UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended:
OR
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
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As of August 11, 2022, there were
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022
TABLE OF CONTENTS
2
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | ||||
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| 2022 |
| 2021 | ||
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Assets |
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Current Assets: |
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Cash | $ | | $ | | ||
Accounts receivable |
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Inventory |
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Prepaid expenses and other current assets |
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Total Current Assets |
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Property and equipment, net |
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Vendor deposits | | | ||||
Security deposits | | | ||||
Intangible assets, net | | | ||||
Right of use asset | | | ||||
Deferred financing costs | | | ||||
Total Assets | $ | | $ | | ||
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Liabilities and Stockholders' Equity |
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Current Liabilities: |
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Accounts payable | $ | | $ | | ||
Accrued expenses and other current liabilities |
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Accrued issuable equity | | | ||||
Lease liability, current portion | | | ||||
Loan payable, current portion | | | ||||
Deferred revenue | | | ||||
Notes payable, net of debt discount | | | ||||
Total Current Liabilities |
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Lease liability, non-current portion | | | ||||
Loan payable, non-current portion | | | ||||
Total Liabilities | | | ||||
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Commitments and contingencies (Note 10) |
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Stockholders' Equity |
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Preferred stock, $ |
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Series A Preferred Stock, | | | ||||
Series B Convertible Preferred Stock, |
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Series C Preferred Stock, | | | ||||
Series D Preferred Stock, | | | ||||
Common stock, $ |
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Additional paid-in capital |
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Treasury stock, at cost; | ( | | ||||
Accumulated deficit |
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Total Stockholders' Equity |
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Total Liabilities and Stockholders' Equity | $ | | $ | | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months Ended | For the Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
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| 2021 |
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Revenue | $ | | $ | | $ | | $ | | ||||
Cost of revenue |
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Gross Profit |
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Operating Expenses |
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Research and development |
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Selling, general, and administrative |
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Total Operating Expenses |
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Loss From Operations |
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Other (Expense) Income |
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Interest expense, net |
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Debt redemption costs | — | ( | — | ( | ||||||||
Amortization of debt discount | ( | ( | ( | ( | ||||||||
Change in fair value of accrued issuable equity | | | | ( | ||||||||
Total Other (Expense) Income, net |
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Net Loss | ( | ( | ( | ( | ||||||||
Deemed dividend to Series D preferred stockholders | — | ( | — | ( | ||||||||
Net Loss Attributable to Common Stockholders | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Net Loss Per Share |
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- Basic and Diluted | ( | ( | ( | ( | ||||||||
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Weighted Average Number of Common Shares Outstanding |
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- Basic and Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 | |||||||||||||||||||
Additional | Total | ||||||||||||||||||
Common Stock | Paid-In | Treasury Stock | Accumulated | Stockholders' | |||||||||||||||
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| Shares |
| Amount |
| Capital |
| Shares |
| Amount |
| Deficit |
| Equity | |||||
Balance - January 1, 2022 |
| | $ | | $ | | — | $ | — | $ | ( | $ | | ||||||
Treasury stock held upon the vesting of restricted common stock | — | | | | ( | | ( | ||||||||||||
Common stock issued upon the exercise of warrants |
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Common stock issued upon the exercise of options | | | | — | — | | | ||||||||||||
