What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-15 compared with 2021-08-16 · 42 added, 43 removed, 79 unchanged (52% of the section changed)

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The following discussion and analysis of the results of operations and financial condition of KULR Technology Group, Inc.

(the “Company”) as of June 30, 2021 and for the three and six months ended June 30, 2021 and 2020 should be read in conjunction with our condensed consolidated financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q.

(the “Company”) as of September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020 should be read in conjunction with our condensed consolidated financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q.

This discussion and analysis should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 2020 and for the year then ended, which are included in the Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 19, 2021.

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Exercise of Warrants

During the three months ended June 30, 2021, we issued 3,000,000 shares of common stock upon the exercise of warrants for proceeds of $3,712,500.

During July 2021, we issued an aggregate of 1,133,333 shares of common stock in connection with exercises of outstanding warrants for proceeds of $1,416,666.

During the nine months ended September 30, 2021, we issued 4,185,033 shares of common stock upon the exercise of warrants for proceeds of $5,206,716.

NYSE American Exchange Listing

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Results of Operations

Three and Six Months Ended June 30, 2021 Compared With the Three and Six Months Ended June 30, 2020

Our revenues consisted of the following during the three months ended June 30, 2021 and 2020:

Three and Nine Months Ended September 30, 2021 Compared With the Three and Nine Months Ended September 30, 2020

Our revenues consisted of the following during the three months ended September 30, 2021 and 2020:

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

Product sales

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Total revenue

For the three months ended June 30, 2021 and 2020, we generated $628,244 and $201,128 of revenues, respectively, representing an increase of $427,116, or 212%.

For the six months ended June 30, 2021 and 2020, we generated $1,046,149 and $278,628 of revenues, respectively, representing an increase of $767,521, or 275%, resulting from four new contracts received during the first quarter of 2021.

Revenue from product sales during the three and six months ended June 30, 2021 increased by 760% and 662%, respectively, compared to the three and six months ended June 30, 2020, mainly due to four large contracts received during the first quarter of 2021.

For the three months ended September 30, 2021 and 2020, we generated $600,921 and $136,849 of revenues, respectively, representing an increase of $464,072, or 339%.

For the nine months ended September 30, 2021 and 2020, we generated $1,647,070 and $415,477 of revenues, respectively, representing an increase of $1,231,593, or 296%, primarily resulting from three new contracts received during the first three quarters of 2021.

Revenue from product sales during the three and nine months ended September 30, 2021 increased by 339% and 475%, respectively, compared to the three and nine months ended September 30, 2020, primarily resulting from two large contracts received during the first three quarters of 2021.

Product sales during these periods included sales of our component product, carbon fiber velvet (“CFV”) thermal management solution, ISC battery cells and devices, patented TRS technology, and thermal fiber thermal interface (“FTI”) materials.

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Also, we are introducing new products at an early stage in our development cycle and the margins earned can vary significantly between period, customers and products, due to the learning process, customer negotiating strengths, and product mix.

For the three months ended June 30, 2021 and 2020, cost of revenues was $439,206 and $44,734, respectively, an increase of $394,472 or 882%.

The increase was partially due to higher revenues earned during the three months ended June 30, 2021.

The gross margin percentage was 30% and 78% for the three months ended June 30, 2021 and 2020, respectively.

The decrease in margins during the second quarter of 2021 is primarily the result changes in product mix sold during the second quarter.

For the six months ended June 30, 2021 and 2020, cost of revenues was $714,474 and $74,777, respectively, an increase of $639,697 or 855%.

The increase was partially due to higher revenues earned during the six months ended June 30, 2021.

The gross margin percentage was 32% and 73% for the six months ended June 30, 2021 and 2020, respectively.

The decrease in margins during the first half of 2021 is primarily the result changes in product mix sold during the first half of 2021.

For the three months ended September 30, 2021 and 2020, cost of revenues was $155,138 and $63,403, respectively, an increase of $91,735 or 145%.

The increase was primarily due to higher revenues earned during the three months ended September 30, 2021.

The gross margin percentage was 74% and 54% for the three months ended September 30, 2021 and 2020, respectively.

The increase in margins during the third quarter of 2021 is primarily the result of changes in product mix sold during the third quarter.

For the nine months ended September 30, 2021 and 2020, cost of revenues was $869,612 and $138,180, respectively, an increase of $731,432 or 529%.

The increase was primarily due to higher revenues earned during the nine months ended September 30, 2021.

The gross margin percentage was 47% and 67% for the nine months ended September 30, 2021 and 2020, respectively.

The decrease in margins realized during the nine months ended September 30, 2021 is primarily attributable to an individual contract that resulted in a gross margin of 13% during the second quarter of 2021.

Research and Development

Research and development expenses (“R&D”) include expenses incurred in connection with the R&D of our CFV thermal management solution.

Research and development expenses (“R&D”) include expenses incurred in connection with the R&D of our CFV thermal management solution and solid-state rechargeable batteries.

R&D expenses are expensed as they are incurred.

For the three months ended June 30, 2021 and 2020, R&D expenses were $352,741 and $57,991, respectively, representing an increase of $294,750 or 508%.

