just, you know, kind of cut your way to profitability. It's just not gonna work. So then you need to work on, you know, variable costs and, you know, operating expenses and, and the like, associated with the machines, which we're actively working on. We need the top line to grow.

I think there's a lot of people asking: Well, you know, at these, you know, kind of percent of revenue, losses, how do you fix this? Remember, you need a critical mass to run the company, but after that, you know, it starts adding up very, nicely. It's not like we triple the size of the company, and we have to triple the cyber team, right? So as the, the top line grows, this will start, looking more and more attractive.

Stacy Stephens (EVP and Chief Client Officer)

Who is your IT compute platform, AWS, Azure, or other?

William Santana Li (Chairman and CEO)

We're on AWS for 11 years.

Stacy Stephens (EVP and Chief Client Officer)

Uh-

William Santana Li (Chairman and CEO)

Oh, and thank you to the Amazon AWS team. They've been really supportive and helpful.

Stacy Stephens (EVP and Chief Client Officer)

So, here's a very, very sticky one, but I'm going to ask, because we answer all the questions that come in. How about replacing the CEO?

William Santana Li (Chairman and CEO)

How about it? Feel free. Give it a shot. Find someone that's willing to work, you know, 60, 80, 100, 120 hours a week to do the irrational, illogical things, to force a win to happen, who will sit here for hours on end and take whatever questions are at hand, make himself or herself available, is fluent in law enforcement and security and automotive, knows the entire technology stack, understands the investor relations side of things, actually sold stuff, and can run a very complicated organization. And even when turnaround experts have come in, been unable to resolve the matter, and eleven years later, when everyone said the company would never make it, would never be able to build these products, would never have the, any of the autonomy working, would never be able to, to scale up to any regard.

Nobody else has been able to do that, including those six major companies that, and startups that have failed. So I think if you wanted to do that, you're gonna have an impossible recruiting problem. Like, it's gonna be very difficult to find somebody to do the job with the passion that I and the team have, and it's not just me that we've got a relentless group of people that have been at it for a very long time, and if you wanna try, you know, give it a shot. By the way, I have 10X voting shares, so that'll be another discussion to have. I'm happy to take accountability for all the mistakes that have been made. I'm also happy to get criticized. I'm happy to be responsive and be respectful and civil with folks.

You know, I try very hard to answer the thousands and thousands of questions and messages I get. I can't always answer all of them, but I hope the spirit is there, and you need to decide what you wanna do. Do you wanna bet on this management team, who has forced us to build a team and willed it into existence, and now know that most ... We've forgotten why most people know how to do this? Or, you know, do you think the market opportunity is there? Do you believe in the technology? If you don't, please sell your shares. If you think that, okay, this team has gone through the most difficult times, no matter what it took, when everyone said it would fail, and somehow they kept pushing forward, right?

I appreciate you placing your bet on the team, just like I have. My entire net worth is in this. I'm not going anywhere, so I will fight to the very end to make sure that we get done what is supposed to get done.

Stacy Stephens (EVP and Chief Client Officer)

Thanks, Bill. I feel that running with such a line of products, they may be running themselves too thin. What is the main focus? Public safety, that's the main focus, using technology. Short answer.

William Santana Li (Chairman and CEO)

I'd modulate there a little bit. There are a lot of SKUs, and so we've had some investors go: "Wait, you're building too many things, and you're spread too thin." So one of the reasons, when I mentioned in the video, platform commonality is kinda really important, so that you can, fix the spread too thin, but at the same time, have a wide breadth. You're not gonna fix and deliver the mission with one single product, and you're gonna keep going to that you know, chief security officer or that chief of police with your one little solution, and that's gonna fix the problem. It's not gonna work. Criminals and terrorists can be anywhere, so we have to be everywhere. But the key here, and the little Jedi mind trick, is: how can you be everywhere and do it efficiently?

That's what this whole ICM platform commonality is really kind of important.

Stacy Stephens (EVP and Chief Client Officer)

The next is actually a comment, but I think it begs a rebuttal to an extent. At the end of the day, this vision is great. However, without a solid partnership with another company or VC group, and an infusion of cash, the stock will continue to go down.

William Santana Li (Chairman and CEO)

I think there's some misunderstanding in that question. One, VCs typically don't participate in public companies. Two, they're typically wrong 9 times out of 10, although they walk around like they have an attitude that they're right 9 times out of 10. I live here in Silicon Valley, and I can say that, you know, VC is not gonna fix this, neither is a private equity shop or a hedge fund. A strategic partner, possibly. We, you know, have had 3, 2 or 3, that have invested in the company prior or are still investors. Actually, I think all 3 of them are still investors.

In some cases, they can be super helpful, to a point in a certain area, like, Konica Minolta, where, you know, all of a sudden we had 2,000 service technicians accessible to us when we were still in California and didn't know how to operate across the country. So that, that can be helpful. But there are very few that are focused on the, you know, problem that we're working on, you know, and autonomy is not something that's been, you know, solved. So that's, you know, likely not a place. The law enforcement security sector is very, very fragmented. You know, we have partnered with, you know, some of the large guarding companies, you know, that, usually there's an actual conflict of interest there.

So we're continuing with, you know, without saying anything out of turn, always looking for additional partnerships like we've announced, you know, this last few months between automated gunshot detection, the K1 Laser and Draganfly. And there's always an opportunity. We haven't found a solid one yet. I think I had... Actually, I had this discussion with the board last night. To me, I think the more exciting one is going down the acquisition route to be able to bring in additional resources, fix some gaps, catch up on some technologies that we're super interested in. And, you know, live here in Silicon Valley, 22,000 startups, literally 95% of them fail. So there's always interesting things to look at.

But maybe said a different way, and I'll shut up, is trying to just grow this organically by itself without some inorganic growth is likely not gonna work for where we want to go.

Stacy Stephens (EVP and Chief Client Officer)

How will these changes allow you to become profitable if you continue the current business model of leasing expensive equipment at a loss?

William Santana Li (Chairman and CEO)

We don't lease expensive equipment. It's a full subscription, so a lease implies that, you know, someone has a financial interest in a particular asset. And as I mentioned, it requires scale, and as we scale up, the financials will follow.