Stock-based compensation: | |||||||||||||||||||
Common stock issued for services | | | | — | — | | | ||||||||||||
Amortization of restricted common stock | — | | | — | — | | | ||||||||||||
Amortization of stock options | — | | | — | — | | | ||||||||||||
Amortization of market-based awards | — | | | — | — | | | ||||||||||||
Net loss | — | | | — | — | ( | ( | ||||||||||||
Balance - March 31, 2022 |
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Treasury stock issued upon the exercise of options | — | | ( | ( | | | | ||||||||||||
Common stock issued upon the exercise of warrants | | | | — | — | | | ||||||||||||
Stock-based compensation: | |||||||||||||||||||
Common stock issued for services | | | | — | — | | | ||||||||||||
Amortization of restricted common stock | — | | | — | — | | | ||||||||||||
Amortization of stock options | — | | | — | — | | | ||||||||||||
Amortization of market-based awards | — | | | — | — | | | ||||||||||||
Net loss | — | | | — | — | ( | ( | ||||||||||||
Balance - June 30, 2022 |
| | $ | | $ | | | $ | ( | $ | ( | $ | | ||||||
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 | ||||||||||||||||||||||||
Series B Convertible | Series D Convertible | Additional | Total | |||||||||||||||||||||
Preferred Stock | Preferred Stock | Common Stock | Paid-In | Accumulated | Stockholders' | |||||||||||||||||||
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| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity | ||||||
Balance - January 1, 2021 |
| | $ | | — | $ | — | | $ | $ | $ | ( | $ | | ||||||||||
Common stock issued upon conversion of Series B Convertible Preferred Stock |
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Stock-based compensation: | ||||||||||||||||||||||||
Common stock issued for services |
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Restricted common stock issued | — | — | — | — | | | ( | — | — | |||||||||||||||
Amortization of restricted common stock |
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Amortization of stock options | — | — | — | — | — | — | | — | | |||||||||||||||
Amortization of market-based awards | — | — | — | — | — | — | | — | | |||||||||||||||
Net loss |
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Balance - March 31, 2021 | — | — | — | — | | | ( | | ||||||||||||||||
Issuance of Series D Convertible Preferred Stock, Common Stock, and warrants for cash (1) | — | — | | — | | | | — | | |||||||||||||||
Common stock issued upon the conversion of Series D Convertible Preferred Stock | — | — | ( | — | | | ( | — | — | |||||||||||||||
Common stock issued upon the exercise of warrants | — | — | — | — | | | | — | | |||||||||||||||
Stock-based compensation: | ||||||||||||||||||||||||
Common stock issued for services | — | — | — | — | | | | — | | |||||||||||||||
Restricted common stock issued | — | — | — | — | | | ( | — | — | |||||||||||||||
Amortization of restricted common stock | — | — | — | — | — | — | | — | | |||||||||||||||
Amortization of stock options | — | — | — | — | — | — | | — | | |||||||||||||||
Amortization of market-based awards | — | — | — | — | — | — | | — | | |||||||||||||||
Net loss | — | — | — | — | — | — | — | ( | ( | |||||||||||||||
Balance - June 30, 2021 | — | $ | — | — | $ | — | | $ | | $ | | $ | ( | $ | | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Months Ended | ||||||
June 30, | ||||||
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| 2022 |
| 2021 | ||
Cash Flows From Operating Activities: |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Amortization of debt discount | | | ||||
Non-cash lease expense | | | ||||
Depreciation and amortization expense |
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Change in fair value of accrued issuable equity | ( | | ||||
Stock-based compensation |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventory |
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Prepaid expenses and other current assets |
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Security deposits | | ( | ||||
Right of use asset | | | ||||
Accounts payable |
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Accrued expenses and other current liabilities |
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Lease liability | ( | ( | ||||
Deferred revenue | ( | | ||||
Total Adjustments |
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Net Cash Used In Operating Activities | ( |
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Cash Flows From Investing Activities: | ||||||
Vendor deposits for property and equipment | ( | | ||||
Purchases of property and equipment | ( | ( | ||||
Net Cash Used In Investing Activities | ( | ( | ||||
Cash Flows from Financing Activities: |
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Repayments of notes payable |
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Proceeds from notes payable (1) | | | ||||
Payment of issuance costs | ( | | ||||
Payment of financing costs incurred in connection with the SEPA | ( | | ||||
Proceeds from the sale of Series D convertible preferred stock, common stock and warrants | | | ||||
Proceeds from the exercise of options | | | ||||
Proceeds from the exercise of warrants | | | ||||
Payment of financing costs | | ( | ||||