For the six months ended June 30, 2021 and 2020, R&D expenses were $475,724 and $169,704, respectively, representing an increase of $306,020 or 180%.

For the three months ended September 30, 2021 and 2020, R&D expenses were $481,855 and $51,820, respectively, representing an increase of $430,035 or 830%.

For the nine months ended September 30, 2021 and 2020, R&D expenses were $957,579 and $221,524, respectively, representing an increase of $736,055 or 332%.

The increase is primarily due to thermal energy management report fees and energy storage development services provided during the period.

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Selling, General and Administrative

Selling, general and administrative expenses consist primarily of travel, salaries, payroll taxes and other benefits, and rent expense.

For the three months ended June 30, 2021 and 2020, selling, general and administrative expenses were $2,723,303 and $421,544, respectively, an increase of $2,301,759 or 546%.

The increase is primarily attributable to an increase of approximately $998,000 of stock-based compensation, an increase of approximately $651,000 of marketing and advertising expense, an increase of approximately $214,000 for professional fees resulting from engagements for financial services, quality and automation services, as well as an increase of approximately $241,000 in labor costs as the result of five new hires, an increase of approximately $148,000 of miscellaneous expenses, and an increase of approximately $50,000 of travel and entertainment expenses due to the lifting of COVID-19 dining and traveling restrictions.

For the six months ended June 30, 2021 and 2020, selling, general and administrative expenses were $4,216,114 and $886,954, respectively, an increase of $3,329,160 or 375%.

The increase is primarily attributable to an increase of approximately $1,374,000 of stock-based compensation, an increase of approximately $1,137,000 of marketing and advertising expense, an increase of approximately $327,000 in labor costs as the result of five new hires, an increase of approximately $220,000 for professional fees resulting from engagements for financial services, quality and automation services, and an increase of approximately $200,000 of miscellaneous expenses, and an increase of approximately $71,000 of travel and entertainment expenses due to the lifting of COVID-19 dining and traveling restrictions.

Selling, general and administrative expenses consist primarily of salaries, stock-based compensation, legal and professional expense, marketing and advertising expense, payroll taxes and other benefits, and rent expense.

For the three months ended September 30, 2021 and 2020, selling, general and administrative expenses were $3,104,410 and $832,146, respectively, an increase of $2,272,264 or 273%.

The increase is primarily attributable to an increase of approximately $1,116,000 of stock-based compensation, an increase of approximately $252,000 of marketing and advertising expense, an increase of approximately $210,000 for professional fees resulting from engagements for financial services, quality and automation services, as well as an increase of approximately $342,000 in labor costs as the result of sixteen new hires, an increase of approximately $193,000 of miscellaneous expenses, and an increase of approximately $92,000 of travel and entertainment expenses due to the lifting of COVID-19 dining and traveling restrictions.

For the nine months ended September 30, 2021 and 2020, selling, general and administrative expenses were $7,320,524 and $1,719,100, respectively, an increase of $5,601,424 or 326%.

The increase is primarily attributable to an increase of approximately $2,511,000 of stock-based compensation, an increase of approximately $1,389,000 of marketing and advertising expense, an increase of approximately $648,000 in labor costs as the result of eight new hires, an increase of approximately $433,000 for professional fees resulting from engagements for financial services, quality and automation services, and an increase of approximately $451,000 of miscellaneous expenses, and an increase of approximately $163,000 of travel and entertainment expenses due to the lifting of COVID-19 dining and traveling restrictions.

Other Expenses

For the three months ended June 30, 2021 and 2020, other expenses were $140,137 and $105,844, respectively, representing an increase of $34,293 or 32%.

The increase in other expenses is primarily due to the redemption costs associated with the repayment of notes payable of $140,000, partially offset by the decreases in amortization of debt discount of $58,000 and the change in fair value of accrued issuable equity of $47,000.

For the six months ended June 30, 2021 and 2020, other expenses were $381,703 and $126,431, respectively, representing an increase of $255,272 or 202%.

The increase in other expense is primarily due to the debt redemptions costs of $140,000 associated with the repayment of notes payable, an increase of amortization of debt discount of $31,000, and an increase of $86,000 related to the change in fair value of accrued issuable equity during the six months ended June 30, 2021.

For the three months ended September 30, 2021 and 2020, other income (expenses) were $44,550 and $(201,739), respectively, representing an increase of $246,289.

The increase in other income is primarily due to no 2021 charges for amortization of debt discount and the increased income from the change in fair value of accrued issuable equity of $45,600.

For the nine months ended September 30, 2021 and 2020, other expenses were $337,153 and $328,170, respectively, representing an increase of $8,983 or 3%.

The increase in other expense is primarily due to the 2021 debt redemptions costs of $140,000 associated with the repayment of notes payable, and an increase of $50,000 of expenses related to the change in fair value of accrued issuable equity, partially offset by a decrease of amortization of debt discount of $179,000 during the nine months ended September 30, 2021.

Liquidity and Capital Resources

As of June 30, 2021, we had a cash balance of $12,159,583 and working capital of $12,194,403.