Stacy Stephens (EVP and Chief Client Officer)

... I wanna know about where the data is delivered after being collected, and what's the response time of each robot to human response?

William Santana Li (Chairman and CEO)

The data is problematic, so there's all kinds of data. Some of it stays on the robot, some of it goes up in the cloud, some of it gets deleted off the robot. So crudely speaking, as I mentioned earlier, the private, like, security-related data is owned by the client, and then the machine-related data is owned by us. Response times, the machines do things in milliseconds. We now stood up an RTX team, the Risk and Threat Exposure department, that's helping our clients be able to utilize their technology so that things are much quicker. And that's helped not just our clients who are inundated with alerts.

If you imagine, you know, trying to manage a large enterprise with all kinds of alarms and gates going off and what have you, they're short-staffed, so adding that extra layer helps, and it also helps us operationally as well.

Stacy Stephens (EVP and Chief Client Officer)

In the recently filed 8-K, kindly explain the reason for the non-disparagement clause and confirm, did money actually flow to Knightscope, or is Knightscope simply adding $3 million of debt to its balance sheet? Apoorv, do you wanna-

Apoorv Dwivedi (EVP and CFO)

Yeah, I can, I can answer that. The non-disparagement clause, and I kind of edited earlier, is really—it's a typical clause that most. You know, when you, when you negotiate with parties, neither party wants the other party to say anything, you know, negative about them publicly, and I think that's just a clause that's normally there. In this case, the investor was extremely interested in making sure that they had that clause, and we don't have a problem giving them that. In terms of the $3 million, yes, we do have that debt in place.

We did not receive cash for it, but what we got in return was extinguishment of the warrants, extinguishment of their participation rights and some of the many other obligations that the company had previously signed up for as a result of that agreement. We believe that it's a really good agreement for us. It opens up. Not only does it open us up for getting better funding, but also opens us up to work with better types of investors as we go out and partner with them to grow the business.

Stacy Stephens (EVP and Chief Client Officer)

Okay. Has there been any attempt to integrate threat information from social media platforms, particularly for K through 12 schools?

William Santana Li (Chairman and CEO)

Oof! We actually looked at that a long time ago. And then the social media platforms, if I recall this correctly, stopped providing as much information as one would need to do that, right? And we haven't looked at that for a very, very long time. Probably at some point in time, we should go back to that, but we haven't looked at threat for, geez, 5-7 years.

Stacy Stephens (EVP and Chief Client Officer)

Any plan to be a platform as a service versus software as a service? I think maybe there's a miscommunication there.

William Santana Li (Chairman and CEO)

We're already more of a platform as a service. So, we call it machine as a service, so you get the machines, the software, the maintenance, the decals, the training, the user interface, the RTX team. Everything's included in that, in that subscription.

Stacy Stephens (EVP and Chief Client Officer)

How many shares need to be bought and held to get the stock price to $1, i.e., you have this many people on the call, and-

Apoorv Dwivedi (EVP and CFO)

I don't know. I don't know if that's a question we can answer.

William Santana Li (Chairman and CEO)

I don't think we can answer that.

Apoorv Dwivedi (EVP and CFO)

The math required for that would be super intense.

Stacy Stephens (EVP and Chief Client Officer)

Can you repurpose and license your technology to other companies for additional revenue?

William Santana Li (Chairman and CEO)

Uh, no.

Stacy Stephens (EVP and Chief Client Officer)

Can we write in William Santana Li for president in the general election in November? Of course, you can write in anybody.

William Santana Li (Chairman and CEO)

Thank you very much. It's been a long few months. I appreciate that.

Stacy Stephens (EVP and Chief Client Officer)

Does Chase or Fidelity-

William Santana Li (Chairman and CEO)

Been busy.

Stacy Stephens (EVP and Chief Client Officer)

Does Chase or Fidelity lend out shares to be sold or shorted?

William Santana Li (Chairman and CEO)

We don't know how each broker does things, but almost every broker has that ability. So if you don't want them doing that, you need to call your broker directly.

Apoorv Dwivedi (EVP and CFO)

Yeah, it's a question you should definitely ask your broker directly, and sometimes it's just a setting in your dashboard when you log in. But, you know, we wouldn't have a way to answer that question. You can easily ask your broker.

Stacy Stephens (EVP and Chief Client Officer)

How long does a robot need to be in service to pay for the production cost?

William Santana Li (Chairman and CEO)

Well, a year, plus or minus, depending on the robot. And we're trying to improve that. So, one way to think about it, as I often say, is we try very hard to get the first year's revenue to pay for the machine, and then the second, third, fourth, fifth year, you're generating margin, and that's why the operating costs are really important. So the telecommunications cost every year, the cloud costs, the maintenance costs, the service costs, the service parts, all that is almost in some cases, more important than the cost of the machine. If you want the details of that, you can go to Knightscope.com/rise and download the latest investor deck. One of the slides actually gives you the... an example, so you can see that in graph form.

Stacy Stephens (EVP and Chief Client Officer)

What's the headcount of the R&D team?

William Santana Li (Chairman and CEO)

... You would think I'd have this memorized. So the team, we went down from maybe 114 heads at the peak to now 70+, and now we're kinda recruiting. It's a little weird to answer your question, only because the R&D team does a lot of operations work. So we don't have folks only exclusively working on research only or development only. They're helping our clients, improving tools, fixing issues, and the like, so I don't know, a couple dozen.

Apoorv Dwivedi (EVP and CFO)

I will add, Bill, that you know engineering is one of our largest departments, so we do focus on R&D technology. We're a technology firm. So, again, to your question, I don't know if we have specifically that many people that are dedicated directly just to R&D. If you think about where we look at you know engineers, I'm looking right now, you know, we have, what is it? Close to you know more—almost half of our—more than half of our headcount is engineering across the Knightscope team, across the deployment team, across the manufacturing team. Engineering is a big part of our culture.

Stacy Stephens (EVP and Chief Client Officer)

How many... I guess, talk about the backlog. I actually had two questions about that. So we previously talked about there being a backlog, and where are we on that?

Apoorv Dwivedi (EVP and CFO)

It's at about just under $3 million of backlog, and it's split probably half and half between the two. We do disclose it in our 10-Q. If you just go open it up and just do a backlog, you'll be-

William Santana Li (Chairman and CEO)

Historically, we were in the $5-6 million range, so we've cut it by more than half.