Net Cash Provided By Financing Activities |
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Net (Decrease) Increase In Cash |
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Cash - Beginning of Period |
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Cash - End of Period | $ | | $ | | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(unaudited)
For the Six Months Ended | ||||||
| June 30, | |||||
| 2022 |
| 2021 | |||
Supplemental Disclosures of Cash Flow Information: |
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Cash paid during the period for: | ||||||
Interest | $ | | $ | | ||
Non-cash investing and financing activities: | ||||||
Right of use asset for lease liability | $ | | $ | | ||
Beneficial conversion feature on Series D convertible preferred stock | $ | — | $ | | ||
Common stock issued upon the conversion of Series D convertible preferred stock | $ | — | $ | | ||
Common stock held in treasury upon the vesting of restricted common stock | $ | ( | $ | | ||
Common stock issued upon the conversion of Series B Convertible Preferred Stock | $ | — | $ | | ||
Treasury stock issued upon the exercise of stock options | $ | | $ | | ||
Receivable recorded for pending cash deposit of stock option exercise proceeds | $ | | $ | | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 ORGANIZATION, NATURE OF OPERATIONS AND RISKS AND UNCERTANTIES
Organization and Operations
KULR Technology Group, Inc., through its wholly-owned subsidiary, KULR Technology Corporation (collectively referred to as “KULR” or the “Company”), develops and commercializes high-performance thermal management technologies for electronics, batteries, and other components across a range of applications. Currently, the Company is focused on targeting both high performance aerospace and Department of Defense (“DOD”) applications, such as satellite communications, directed energy systems and hypersonic vehicles, and applying them to mass market commercial applications, such as lithium-ion battery energy storage, electric vehicles, 5G communication, cloud computer infrastructure, consumer and industrial devices.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the operating results for the full year ending December 31, 2022 or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 2021 and for the year then ended, which were filed with the Securities and Exchange Commission (“SEC”) on Form 10-K on March 28, 2022.
Risks and Uncertainties
In March 2020, the World Health Organization declared COVID-19, a novel strain coronavirus, a pandemic. During 2020 and continuing into 2022, the global economy has been, and continues to be, affected by COVID-19. While the Company continues to see signs of economic recovery as certain governments begin to gradually ease restrictions, provide economic stimulus and accelerate vaccine distribution, the rate of recovery on a global basis has been affected by resurgence of the virus or its variants in certain jurisdictions. For example, in response to an outbreak of infection in Shanghai, beginning in March 2022, governmental authorities in China implemented a lockdown order in that city, significantly slowing economic and business activity in that region. We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities and may take additional actions based on their recommendations and requirements or as we otherwise see fit to protect the health and safety of our employees, customers, partners and suppliers.
The full extent of the future impact of COVID-19 on the Company’s operations and financial condition is uncertain. Accordingly, COVID-19 could have a material adverse effect on the Company’s business, results of operations, financial condition and prospects during 2022 and beyond, including the demand for its products, interruptions to supply chains, ability to maintain regular research and development and manufacturing schedules as well as the capability to meet customer demands in a timely manner. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
8
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Since the date of the Annual Report on Form 10-K for the year ended December 31, 2021, there have been no material changes to the Company’s significant accounting policies, except as disclosed in this note.
Liquidity
During April 2022, the Company received an aggregate of $
As of June 30, 2022, the Company had cash of $
While the Company anticipates it will continue to incur operating losses and use cash in operating activities for the foreseeable future, the Company believes that its current working capital, combined with the cash availability pursuant to the Standby Equity Purchase Agreement, is sufficient in comparison to its anticipated cash usage for a period of at least twelve months after the filing date of these financial statements.
Use of Estimates
Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial statements. The Company’s significant estimates used in these unaudited condensed consolidated financial statements include, but are not limited to, fair value calculations for equity securities, stock-based compensation and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consisted primarily of cash, accounts receivable, revenue and accounts payable.
