What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-16 compared with 2023-05-15 · 62 added, 42 removed, 97 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.

(“KULR”) and its wholly-owned subsidiary, KULR Technology Corporation (“KTC”) (collectively referred to as “KULR” or the “Company”) as of and for the three months ended March 31, 2023 and 2022 should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those unaudited condensed consolidated financial statements that are included elsewhere in this Quarterly Report.

(“KULR”) and its wholly-owned subsidiary, KULR Technology Corporation (“KTC”) (collectively referred to as “KULR” or the “Company”) as of and for the three and six months ended June 30, 2023 and 2022 should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those unaudited condensed consolidated financial statements that are included elsewhere in this Quarterly Report.

References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us”, “we”, “our” and similar terms refer to the Company.

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Overall, the KULR ONE family of battery packs is at the forefront of the global drive towards sustainable electrification.

With its unparalleled combination of safety, performance, intelligence, modularity, reliability, and customizability, KULR ONE is positioned to revolutionize the way we think about energy storage and powering the world’s most demanding applications.

With its unparalleled

combination of safety, performance, intelligence, modularity, reliability, and customizability, KULR ONE is positioned to revolutionize the way we think about energy storage and powering the world’s most demanding applications.

KULR’s holistic suite of battery safety and thermal energy management products and services include:

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For nearly twenty years, the primary application has been aviation.

However, advances in measurement and computing technologies have allowed KULR VIBE to provide transformative and scalable solutions across transportation, renewable energy (wind farm), manufacturing, industrial, performance racing and autonomous aerial (drone) applications among others.

However, advances in measurement and computing technologies have allowed KULR VIBE to provide

transformative and scalable solutions across transportation, renewable energy (wind farm), manufacturing, industrial, performance racing and autonomous aerial (drone) applications among others.

KULR VIBE addresses one the most challenging issues with advanced machinery today;

excessive energy robbing vibrations that are destructive to both the machinery and in many cases the operator.

KULR VIBE suite of technologies utilize proprietary sensor processes with advanced learning algorithms to both achieve precision balancing solutions, and successfully predict component failure based on its comprehensive database of vibration signatures.

The KULR VIBE suite of technologies utilize proprietary sensor processes with advanced learning algorithms to both achieve precision balancing solutions, and successfully predict component failure based on its comprehensive database of vibration signatures.

Its enhanced AI learning algorithms pinpoint areas where excess vibrations cause a loss of energy that can lead to system malfunctions, weakened performance, and maintenance issues.

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Recent Developments

Asset Acquisition

On May 4, 2023 (the “Asset Purchase Date”), KULR Technology Group, Inc.

(the “Company”) entered into an agreement (the “Asset Purchase Agreement”) with a seller (the “Seller”), pursuant to which the Company purchased all of the assets, primarily intellectual property, of the Seller (the “Acquired Assets”) for consideration of $75,000 (the “Total Consideration”), which was paid in cash on May 11, 2023.

The Company determined that the transaction should be accounted for as an asset acquisition because substantially all of the fair value of the Acquired Assets is concentrated in a single asset.

The total cost of the intellectual property acquired of $75,000 is included in intangible assets on the accompanying condensed consolidated balance sheet and is being amortized over its estimated useful life of 5 years.

Appointment of Chief Financial Officer

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In connection with his appointment, Mr.

Canter was granted 1,500,000 shares of the Company’s common stock, which shall vest in five (5) equal annual installments.

Canter was granted 1,500,000 shares of the Company’s common stock, which shall vest in five (5) equal annual installments based solely on continued service.

Financing Activities

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Results of Operations

Three Months Ended March 31, 2023 Compared With Three Months Ended March 31, 2022

Three and Six Months Ended June 30, 2023 Compared With Three and Six Months Ended June 30, 2022

Our revenues consisted of the following types:

For the Three Months Ended

For the Six Months Ended

Product sales

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Total revenue

For the three months ended March 31, 2023 and 2022, we generated $1,759,802 and $200,499 of revenues from 14 and 11 customers, respectively, representing an increase of $1,559,303, or 778%.

Revenue from product sales during the three months ended March 31, 2023 increased by $1,456,659 or 844% compared to the three months ended March 31, 2022.

Product sales during the three months ended March 31, 2023, included sales of our component product, internal short circuit (“ISC”) battery cells and devices, and patented Thermal Runway Shield (“TRS”) technology.

Revenue from contract services during the three months ended March 31, 2023 increased by $102,644 or 368 % compared to the three months ended March 31, 2022.

Four contracts received during the first quarter of 2023 generated $127,544 of service revenues.

