Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 years ended December 31, 2024 and 2023 should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements that are included elsewhere in this Annual 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. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Actual results could differ materially because of the factors discussed in “Risk Factors” elsewhere in this Annual Report, and other factors that we may not know.
Overview
KULR Technology Group, Inc., through our wholly-owned subsidiary KULR Technology Corporation, develops and commercializes high-performance thermal management technologies for batteries, electronics, and other components across an array of battery-powered applications. For aerospace and Department of Defense (“DOD”) applications, our solutions target high performance applications in direct energy, hypersonic vehicles and satellite communications. For commercial applications, our main focus is a total solution to battery safety and sustainability by which we aim to mitigate the effects of thermal runaway propagation which has been
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known to cause random fires in lithium-ion (“Li-ion”) batteries. This total battery safety solution can be used for electric vehicles, energy storage, battery recycling transportation, cloud computing and 5G communication devices. Our proprietary core technology is a carbon fiber material that provides what we believe to be superior thermal conductivity and heat dissipation for an ultra-lightweight and pliable material. By leveraging our proprietary cooling solutions that have been developed through longstanding partnerships with advanced technology users like NASA, the Jet Propulsion Lab and others, our products and services make commercial battery powered products safer and electronics systems cooler and lighter.
KULR’s business model continues to evolve from being a component supplier, to providing more design and testing services to our customers. The next step of evolution is to provide total system solutions to address market needs. In order to scale up as a systems provider more quickly and efficiently in (i) the Li-ion battery energy storage and recycling markets, (ii) battery cell design and safety testing, and (iii) advanced thermal management systems, such as hypersonic vehicles, KULR will actively seek partners for joint venture, technology licensing and other strategic partnership models. The goal is to leverage the Company’s thermal design technology expertise to create market leading products, which KULR will take to market directly to capture more value for KULR shareholders.
We have not yet achieved profitability and expect to continue to incur cash outflows from operations, and as a result, we will eventually need to generate significant revenues to achieve profitability. Until that time, we may continue to raise cash, as and when required, through equity or debt financings.
Recent Developments
Annual Revenues
The Company reported record annual revenues of $10.7 million for 2024, as compared to its previous revenues of $9.8 million for 2023.
Bitcoin Strategy
On December 4, 2024, the Board approved, and the Company publicly announced its decision to include Bitcoin (“BTC”) as a primary asset in its treasury program. On December 22, 2024, the Company completed its initial acquisition of BTC through Coinbase (the primary broker) and a total of 217.18 bitcoin was purchased at a weighted average price of approximately $96,696 per bitcoin, or an aggregate cost of $21 million. Subsequent to December 31, 2024, the Company purchased 449.45 Bitcoin via trade orders on Coinbase, at an average cost of $99,008 per Bitcoin for an aggregate $44,499,352. Additionally, on March 7, 2025, the Company entered into a sixty-day Machine Lease Agreement with a bitcoin mining services company to operate 2,500 S-19 bitcoin mining machines on KULR’s behalf, at a total lease cost of $850,000. As of March 27, 2025, 2.48 bitcoin have been mined pursuant to the Machine Lease Agreement, at an average cost of $84,225 per bitcoin.
At the Market Offering
On July 3, 2024, the Company entered into an At the Market Offering agreement (the “Sales Agreement”) 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 (the “ATM”). 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. On December 4, 2024, the Company increased the maximum aggregate offering amount of the shares of the Company’s common stock issuable under the ATM from approximately $20 million to $46 million. On December 26, 2024, the Company increased the maximum aggregate offering amount of the shares of the Company’s common stock issuable under the ATM by an additional $50 million, to $96 million, and the Company entered into an amendment (the “Amendment”) to the Sales Agreement with the Agent, entered into on July 3, 2024, to provide that the Agent’s compensation payable under the Sales Agreement shall be 2.5% of gross proceeds of any sales of shares of common stock sold under the Sales Agreement. During the year ended December 31, 2024, the Company issued a total of 74,781,217 shares of common stock pursuant to the ATM for aggregate gross proceeds of $61,912,798. During the period from January 2, 2025, through March 27, 2025, the Company has sold 19,387,610 shares of common stock pursuant to this offering, with gross proceeds of $51,122,190.