We incurred a net loss of $4,741,866 during the six months ended June 30, 2021 and had an accumulated deficit totaling $15,988,274 as of June 30, 2021.

As of September 30, 2021, we had a cash balance of $10,990,056 and working capital of $10,659,878.

We incurred a net loss of $7,837,798 during the nine months ended September 30, 2021 and had an accumulated deficit totaling $19,084,206 as of September 30, 2021.

While the Company anticipates it will continue to incur operating losses and use cash in operating activities for the near future, the Company believes that its current working capital is sufficient in comparison to its anticipated cash usage for a period of at least twelve months subsequent to the filing date of these financial statements.

For the six months ended June 30, 2021 and 2020, cash used in operating activities was $4,081,565 and $1,267,427, respectively.

Our cash used in operations for the six months ended June 30, 2021 was primarily attributable to our net loss of $4,741,866, adjusted for non-cash expenses in the aggregate amount of $1,723,843, and $1,063,542 of net cash used to fund changes in the levels of operating assets and liabilities.

Our cash used in operations for the six months ended June 30, 2020 was primarily attributable to our net loss of $979,238, adjusted for non-cash expenses in the aggregate amount of $223,994, and $512,183 of net cash used to fund changes in the levels of operating assets and liabilities.

For the six months ended June 30, 2021 and 2020, cash used in investing activities was $36,492 and $30,000, respectively, related to purchases of property and equipment and to improvements to the new executive offices.

For the six months ended June 30, 2021 and 2020, cash provided by financing activities was $7,397,500 and $1,956,476, respectively.

Cash provided by financing activities during the six months ended June 30, 2021 represents $6,500,000 of proceeds from the sale of preferred stock and $3,712,500 received in connection with the exercise of warrants, partially offset by the $2,450,000 principal repayments on notes payable and $365,000 of financing costs paid during the period.

Cash provided by financing activities during the six months ended June 30, 2020 consisted of $1,410,000 of net proceeds from the issuance of a note payable, $155,226 of proceeds from the Paycheck Protection Program loan, $757,695 of net proceeds from the sale of common stock and $3,555 proceeds from the Company’s line of credit.

These amounts were partially offset by $130,000 for the payment of debt issuance costs, $225,000 for the repayments on notes payable and $15,000 of cash paid in offering costs.

For the nine months ended September 30, 2021 and 2020, cash used in operating activities was $5,394,935 and $2,076,035, respectively.

Our cash used in operations for the nine months ended September 30, 2021 was primarily

attributable to our net loss of $7,837,798, adjusted for non-cash expenses in the aggregate amount of $2,989,598, and $546,735 of net cash used to fund changes in the levels of operating assets and liabilities.

Our cash used in operations for the nine months ended September 30, 2020 was primarily attributable to our net loss of $1,991,497, adjusted for non-cash expenses in the aggregate amount of $587,503, and $672,041 of net cash used to fund changes in the levels of operating assets and liabilities.

For the nine months ended September 30, 2021 and 2020, cash used in investing activities was $1,386,864 and $46,087, respectively, related to equipment purchases and improvements to the new executive offices.

For the nine months ended September 30, 2021 and 2020, cash provided by financing activities was $8,891,716 and $4,822,921, respectively.

Cash provided by financing activities during the nine months ended September 30, 2021 represents $6,500,000 of proceeds from the sale of preferred stock and $5,206,716 received in connection with the exercise of warrants, partially offset by the $2,450,000 principal repayments on notes payable and $365,000 of financing costs paid during the period.

Cash provided by financing activities during the nine months ended September 30, 2020 consisted of $3,710,000 of net proceeds from the issuance of notes payable, $155,226 of proceeds from the Paycheck Protection Program loan, and $1,461,695 of net proceeds from the sale of common stock.

These amounts were partially offset by $330,000 for the payment of debt issuance costs, $159,000 for the repayments on notes payable and $15,000 of cash paid for financing costs.

Subsequent to September 30, 2021, the Company received an aggregate of $6,500,000 in connection with the exercise of warrants.

In March 2020, the World Health Organization declared COVID-19, a novel strain coronavirus, a pandemic.

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however, given the uncertainty around the extent and timing of the potential future spread or mitigation of the Coronavirus and around the imposition or relaxation of protective measures, we cannot reasonably estimate the impact to our future results of operations, cash flows, or financial condition.

During the six months ended June 30, 2021, the Company raised aggregate gross proceeds of $6,500,000 and $3,712,500 in connection with the sale of preferred stock, common stock and warrants in a public offering and the sale of common stock pursuant to warrant exercises, respectively.

Of the aggregate proceeds received, $1,400,000 was used to repay principal due on the YAII Notes.

The Company’s Payroll Protection Program (“PPP”) loan remains outstanding as of June 30, 2021, and the the Company intends to apply for full forgiveness of the PPP Loan.

While the Company has additional availability of approximately $5,707,000 under its Standby Equity Distribution Agreement (“SEDA”) with YAII, which expires on February 7, 2022, it is currently precluded from issuing any shares under the SEDA, so long as the warrants issued on December 31, 2020 in an unrelated transaction remain outstanding, because the warrants preclude the Company from issuing shares in a variable rate transaction.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis