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Item 2. Management’s Discussion and Analysis

2024-08-12 compared with 2024-05-15 · 112 added, 65 removed, 167 unchanged (51% 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 March 31, 2024 and for the three months ended March 31, 2024 and March 31, 2023 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 June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 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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Liability Repayment

During the three months ended March 31, 2024, the Company issued 41,027,591 shares of common stock pursuant to SEPA Advance Notices submitted by the Company to Yorkville for aggregate proceeds of $8,979,058.

During the six months ended June 30, 2024, the Company issued 55,659,476 shares of common stock pursuant to SEPA Advance Notices submitted by the Company to Yorkville for aggregate proceeds of $15,173,357.

Of the gross proceeds, $9,104,950 was retained by the Company to fund operations.

The remaining proceeds were applied against the principal and interest owed in connection with the Prepaid Advance Liability.

The Prepaid Advance Liability and the related accrued interest has been repaid in full during the first quarter of 2024.

Standby Equity Purchase Agreement (“SEPA”)

Subsequent to March 31, 2024, and through May 13, 2024, the Company issued a total of 9,453,767 shares of common stock pursuant to SEPA Advance Notices submitted by the Company to Yorkville for aggregate proceeds of $4,321,479.

Merchant Cash Advance Agreement

On January 22, 2024, the Company entered into a merchant cash advance agreement (the “Cash Advance Agreement”) with a lender, pursuant to which Cash Advance Agreement the Company agreed to sell, and the lender agreed to purchase, the Company’s right, title and interest in and to $804,600 of the Company’s accounts receivables, for a purchase price of $504,900.

The Company received $504,900 of cash (net of underwriting fees of $35,100) and paid finder’s fees in cash of $21,600 and finder’s fees to be issued in equity with an aggregate value of $16,200, with the obligation to repay a total of $804,600 over thirty-two weekly payments of $25,143.75, beginning January 30, 2024.

The remaining proceeds were applied against the principal and interest owed in connection with the Prepaid Advance Liability and the Yorkville promissory note.

The Prepaid Advance Liability and the related accrued interest was repaid in full during the first quarter of 2024, and the promissory note was repaid in full on May 28, 2024.

The SEPA terminated June 1, 2024.

At the Market Offering

On July 3, 2024, the Company entered into an At the Market Offering agreement (the “ATM”) with an agent (the “Agent”), pursuant to which the Company may, from time to time, sell shares of common stock for aggregate gross proceeds of up to $20,000,000 in “at the market” offerings through or to the Agent.

Sales of the shares of common stock, if any, will be made at prevailing market prices at the time of the sale, or as otherwise agreed with the Agent.

The Agent will receive a commission from the Company of 3% of the gross proceeds of any shares of common stock sold pursuant to the ATM.

During the period from July 3, 2024, through August 9, 2024, the Company issued a total of 4,953,867 shares of common stock pursuant to the ATM for aggregate proceeds of $1,416,940.

Merchant Cash Advance Agreement and Finder’s Warrants

On January 22, 2024, the Company entered into a merchant cash advance agreement (the “Cash Advance Agreement”) with a lender, pursuant to which the Company received $504,900 of cash (net of underwriting fees of $35,100), with the obligation to repay a total of $804,600 over thirty-two weekly payments of $25,143.75, beginning January 30, 2024.

The Cash Advance Agreement is secured by the Company’s accounts receivable and related cash receipts.

On February 26, 2024, the parties added an addendum to the agreement for an early payoff discount whereby the Company will owe $756,000 if paid by March 22, 2024, or $783,000 if paid by April 22, 2024.

The Company did not take advantage of the early payoff discount and will resume making weekly payments over the original thirty-two week term.

On February 26, 2024, the Company entered into a merchant cash advance agreement (the “Second Cash Advance Agreement”) with the lender mentioned above, pursuant to which Second Cash Advance Agreement the Company agreed to sell, and the lender agreed to purchase, the Company’s right, title and interest in and to $804,600 of the Company’s accounts receivables, for a purchase price of $502,200.