Cash Concentrations
A significant portion of the Company’s cash is held at one major financial institution. The Company has not experienced any losses in such accounts. Cash held in US bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $
9
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Customer and Revenue Concentrations
The Company had certain customers whose revenue individually represented 10% or more of the Company's total revenue, or whose accounts receivable balances individually represented 10% or more of the Company's total accounts receivable, as follows:
Revenues | Accounts Receivable |
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For the Three Months Ended | For the Six Months Ended |
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June 30, | June 30, | As of |
| As of |
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| 2022 |
| 2021 |
| 2022 |
| 2021 |
| June 30, 2022 | December 31, 2021 |
| |
Customer A |
| * | | % | | % | | % | * | | % | ||
Customer B |
| | % | * | | % | * | | % | * | |||
Customer C |
| | % | * | | % | * | | % | | % | ||
Customer D |
| * | | % | * | | % | * | * | ||||
Customer E |
| * | * | * | | % | * | * | |||||
Customer F |
| * | * | | % | * |
| * | * | ||||
Customer G | * | * | * | * | * | | % | ||||||
Total |
| | % | | % | | % | | % | | % | | % |
* | Less than 10% |
There is no assurance the Company will continue to receive significant revenues from any of these customers. Any reduction or delay in operating activity from any of the Company’s significant customers, or a delay or default in payment by any significant customer, or termination of agreements with significant customers, could materially harm the Company’s business and prospects. As a result of the Company’s significant customer concentrations, its gross profit and results from operations could fluctuate significantly due to changes in political, environmental, or economic conditions, or the loss of, reduction of business from, or less favorable terms with any of the Company’s significant customers.
Vendor Concentrations
Vendor concentrations are as follows for the three and six months ended June 30, 2022 and 2021, respectively:
For the Three Months Ended |
| For the Six Months Ended | |||||||
| June 30, |
| June 30, | ||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||
Vendor A |
| | % | * | | % | * | ||
Vendor B |
| * | | % | * |
| | % | |
Vendor C |
| * | * | * | | % | |||
Vendor D |
| * | * | | % | * | |||
| | % | | % | | % | | % | |
* | Less than 10% |
Inventory
Inventory is comprised of carbon fiber velvet (“CFV”) thermal interface solutions and internal short circuit batteries, which are available for sale. Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out method. The cost of inventory that is sold to third parties is included within cost of sales and the cost of inventory that is given as samples is included within operating expenses. The Company periodically reviews for slow-moving, excess or obsolete inventories. Products that are determined to be obsolete, if any, are written down to net realizable value.
10
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Inventory at June 30, 2022 and December 31, 2021 was comprised of the following:
| June 30, |
| December 31, | |||
2022 | 2021 | |||||
Work-in-process | $ | | $ | | ||
Finished goods |
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Total inventory | $ | | $ | | ||
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.
The following five steps are applied to achieve that core principle:
| ● | Step 1: Identify the contract with the customer; |
| ● | Step 2: Identify the performance obligations in the contract; |
| ● | Step 3: Determine the transaction price; |
| ● | Step 4: Allocate the transaction price to the performance obligations in the contract; and |
| ● | Step 5: Recognize revenue when the company satisfies a performance obligation. |
The Company recognizes revenue primarily from the following different types of contracts:
| ● | Product sales – Revenue is recognized at the point in time the customer obtains control of the goods and the Company satisfies its performance obligation, which is generally at the time it ships the product to the customer. |
| ● | Contract services – Revenue is recognized at the point in time that the Company satisfies its performance obligation under the contract, which is generally at the time the services are fulfilled and/or accepted by the customer. |
The following table summarizes the Company’s revenue recognized in its consolidated statements of operations:
For the Three Months Ended | For the Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Product sales | $ | | $ | | $ | | $ | | ||||
Contract services |
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| |
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Total revenue | $ | | $ | | $ | | $ | | ||||
As of June 30, 2022 and December 31, 2021, respectively, the Company had $
11
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As of June 30, 2022 and December 31, 2021, the Company had $
Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common and dilutive common-equivalent shares outstanding during each period.