For the three months ended June 30, 2023 and 2022, we generated $2,695,506 and $587,546 of revenues from 19 and 12 customers, respectively, representing an increase of $2,107,960, or 359%.

For the six months ended June, 2023 and 2022, we generated $4,455,308 and $788,045 of revenues from 29 and 16 customers, respectively, representing an increase of $3,667,263, or 465%.

Revenue from product sales during the three months ended June 30, 2023 increased by $1,399,706 or 251% compared to the three months ended June 30, 2022.

Revenue from product sales during the six months ended June 30, 2023 increased by $2,856,365 or 391% compared to the six months ended June 30, 2022.

Product sales during the three and six months ended June 30, 2023 included sales of our component product, internal short circuit (“ISC”) battery cells and devices, and patented Thermal Runway Shield (“TRS”) technology.

Revenue from contract services during the three months ended June 30, 2023 increased by $708,254 or 2370% compared to the three months ended June 30, 2022.

Four contracts received during the second quarter of 2023 generated $689,744 of service revenues.

Revenue from contract services during the six months ended June 30, 2023 increased by $810,898 or 1403% compared to the six months ended June 30, 2022.

Eight contracts received during the six months of 2023 generated $805,904 of service revenues.

Our service revenues include certain research and development contracts and onsite engineering services.

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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 periods, customers and products due to the learning process, customer negotiating strengths, and product mix.

For the three months ended March 31, 2023 and 2022, cost of revenues was $1,116,415 and $122,918, respectively, representing an increase of $993,497 or 808%.

The increase was primarily due to $908,377 of costs incurred to procure customized finished goods and component materials for a new product line, increased labor costs of $48,309, and an increase of $31,878 in depreciation expense due to revenue generating equipment placed in service during the period.

The gross margin percentage was 37% and 39% for the three months ended March 31, 2023 and 2022, respectively.

For the three months ended June 30, 2023 and 2022, cost of revenue was $1,693,318 and $423,672, respectively, representing an increase of $1,269,646 or 300%.

The increase corresponds to the increase in our revenue during the period, and consisted primarily of $1,076,003 of costs incurred to procure customized finished goods and component materials for a new product line, an increase of $116,533 in depreciation expense due to revenue generating equipment placed in service, and increased labor costs of $54,609.

The gross margin percentage was 37% and 28% for the three months ended June 30, 2023 and 2022, respectively.

For the six months ended June 30, 2023 and 2022, cost of revenue was $2,809,732 and $546,590, respectively, representing an increase of $2,263,142 or 414%.

The increase corresponds to the increase in our revenue during the period, and consisted primarily of $1,984,380 of costs incurred to procure customized finished goods and component materials for a new product line, an increase of $148,411 in depreciation expense due to revenue generating equipment placed in service, and increased labor costs of $99,127.

The gross margin percentage was 37% and 31% for the six months ended June 30, 2023 and 2022, respectively.

Research and Development

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Research and development expenses are charged to operations as incurred.

For the three months ended March 31, 2023 and 2022, R&D expenses were $1,388,215 and $721,347, respectively, representing an increase of $666,868 or 92%.

The increase during 2023 was comprised primarily of $546,845 related to planned increases in headcount in order to build future capacity, and $94,824 related to R&D initiatives designed to build future revenue growth.

For the three months ended June 30, 2023 and 2022, R&D expenses were $1,408,079 and $999,484, respectively, representing an increase of $408,595 or 41%.

The increase during 2023 was comprised primarily of $518,908 related to planned increases in headcount in order to build future capacity, partially offset by a reduction in R&D costs of $158,500 related to a decline in outsourced R&D costs.

For the six months ended June 30, 2023 and 2022, R&D expenses were $2,796,294 and $1,720,831, respectively, representing an increase of $1,075,463 or 62%.

The increase during 2023 was comprised primarily of $1,079,372 related to planned increases in headcount in order to build future capacity, rent expense of $30,782 for a new facility for R&D initiatives designed to build future revenue growth, partially offset by a reduction in R&D costs related to a decline in outsourced R&D costs.

We expect that our R&D expenses will increase as we expand our future operations.

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Selling, general and administrative expenses consisted primarily of cash and stock-based compensation, payroll taxes and other benefits, consulting fees, registration fees, office expenses, rent expense, directors and officers insurance, travel and entertainment, marketing and advertising, and filing fees.

For the three months ended March 31, 2023 and 2022, selling, general and administrative expenses were $5,515,891 and $3,534,923, respectively, representing an increase of $1,980,968, or 56%.

The increase is primarily due to an increase in labor costs of $922,642, consulting fees of $371,659, and marketing and advertising expenses of $527,407, partially offset by a decrease of $322,767 in stock-based compensation.

