What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-14 compared with 2023-08-16 · 74 added, 76 removed, 83 unchanged (64% 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 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.

(“KULR”) and its wholly-owned subsidiary, KULR Technology Corporation (“KTC”) (collectively referred to as “KULR” or the “Company”) as of September 30, 2023 and for the three and nine months ended September 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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There have been no material changes to the risk factors discussed in Item 1A.

Risk Factors in our Annual Report on Form 10-K which was filed with the SEC on March 28, 2023.

Risk Factors in our Annual Report on Form 10-K which was filed with the SEC on March 28, 2023, except as disclosed elsewhere in this Quarterly Report.

KULR Technology Group develops and commercializes an energy management platform to accelerate the global transition to a sustainable electrification economy.

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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;

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We are building our AI infrastructure on industry leading Nvidia and AMD semiconductor platforms, and they are hosted on a hybrid of private cloud and Microsoft Azure.

As the world faces shortages in supply of raw materials to produce enough Li-ion batteries to power everything from EV’s to smartphones, KULR is developing a modular battery storage architecture that can be used across multiple applications with real-time monitoring by AI-powered CellCheck TM .

This product is to target the following markets:

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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

Effective as of March 31, 2023, Shawn Canter was appointed Chief Financial Officer of the Company.

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 based solely on continued service.

Financing Activities

On March 10, 2023, the Company received gross proceeds of $2,000,000 as a prepaid advance (the “Second Prepaid Advance”) pursuant to a supplemental agreement (the “Supplemental Agreement”) to its Standby Equity Purchase Agreement (the “SEPA”).

The Second Prepaid Advance matures on March 10, 2024.

Interest accrues on the outstanding balance of each Prepaid Advance at an annual rate of 10%, subject to an increase to 15% upon events of default as defined.

Please refer to Note 9 – Prepaid Advance Liability and Note 13 – Stockholders’ Equity, Standby Purchase Agreement “SEPA” and Supplemental SEPA, in the accompanying condensed consolidated financial statements of this quarterly report on Form 10-Q for additional details regarding the SEPA and Supplemental SEPA.

Quarterly Revenues

The Company reported its fifth consecutive quarter of increasing trailing twelve months revenues.

Trailing twelve months revenues were $9,897,265 for the twelve months ended September 30, 2023.

Equity Financing

On September 15, 2023, the Company completed a public offering of 8,214,285 shares of common stock, priced at $0.35 per share, with gross proceeds of $2,875,000 less issuance costs of $588,230, for net proceeds of $2,286,770.

See Note 13 – Stockholders’ Equity – Common Stock for further details.

Liability Repayment

On September 18, 2023, the Company repaid an aggregate amount of $1,839,731, consisting of a principal amount of $1,500,000, accrued interest in the amount of $264,731 and a payment premium in the amount of $75,000.

See Note 9 - Prepaid Advance Liability for further details.

Results of Operations

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:

Three and Nine Months Ended September 30, 2023 Compared With Three and Nine Months Ended September 30, 2022

Our revenues consisted of the following contract types:

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, 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.

For the three months ended September 30, 2023 and 2022, we generated $3,041,007 and $1,393,185 of revenues from 18 and 16 customers, respectively, representing an increase of $1,647,822, or 118%.

For the nine months ended September 30, 2023 and 2022, we generated $7,496,315 and $2,181,230 of revenues from 37 and 29 customers, respectively, representing an increase of $5,315,085, or 244%.

Revenue from product sales during the three months ended September 30, 2023 increased by $526,613 or 38% compared to the three months ended September 30, 2022.

Revenue from product sales during the nine months ended September 30, 2023 increased by $3,382,978 or 161% compared to the nine months ended September 30, 2022.

The increase in product sales during the three and nine months ended September 30, 2023, was primarily due to a significant increase in sales of patented Thermal Runway Shield (“TRS”) technology.

Product sales also included sales of our component product and internal short circuit (“ISC”) battery cells and devices.

Revenue from contract services during the three months ended September 30, 2023 increased by $1,121,209 compared to the three months ended September 30, 2022.

Revenue from contract services during the nine months ended September 30, 2023 increased by $1,932,107 or 2382% compared to the nine months ended September 30, 2022.