The following table presents the computation of basic and diluted net loss per common share:
| For the Three Months Ended |
| For the Six Months Ended | |||||||||
June 30, | June 30, | |||||||||||
2022 |
| 2021 | 2022 |
| 2021 | |||||||
Numerator: |
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Net loss attributable to common stockholders | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Denominator: |
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Weighted-average common shares outstanding |
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Less: weighted-average unvested restricted shares |
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Add: weighted average accrued issuable equity |
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Denominator for basic and diluted net loss per share | | | | | ||||||||
Net loss per share: |
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Basic and diluted | ( | ( | ( | ( | ||||||||
The following shares were excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:
| June 30, | |||
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| 2022 |
| 2021 |
Unvested restricted stock | | | ||
Unvested market -based equity awards | | | ||
Options |
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Warrants | | | ||
Total |
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| |
Recently Adopted Accounting Pronouncements
In October 2020, the FASB issued ASU 2020-10 “Codification Improvements”, which improves consistency by amending the Codification to include all disclosure guidance in the appropriate disclosure sections and clarifies application of various provisions in the Codification by amending and adding new headings, cross referencing to other guidance, and refining or correcting terminology. The guidance is effective for the Company beginning in the first quarter of fiscal year 2022 with early adoption permitted. The Company adopted ASU 2020-10 effective January 1, 2022 and its adoption did not have a material impact on its condensed consolidated financial statements.
12
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Issuers should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption is permitted, including adoption in an interim period. If an issuer elects to early adopt the new standard in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company adopted ASU 2021-04 effective January 1, 2022 and its adoption did not have a material impact on its condensed consolidated financial statements.
NOTE 3 PREPAID EXPENSES AND OTHER CURRENT ASSETS
As of June 30, 2022 and December 31, 2021, prepaid expenses and other current assets consisted of the following:
| June 30, |
| December 31, | |||
| 2022 |
| 2021 | |||
Marketing | $ | | $ | | ||
Inventory deposits | | | ||||
Professional fees | | | ||||
Subscriptions | | | ||||
Insurance | | | ||||
Other | | | ||||
Deferred labor costs | | | ||||
Receivable for option exercise | | | ||||
Total prepaid expenses | $ | | $ | | ||
Prepaid marketing costs consist of two sponsorship agreements with a marketing partner whereby the Company is required to make upfront payments. These agreements expire in September 2022 and December 2022. As of June 30, 2022, total prepayments made towards such contracts were $
NOTE 4 VENDOR DEPOSITS
The Company entered into agreements with third party contractors for facility improvements, the design and build of a battery packaging and inspection automation system, and automated robotic tending system.
As of June 30, 2022, the Company had outstanding deposits of $
13
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 5 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
As of June 30, 2022 and December 31, 2021, accrued expenses and other current liabilities consisted of the following:
| June 30, | December 31, | ||||
|
| 2022 |
| 2021 | ||
Legal and professional fees | $ | | $ | | ||
Payroll and vacation | | | ||||
Research and development |
| |
| | ||
Board compensation | | | ||||
Other |
| |
| | ||
Marketing and advertising fees | | | ||||
Accrued cost of sales | | | ||||
Total accrued expenses and other current liabilities | $ | | $ | | ||
NOTE 6 ACCRUED ISSUABLE EQUITY
A summary of the accrued issuable equity activity during the six months ended June 30, 2022 is presented below:
For the Six Months Ended | |||
| June 30, 2022 | ||
Beginning Balance | $ | | |
Additions | | ||
Cancelled accrued issuable equity obligations | ( | ||
Mark-to market | ( | ||
Ending Balance | $ | | |
Accrued Issuable Equity for Services