The Company received $502,200 of cash (net of underwriting fees of $37,800) and paid finder’s fees in cash of $21,600 and finder’s fees to be issued in equity with an aggregate value of $16,200, with the obligation to repay a total of $804,600 over thirty weekly payments of $26,820, beginning February 29, 2024.

On July 11, 2024, this merchant cash advance was repaid in full.

On February 26, 2024, the Company entered into a merchant cash advance agreement (the “Second Cash Advance Agreement”) with the lender mentioned above, pursuant to which the Company received $502,200 of cash (net of underwriting fees of $37,800), with the obligation to repay a total of $804,600 over thirty weekly payments of $26,820, beginning February 29, 2024.

On July 11, 2024, the parties amended the agreement whereby the weekly repayment amount was reduced from $26,820 to $15,620 and the repayment due date was extended from September 27, 2024 to November 15, 2024.

The Second Cash Advance Agreement is secured by the Company’s accounts receivable and related cash receipts.

On July 11, 2024, the Company entered into a merchant cash advance agreement (the “Third Cash Advance Agreement”) whereby the Company received $758,850 of cash (net of underwriting fees of $40,000 and $201,150 used to pay the remaining balance of the first merchant cash advance), with the obligation to repay a total of $1,350,000 over forty-three weekly payments of $31,395, beginning July 18, 2024.

The Third Cash Advance is secured by the Company’s accounts receivable and related cash receipts.

On April 4, 2024, the finder of the First and Second Cash Advance Agreements, a FINRA registered financial advisor, accepted certain of the Finder’s fee as warrants to purchase up to 81,788 shares (the “First Warrant”) and 108,389 shares (the “Second Warrant”), respectively, of the Company’s common stock, at an exercise price of $0.1852 per share under the First Warrant, and $0.139 per share under the Second Warrant, respectively.

The First Warrant and the Second Warrant were exercisable immediately, and expire on January 22, 2027 and February 26, 2027, respectively.

Promissory Notes

On April 2, 2024, the Company entered into an agreement (the “Promissory Note”), with a lender (the “Lender”), pursuant to which the Lender purchased an unsecured promissory note with an initial principal amount of $500,000.

The Company received cash proceeds of $440,000, resulting in a discount of $60,000, made up of an original issue discount of $50,000 and debt issuance costs of $10,000.

The Company received cash proceeds of $440,000, resulting in a debt discount of $60,000, made up of an original issue discount of $50,000 and cash issuance costs of $10,000.

The Promissory Note carries an annual interest rate of 0%, which shall increase to 15% in the event of default, and has a maturity date of October 2, 2024, after which all outstanding principal and accrued interest will become immediately due.

This promissory note was repaid in full on May 28, 2024.

On April 9, 2024, the Company entered into a note purchase agreement pursuant to which the Company issued an unsecured promissory note with an initial principal amount of $200,000 and which matures on the first anniversary of its issuance.

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In the event the promissory note is prepaid within 9 months of its issuance, the holder is entitled to the repayment of principal and cash payment of interest equal to 12% of the prepayment amount.

Change in Compensation of CEO

Effective May 23, 2024, the Compensation Committee of the Board of Directors of the Company unanimously approved a change to the compensation payable to Michael Mo, the Chief Executive Officer (“CEO”).

Consistent with the Company’s continued efforts to reduce its cash consumption, the CEO has voluntarily agreed to a reduction in the cash component of his annual compensation by

approximately 33% or $112,345.

In lieu of the reduced cash compensation, the CEO will receive restricted stock units of the Company for 286,230 shares of common stock that will vest after one year.

This adjustment will aid the Company’s efforts in reducing its cash consumption, where such cash can be redirected towards other critical business needs and strategic initiatives.

This step also aligns the CEO compensation more closely with the performance of the Company and the interest of its stockholders.

Resignation of Director

Effective April 15, 2024, Mr.

Morio Kurosaki resigned as a director and all other positions of the Board.

Kurosaki’s decision to resign is due to his other professional obligations and not due to any disagreement with the Company, the Board or any member of the Company’s management.