Two contracts received during the nine months of 2023 generated $975,270 of contract service revenues.

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

Our customers and prospective customers are large organizations with multiple levels of management, controls/procedures, and contract evaluation/authorization.

Furthermore, our solutions are new and do not necessarily fit into pre-existing patterns of purchase commitment.

Accordingly, the business activity cycle between expression of initial customer interest to shipping, acceptance and billing can be lengthy and unpredictable, which can influence the timing, consistency and reporting of sales growth.

Accordingly, the business activity cycle between expression of initial customer interest to shipping, providing contract services, acceptance and billing can be lengthy and unpredictable, which can influence the timing, consistency and reporting of sales growth.

Cost of Revenue

Cost of revenue consisted of the cost of our products as well as labor expenses directly related to product sales and research contract services.

Cost of revenue consisted of the cost of our products as well as labor and overhead expenses directly related to product sales and research contract services.

Product mix plays an important part in our reported average margins for any period.

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 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.

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

For the three months ended September 30, 2023 and 2022, cost of revenue was $1,703,553 and $932,364, respectively, representing an increase of $771,189, or 83%.

The increase corresponds to the increase in our revenue during the period.

The gross margin percentage was 44% and 33% for the three months ended September 30, 2023 and 2022, respectively.

The gross margin percentage increased due to the increase in higher margin revenue from contract services.

For the nine months ended September 30, 2023 and 2022, cost of revenue was $4,513,285 and $1,478,954, respectively, representing an increase of $3,034,331, or 205%.

The increase corresponds to the increase in our revenue during the period.

The gross margin percentage was 40% and 32% for the nine months ended September 30, 2023 and 2022, respectively.

The gross margin percentage increased due to the increase in higher margin revenue from contract services.

Research and Development

Research and development (“R&D”) includes expenses incurred in connection with the R&D of our CFV thermal management solution, high-areal-capacity battery electrodes, 3D engineering for a rechargeable battery and non-cash stock-based compensation expenses.

Research and development expenses are charged to operations as incurred.

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.

For the three months ended September 30, 2023 and 2022, R&D expenses were $1,640,959 and $1,069,852, respectively, representing an increase of $571,107, or 53%.

The increase during 2023 was comprised primarily of $515,634 related to planned increases in headcount in order to build future capacity, and $28,380 related to an increase in employee stock-based compensation for option awards.

For the nine months ended September 30, 2023 and 2022, R&D expenses were $4,873,841 and $2,790,683, respectively, representing an increase of $2,083,158 or 75%.

The increase during 2023 was comprised primarily of $1,604,843 related to planned increases in headcount in order to build future capacity, amortization of prepaid cash consideration for Vibetech asset purchase agreement of $375,000, equity compensation for Vibetech asset purchase agreement of $128,650, rent expense of $42,948 for a new facility for R&D initiatives designed to build future revenue growth and $40,482 for depreciation expense, partially offset by a reduction in outsourced R&D costs.

We expect that our R&D expenses will increase as we expand our future operations, presuming that we raise adequate capital to do so.

Selling, General and Administrative

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 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 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.

Selling, general and administrative expenses consisted primarily of 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 September 30, 2023 and 2022, selling, general and administrative expenses were $4,793,523 and $4,349,373, respectively, an increase of $444,150, or 10%.

The increase is primarily due to increases in depreciation and amortization expense of $486,724 primarily due to enhancements to our primary facility, labor costs of $240,766, various legal and professional fees of $107,912, software license and utility fees of $78,703, board compensation fees of $61,250, insurance fees of $50,044, franchise tax of $32,342, and office related expenses due to the increase in headcount of $21,997, partially offset by a decrease in marketing and advertising expenses of $416,140, and a decrease of $252,557 in stock-based compensation.

For the nine months ended September 30, 2023 and 2022, selling, general and administrative expenses were $15,546,915 and $12,210,458, respectively, an increase of $3,336,457, or 27%.

The increase is primarily due to increases in labor costs of $1,279,768, depreciation and amortization expense of $1,086,541, consulting fees of $837,758, travel and entertainment costs to build future revenue growth of $218,348, software license and utility fees of $265,030, and costs to attend conferences and seminars of $152,888, partially offset by decreases in stock-based compensation of $793,866.

Other Expense

For the three months ended September 30, 2023 and 2022, net other expense was $465,246 and $628,181, respectively, representing a decrease of $162,935, or 26%.

The change is primarily attributable to a $383,276 decline in interest expense primarily related to a note payable that was paid in 2022 and $158,675 decline in PPP loan forgiveness.

For the nine months ended September 30, 2023 and 2022, net other expense was $1,062,401 and $678,960, respectively, representing an increase of $383,441, or 56%.

The change is primarily attributable to a $383,441 increase in interest expense primarily related to the prepaid advance liability that was entered into in September 2022, partially offset by a $158,675 decline in PPP loan forgiveness.

Liquidity and Capital Resources

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.

As of September 30, 2023 and December 31, 2022, we had cash balances of $1,167,315 and $10,333,563, respectively, and working capital (deficit) of $(6,355,104) and $6,055,477, respectively.

For the nine months ended September 30, 2023 and 2022, cash used in operating activities was $10,893,050 and $13,366,007, respectively.

Our cash used in operations for the nine months ended September 30, 2023 was primarily attributable to our net loss of $18,500,127, adjusted for non-cash expenses in the aggregate amount of $4,968,456, as well as $2,638,621 of net cash provided by changes in the levels of operating assets and liabilities.

Our cash used in operations for the nine months ended September 30, 2022 was primarily attributable to our net loss of $14,977,825, adjusted for non-cash expenses in the aggregate amount of $4,072,738, and $2,460,920 of net cash used to fund changes in the levels of operating assets and liabilities.

For the nine months ended September 30, 2023 and 2022, cash used in investing activities was $993,699 and $2,772,568, respectively.

Cash used in investing activities during the nine months ended September 30, 2023 was related to deposits paid for purchases of property and equipment of $621,107, purchases of property and equipment of $237,592, and an acquisition of intangible assets of $135,000.

Cash used in investing activities during the nine months ended September 30, 2022 was related to deposits paid for equipment of $2,198,626 and purchases of property and equipment of $573,942.

For the nine months ended September 30, 2023 and 2022, cash provided by financing activities was $2,720,501 and $17,444,137, respectively.

Cash provided by financing activities during the nine months ended September 30, 2023 was due to the proceeds from a public offering of $2,875,000 and a second Prepaid Advance of $2,000,000, partially offset by repayments of the Prepaid Advance of $1,575,000, payments of issuance costs in connection with the public offering of $320,250, repurchases of common stock of $229,249, and financing costs related to the SEPA of $30,000.

Cash provided by financing activities during the nine months ended September 30, 2022 was due to proceeds from the Prepaid Advance of $10,573,068, proceeds from a promissory note of $4,750,000, proceeds from the exercise of warrants of $3,020,836, proceeds from the SEPA of $247,871, and proceeds from the exercise of options of $25,233, partially offset by repayments of the promissory note of $1,000,000, and payments of issuance costs related to the prepaid advance liability of $85,000, financing costs related to the SEPA for $72,800 and payments of issuance costs in connection with notes payable for $17,200.

Future cash requirements for our current liabilities include $5,971,238 for Prepaid Advances, $4,831,517 for accounts payable and accrued expenses and $172,569 for future payments under operating leases.

The Company has also committed to spend $809,379 related to capital expenditures for automation equipment, and $500,000 in connection with an asset purchase agreement.

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

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

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

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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.

On September 18, 2023, the Company paid an aggregate of $1,839,731 owed in connection with our prepaid advance liability consisting of $1,500,000 of principal, $264,731 of interest and $75,000 of payment premium costs.

Pursuant to the amendment dated November 7, 2023, three additional payments consisting of $1,500,000, $2,000,000, and remaining principal of $2,471,238 and premium costs thereafter will be due on December 31, 2023, January 31, 2024, and March 1, 2024, respectively.

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

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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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Recent Accounting Pronouncements

See Note 2 – Summary of Significant Accounting Policies of our unaudited condensed consolidated financial statements included within this Quarterly Report for a summary of recently adopted accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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