During the six months ended June 30, 2022, the Company entered into certain contractual arrangements for services in exchange for a fixed number of shares of common stock of the Company. On the respective dates the contracts were entered into, the estimated fair value of the shares to be issued was an aggregate of $
During the six months ended June 30, 2022, the Company cancelled certain of its accrued issuable equity obligations of an aggregate of
During the six months ended June 30, 2022, the Company recorded an aggregate of $
NOTE 7 LEASES
The Company leases office space in San Diego, California. During the three and six months ended June 30, 2022, operating lease expense was $
14
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Maturities of lease liabilities as of June 30, 2022 were as follows:
Maturity Date |
|
| |
July 1 through December 31, 2022 | $ | | |
2023 |
| | |
2024 |
| | |
Total lease payments |
| | |
Less: Imputed interest |
| ( | |
Present value of lease liabilities |
| | |
Less: current portion |
| ( | |
Lease liabilities, non-current portion | $ | |
Supplemental cash flow information related to the lease was as follows:
| For the Six Months Ended | ||
| June 30, 2022 | ||
Cash paid for amounts included in the measurement of lease liabilities | |||
Operating cash flows from operating lease | $ | | |
NOTE 8 NOTES AND LOANS PAYABLE
Note Purchase Agreement
On May 13, 2022, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with YAII PN, Ltd., a Cayman Island exempt limited partnership (the “Investor”), pursuant to which the Investor purchased a full recourse promissory note with an initial principal amount equal to $
A summary of notes payable activity during the six months ended June 30, 2022 is presented below:
| Notes |
| Debt |
|
| ||||
Payable | Discount | Total | |||||||
Balance, January 1, 2022 | $ | | $ | | $ | | |||
Proceeds from promissory note |
| |
| — |
| | |||
Debt discount |
| — |
| ( |
| ( | |||
Amortization of debt discount |
| — |
| |
| | |||
Outstanding, June 30, 2022 | $ | | $ | ( | $ | | |||
Paycheck Protection Program Loan
On April 27, 2020, the Company received approximately $
15
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Under the terms of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020, the Company is eligible to apply for and receive forgiveness for all or a portion of their respective PPP Loans. Such forgiveness will be determined, subject to limitations, based on the use of the loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs (as defined under the PPP) and mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”) incurred during the 24 weeks subsequent to funding, and on the maintenance of employee and compensation levels, as defined, following the funding of the PPP Loan.
The initial term of the loan was
NOTE 9 STOCKHOLDERS’ EQUITY
Standby Equity Purchase Agreement
On May 13, 2022, KULR Technology Group, Inc. (the “Company”) entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd. (“Yorkville”). Pursuant to the SEPA, the Company shall have the right, but not the obligation, to sell to Yorkville up to $
Common Stock
During March 2022, the Company issued an aggregate of
During April 2022, the Company issued an aggregate of
16
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
During the three and six months ended June 30, 2022, the Company issued an aggregate of
During the six months ended June 30, 2022, the Company issued an aggregate of
Treasury Stock
The 2018 KULR Technology Group Equity Incentive Plan (the “Plan”) allows for the grant of non-vested stock options, RSUs and RSAs to the Company’s employees pursuant to the terms of the Plan. Under the provision of the Plan, unless otherwise elected, participants fulfill their related income tax withholding obligation by having shares withheld at the time of vesting. The shares withheld are then transferred to the Company’s treasury stock at cost. During the six months ended June 30, 2022, the Company withheld
Warrants
A summary of warrants activity during the six months ended June 30, 2022 is presented below:
Weighted | Weighted | |||||||||
Average | Average | |||||||||
Number of | Exercise | Remaining | Intrinsic | |||||||
| Warrants |
| Price |
| Term (Yrs) |
| Value | |||
Outstanding, January 1, 2022 |
| | $ | |
|
|
|
| ||
Issued |
| |
| |
|
|
|
| ||
Exercised |
| ( |
| ( |
|
|
|
| ||
Expired |
| — |
| — |
|
|
|
| ||
Forfeited |
| — |
| — |
|
|
|
| ||
Outstanding, June 30, 2022 |
| | $ | |
| $ | | |||
Exercisable, June 30, 2022 |
| | $ | |
| $ | | |||
See the Common Stock discussion above for additional information.