Kurosaki served as the Chair of the Audit Committee and as a member of the Compensation Committee, and the Nominating & Corporate Governance Committee of the Board.

On April 12, 2024, on the disinterested recommendation of the Compensation Committee, the Board unanimously approved and authorized the issuance of immediately vested equity compensation equal to 15,000 shares that are due and payable pursuant to his year-to-date services through the effective date of resignation.

Appointment of New Director

Effective April 15, 2024, upon the joint recommendation of the Nominating & Corporate Governance Committee and the Compensation Committee, the Board appointed Donna Haley Grier as a director of the Board to hold office until the earlier of the expiration of the term of office, a successor is duly elected and qualified, or the time of her death, resignation, disqualification, or removal.

Grier was also appointed as the chair (and financial expert) of the Audit Committee of the Board, member of the Compensation Committee of the Board, and a member of the Nominating & Corporate Governance Committee of the Board.

Grier will receive cash compensation equal to $17,500 per quarter and was granted 140,000 restricted stock units of the Company’s common stock, of which 35,000 shares vest each quarter, beginning on June 30, 2024.

Director Compensation

On April 12, 2024, on the disinterested recommendation of the Compensation Committee, the Board unanimously approved equity compensation grants to Dr.

Joanna Massey issuable under the Company’s 2018 Equity Incentive Plan equal to (i) 15,000 immediately vested shares in connection with her year-to-date services through March 31, 2024;

and (ii) 140,000 restricted stock units of the Company’s common stock, of which 35,000 shares vest each quarter, beginning on June 30, 2024.

Issuance of Non-Convertible Series A Voting Preferred Stock

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On February 9, 2024, the shareholders of the Company, acted by way of majority written consent (in lieu of a special meeting of stockholders) to approve resolutions authorizing the Company’s Board of Directors to take the following actions:

(1) to issue shares of Common Stock to current or future engagements with commercial or strategic parties, which may result in issuances of over 20% of the issued and outstanding shares of Common Stock;

(1) to issue shares of Common Stock to current or future engagements with commercial or strategic parties, which may result in issuances of over 20% of the

issued and outstanding shares of Common Stock;

(2) to amend the Company’s Bylaws to decrease the number of shares of Common Stock needed to establish a quorum for meetings of stock holders to thirty-three-and-one-third percent (33 1/3 %) of the outstanding voting securities of the Company;

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On March 5, 2024, the Company received a notification from the NYSE that the Company’s plan to regain compliance with Section 1003 (a)(iii) of the Company Guide was accepted and so long as the Company meets its interim objectives, the Company will have until June 20, 2025, to regain compliance with the minimum stockholders’ equity requirement.

On February 12, 2024, the Company received an additional notice letter from NYSE stating that it is not in compliance with Section 1003(f)(v) of the Company Guide since the Company’s securities were trading at an average of less than $0.20 per share for 30 days.

On February 12, 2024, the Company received a notice letter (the “Letter”) from NYSE stating that it is not in compliance with Section 1003(f)(v) of the Company Guide since the Company’s securities were trading at an average of less than $0.20 per share for 30 days.

However, on May 1, 2024, the Company received a notification from the NYSE stating that the Company had regained compliance with Section 1003 (f) (v) of the Company Guide given the increase in the trading price of the Company’s securities.

Results of Operations

Three Months Ended March 31, 2024, Compared With Three Months Ended March 31, 2023

Three and Six Months Ended June 30, 2024, Compared With Three and Six Months Ended June 30, 2023

Our revenues consisted of the following contract 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, 2024 and 2023, we generated $1,749,104 and $1,759,802 of revenues from 34 and 15 customers, respectively.

Revenue from product sales during the three months ended March 31, 2024, decreased by $1,014,165 or 62% compared to the three months ended March 31, 2023.

For the three months ended June 30, 2024 and 2023, we generated $2,432,005 and $2,695,506 of revenues from 27 and 19 customers, respectively, representing a decrease of $263,501, or 10%.

For the six months ended June 30, 2024 and 2023, we generated $4,181,109 and $4,455,308 of revenues from 48 and 29 customers, respectively, representing a decrease of $274,199, or 6%.