Apoorv Dwivedi (EVP and CFO)

Yep.

William Santana Li (Chairman and CEO)

Still got some work to do, but the team's cranking away.

Stacy Stephens (EVP and Chief Client Officer)

What's the main reason for the termination of some of the contracts using the technology?

William Santana Li (Chairman and CEO)

Off the top of my head, company went out of business, company closed the facility, they opted to go back to human guards. I think a lot less now than before, we probably—we or a third party sold it to someone that we shouldn't have sold it to. So the not funny, but funny example for me is, you know, the worst client we could possibly have is, like, the chief innovation officer at some major corporation who has budget and needs something shiny, and then come time for renewal, it's like: "Well, you didn't solve any of our problem, our problem." "Well, you didn't have a problem in the first place.

You just wanted a robot." I think that we've fixed now with a very poignant sales process of our long list of, you know, deployment checklists, site surveys, technical reviews, like, why do you need this robot? Do you have a budget? So that's another process improvement that the team has made.

Stacy Stephens (EVP and Chief Client Officer)

Stay motivated, Bill. If you are, however, forced into a reverse split, how severe of a split are you thinking it would be?

William Santana Li (Chairman and CEO)

I don't think I can legally answer that, one. Two, in the proxy statement, there's a 5-to-1, up to 50-to-1, and that's up to the board to decide. And then, to be fair to the board, it's kinda when you make the decision, 'cause the stock price obviously fluctuates, and that can have an impact, and there are other market, market or business conditions that one would need to think about. So, again, we're trying very hard to avoid that altogether, but, it's, you know, obviously very challenging.

Stacy Stephens (EVP and Chief Client Officer)

With the other companies failing, so I think this goes back to the competition. Surprised that Wall Street doesn't recognize or reward that? Can you comment?

William Santana Li (Chairman and CEO)

There is gonna be a collective, how many folks? There's 200 folks on here, roll of the eyes with the first to answer. As much as certainly our world revolves around Knightscope, you would be shocked as the number of people that don't know who the hell Knightscope is and what do we do, and, you know, "Nice prototype, when are you launching?" kind of thing. For the amount of advertising, robot roadshows, webinars, and everything we do, I don't know how many investors and how many funds and how many, frankly, people in law enforcement and security have never heard of us. I know that sounds ridiculous to everyone on this call.

I've been an investor for five years, like, how could they possibly not know about Knightscope?" And that's one of the reasons we ask you to please, you know, we send out a newsletter, forward it on to someone. When we post something on social media, please share it. You know, invite people to webinars, send them to the website, help us get the word out, because, as silly as it might sound, there's a lot of people that don't see that. I think, the share price doesn't help. Again, large investors typically are looking at stuff that's, you know, maybe $500 million, $1 billion, $1.5 billion market cap. They're typically not looking at companies, you know, less than, I don't know, arbitrarily, you know, $20-$25 million in revenue.

So we'll get there, but it, it's been a bit of a challenge. I think at the end of the day, it's gonna be very hard in the future for Wall Street to just ignore a growing company in the middle of autonomy, robotics, and AI.... and working on the nation's most difficult problem and just ignore it. And so I think, in the future, that's gonna change dramatically, and for those that, you know, have supported and stuck with us, you know, hopefully that, that'll be a good tailwind.

Stacy Stephens (EVP and Chief Client Officer)

What happens if the company gets delisted?

William Santana Li (Chairman and CEO)

We don't really spend too much time on that because the NASDAQ has told us exactly what we need to do to not get delisted, which is, unfortunately, if we have to enact this, it's the reverse stock split, so we're not spending any time on the company not getting not staying on NASDAQ.

Stacy Stephens (EVP and Chief Client Officer)

What are your top-

Apoorv Dwivedi (EVP and CFO)

I think I would say, you know, we have a delisting is not even on the horizon. We work closely with NASDAQ. We have a path. We don't expect that to be anything anytime in the near future or ever, really.

Stacy Stephens (EVP and Chief Client Officer)

Okay. What are some-

William Santana Li (Chairman and CEO)

Stacy, I'm gonna cancel the next meeting, and there's, like, 160 people still on here, and there's still questions coming in, so I'm gonna cancel the next meeting so you can keep going.

Stacy Stephens (EVP and Chief Client Officer)

Got it. What are the top products, and what are the top markets for the products? What will it take to successfully penetrate the markets?

William Santana Li (Chairman and CEO)

I think we've had a lot of success. If you go to knightscope.com, you can see the verticals, but the ones I would highlight would be certainly a lot of hospitals, a lot of casinos, corporate campuses, commercial real estates. I think those would probably be the first that come to mind. And for those of you that have been with us for a long time, you've heard me say this before. It's like really hard to get the first casino. It's really hard to get the second casino. Getting the third, fourth, fifth, sixth casino gets a lot easier. And that's why we just keep kind of pounding away.

And I think one of the reasons I get really excited and get maybe a little prickly when folks are like: I don't think you're gonna make it. It's not gonna work. It's like: Yeah, but we have clients that have renewed for the service on the ASR side for 2, 3, 4, 5, 6, 7, 8 consecutive years. If you think some major hospital or major corporation is just gonna pay us for, you know, half a decade plus, and we're not providing them value, and we know that there is margin there, like, there is a business there. Crime's not going away. We got the technology working. We just need to improve and scale things up.

And now that we've got some of these headwinds, which someone is asking about headwinds, that toxic financing that we spoke of earlier was a massive headwind for us. And now that that's out of the way, I, I think we're, we're gonna be in, in, in good shape in the coming years.

Stacy Stephens (EVP and Chief Client Officer)

Is robots being damaged an issue?

William Santana Li (Chairman and CEO)

I'll be honest with you, I thought it was gonna be a lot worse, a lot, lot worse than what we've experienced. There's been a handful of locations that are highly, highly problematic, and honestly, it wouldn't matter if it's a robot, your car, a human, a gate, or a camera, it's gonna get destroyed. Like, I don't want to say it looks like a war zone, but kind of looks like a war zone. So it's not really the robot in essence. I thought it would be a lot worse. It does happen, and it's a cost of doing business. Like, you know, does a cop car get graffitied? Sure. Does a gate get broken? Sure. I think it's kind of just part of it, and we kind of need to deal with it, but also be careful where we put these.