License and Opportunities for KULR VIBE Fan Balancing Applications
On September 29, 2024, we entered into a licensing agreement for our proprietary vibration reduction technology named KULR Xero Vibe (“KXV”). The $2.35M agreement includes a $1.1M minimum guaranteed license and royalty fee, a unique opportunity for the licensee to purchase proprietary balancing equipment directly from the Company and additional revenue upside to the Company based on volume and technology upgrades. The licensee, a leading Japanese corporation, specializing in systems integration and the
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distribution of advanced semiconductor solutions, intends to use the KXV technology to balance industrial-scale fan systems used in data center computer cooling, HVAC and other industrial applications.
On December 29, 2024 the Company entered into a ten-year licensing agreement with a customer located in Japan, for the use of intellectual property in connection with its CF Cathode Design technology (including the specifications, diagrams, schematics and instructions (together the “KULR CF Intellectual Property”) for the production of the CF Cathode (the “License”). The Agreement gives the customer the exclusive license to use the KULR CF Intellectual Property to manufacture CF Cathodes in Japan, and a non-exclusive license to manufacture CF Cathodes in several other countries, including Taiwan, China, India and Korea. The Company is exploring additional license opportunities based on geographic regions in tangential power-consuming applications, where the Company expects substantial upside revenue potential as product sales and royalty income scales along with its customers’ growth.
Change in Address of Principal Executive Offices
In the third quarter of 2024, we moved our principal executive offices to 555 Forge River Road, Suite 100, Webster, Texas 77598.
Issuance of Non-Convertible Series A Voting Preferred Stock
On January 26, 2024, the Board of Directors (“Board”) of the Company, following extensive strategic evaluation, including consultation with advisors, approved, authorized, and ratified the issuance of 730,000 shares of previously designated Non-convertible Series A Voting Preferred Stock to the Chairman and Chief Executive Officer of the Company, Michael Mo, subject to certain limitations as set forth below, for no consideration. The issuance of up to 1,000,000 shares of Non-convertible Series A Voting Preferred Stock was previously approved and authorized by a vote of the majority stockholders of the Company. On January 16, 2025, the Board of Directors approved the issuance of an additional 270,000 shares of Non-convertible Series A Voting Preferred Stock (“Series A Voting Preferred”) to the Chief Executive Officer, bringing his total holdings up to 1,000,000 shares of Series A Voting Preferred Stock.
The issuance is subject to the Board reserving the full and unequivocal right to revoke, rescind, transfer or otherwise cancel the issued Non-convertible Series A Voting Preferred Stock in the event Michael Mo is removed from any position with the Company or resigns from all positions with the Company. This conditional arrangement is designed to ensure that the voting power conferred by the Non-convertible Series A Voting Preferred Stock remains tied to the active leadership of the Company. This underscores the Board’s commitment to maintaining alignment with the long-term interests of the Company and its stockholders.
The Independent Members of the Board have determined that the issuance represents a pivotal strategic move to reinforce and enhance the Company’s flexibility to optimize the Company’s negotiating position in any potential current and/or future engagements with commercial, financial, and/or strategic parties, and to provide defenses against potential hostile third-party actions.
Consolidated Results of Operations
Year Ended December 31, 2024 Compared With Year Ended December 31, 2023
Revenue
Our revenues consisted of the following types:
For the Years Ended
December 31,
2024
2023
Product sales
$
3,644,240
$
6,903,988
Contract services
4,406,023
2,926,178
IP licensing
2,687,218
—
Total Revenue
$
10,737,481
$
9,830,166
For the years ended December 31, 2024 and 2023, we generated $10,737,481 and $9,830,166 of revenue from 71 and 53 customers, respectively, representing an increase of $907,315, or 9%.
Revenue from product sales during the year ended December 31, 2024 decreased by $3,259,748 or 47% compared to the year ended December 31, 2023. We had 53 product sales customers in 2024, compared with 39 in 2023. The decline in product revenue can be attributed to several expected 2024 orders, which management now expects to receive in a later period. We can provide no assurance as to when we will receive the expected orders. Product sales during these periods include sales of our component product, carbon fiber
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velvet (“CFV”) thermal management solution, internal short circuit (“ISC”) battery cells and devices, patented TRS technology, and thermal fiber thermal interface (“FTI”) materials.
Revenue from contract services during the year ended December 31, 2024 increased by $1,479,845 or 51% compared to the year ended December 31, 2023. The increase in revenue for the year ended December 31, 2024 is primarily due to growth in customers to 34 in 2024 from 17 in 2023. This work includes unique engineering design and testing projects customized for specific customers.