Revenue from product sales during the three months ended June 30, 2024, decreased by $822,601 or 42% compared to the three months ended June 30, 2023.

Product sales include the sales of our component product, internal short circuit (“ISC”) battery cells and devices, and patented TRS technology.

We had 25 product sales customers in the first quarter of 2024, compared with 13 in the first quarter of 2023.

We had 15 product sales customers in the second quarter of 2024, compared with 12 in the second quarter of 2023.

The decline in product revenue can be attributed to several expected second quarter 2024 orders, which management now expects to receive in the second half of 2024.

We can provide no assurance as to when we will receive the expected orders.

Revenue from product sales during the six months ended June 30, 2024, decreased by $1,836,766 or 51% compared to the six months ended June 30, 2023.

We had 36 product sales customers in the first six months of 2024, compared with 22 in the first six months of 2023.

The decline in product sales can be attributed to several expected first half 2024 orders, which management now expects to receive in the second half of 2024.

Revenue from contract services during the three months ended March 31, 2024, increased by $1,003,467 or 769% compared to the three months ended March 31, 2023.

We can provide no assurance as to when we will receive the expected orders.

Revenue from contract services during the three months ended June 30, 2024, increased by $559,100 or 76% compared to the three months ended June 30, 2023.

Service revenues include certain research and development contracts and onsite engineering services.

We had 14 contract services customers in the first quarter of 2024, compared with 5 in the first quarter of 2023.

Four large contracts received during the first quarter of 2024 generated $328,000 of service revenues, while $461,000 of service revenues deferred at December 31, 2023, were recognized in the quarter.

We had 14 contract services customers in the second quarter of 2024, compared with 7 in the second quarter of 2023.

One large contract received during the second quarter of 2024 generated $460,000 of service revenues, while $217,689 of service revenues previously deferred, were also recognized during the three months ended June 30, 2024.

Revenue from contract services during the six months ended June 30, 2024, increased by $1,562,567 or 180% compared to the six months ended June 30, 2023.

We had 21 contract services customers in the first six months of 2024, compared with 11 in the first six months of 2023.

Five large contracts received during 2024 generated $1,113,871 of service revenues, while $529,880 of service revenues deferred at December 31, 2023 were recognized in the first six months of 2024.

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

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

Cost of Revenue and Gross Profit

Cost of Revenue, Gross Profit and Gross Profit Margin

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

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

Because 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 March 31, 2024 and 2023, cost of revenues was $1,238,315 and $1,116,414, respectively, representing an increase of $121,901 or 11%.

For the three months ended March 31, 2024 and 2023, gross profit was $510,789 and $643,388, respectively, a decline of $132,599 or 21%, which represented gross profit margins of 29% and 37%, respectively.

The decrease in the

current period profit margin was primarily due to (a) approximately $250,000 of labor and materials costs in the current period associated with a specific project which had no corresponding current period revenue;

and (b) an approximately $167,000 increase in quarterly depreciation expense for revenue generating equipment that was put in service in the last month of the quarter ended March 31, 2023.

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

For the three months ended June 30, 2024 and 2023, cost of revenues was $1,859,377 and $1,693,318, respectively, representing an increase of $166,059 or 10%.

For the three months ended June 30, 2024 and 2023, gross profit was $572,628 and $1,002,188, respectively, a decline of $429,560 or 43%.

Our gross profit margins were 24% and 37%, during the three months ended June 30, 2024 and 2023, respectively.

The decrease in the current period profit margin was primarily due to (a) approximately $350,000 of labor and materials costs in the current period associated with a specific project which had no corresponding current period revenue;

and (b) an approximately $80,000 increase in quarterly depreciation expense for revenue generating equipment that was put into service during the last month of the quarter ended March 31, 2023.

For the six months ended June 30, 2024 and 2023, cost of revenues was $3,097,692 and $2,809,732, respectively, representing an increase of $287,960 or 10%.

For the six months ended June 30, 2024 and 2023, gross profit was $1,083,417 and $1,645,576, respectively, a decline of $562,159 or 34%.