A summary of outstanding and exercisable warrants as of June 30, 2022 is presented below:
Warrants Outstanding | Warrants Exercisable | ||||||
Weighted | |||||||
Outstanding | Average | Exercisable | |||||
Exercise | Number of | Remaining Life | Number of | ||||
Price |
| Warrants |
| In Years |
| Warrants | |
$ | |
| |
|
| | |
$ | |
| |
|
| | |
| |
|
| | |||
17
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Stock Options
The Company has computed the fair value of stock options granted using the Black-Scholes option pricing model. In applying the Black-Scholes option pricing model, the Company used the following assumptions:
For The Six Months Ended | |||||
| June 30, |
| |||
| 2022 |
| 2021 |
| |
Risk free interest rate | % | | % | ||
Expected term (years) | |||||
Expected volatility | | % | % | ||
Expected dividends | % | % | |||
For the six months ended June 30, 2022 and 2021, the weighted average grant date fair value per share of options was $
A summary of options activity (excluding Market-Based Awards) during the six months ended June 30, 2022 is presented below:
|
| Weighted |
| Weighted |
|
| ||||
Average | Average | |||||||||
Number of | Exercise | Remaining | Intrinsic | |||||||
| Options |
| Price |
| Term (Yrs) |
| Value | |||
Outstanding, January 1, 2022 |
| | $ | |
|
|
|
| ||
Granted |
| |
| |
|
|
|
| ||
Exercised |
| ( |
| |
|
|
|
| ||
Expired |
| — |
| — |
|
|
|
| ||
Forfeited |
| ( |
| |
|
|
|
| ||
Outstanding, June 30, 2022 |
| | $ | |
| $ | | |||
Exercisable, June 30, 2022 |
| | $ | |
| $ | | |||
The following table presents information related to stock options (excluding market-based option awards) as of June 30, 2022:
Options Outstanding | Options Exercisable | ||||||
Weighted |
| ||||||
Outstanding | Average | Exercisable | |||||
Exercise | Number of | Remaining Life | Number of | ||||
Price |
| Options |
| In Years |
| Options | |
$ | |
| |
|
| | |
$ | | | — | — | |||
$ | | | — | — | |||
$ | | | | ||||
$ | | | | ||||
$ | |
| |
|
| | |
$ | | | | ||||
$ | | | | ||||
$ | | | |||||
$ | | | — | — | |||
$ | | | | ||||
$ |
| |
|
| | ||
| | ||||||
18
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As of June 30, 2022, there was $
Restricted Common Stock
The following table presents information related to restricted common stock (excluding Market-Based Awards) as of June 30, 2022:
Weighted Average | |||||
Grant Date | |||||
Shares of Restricted | Fair Value | ||||
| Common Stock |
| Per Share | ||
Non-vested balance, January 1, 2022 |
| | $ | | |
Granted |
| |
| | |
Vested |
| ( |
| | |
Non-vested shares, June 30, 2022 |
| | $ | | |
As of June 30, 2022, there was $
Market-Based Awards
The following table presents information related to market-based awards outstanding as of June 30, 2022:
Number of | Grant Date | ||||
Award |
| Shares |
| Fair Value | |
Restricted stock units |
| | $ | | |
Stock options |
| |
| | |
Total |
| | $ | | |
The grant date value for the market-based awards is being amortized over the derived service periods of the awards. As of June 30, 2022, there was $
As of June 30, 2022,
Stock-Based Compensation
During the three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of $
19
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following table presents information related to stock-based compensation for the three months ended June 30, 2022 and 2021:
| For The Three Months Ended | For The Six Months Ended | ||||||||||
| June 30, | June 30, | ||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Common stock for services | $ | | $ | | $ | | $ | | ||||
Amortization of restricted common stock |
| |
| |
| |
| | ||||
Amortization of market-based awards |
| |
| |
| |
| | ||||
Stock options |
| |
| |
| |
| | ||||
Accrued issuable equity (common stock) | | | ( | | ||||||||
Total | $ | | $ | | $ | | $ | | ||||
NOTE 10 COMMITMENTS AND CONTINGENCIES
Sponsorship Agreement
On June 15, 2022, the Company amended the Second Sponsorship Agreement (see Note 3 - Prepaid Expenses and Other Current Assets) to extend the term through December 31, 2023. The agreement provides the Company with the right to publicize and highlight the sponsorship and display its name and logo during certain events and use digital marketing and social media platforms throughout the 2023 calendar year. The Company has committed to pay an aggregate of $
20
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 2022 and 2021 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. 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 Quarterly 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 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 the Li-ion battery energy storage and recycling markets, 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.
In June, KULR achieved significant milestone in executing this strategy by securing an initial order for over 75 megawatt hours (“MWh”) of Li-ion battery cell capacity from Taiwan’s E-One Moli Energy Corporation (“Molicel”) to design and build battery applications with the highest safety ratings. As part of the strategic relationship, KULR would purchase over 700MWh of battery energy capacity to further accelerate its production and supply chain localization initiatives within North America. Securing this Molicel battery cell supply accelerates our ability to provide total solutions to high value customer applications with revenue potential that could exceed $350 million.