Stacy Stephens (EVP and Chief Client Officer)

Mm-hmm. If we were to get delisted, would we hold the same number of shares until we are relisted?

William Santana Li (Chairman and CEO)

We already just covered that. We're not getting delisted. We have a path forward. We have a very good relationship with NASDAQ that dates back to 2017. They've been profoundly supportive of us and very helpful. We're not getting delisted. We have a path. But hypothetically, or just for your awareness, I think one thing people freak out is delisting. It doesn't mean your shares are taken away from you. NASDAQ and the NYSE and the OTC is just a place where people trade stuff. You know, it could be Facebook. Like, you could be trading, you know, different kinds of furniture. It's just a forum to trade stuff. So if we move to a different exchange, you still own the shares that you own. It just would be trading somewhere else.

So, no one's gonna take anything away from you, and we're not getting delisted.

Stacy Stephens (EVP and Chief Client Officer)

How many people are in sales now? How many more are you hiring?

William Santana Li (Chairman and CEO)

We've got roughly about 6 in marketing and sales. We probably need to... Apoorv is gonna knock me over the head. We probably need to double or triple that, but we're working on it. So we're actively recruiting both more senior kind of director-level positions and more junior kind of inside sales and lead generation and marketing folks.

Stacy Stephens (EVP and Chief Client Officer)

Wouldn't long-term growth be better if the company replaced the CTO, since there continues to be issues with the tech, and it would save the company money?

William Santana Li (Chairman and CEO)

Well, first of all, we don't have a CTO position. Second, as part of cleaning house and reorg and all this other stuff that we've done, all the engineers report to me directly, and I know Apoorv and a few folks are not happy with this, but I've got, I've lost track, maybe 15 direct reports. So the person that's making the changes and improving things is me personally. So it has the management attention. Part of the problem is some of these technologies are extremely difficult and require, you know, someone that's actually gone through numerous new product development cycles. You know, replacing one particular person is not gonna fix the technology. You've got mechanical, firmware, software, process, operating system, cyber, all kinds of issues, and there is not...

One reason we don't have a CTO is good luck trying to recruit that person. That person doesn't exist. You also need to be fluent in all the K1B stuff, all the telecom stuff, and we've got two software platforms, AMS and the KSOC. It's unmanageable to have one person manage all that. So I have pretty solid engineers and senior engineers that I work with directly, so that we can better manage this and improve things. And the team's delivering. So, and I've got direct insight to that.

Stacy Stephens (EVP and Chief Client Officer)

This is a rather long one, but I'm gonna try to get it all out. Okay. There are a lot of manufacturers, engineers, and resources that have time available or machine sitting stateside that are willing to set a lower rate or help intellectually, or point to top-tier suppliers or coders because we all have a stake in seeing a positive outcome. Is there someone or a resource we can go to, to help align our talents to see a positive result?

William Santana Li (Chairman and CEO)

I appreciate the gesture. One thing that we have been doing, because some of the stuff gets really gnarly on the technology side, we have been kind of laser hiring individual contributors consultants on, you know, kind of a specific subject. But I don't have a quick answer for that. I'm just thinking, how do you implement it? It's kind of hard because the technology's extremely difficult. I'm gonna flip the question a different way. What can our investors do to, you know, kind of help? The best thing you can do to help us is get the word out.

You know, get people to go to, learn about the technology, have them go to knightscope.com/discover and fill out the form and do a deep dive and see if we can actually be helpful for them. So kind of anything on the revenue side of things would be super helpful, to the team. I think the second thing you can do, is, on the recruiting side, Time is money, and recruiting can be, tedious and, more volume of possible candidates that we can get, would be super helpful, especially if they're qualified. So please send them to knightscope.com/careers.

And then again, I can't tell people to go buy the shares, but I can tell you to communicate with folks, and if they want to learn more about the company, just have them download the investor presentation, and you can download that at Knightscope.com/rise. And those are kind of the big three things you can do. The rest of the stuff is highly specific and sometimes with the best intentions can cause more difficulties and not, you know, I'll pause there, but I appreciate the gracious thought.

Stacy Stephens (EVP and Chief Client Officer)

If you get a senator to see the common sense of supporting your technology, that's an appropriations bill law to support the industry. Agree or disagree?

William Santana Li (Chairman and CEO)

Having worked in Washington, D.C., up and down, both the Senate, the House, and the White House in a past life, if the question was a senator, no, that won't work. You would have to have a coalition of folks in the House and the Senate and the White House and the appropriate agencies, and that is on our to-do list once we've scaled up large enough in the private sector to go do what you're suggesting. But that is a very expensive, time-consuming, and laborious process. And Stacy, you know, you've had similar experience, as I have with this. And that's a, you know, 3, 5, 7-year commitment. And I think the best thing that we can do is scale up the company, and then go have that conversation.

Doing that now, it would not be time well spent. I would put it that way.

Stacy Stephens (EVP and Chief Client Officer)

Regarding sales, what about Amazon, Walmart, et cetera, distribution centers?

William Santana Li (Chairman and CEO)

I can't speak to specific clients for obvious reasons. Distribution centers are certainly an opportunity. Some very large companies can be extremely difficult to deal with, and sometimes it's, you know, frankly, not worth the effort. Not speaking to any particular company, but distribution centers is certainly an opportunity for us.

Stacy Stephens (EVP and Chief Client Officer)

How does the Knightscope team feel about the recent CrowdStrike outage, and what impact, if any, does it have on short- or long-term strategy?

William Santana Li (Chairman and CEO)

Fortunately, no effect on us. A lot of our technology's on Ubuntu, and all the CrowdStrike stuff is primarily around Windows-related stuff, which we don't use.

Stacy Stephens (EVP and Chief Client Officer)

Are there any lease expenses still from the closed locations?

William Santana Li (Chairman and CEO)

Yes. So we're still working through those. It's not an insignificant amount of workload to shut down a location. So we're working on it. We've got a few down. We've still got a lot more to go. But in a lot of cases, we need to prioritize production versus, you know, having people go out and doing inventory counts and the like. It'll get done. It's just gonna take some time, and as we warned you, this is not gonna be. It's not a cliff. You don't just, you know, show up to, you know, 12 different landlords and just say, "Hey, we're gonna be out of here tomorrow." So it's being worked on.

Stacy Stephens (EVP and Chief Client Officer)

Have you asked the Carnegie Tech team to evaluate the IT aspect of your business? The team knows them, but are you using them?

William Santana Li (Chairman and CEO)

So I'm a Carnegie alum. I spoke at one of their conferences. We've met with folks, and, you know, one of the professors there has been sending over recruits for many years. Nothing in particular to do there. There's been some spin-outs that were interesting, but remember that university is mostly R&D, focused on the word R, research, like more pie-in-the-sky, scientific, basic stuff, and we're doing very little research and a lot of development. Like, if we can't ship it in the next 3, 6, 9, 12, 15 months, we're probably not working on it.

Stacy Stephens (EVP and Chief Client Officer)

All right. Please discuss executive compensation as well as incentives, bonuses for profitable earnings per share, as well as clawback reduction for non-profitable quarters. How is executive team financially held accountable?

William Santana Li (Chairman and CEO)

So there's an independent board of directors. They make up the compensation committee. They look at other comparables for other firms, the size of us and with the risk of us and also retaining talent. You know, we've got recruiters climbing all over this place, trying to steal our talent, so as much as people are like, "Oh, you should just pay everybody a dollar," it's like, okay, good luck retaining the talent to be able to do that. The new board is very much focused on, you know, equity incentives and long-term decision-making, and all that comp is spelled out in our regulatory filings.

You know, management can provide input, but the decision is done independently, and those directors literally and legally represent the shareholders, so they need to do what's in the best interest of the shareholders.

Stacy Stephens (EVP and Chief Client Officer)

Is there a public relations plan to include your local congressional delegation and an update on how the company is making communities safe?

William Santana Li (Chairman and CEO)

There is not, because of the aforementioned work required at the federal lobbying level is an abyss of workload and money, and having had some experience to do it, doing that is not gonna get you the bang for the buck that you're looking for in the short term. I'm not saying we won't do it. We've had, obviously, some conversations with folks, but there's a time and place, and now is not the time or place.

Stacy Stephens (EVP and Chief Client Officer)

Are there still issues with the supply chain? Is Knightscope able to acquire all the materials needed to manufacture the units?

William Santana Li (Chairman and CEO)

Fortunately, all the COVID-related nightmare on supply chain issues that has significantly subsided, so we didn't, I don't think, even flag that as a risk factor anymore in our filings.

Stacy Stephens (EVP and Chief Client Officer)

Are you utilizing AtomBeam in your storage and transmission functions?

William Santana Li (Chairman and CEO)

No.

Stacy Stephens (EVP and Chief Client Officer)

Any pending government contracts in the works?

William Santana Li (Chairman and CEO)

We're always working on contracts, government, private, or the like, and we wouldn't be able to disclose anything in advance.

Stacy Stephens (EVP and Chief Client Officer)

Can you do a robot roadshow in the Denver, Colorado, area? Yes, we have, and we will come back again should we have a host willing to bring us in. So if you go to knightscope.com/roadshow, there is, first off, there's a calendar of all the upcoming events. And secondly, if you have a host location where we can bring in the roadshow pod, which takes up approximately 6 parking spaces, and you will allow us to be there for a day, then we will use your location for a stop.

William Santana Li (Chairman and CEO)

Anywhere in the continental US, you can be a host. You could be the cool person that brought the robots into town, and, Stacy manages that directly, so, he's always, hopeful to have a host and, some support. So that's another way you can actually help.

Stacy Stephens (EVP and Chief Client Officer)

Tom is promoting the fact that he would like us to come to Australia, and he's ready to help. Unfortunately, Tom, we're just not there. Very much appreciate the support and the enthusiasm, though.... Okay. Sorry, I'm - you caught up with me, so I'm trying to find another question that's not yet been answered.

William Santana Li (Chairman and CEO)

I'm still in shock. We've been on here for, like, how long? And there's still 100+ people on here? You guys are, you guys and gals are awesome. Like, seriously, to spend this amount of time with us, and to ask all these, you know, probing and thoughtful questions, you know, we don't take, your time lightly, so, so, you know, thank you.

Stacy Stephens (EVP and Chief Client Officer)

So Charles asked a question. I actually love this question because it's a-

William Santana Li (Chairman and CEO)

Uh-oh.

Stacy Stephens (EVP and Chief Client Officer)

Unfortunate assumption. "120 roadshow stops, that's expensive and not working.

William Santana Li (Chairman and CEO)

Yeah, Stacy!

Stacy Stephens (EVP and Chief Client Officer)

Let me, let me shed some light on the difference. A typical trade show will cost me well in excess of $150,000. Each one of our roadshows costs a minuscule fraction of that, and the majority of our sales can be attributed directly to roadshow stops. So sorry, that is an incorrect assumption. It is the absolute best thing that we have for as a marketing tool. We get rave reviews everywhere we go. So,

William Santana Li (Chairman and CEO)

And then just to be

Stacy Stephens (EVP and Chief Client Officer)

I'd reconsider it.

William Santana Li (Chairman and CEO)

To be helpful with, for Stacy's benefit, I think there's a lot of investors that have a different perception of what the roadshow should be. They, they're thinking they're gonna show up to a location, and it's like a huge party or a rave, and, like, there's all kinds of retail media and, and, and politicians there, and it's like a huge monster event. In some cases, that, you know, has occurred. But a majority of the cases is we're trying to close a prospective client that has an actual need, and we just need to make sure that their top decision makers are there. And it's not intended to be, you know, some party or, or, or festival, and it's more for specific people.

If there's an opportunity to meet with the media or a local official or whatever, sure, but that's not the primary reason this mobile trade show keeps going around the country.

Stacy Stephens (EVP and Chief Client Officer)

Is Knightscope considering collaboration with Tesla, since Tesla mentioned that they are planning to create products that seem to be similar to Knightscope products, or if not, considering collaboration, how do you plan to keep your market advantage?