Our gross profit margins were 26% and 37%, during the six months ended June 30, 2024 and June 30, 2023, respectively.

The decrease in the current period profit margin was primarily due to (a) approximately $600,000 of labor and materials costs in the current period associated with a specific project which had no corresponding current period revenue;

and (b) an approximately $250,000 increase in quarterly depreciation expense for revenue generating equipment that was put into service during the last month of the quarter ended March 31, 2023.

Research and Development

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Research and development expenses are charged to operations as incurred.

For the three months ended March 31, 2024 and 2023, R&D expenses were $954,625 and $1,805,015, respectively, representing a decrease of $850,390 or 47%.

The decrease was comprised primarily of $429,263 of labor costs allocated to cost of revenue in 1Q24 due to the increase in service revenue, $390,714 related to a planned decrease in R&D consulting services to conserve cash, partially offset by an increase in building related expenses of approximately $50,000 for the facility in Texas.

For the three months ended June 30, 2024 and 2023, R&D expenses were $1,305,186 and $1,924,138, respectively, representing a decrease of $618,952 or 32%.

The decrease was comprised primarily of $488,017 of labor costs allocated to cost of revenue due to the increase in service revenue, $171,905 related to a planned decrease in R&D consulting services to conserve cash and an $81,737 decrease in stock-based compensation, partially offset by an increase in building related expenses of approximately $149,000 for the facility in Texas.

For the six months ended June 30, 2024 and 2023, R&D expenses were $2,259,811 and $3,729,153, respectively, representing a decrease of $1,469,342 or 39%.

The decrease was comprised primarily of $1,018,387 of labor costs allocated to cost of revenue due to the increase in service revenue, $599,351 related to a planned decrease in R&D consulting services to conserve cash, partially offset by an increase in building related expenses of approximately $190,000 for the facility in Texas.

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

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Selling, general and administrative expenses consisted primarily of stock-based compensation, marketing and advertising, salaries, payroll taxes and other benefits, Board compensation, accounting and tax, consulting fees, travel and entertainment, rent expense, office expenses, and legal and professional fees.

For the three months ended March 31, 2024 and 2023, selling, general and administrative expenses were $4,212,898 and $5,099,091, respectively, representing a decrease of $886,193 or 17%.

The decrease is primarily due to a planned decrease in outsourced services of $575,158, a decrease in conferences and seminars of $127,835 and a decrease of $95,889 for stock-based compensation.

Other Income (Expense)

For the three months ended March 31, 2024 and 2023, other expense was $352,142 and $342,143, respectively, representing a decrease of $9,999, or 3%.

The change is primarily attributable to a decrease of $71,240 for amortization of debt discount in connection with the Prepaid Advance, a decrease of $27,229 for interest recorded in connection with the Prepaid Advance Liability, partially offset by an increase in the change in fair value of accrued issuable equity of $77,110 and an increase of $31,358 due to a 2023 loss on debt extinguishment related to the Prepaid Advance Liability.

For the three months ended June 30, 2024 and 2023, selling, general and administrative expenses were $4,594,500 and $5,158,030, respectively, representing a decrease of $563,530 or 11%.

The decrease is primarily due to a planned decrease in outsourced professional services of $533,052, a decrease of $56,538 for stock-based compensation, partially offset by an increase in building expenses of $53,254.

For the six months ended June 30, 2024 and 2023, selling, general and administrative expenses were $8,807,401 and $10,257,121, respectively, representing a decrease of $1,449,720 or 14%.

The decrease is primarily due to a planned decrease in outsourced professional services of $1,106,778, a decrease in labor costs of $236,725 due to the workforce reduction in December of 2023 and a decrease of $48,412 for stock-based compensation.

Other (Expense) Income

For the three months ended June 30, 2024 and 2023, other expense, net, was a net expense of $563,470 and $255,012, respectively, representing an increase of $308,458, or 121%.

The change is primarily attributable to an increase of $312,644 for amortization of debt discount in connection with the Prepaid Advance Liability and notes payable, an increase of $159,389 for the change in fair value of accrued issuable equity, partially offset by a decrease in interest recorded in connection with the Prepaid Advance Liability of $163,576.