For the three months ended June 30, 2023 and 2022, selling, general and administrative expenses were $5,591,516 and $4,326,162, respectively, representing an increase of $1,265,354, or 29%.

The increase is primarily due to increases in labor costs of $442,414, depreciation expense of $400,842 due to the completion of automation equipment and enhancements to the facility, consulting fees of $251,626, travel costs of $180,699 for conferences and customer visits to build future revenue growth, costs related to the acquisition of vibration technology of $125,000, partially offset by a decrease in marketing and advertising expenses of $184,501, and a decrease of $106,475 in stock-based compensation.

For the six months ended June 30, 2023 and 2022, selling, general and administrative expenses were $11,107,407 and $7,861,085, respectively, representing an increase of $3,246,322, or 41%.

The increase is primarily due to increases in labor costs of $1,449,895, depreciation expense of $599,817 due to the completion of automation equipment and enhancements to the facility, consulting fees of $462,391, marketing and advertising expenses of $342,906, $316,817 related to travel and conferences to build future revenue growth, costs related to the acquisition of vibration technology of $250,000, partially offset by a decrease of $437,294 in stock-based compensation.

Other Income (Expense)

For the three months ended March 31, 2023 and 2022, other income (expense) was ($342,143) and $42,134, respectively, representing a decrease of $384,277, or 912%.

The change is primarily attributable to an additional $246,320 for amortization of debt discount in connection with the Prepaid Advance, an additional $159,931 for interest recorded in connection with Prepaid Advance, partially offset by a $21,068 change in fair value of accrued issuable equity.

For the three months ended June 30, 2023 and 2022, other expense, net was $337,585 and $92,913, respectively, representing an increase of $244,672, or 263%.

The change is primarily attributable to an additional $154,736 for interest recorded in connection with the Prepaid Advance, an additional $111,335 for amortization of debt discount in connection with the Prepaid Advance, partially offset by a $21,399 change in the fair value of accrued issuable equity.

For the six months ended June 30, 2023 and 2022, other expense, net was $679,728 and $50,779, respectively, representing an increase of $628,949 or 1239%.

The change is primarily attributable to an additional $357,655 for amortization of debt discount in connection with the Prepaid Advance, an additional $313,761 for interest recorded in connection with the Prepaid Advance, partially offset by a $42,467 decrease in the change in fair value of accrued issuable equity.

Liquidity and Capital Resources

As of March 31, 2023 and December 2022, we had cash balances of $7,186,034 and $10,333,563, respectively, and working capital of $414,334 and $6,055,477, respectively.

For the three months ended March 31, 2023 and 2022, cash used in operating activities was $4,759,039 and $4,574,490, respectively.

Our cash used in operations for the three months ended March 31, 2023 was primarily attributable to our net loss of $6,602,861, adjusted for non-cash expenses in the aggregate amount of $1,414,023, as well as $429,799 of net cash generated by changes in the levels of operating assets and liabilities.

Our cash used in operations for the three months ended March 31, 2022 was primarily attributable to our net loss of $4,136,555, adjusted for non-cash expenses in the aggregate amount of $1,436,127, as well as $1,874,062 of net cash used to fund changes in the levels of operating assets and liabilities.

For the three months ended March 31, 2023 and 2022, cash used in investing activities was $358,490 and $248,889, respectively.

Cash used in investing activities during the three months ended March 31, 2023 included $298,490 related to purchases of property and equipment and $60,000 for the acquisition of intangible assets.

Cash used in investing activities during the three months ended March 31, 2022 was related to deposits paid for equipment of $227,538 and purchases of property and equipment of $21,351.

For the three months ended March 31, 2023 and 2022, cash provided by financing activities was $1,970,000 and $92,754, respectively.

Cash provided by financing activities during the three months ended March 31, 2023 was due to proceeds from the prepaid advance liability of $2,000,000 less issuance costs on the prepaid advance liability of $30,000.

Cash provided by financing activities during the

three months ended March 31, 2022 was due to proceeds from the exercise of warrants of $87,679 and proceeds from the exercise of options of $5,075.

Future cash requirements for our current liabilities include $3,653,967 for accounts payable and accrued expenses and $269,967 for future payments under operating leases.

The Company has also committed to spend $1,000,000 in connection with an asset purchase agreement, $1,006,934 related to capital expenditures for automation equipment, $825,000 related to sponsorship agreements, and $441,192 for research and development.

Cash requirements for long-term liabilities consist of $39,427 for lease payments.

The Company intends to meet these cash requirements from its current cash balance, proceeds from the SEPA and from future revenues.