William Santana Li (Chairman and CEO)

We can't comment on particular names, like that. You know, I personally am a huge fan of the Tesla team. I have a Tesla. I'm an X car guy. You know, good luck to the legacy automakers. Like, it's gonna be really hard, you know, decade or 2 coming up for you. How do we kind of from a competitive standpoint? I think we've talked about it a few times in the last couple of hours. Is, you know, we've been at this for a very long time. We've learned a lot. There's that 3 million hours of field experience of... You know, we can look at a new design and go: Yeah, that's not gonna work, or some new competitor, you know, might show up.

Yeah, that's not gonna work because X, Y, and Z." And, I think we just need to kind of focus on our clients and not so much the, you know, potential competitive, noise. Second, I think that, we would be profoundly arrogant and naive and genuinely stupid to think we're going to secure the U.S. by ourselves. So I, in a weird way, would welcome, other players who are working on public safety and law enforcement, because the country really needs it, and there's more than enough problems to go around.

Stacy Stephens (EVP and Chief Client Officer)

How is the FedRAMP approval process going? Are you able to accept other government contracts outside of the VA?

William Santana Li (Chairman and CEO)

So long as the other agency is willing to accept what the VA has done, then yes. We're having ongoing discussions. There's a ton of opportunities. I don't think we would have spent this amount of money and time and, frankly, headache, to work on all this stuff if there wasn't a genuine opportunity. But working with the feds is very, very difficult. And frankly, some of the very large law enforcement agencies and large corporations can be just as difficult. I kind of joke sometimes with the Apoorv... Well, unfortunately, he had to go. He's kind of tied up with some other things that he needs to do, but you know, maybe we should just, you know, just sell to easy clients and not have to go through all that.

You know, some of those volumes are a little bit lower, but, you know, stuff that we worked about.

Stacy Stephens (EVP and Chief Client Officer)

All right. Speaking of acquisitions, "Has the Case business gone up or down since acquisition?

William Santana Li (Chairman and CEO)

Let me do the math in my head real quick. I think the answer in any form would be up.

Stacy Stephens (EVP and Chief Client Officer)

For the marketing aspect: "Why haven't you offered the presidential candidates some of your tech robots for the rallies and conventions to keep candidates safe and better recognize potential threats? I think if you had our robots at the conventions or rallies, would cause millions of photos and videos.

William Santana Li (Chairman and CEO)

Um, we-

Stacy Stephens (EVP and Chief Client Officer)

The-

William Santana Li (Chairman and CEO)

The technology is more appropriately used for monotonous, 24/7, do the same thing over and over and over again. It is not necessarily great for one-time events, parades, rallies, sporting events, and the like. This is intended to be used in places where you're just gonna rinse and repeat and do the thing over and over and over again.

Stacy Stephens (EVP and Chief Client Officer)

So on the—in the same vein, how could Knightscope Security Solutions have helped prevent or mitigate incidents like the assassination, assassination attempt? Same, same answer, is in small, short events at this stage of the game, it could—it, it's not an appropriate technology for deployment there.

William Santana Li (Chairman and CEO)

The questions keep coming in. I'm amazed. Thanks, folks. Let's keep going.

Stacy Stephens (EVP and Chief Client Officer)

Usually-

William Santana Li (Chairman and CEO)

Are you gonna pass out on me, Stacy?

Stacy Stephens (EVP and Chief Client Officer)

No, I'm good.

William Santana Li (Chairman and CEO)

Very good.

Stacy Stephens (EVP and Chief Client Officer)

Usually I've seen companies go public after they are profitable. Do you regret going public early? Asking after looking at the challenge to attract more investors.

William Santana Li (Chairman and CEO)

My wife asks me this question a lot. Do I regret? There's a few mistakes that we made that, you know, in hindsight, would have not done. Second, and I've said this publicly before, so I guess I could repeat it: I didn't think at the time we could have continued to raise more capital while we were private, in the manner that we were raising the capital. And despite the chaos in the market, you know, one of the nice things about being public, and this is not 100% truthful, but, you know, in theory, one should never run out of capital. It's the cost of capital.

When you're private, it can be a binary situation, where, you know, you've got a company that found themselves in a very difficult set of circumstances, and there's only one or two routes for them to raise capital, and if they both say "no," game over. Like I mentioned, 22,000 startups in Silicon Valley, 95% fail, and part of it is they can't get any more funding. One of the nice things about being public, there's all kinds of permutations of all kinds of very clean, sane capital, very complicated capital, but there's all kinds of capital. It's a commodity. And can be helpful for some companies. That's, you know, not 100% true.

You know, there are situations where the company may not be able to raise more capital to keep investing in and growing the company. But I think the one regret, whoever asked the question, the one thing that absolutely drives me crazy is I can't have a sane, normal conversation with friends, family, investors, clients, the media, who ask me seemingly benign, normal, everyday questions. It's really frustrating, 'cause I can't have a normal conversation with anyone. So I think that's one of the reasons I'm sitting here, is I can try to be careful here and not get in trouble with the authorities. But that's probably the one massive regret.

Stacy Stephens (EVP and Chief Client Officer)

All right. You're gonna love this one. Why not act to put K5s and kids on TikTok? Kids playing with and being protected humorously could be a cheap way to get better known. Kids on early TV got their parents to buy things. I'm thinking something like an SNL-type episode, et cetera, et cetera.

William Santana Li (Chairman and CEO)

'Cause Stacy won't download TikTok to post them.

Stacy Stephens (EVP and Chief Client Officer)

I will not do that.

William Santana Li (Chairman and CEO)

I think that could be... There's a lot of fun things that can be done, but remember, the audience of who we're trying to sell to, in some cases, have a great sense of humor, and in some cases, not so much. So, Stacy's working on, with the team on, you know, improved messaging to focus on the end user decision-maker, who, likely is not necessarily on TikTok and, would enjoy that, that kind of video. But you never know.

Stacy Stephens (EVP and Chief Client Officer)

Regarding distribution centers, have you looked into the Defense Logistics Agency? They have 17 distribution centers across the U.S., including Barstow and San Joaquin.

William Santana Li (Chairman and CEO)

On the very long list, have not spoken to them directly.

Stacy Stephens (EVP and Chief Client Officer)

How many VA medical facilities is Knightscope deployed at? Are you aware of any new hospital-sized clinic under construction at the Fredericksburg, Virginia, area?