For the six months ended June 30, 2024 and 2023, other expense, net, was a net expense of $915,609 and $597,155, respectively, representing an increase of $318,454, or 53%.

The change is primarily attributable to an increase of $241,402 for amortization of debt discount in connection with the Prepaid Advance Liability and notes payable, an increase of $236,499 for the change in fair value of accrued issuable equity and $31,358 related to a 2024 loss on the extinguishment of debt related to the Prepaid Advance Liability, partially offset by a decrease of $190,805 in interest recorded in connection with the Prepaid Advance Liability.

Liquidity and Capital Resources

As of March 31, 2024 and December 2023, we had cash balances of $798,843 and $1,194,764, respectively, and a working capital deficit of $3,907,626 and $2,994,753, respectively.

For the three months ended March 31, 2024 and 2023, net cash used in operating activities was $3,907,406 and $4,759,039, respectively.

Our net cash used in operations for the three months ended March 31, 2024, was primarily attributable to our net loss of $5,008,876, adjusted for non-cash expenses in the aggregate amount of $1,853,354, plus $751,884 of net cash used to fund changes in the levels of operating assets and liabilities.

Our net 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, partially offset by $429,799 of net cash generated by changes in the levels of operating assets and liabilities.

For the three months ended March 31, 2024 and 2023, net cash used in investing activities was $13,400 and $358,490, respectively.

Net cash used in investing activities during the three months ended March 31, 2024, was related to purchases of property and equipment.

Net cash used in investing activities during the three months ended March 31, 2023, was related to purchases of property and equipment, and the acquisition of an intangible asset.

For the three months ended March 31, 2024 and 2023, net cash provided by financing activities was $3,524,885 and $1,970,000, respectively.

Net cash provided by financing activities during the three months ended March 31, 2024, was due to proceeds from SEPA Advance Notices totaling $2,910,651, and net proceeds from notes payable totaling $963,900, partially offset by notes payable

repayments of $349,666.

Net cash provided by financing activities during the three months ended March 31, 2023, was due to net proceeds from the prepaid advance liability of $1,970,000.

Future cash requirements for our current liabilities include approximately $5.8 million for accounts payable and accrued expenses, $1,259,534 for notes payable, and $435,707 for operating leases.

The Company has also committed to spend $981,371 related to capital expenditures for automation equipment.

Future cash requirements for long-term liabilities as of March 31, 2024, include $250,000 for notes payable, and $1,188,259 for operating leases.

As of June 30, 2024 and December 2023, we had cash balances of $1,016,943 and $1,194,764, respectively, and a working capital deficit of $2,381,478 and $2,994,753, respectively.

For the six months ended June 30, 2024 and 2023, net cash used in operating activities was $9,198,453 and $9,858,687, respectively.

Our net cash used in operating activities for the six months ended June 30, 2024, was primarily attributable to our net loss of $10,899,404, adjusted for non-cash expenses in the aggregate amount of $3,970,681, plus $2,269,730 of net cash used to fund changes in the levels of operating assets and liabilities.

Our net cash used in operating activities 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.

For the six months ended June 30, 2024 and 2023, net cash used in investing activities was $163,023 and $894,976, respectively.

Net cash used in investing activities during the six months ended June 30, 2024, was related to purchases of property and equipment.

Net cash used in investing activities during the six months ended June 30, 2023, included $759,976 related to purchases of property and equipment and $135,000 for the acquisition of intangible assets.

For the six months ended June 30, 2024 and 2023, net cash provided by financing activities was $9,183,655 and $1,740,751, respectively.

Net cash provided by financing activities during the six months ended June 30, 2024, was due to proceeds from SEPA Advance Notices totaling $9,104,950, and net proceeds from notes payable totaling $1,730,000, partially offset by notes payable repayments of $1,525,195 and issuance costs on notes payable of $126,100.

Net 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.

Future cash requirements for our current liabilities as of June 30, 2024, include $4,811,565 for accounts payable and accrued expenses, $784,006 for notes payable and $487,369 for operating leases.

