Knightscope, Inc. Income Taxes Disclosure
NOTE 8: Income Taxes
The Company has incurred cumulative U.S. net operating losses since inception.
Income tax expense consisted of the following:
| Year Ended | |||||
December 31, | ||||||
2024 |
| 2023 | ||||
Current: |
|
|
|
| ||
Federal | $ | — | $ | — | ||
State |
| — |
| — | ||
Total current expense |
| — |
| — | ||
Deferred: |
|
|
|
| ||
Federal |
| — |
| — | ||
State |
| — |
| — | ||
Total deferred expense |
| — |
| — | ||
Total income tax expense | $ | — | $ | — | ||
Reconciliation between the effective tax rate on income from continuing operations and the statutory tax rate of 21% is as follows:
| 2024 |
| 2023 |
| |
Provision at statutory rate |
| 21.0 | % | 21.0 | % |
Stock-based compensation | (1.9) | (2.0) | |||
Convertible notes |
| — |
| (0.4) | |
Fair value adjustment |
| (1.0) |
| 4.7 | |
Change in valuation allowance |
| (19.0) |
| (24.6) | |
Research and development credits | 1.0 | 1.6 | |||
Other |
| (0.1) |
| (0.3) | |
Effective tax rate |
| 0.0 | % | 0.0 | % |
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:
December 31, | ||||||
2024 |
| 2023 | ||||
Deferred tax assets: |
|
|
|
| ||
Net operating loss carryforwards | $ | 40,925 | $ | 34,157 | ||
Research and development credit carryforwards |
| 3,054 |
| 2,599 | ||
Stock-based compensation | 290 | 604 | ||||
Accruals and other |
| 249 |
| 113 | ||
Lease liability | 108 | 388 | ||||
Property, equipment and software |
| 123 |
| 93 | ||
Amortization |
| 162 |
| 198 | ||
Capitalized research and experimental expenses | 2,758 | 2,218 | ||||
Other |
| 10 |
| 11 | ||
Total deferred tax assets |
| 47,679 |
| 40,381 | ||
Valuation allowance |
| (47,573) |
| (39,989) | ||
Deferred tax assets recognized |
| 106 |
| 392 | ||
Deferred tax liabilities: | ||||||
Right of use asset | (106) | (392) | ||||
Total deferred tax liabilities |
| (106) |
| (392) | ||
Net deferred taxes | $ | — | $ | — | ||
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, 2024 and 2023, 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 $7.6 million and $7.3 million during the years ended December 31, 2024 and 2023, respectively.
As of December 31, 2024, the Company had U.S. federal net operating loss carryforwards of approximately $153.3 million of which $23.3 million begin to expire in 2033 and $130.0 million can be carried over indefinitely. As of December 31, 2024, the Company had federal research and development tax credits of approximately $2.1 million which begin to expire in 2033.
As of December 31, 2024, the Company had state net operating loss carryforwards of approximately $124.4 million which begin to expire in 2027. As of December 31, 2024, the Company had state research and development tax credits of approximately $2.0 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.
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.
| 2024 |
| 2023 | |||
Unrecognized tax benefits as of the beginning of the year | $ | 544 | $ | 430 | ||
Increases related to prior year tax provisions |
| — |
| 12 | ||
Decrease related to prior year tax provisions |
| (6) |
| — | ||
Increase related to current year tax provisions |
| 93 |
| 102 | ||
Statute lapse |
| — |
| — | ||
Unrecognized tax benefits as of the end of the year | $ | 631 | $ | 544 | ||
The Company’s unrecognized tax benefits as of December 31, 2024 relate entirely to research and development credits. The total amount of unrecognized tax benefits as of December 31, 2024 is $0.6 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, 2024. The Company does not anticipate any significant change within twelve months of this reporting date.
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.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.