NOTE 2: Business Combination

Acquisition of Event Risk LLC (d.b.a. Knightscope Security Force)

On the Closing Date, the Company closed the KSF Acquisition. Since the Closing Date, and as of the quarter ended June 30, 2026, the KSF operations have become increasingly integrated with the Company’s core technology offerings.

The KSF Acquisition has been accounted for as a business combination in accordance with ASC 805, Business Combinations, using the acquisition method of accounting. Accordingly, the assets acquired and liabilities assumed were recorded at their estimated fair values as of the Closing Date.

As a result of the KSF Acquisition, the Company recorded goodwill of $7.7 million and an intangible asset related to customer relationships of $15.5 million. The customer relationships intangible asset is being amortized over its estimated useful life of 6.7 years. Goodwill represents the value of the assembled workforce and expected synergies from integrating the acquired business with the Company’s existing operations. Goodwill is not deductible for tax purposes.

The assets and liabilities of the KSF Acquisition, both tangible and intangible, were recorded at their estimated fair values as of the Closing Date. Acquisition-related costs, including legal, accounting, valuation, and other professional fees, were expensed as incurred and totaled $1.0 million in the six months ended June 30, 2026. These costs are included in sales, general and administrative expenses in the unaudited Condensed Consolidated Statements of Operations.

The following table summarizes the preliminary purchase price allocation as of the Closing Date (in thousands):

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The KSF Acquisition includes the potential for future payment of consideration to the Seller upon achieving revenue or gross margin milestones. The deferred cash payments, earn-out payments, and revenue share payments, together with the final working capital adjustment and non-compete agreement above, are collectively reported as contingent consideration and acquisition-related liabilities on the Company’s Condensed Consolidated Balance Sheets. These liabilities represent the estimated fair value of future amounts payable to the Seller and is determined using unobservable inputs (Level 3). The fair values of the contingent consideration and acquisition-related liabilities are estimated using Monte Carlo simulations, discounted cash flows, management’s estimates and entity-specific assumptions, and are evaluated on an ongoing basis with changes in the fair value recorded in the Condensed Consolidated Statement of Operations. Key assumptions include the discount rate and expected volatility rate, which were 10.0%  and 12%, respectively, as of the Closing Date, and probability-weighted projections of revenue, net and gross margin. The ultimate payment amounts will be determined based on the actual results achieved by KSF.

The purchase consideration was preliminarily allocated as follows (in thousands):

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The following is a summary of identifiable intangible asset acquired and the related expected life for the finite-lived intangible asset (in thousands, except years):

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Valuation Assumptions for Purchase Price Allocation

Our valuation assumptions used to value the acquired assets and assumed liabilities require significant estimates, especially with respect to intangible assets. In determining the fair value of intangible assets acquired, the Company must make assumptions about the future performance of the acquired businesses, including among other things, the forecasted revenue growth attributable to the asset groups and projected operating expenses and other benefits expected to be achieved by combining the business acquired with the Company. The intangible assets acquired are primarily comprised of customer relationships. The Company utilized widely accepted income-based, market-based, and cost-based valuation approaches to perform the preliminary purchase price allocation. The estimated fair value of the customer relationships was determined using the multi-period excess earnings method. This method requires forward-looking estimates that are discounted to determine the fair value of the intangible asset using a risk-adjusted discount rate that is reflective of the level of risk associated with future estimates associated with the asset group that could be affected by future economic and market conditions.

From the Closing Date, KSF contributed revenues of $9.2 million, gross margin of $2.0 million and net income of $0.2 million, which are included in the Condensed Consolidated Statement of Operations for the six months ended June 30, 2026.

Separate Transactions

Contemporaneously with the execution of the Securities Purchase Agreement, the Company entered into a Confidentiality, Non-competition, Non-solicitation, and Assignment of Rights Agreement and an Employment Agreement with Eric Rose. These transactions were accounted for separately from the business combination. The Company recognized a Non-compete asset of $0.6 million related to the Confidentiality, Non-competition, Non-solicitation, and Assignment of Rights Agreement and allocated consideration transferred from the KSF Acquisition to the non-compete asset based on the Closing Date fair value of the non-compete asset. The estimated fair value of the non-compete asset was determined using the with and without method. This method requires forward-looking estimates that are discounted to determine the fair value of the intangible asset using a risk-adjusted discount rate that is reflective of the level of risk associated with future estimates associated with the asset group that could be affected by future economic and market conditions. The non-compete asset is recorded within intangible assets, net on the Company’s Condensed Consolidated Balance Sheets and will be amortized over 5 years based on its economic life. The Employment Agreement relates to the provision of services subsequent to the Closing Date and compensation expense related to this agreement is considered compensation in the post combination period.

Supplemental Unaudited Pro Forma Information

Following are the supplemental consolidated financial results of Knightscope and KSF on an unaudited pro forma basis, as if the acquisition had been consummated, and the Company’s accounting policies had been applied, as of the beginning of the fiscal year 2025 (i.e. January 1, 2025). The pro forma financial information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had been effective as of that date, or of future results of combined company.

The pro forma results include certain transaction accounting adjustments related to purchase accounting, primarily of acquisition-related intangible asset of $0.6 million and $1.2 million for the three months and six months ended June 30, 2025, respectively, and other adjustments related to interest expense on acquisition debt and state income tax expenses for both periods. The unaudited pro forma information which combines the historical results of Knightscope and KSF for the three and six months ended June 30, 2026 and 2025 is as follows (in thousands):

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