Future cash requirements for long-term liabilities as of June 30, 2024, include $1,059,898 for operating leases, and $250,000 for notes payable.

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.

On December 20, 2023, we received a Stockholders’ Equity Notice stating we are not in compliance with Section 1003(a) (iii) of the Company Guide since we reported stockholders’ equity of $1,200,172 at September 30, 2023, and losses from continuing operations and/or net losses in our five most recent fiscal years.

On February 12, 2024, we received a Letter from NYSE stating we are not in compliance with Section 1003(f) (v) of the Company guide since our securities were trading at an average of less than $0.20 per share for 30 days.

On March 5, 2024, the Company received a notification from the NYSE that the Company’s plan to regain compliance with Section 1003 (a) (iii) of the Company Guide was accepted and so long as the Company meets its interim objectives, the Company will have until June 20, 2025, to regain compliance with the minimum stockholders’ equity requirement.

On May 1, 2024, the Company received a notification from the NYSE stating that the Company had regained compliance with Section 1003 (f) (v) of the Company Guide given the increase in the trading price of the Company’s securities.

On April 2, 2024, the Company received cash proceeds of $440,000 related to an unsecured Promissory Note comprised of an initial principal amount of $500,000 and discount of $60,000.

The Promissory Note carries an annual interest rate of 0% and increases to 15% in the event of default and has a maturity date of October 2, 2024.

See Note 14 – Subsequent Events – for additional information.

This note was fully repaid on May 28, 2024.

See Note 9 – Notes Payable for additional information.

On April 9, 2024, the Company received cash proceeds of $200,000 related to an unsecured Promissory Note which matures on the first anniversary of its issuance and carries an annual interest rate of 16%.

In the event the promissory note is prepaid within 9 months of its issuance, the holder is entitled to the repayment of principal and cash payment of interest equal to 12% of the prepayment amount.

See Note 14 – Subsequent Events – for additional information.

As of the date of the issuance of these consolidated financial statements, the Company has no additional commitments to obtain additional funding through future debt or equity financings, or that the Company will be able to obtain additional funds on commercially acceptable terms, if at all.

There is no assurance that the amount of funds the Company might raise will enable the Company to complete its development initiatives or attain profitable operations.

See Note 9 – Notes Payable – for additional information.

Subsequent to June 30, 2024, the Company entered into an At the Market Offering agreement (the “ATM”) to raise up to $20,000,000 through sales of the Company’s common stock.

During the period from July 3, 2024, through August 9, 2024, the Company has sold 4,953,867 shares of common stock pursuant to this offering, with gross proceeds of $1,416,940.

On July 11, 2024, the Company entered into a third merchant cash advance agreement (the “Third Cash Advance Agreement”) with a lender, pursuant to which the Company received $758,850 of cash (net of underwriting fees of $40,000 and $201,150 used to pay the remaining balance of the first merchant cash advance), with the obligation to repay a total of $1,350,000 over forty-three weekly payments of $31,395, beginning July 18, 2024.

The Third Cash Advance Agreement is secured by the Company’s accounts receivable and related cash receipts.

In addition, on July 11, 2024, the Company fully repaid the balance on the first cash advance ($201,150) and amended the Second Cash Advance to reduce the weekly repayment amount from $26,820 to $15,620 and extend the repayment period from September 27, 2024 to November 15, 2024.

As of the date of the issuance of these consolidated financial statements, the Company has no additional commitments to obtain additional funding through future debt or equity financings, and there is no assurance that the Company will be able to obtain additional funds on commercially acceptable terms, if at all.

Further, there is no assurance that the amount of funds the Company might raise will enable the Company to complete its development initiatives or attain profitable operations.

The aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements.

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.

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

Off-Balance Sheet Arrangements

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Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with U.S.

We prepare our condensed consolidated financial statements in accordance with U.S.

generally accepted accounting principles, which require our management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods.

To the extent that there are material differences between these estimates and actual results, our financial results will be affected.

The accounting policies that reflect our more significant estimates and judgments and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described below.

We consider an accounting estimate to be critical if:

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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