William Santana Li (Chairman and CEO)

So, no, the plan was, and I think maybe this is worthy of some clarification here. I think people were expecting that we would get the authority to operate, and then, you know, there'd be a massive flood of contracts. We've successfully deployed the first machine, the K5 Gov machine. On the outside, it looks exactly the same as the other V5 machines, but inside it's completely different. It's kind of at the federal requirement level, so the software, hardware, everything inside's significantly different. And there are some operational things that we need to kind of manage for that.

So that one has been successfully deployed in Texas, and now we're with ongoing discussions on... Help me out here, 143-147 other VA hospitals to see if there might be some opportunities there, and then as well as, you know, obviously other federal agencies. But we needed to get the first one working, which was a massive undertaking, despite it looking like every other robot out there, and that we have.

Stacy Stephens (EVP and Chief Client Officer)

Has your team looked into powering devices with hydrogen, in particular, the drone part of the business?

William Santana Li (Chairman and CEO)

No.

Stacy Stephens (EVP and Chief Client Officer)

What products of Knightscope could be, could not be deployed to be used in securing the border?

William Santana Li (Chairman and CEO)

Would not be what?

Stacy Stephens (EVP and Chief Client Officer)

Maybe we should just ask what could be used, and that's pretty easy, K5 and the Hemisphere and the emergency phones, gunshot detection, the laser. So yeah, pretty much everything.

William Santana Li (Chairman and CEO)

Yeah, and maybe a few other things we might have up our sleeve.

Stacy Stephens (EVP and Chief Client Officer)

Ever think about a package deal with the government, meaning we sell a K7 with a blue light, we could identify the situation and then provide that situation a way to get help if they need it.

William Santana Li (Chairman and CEO)

One thing I am in the search for, that I think it's okay to say, is a single military base in the continental U.S. that would want... That has a decision maker that would want to reimagine a military base physical security profile, and take a look at what technologies and learnings that we have from the private sector that can be put into the public sector, and then what gaps might be missing, that we could develop something new for them. So we're on that search for that one leader that could be the laboratory, for lack of a better way of saying it.

Stacy Stephens (EVP and Chief Client Officer)

We saw your product in motion at Pechanga for many years ago and gave it a hug. The robot-

William Santana Li (Chairman and CEO)

We saw you, too.

Stacy Stephens (EVP and Chief Client Officer)

Do the robots ever get vandalized?

William Santana Li (Chairman and CEO)

As I mentioned before, a lot less than I expected, but it does happen.

Stacy Stephens (EVP and Chief Client Officer)

Is the K7 deployed yet?

William Santana Li (Chairman and CEO)

No, the K7's at alpha prototype stage. We got it running. Cross fingers, if everything goes well, we're running a little bit behind. We're hopeful that next year we can start taking pre-orders for it, but, it's a, it's a complicated product, and, well, I'm personally and professionally, you know, super excited about it.

Stacy Stephens (EVP and Chief Client Officer)

Sorry, still scanning for questions in between the comments. If the company is delisted from the NYSE, NASDAQ, we'll say, are there clear guidelines on how to get listed again?

William Santana Li (Chairman and CEO)

It's almost zero risk of us getting delisted. We are on NASDAQ, not the NYSE, and you still own your shares if that were to ever happen. But we have an agreement and plan with NASDAQ as to how to stay listed. So that's not really any time, and we're not spending any time on that because that's not a thing.

Stacy Stephens (EVP and Chief Client Officer)

I'm not sure if this, this must be a sideways comment. There's another one that says, "Who do you consider your competitors with the, the others that have exited?

William Santana Li (Chairman and CEO)

Sorry, all the competitors have gone under? What's the question?

Stacy Stephens (EVP and Chief Client Officer)

They're asking if there are any other competitors, and then somebody else said, "AITX would like a word.

William Santana Li (Chairman and CEO)

Yeah, I think if we're talking about autonomy, I think that would probably be an interesting discussion.

Stacy Stephens (EVP and Chief Client Officer)

Same thing with Boston Dynamics, and then Singapore-based Kabam seems to be doing well. Just other comments coming in on the same subject.

William Santana Li (Chairman and CEO)

Okay.

Stacy Stephens (EVP and Chief Client Officer)

Actually, I can tell you, Boston Dynamics is not focused on security. They're focused on,

William Santana Li (Chairman and CEO)

Or autonomy.

Stacy Stephens (EVP and Chief Client Officer)

Yeah. They're focused on business checks or specific checks, systems checks.

William Santana Li (Chairman and CEO)

Inspections.

Stacy Stephens (EVP and Chief Client Officer)

Some of these, I'm sorry, I don't understand. If they're, there must have been, they must have been commenting or asking a question about something that was being said, so I'm not sure what they're asking. How can you expect people to buy more shares if we can't get info about how many K5s are operating and how many you need operating to achieve profitability? There's very little clarity on the operations of the business.

William Santana Li (Chairman and CEO)

I think we would take issue with that. We do massive regulatory filings every 90 days. They're all readily available for you at ir.knightscope.com. Second, you with two-thirds of the business being K1B, one-third being ASRs, your question presupposes that, you're gonna get... The math, it doesn't work. You're trying to take one product to see if we can get the entire company to be profitable, and you want me to give you a fictional number on the number of K5s needed when we have, I don't know, 8 different products. So that's like, I don't know, back in Ford Motor Company, like, you know, how many Lincoln Navigators do you need to sell to make the whole company profitable and exclude the millions of other vehicles? Like, the question doesn't make a lot of sense.

We do break down the K1B sales and the product sales, and everything's in there. I think the other notional problem with the question is... Well, how many ASRs versus K1B? Well, look at the price point of a K1 Hemisphere versus the price point of an ASR, and you're gonna combine those and commingle those into the amount of units needed. Like, it doesn't make sense. The question doesn't make any sense. Probably the better way to think about it would be, you know, what is the, you know, and we're working on this, you know, what is the top-line revenue needed to get to profitability? And the big inherent problem with that is, you know, product mix. There's at least, you know, I don't know, 17 different ways you can cut it.

