Knightscope, Inc. Fair Value Disclosure
NOTE 2: Fair Value Measurement
The Company determines the fair market values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following are three levels of inputs that may be used to measure fair value:
| ● | Level 1 – Quoted prices in active markets for identical assets or liabilities. The Company considers a market to be active when transactions for the asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
| ● | Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| ● | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The valuation of Level 3 investments requires the use of significant management judgments or estimation. |
In certain cases where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3. Level 3 liabilities that are measured at fair value on a recurring basis consist of the convertible preferred stock warrant liability. The inputs used in estimating the fair value of the warrant liability are described in Note 5 - Capital Stock and Warrants.
The following tables summarize, for each category of assets or liabilities carried at fair value, the respective fair value as of December 31, 2024 and 2023 and the classification by level of input within the fair value hierarchy:
| Total |
| Level 1 |
| Level 2 |
| Level 3 | |||||
December 31, 2024 |
|
|
|
|
|
|
|
| ||||
Assets |
|
|
|
|
|
|
|
| ||||
Cash equivalents and restricted cash |
|
|
|
|
|
|
|
| ||||
Money market funds | $ | 10,638 | $ | 10,638 | $ | — | $ | — | ||||
| Total |
| Level 1 |
| Level 2 |
| Level 3 | |||||
December 31, 2023 |
|
|
|
|
|
|
|
| ||||
Assets |
|
|
|
|
|
|
|
| ||||
Cash equivalents and restricted cash |
|
|
|
|
|
|
|
| ||||
Money market funds | $ | 1,104 | $ | 1,104 | $ | — | $ | — | ||||
Liabilities |
|
|
|
|
|
|
|
| ||||
Warrant liability – Series m-3 Preferred Stock | $ | 284 | $ | — | $ | — | $ | 284 | ||||
Warrant liability – Series s Preferred Stock | $ | 5,692 | $ | — | $ | — | $ | 5,692 | ||||
Derivative liability – Class A common stock warrants | $ | 271 | $ | — | $ | — | $ | 271 | ||||
During the years ended December 31, 2024 and 2023, there were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis and the valuation techniques used did not change compared to the Company’s established practice.
As of December 31, 2024, there were no liabilities measured and recognized at fair value on a recurring basis.
The following table sets forth a summary of the changes in the fair value of Company’s Level 3 warrant and derivative liability during the years ended December 31, 2024 and 2023, which were measured at fair value on a recurring basis:
Warrant and Derivative Liabilities | |||
Balance as of January 1, 2023 | $ | 11,157 | |
Warrant cancellations |
| (308) | |
Revaluation of Common Stock warrants | (875) | ||
Revaluation of Series s and Series m-3 Preferred Stock warrants |
| (3,727) | |
Balance as of December 31, 2023 | 6,247 | ||
Warrant cancellations | (3,000) | ||
Revaluation of Common Stock warrants | 2,729 | ||
Reclassification of Series s and Series m-3 Preferred Stock warrants | (4,762) | ||
Revaluation of Series s and Series m-3 Preferred Stock warrants | (1,214) | ||
Balance as of December 31, 2024 | $ | — | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.