Revenue from IP licensing during the year ended December 31, 2024, was $2,687,218. License revenue consists of contracts with customers for the rights to use our patented KULR VIBE technology and CF Cathode Design technology. This includes revenue from minimum royalty fees of $600,000. Minimum royalty fees consist of guaranteed amounts due to the Company for contracts with customers for the rights to use its patented KULR VIBE technology. These contracts were executed during the year ended December 31, 2024. There was no license revenue recognized prior to this period.
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 commitments. 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, Gross Profit and Gross Profit Margin
Cost of revenue consists of the cost of our products as well as labor expenses directly related to product sales or 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 years ended December 31, 2024 and 2023, cost of revenues was $5,254,283 and $6,164,310, respectively, representing a decrease of $910,027, or 15%. During the years ended December 31, 2024 and 2023, gross profit was $5,483,198 and $3,665,856, respectively, an increase of $1,817,342 or 50%. Our gross profit margins were 51% and 37%, during the years ended December 31, 2024 and 2023, respectively. The increase in the current period profit margin resulted primarily from our licensing agreements that generated $2,687,218 of revenue in 2024, which had no corresponding cost of revenue.
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, and 3D engineering for a rechargeable battery. Research and development expenses are charged to operations as incurred.
For the years ended December 31, 2024 and 2023, R&D expenses were $4,738,305 and $7,135,452, respectively, representing a decrease of $2,397,147 or 34%. The decrease was comprised primarily of $2,193,643 of engineering labor and other costs charged that were reduced or redeployed to revenue-generating activities and were charged to costs of revenue, $784,827 related to a planned decrease in R&D consulting services, partially offset by an increase in building related expenses of $335,142 for the new, larger facility in Texas, and an increase in stock-based compensation of $98,525.
We expect that our R&D expenses will increase as we expand our future operations.
Selling, General and Administrative
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 years ended December 31, 2024 and 2023, selling, general and administrative expenses were $15,979,852 and $18,942,350, respectively, a decrease of $2,962,498, or 16%. The decrease is primarily due to a decrease in stock-based compensation of $908,574 primarily due to forfeited restricted stock units, a decrease of $881,950 in depreciation expense primarily due to leasehold improvements for the San Diego facility being fully depreciated as of June 30, 2024, a planned decrease in advertising and marketing services of $466,254, and a planned decrease in outsourced professional services of $399,508.
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Other (Expense) Income
For the years ended December 31, 2024 and 2023, other expenses, net, were $2,288,670 and $1,281,610, respectively, representing an increase of $1,007,060 or 79%. The change is primarily attributable to an increase of $718,826 for the unrealized loss on Bitcoin holdings, an increase of $421,429 for amortization of debt discount in connection with merchant cash advances, an increase of $395,817 for the change in fair value of accrued issuable equity, partially offset by a decrease of $508,603 in interest expense due to the full repayment of the prepaid advance liability on March 27, 2024.
Our Bitcoin Acquisition Strategy
In December 2024, we adopted bitcoin as our primary treasury reserve asset on an ongoing basis, subject to market conditions and our anticipated cash needs. Our strategy includes acquiring and holding bitcoin using cash that exceeds our working capital requirements, and from time to time, subject to market conditions, issuing equity or debt securities or engaging in other capital raising transactions with the objective of using the proceeds to purchase bitcoin. For example, we began issuing shares under our “at-the-market” offering program in the second half of 2024, and used proceeds from this capital markets transaction to acquire bitcoin. We view our bitcoin holdings as long term holdings and expect to continue to accumulate bitcoin. We have not set any specific target for the amount of bitcoin we seek to hold, and we will continue to monitor market conditions in determining whether to engage in additional bitcoin purchases. This overall strategy also contemplates that we may periodically sell bitcoin for general corporate purposes or in connection with strategies that generate tax benefits in accordance with applicable law, enter into additional capital raising transactions, including those that could be collateralized by our bitcoin holdings, and consider pursuing strategies to create income streams or otherwise generate funds using our bitcoin holdings.
The following table presents a summary of our bitcoin holdings, including additional information related to our bitcoin purchases and change in fair value within the period.
Weighted
Approximate
Average Fair Value
Digital Assets (1)
Bitcoin Held
Per Bitcoin (in $)
Beginning balance at January 1, 2024
$
—
—
$
—
Fair value of digital assets purchased
20,968,557
217.18
96,551
Cost to acquire digital assets
31,453
Cost basis of digital assets held
21,000,010
Change in fair value of digital assets
(718,826)
Balance as of December 31, 2024
$
20,281,184
217.18
$
93,384
(1) The source of capital used to purchase Bitcoin was primarily proceeds from ATM offerings.
Liquidity and Capital Resources
As of December 31, 2024 and 2023, we had cash balances of $29,831,858 and $1,194,764, respectively, and working capital (deficit) of $29,498,421 and $(2,994,753), respectively. As of December 31, 2024 and 2023, we had Bitcoin holdings of $20,281,184 and $0, respectively.
For the years ended December 31, 2024 and 2023, cash used in operating activities was $17,341,675 and $11,965,387, respectively. Our cash used in operations for the year ended December 31, 2024 was primarily attributable to our net loss of $17,523,629, adjusted for non-cash expenses in the aggregate amount of $7,087,296, as well as $6,905,342 of net cash used to fund changes in the levels of operating assets and liabilities. Our cash used in operations for the year ended December 31, 2023 was primarily attributable to our net loss of $23,693,556, adjusted for non-cash expenses in the aggregate amount of $6,841,833, as well as $4,886,336 of net cash generated by changes in the levels of operating assets and liabilities.
For the years ended December 31, 2024 and 2023, cash used in investing activities was $21,596,192 and $1,046,113, respectively. Cash used in investing activities during the year ended December 31, 2024 was related to investments in digital assets of $21,000,010, purchases of property and equipment of $573,444 and deposits paid for purchases of property and equipment of $22,738. Cash used in investing activities during the year ended December 31, 2023 was related to deposits paid for purchases of property and equipment of $644,963, purchases of property and equipment of $266,150, and an acquisition of intangible assets of $135,000.
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For the years ended December 31, 2024 and 2023, cash provided by financing activities was $67,574,961 and $3,872,701, respectively. Financing activities during the year ended December 31, 2024 was primarily due to net proceeds from ATM equity financing totaling $60,131,816, proceeds from SEPA Advance Notices totaling $9,104,949, net proceeds from notes payable totaling $2,563,900, and proceeds from the exercise of stock options totaling $23,455, partially offset by notes payable repayments of $3,341,597, repurchase of common stock of $500,000, and payments for deferred financing costs of $406,109. Financing activities during the year ended December 31, 2023 consisted primarily of net proceeds from equity financing totaling $3,456,950, net proceeds from prepaid advance liability debt financing totaling $1,970,000, and proceeds from notes payable of $250,000, partially offset by debt repayments totaling $1,575,000 and the repurchase of common stock totaling $229,249.
As of December 31, 2024, future cash requirements for our current liabilities include $3,199,961 for accounts payable and accrued expenses, $599,425 for secured promissory notes and $495,931 for future payments under operating and finance leases. Future cash requirements for long-term liabilities include $822,602 for future payments under operating and finance leases.
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. We have a history of recurring net losses, recurring use of cash in operations and declining working capital. During the year ended December 31, 2024, the Company received gross proceeds of $61,912,798 pursuant to the ATM. Given our December 31, 2024 cash, Bitcoin and working capital balances, there is no substantial doubt about the Company’s ability to meet its obligations as they become due within the twelve months from the date these consolidated financial statements are available to be issued.
While no assurance can be provided that we will be successful in raising additional capital from the ATM. During the year ended December 31, 2024, we received aggregate gross proceeds of $61,912,798. During the period from January 1, 2025 through March 27, 2025, the Company issued 19,387,610 shares of common stock for gross proceeds of $51,122,190 pursuant to the ATM.
As of March 27, 2025, our cash and Bitcoin balances were approximately $25 million and $58 million, respectively.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on financial conditions, changes in financial conditions, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Critical Accounting Estimates
We prepare our 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: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are items within our financial statements that require estimation but are not deemed critical, as defined above.
Recently Issued Accounting Pronouncements
See Note 2 – Summary of Significant Accounting Policies of our consolidated financial statements included within this Annual Report for a summary of recently issued and adopted accounting pronouncements.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company, as defined by Rule 229.10(f)(1) and are not required to provide the information required by this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See “Index to Consolidated Financial Statements” which appears on page F-1 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.