So then, to give forward guidance with one exact particular number when there's 17 different ways to get there, is also problematic. So that's one of the reasons we don't. We're not hiding, and obviously, hopefully, having spent a few hours here with you, we're not hiding away from any questions, but sometimes the questions that are asked don't make logical sense. And we're not looking to hide anything. We're publicly traded. We have to disclose everything, and, again, everything's readily available for you at ir.knightscope.com.

Stacy Stephens (EVP and Chief Client Officer)

Have you considered implementing crypto solutions like a security DAO to tap into the social and financial capital of the large and impactful crypto community?

William Santana Li (Chairman and CEO)

I'm gonna get in trouble with this answer, but maybe I'm a little old school. If the SEC is investigating, we're not involved. So we, I think, on just encryption overall, our cryptography, I think what could be helpful in, for us in the future is, chain of custody on evidence. It would be a super interesting use case, but that's not, you know, kind of critical on the immediate roadmap.

Stacy Stephens (EVP and Chief Client Officer)

Can we reintroduce another referral sales program of some kind, or can you speak to the one that exists, if applicable? I know you have resellers, but maybe we should make everyone a potential seller.

William Santana Li (Chairman and CEO)

Do you want to answer that one?

Stacy Stephens (EVP and Chief Client Officer)

Sure. The Scout Program is still in place. The Scout Program is a referral program. It's intended to be not a sales position. It is, you know somebody in your Rolodex, on your list of contacts that you know has influence over the purchase of security-related technologies, and you can, over dinner or a beer, go and tell them, "Hey, you should look at Knightscope," and then you get paid for that. Resellers are completely different. These are industry experts, whether they are security companies, integrators, or other technology providers that already have an existing, client base or customer base in their case, and they can implement the technology as well into the current offering of technologies that they have.

Would love to have more, but as Bill led to earlier when we were talking about the sales side of things, these are incredibly complicated, complex sales to go through, when talking about specifically the security robots. On the Blue Light Towers, we have a bunch of resellers, and they are phenomenal. They do an outstanding job, and we are still very proud of those relationships. So, all of the-

William Santana Li (Chairman and CEO)

You know, you know, Stacy, you gotta stop saying Rolodex, because-

Stacy Stephens (EVP and Chief Client Officer)

I know.

William Santana Li (Chairman and CEO)

I know there's a 20-something in this crowd in here, and they're on Google going, "What is a Rolodex?

Stacy Stephens (EVP and Chief Client Officer)

But yeah, it's both programs are already in place. The Scout Program is there, the reseller program is there. It just depends on, you know, who you are and what you have access to. But, referrals are always, always, always appreciated.

William Santana Li (Chairman and CEO)

Okay.

Stacy Stephens (EVP and Chief Client Officer)

Please explain the rationale for the huge stock option award the CEO was granted in June 2024. Given the massive dilution experienced by long-term shareholders, this is absolutely inconsistent with the oft-repeated claim that the CEO is in the same boat as investors. Investors did not get the dilution mitigation benefit of a massive new option grant.

William Santana Li (Chairman and CEO)

That is the decision of the compensation committee to incentivize management to turn this around and keep growing the company. And that goes for the other stock option grants as well. Some of these folks have been around for a very long time and don't have either all fully vested or have no big upside, and it's, you know, decision of the comp committee, not my decision.

Stacy Stephens (EVP and Chief Client Officer)

Q2 gross loss is $558,000 or 117% of revenue. Please explain how this is sustainable.

William Santana Li (Chairman and CEO)

I already answered that question earlier. It requires some additional scale in order to cover the critical mass required to run the company.

Stacy Stephens (EVP and Chief Client Officer)

Regarding the toxic financing deal, who put the deal in place? You keep referring to it. Who approved it?

William Santana Li (Chairman and CEO)

I relied on prior management, prior outside legal counsel, and prior board, but I was, you know, involved as well. And that was one thing we, I, I wish we had not done in order to finance the, the acquisition.

Stacy Stephens (EVP and Chief Client Officer)

... Much discussion has been had over the closing of the multiple different locations. Your current manufacturing is still in California. Have you considered leaving California to get away from a non-business-friendly state?

William Santana Li (Chairman and CEO)

Two answers to that. I've lived in a lot of places in my life. The one thing I learned, especially with startups, like, if you wanna be an actor, be in Hollywood, you wanna be a politician, be in DC, you wanna build cars, be in Detroit, you wanna work on Wall Street, be in New York, you wanna trade commodities, be in Chicago. Like, if you wanna build cutting-edge, brand-new technology, you need to be in the heart of Silicon Valley. Like, this is like the equivalent of being in the Renaissance in Italy at that time and decided to go, you know, somewhere else. So we're in the right location.

I think the other thing to think about is, if we were building, you know, 10 million machines a year, and we're kind of rinse and repeat on more of a commodity product, sure, you know, maybe there's multiple facilities across the U.S. at that point, but we're not at that stage right now. As if it hasn't come across over the last couple hours, this technology is extremely difficult. You just don't stick a plant somewhere and have them continue to rinse and repeat.

Stacy Stephens (EVP and Chief Client Officer)

Well, Bill, regrettably, I do have a commitment that I cannot get out of right now.

William Santana Li (Chairman and CEO)

Ah! You're gonna bail? There's like 107 people on here.

Stacy Stephens (EVP and Chief Client Officer)

I'm aware.

William Santana Li (Chairman and CEO)

All right, so let's do this for the... If I didn't answer your question, please go to knightscope.com/rise. The little button at the bottom is that instant messaging thing. If you leave your email in there, I'll, I'll be sure to reply. If it's a really long question, you can send it to me directly at [email protected]. That only comes to me. Nobody else is gonna see that. And I try, you know, to answer as best I can. I do get thousands of messages, so just be a little bit patient. If my answer is a little shorter than you might like or take a little longer than you might like. But I appreciate everyone taking so much time out of your day.

I really hope to, you know, continue to have your trust and support and continue to build the company. We will get through this, and it's a difficult time, but we've been through much, much, much, much worse, and we always make it through, and the future's bright. There's a lot of fun, good stuff that's gonna happen, and we just need to keep at it and appreciate everyone tuning in. The videos and everything else will be on the, if not already, on the YouTube channel, if you need them. And thanks, everybody. Cheers.