Can you post a screenshot of the “Main Controls” and “Global Render Values” rollouts from the Krakatoa GUI please? That should help narrow down the problem.
The settings in here look fine … perhaps the resolution of the shadow map for your spotlight needs to be incresed? If its poorly framing the particles at the default 512 px you might see something like that. Otherwise, I’d like to be able to play with the scene to investigate further. Could you submit the max scene and a sample PRT file? If you don’t want to do this on the forum, you can create a support ticket at http://support.na.primefocusworld.com/tickets/