As of June 30, 2023 and December 2022, we had cash balances of $1,320,651 and $10,333,563, respectively, and working capital (deficit) of $(4,719,810) and $6,055,477, respectively.

For the six months ended June 30, 2023 and 2022, cash used in operating activities was $9,858,687 and $9,010,695, respectively.

Our cash used in operations for the six months ended June 30, 2023 was primarily attributable to our net loss of $12,937,853, adjusted for non-cash expenses in the aggregate amount of $3,192,878, as well as $113,712 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, 2022 was primarily attributable to our net loss of $9,391,240, adjusted for non-cash expenses in the aggregate amount of $2,485,419, as well as $2,104,874 of net cash used to fund changes in the levels of operating assets and liabilities.

For the six months ended June 30, 2023 and 2022, cash used in investing activities was $894,976 and $546,784, respectively.

Cash used in investing activities during the six months ended June 30, 2023 included $567,332 related to deposits for property and equipment, $192,644 related to purchases of property and equipment and $135,000 for the acquisition of intangible assets.

Cash used in investing activities during the six months ended June 30, 2022 was related to deposits paid for equipment of $429,008 and purchases of property and equipment of $117,776.

For the six months ended June 30, 2023 and 2022, cash provided by financing activities was $1,740,751 and $7,685,910, respectively.

Cash provided by financing activities during the six months ended June 30, 2023 was from proceeds from the second prepaid advance of $2,000,000, partially offset by $229,249 for the repurchase of common stock to pay tax on behalf of an employee for vested shares of restricted common stock and $30,000 for financing costs associated with the prepaid advance.

Cash provided by financing activities during the six months ended June 30, 2022 was from a promissory note of $4,750,000, proceeds from the exercise of warrants of $3,020,835 and proceeds from the exercise of options of $5,075, partially offset by issuance costs related to the note payable and deferred financing costs related to the SEPA for $17,200 and $72,800, respectively.

Future cash requirements for our current liabilities include $7,546,237 for the Prepaid Advances (if the holder does not convert the liability into shares of common stock), $3,939,449 for accounts payable and accrued expenses and $242,078 for future payments under operating leases.

The Company has also committed to spend $807,515 related to capital expenditures for automation equipment, $500,000 in connection with an asset purchase agreement, and $441,192 for research and development.

There are no cash requirements for long-term liabilities as of June 30, 2023.

The Company intends to meet these cash requirements from its current cash balance, proceeds from future financing activites and from future revenues.

Our primary source of liquidity has historically been cash generated from equity and debt offerings.

Under ASC Subtopic 205-40, Presentation of Financial Statements—Going Concern (“ASC 205-40”), we have the responsibility to evaluate whether conditions and/or events raise substantial doubt about our ability to meet future financial obligations as they become due within one year after the date that the financial statements are issued.

The above conditions are indicators that there is substantial doubt about our ability to continue as a going concern as we have a history of recurring net losses, recurring use of cash in operations and declining working capital.

Despite these conditions, we have a successful track record of raising capital as needed and continue to have a positive, ongoing relationship with a financial institution that has provided access to capital and will continue to support us.

While no assurance can be provided that we will be successful in raising additional capital from Yorkville, as they are not obligated to advance funds so long as there is an outstanding Prepaid Advance, Yorkville has represented that in most scenarios, with mutual consent, they will continue to provide financial support.

Upon satisfaction of the Prepaid Advance liability, the Company will utilize its ability to draw down on the remaining $33,000,000 available under the SEPA.

Based on the above, we believe we have sufficient liquidity and access to future capital to continue as a going concern for a period of at least twelve months from the date the financial statements have been issued and that our above plans alleviate any potential substantial doubt about our ability to continue as a going concern.

As of May 5, 2023, our cash balance was approximately $4.0 million.

We have a history of recurring net losses, recurring use of cash in operations and declining working capital.

As of the date of these financial statements, we have no commitments to obtain additional funding and current obligations come due in September 2023.

Pursuant to an agreement with Yorkville executed on August 16, 2023, $3,150,000 owed in connection with our prepaid advance liability must be paid by August 25, 2023, and three additional payments, each in the amount of $1,383,333, are to be paid on the last day of each of October 2023, November 2023, and December 2023.

As of the date of these financial statements, we have no commitments to obtain additional funding.

These factors raise substantial doubt about our ability to continue as a going concern.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of liabilities that may be necessary should we be unable to continue as a going concern.

Our continuance as a going concern is dependent upon our ability to obtain additional operating capital and ultimately achieve revenue growth and attain profitability.

Our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.

GAAP”), which contemplate our continuation as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business.

The carrying amounts of assets and liabilities presented in the unaudited condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values.

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