Knightscope, Inc. Income Taxes Disclosure

NOTE 8:  Income Taxes

Domestic and foreign components of net loss before income taxes is as follows (in thousands):

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Income tax expense consisted of the following (in thousands):

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Reconciliation between the effective tax rate on income from operations and the statutory tax rate of 21% is as follows:

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Cash paid for income taxes, net of refunds received by jurisdictions is as follows (in thousands):

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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table presents the significant components of the Company’s deferred tax assets and liabilities for the periods presented (in thousands):

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The Company considers all available evidence, both positive and negative, including historical levels of taxable income, expectations and risks associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. As of December 31, 2025 and 2024, based on the Company’s analysis of all available evidence, both positive and negative, it was considered more likely than not that the Company’s deferred tax assets would not be realized and, as a result, the Company recorded a full valuation allowance for its deferred tax assets. The valuation allowance increased $9.4 million and $7.6 million during the years ended December 31, 2025 and 2024, respectively.

As of December 31, 2025, the Company had U.S. federal net operating loss carryforwards of approximately $189.7 million, of which $23.3 million begin to expire in 2033 and $166.4 million can be carried over indefinitely. As of December 31, 2025, the Company had federal research and development tax credits of approximately $2.6 million, which begin to expire in 2033.

As of December 31, 2025, the Company had state net operating loss carryforwards of approximately $154.3 million, which begin to expire in 2027. As of December 31, 2025, the Company had state research and development tax credits of approximately $2.3 million, which do not expire.

Utilization of the federal and state net operating loss and federal and state research and development tax credit carryforwards may be subject to annual limitations due to the ownership percentage change provisions of the Internal Revenue Code Section 382 and similar state provisions. The annual limitations may result in the inability to fully offset future annual taxable income and could result in the expiration of the net operating loss carry forwards before utilization.

On July 4, 2025, the current administration signed the One Big Beautiful Bill Act (“OBBBA”), which includes comprehensive U.S. corporate tax legislation. The legislation includes the modification and permanent extension of prior tax law under the Tax Cuts and Jobs Act and the introduction of new provisions such as permanently reinstating the immediate deduction of domestic specified research and experimental expenditures (“R&E”), permanent changes in the limitations for deducting business interest expense, and permanently restoring bonus depreciation allowances. Following the enactment of the OBBBA, we are no longer capitalizing domestic research and experimental expenditures as of December 31, 2025. The Company continues to generate a deferred tax asset for foreign capitalized R&E expenditures for the year ended December

31, 2025.   Due to our valuation allowance on deferred tax assets, this tax law change did not result in a material impact to our financial statements.

The Company accounts for uncertainty in income taxes in accordance with ASC 740. Tax positions are evaluated in a two-step process, whereby the Company first determines whether it is more likely than not that a tax position will be sustained upon examination by tax authorities, including resolutions of any related appeals or litigation processes, based on technical merit. If a tax position meets the more likely than not recognition threshold it is then measured to determine the amount of benefit to recognized in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

The changes in the unrecognized tax benefits are as follows (in thousands):

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The Company’s unrecognized tax benefits as of December 31, 2025 relate entirely to research and development credits. The total amount of unrecognized tax benefits as of December 31, 2025 is $0.8 million. If recognized, none of the unrecognized tax benefits would impact the effective tax rate because of the valuation allowance. The Company’s policy is to recognize interest and penalties to income taxes as components of interest expense and other expense, respectively. The Company did not accrue interest or penalties related to unrecognized tax benefits as of December 31, 2025.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Due to the Company’s net operating loss carryforwards, all tax years since inception remain subject to examination by all taxing authorities. The Company is not currently under audit in any major tax jurisdiction.