Through the partnership with Molicel, KULR will apply a holistic and comprehensive solution to battery safety and thermal energy management with a suite of technologies including its: Passive Propagation Resistant (“PPR”) design and testing, Internal Short Circuit (“ISC”) trigger cells, Fractional Thermal Runaway Calorimeter (“FTRC”) testing and AI-powered CellCheck battery management system, to target the following markets:
| ● | Aerospace and defense systems, such as CubeSat batteries meeting JSC 20793 safety requirements and the strategic battery reserve program initiated by NASA |
| ● | Energy storage systems |
| ● | High-performance electric vehicles and electric vertical take-off and landing (“eVOTL”) |
| ● | Premium industrial and consumer electronics |
21
Recent Developments
Sales and Marketing
The KULR Sales and Marketing group further expanded with the onboarding of a Director of Product Marketing, Internal Sales Manager, and Technical Sales Lead. These individuals bring over 60+ years of experience to the KULR team and will bring more focus on sales related to energy storage and recycling. Additionally, KULR has added an additional Manufacturer’s Representative team to support East Coast sales. With the increase in product platforms and expanded sales and marketing capabilities, KULR now has in excess of 300 customers in our active sales funnel.
The Sales team were successful in landing four major commercial accounts for our SafeCase products with deployment trials underway. Additionally, with support of our major recycling partner, KULR were able to obtain UPS permits allowing for shipment of batteries utilizing the KULR SafeCase products. This is a major milestone for the expansion of SafeCase utilization.
Additionally, KULR received a follow-on order for the space-developed phase change material (“PCM”) heat sink technology from leading aerospace and defense company Lockheed Martin Corporation.
Operations and HR
The KULR organization took a tremendous leap forward in completing ISO 9001 certification for our San Diego headquarter facility during the quarter. This is an exceptional accomplishment for the team and demonstrates KULR’s dedication is pursuit of manufacturing excellence and operational controls.
Our fully automated battery testing capability has begun installation with initial processing capabilities of approximately 500,000 18650/21700 cells annually in support of NASA WI-37. System installation will complete in Q3’22 with full capacity processing initiating in Q4’22. This capability will be used to support NASA and DOD battery cell deployments as well as for internal demands related to KULR qualified cells deployments.
KULR hired an additional 10 permanent employees during the second quarter and maintains an outsource strategy for software development and volume TRS manufacturing. We have 42 full-time and two part-time employees as of June 30, 2022.
COVID-19
In March 2020, the World Health Organization declared COVID-19, a novel strain coronavirus, a pandemic. During 2020 and continuing into 2022, the global economy has been, and continues to be, affected by COVID-19. While the Company continues to see signs of economic recovery as certain governments begin to gradually ease restrictions, provide economic stimulus and accelerate vaccine distribution, the rate of recovery on a global basis has been affected by resurgence of the virus or its variants in certain jurisdictions. Although recent cases and deaths from the COVID-19 pandemic have generally declined in the United States, spread of COVID-19 in China recently resulted in a temporary lockdown covering all of Shanghai, China where our manufacturing partner has its headquarter. During the first quarter of 2022, we experienced significant impact to our business due to the COVID-19 lockdown in China. As of March 2022, inventory in excess of $325,000 could not be shipped due to the COVID-19 lockdown in Shanghai. The product was shipped, and revenue was recognized during the second quarter. COVID-related challenges have resulted in delays in product shipment, not cancellations. As restrictions ease in the coming months, we expect to make up for lost time and revenue as we move through our sizeable inventory. We are currently taking active steps to direct our production and supply chain activities to North America to geographically diversify and potentially reduce further COVID-19 impacts.
The full extent of the future impact of COVID-19 on the Company’s operations and financial condition is uncertain. Accordingly, COVID-19 could have a material adverse effect on the Company’s business, results of operations, financial condition and prospects during 2022 and beyond, including the demand for its products, interruptions to supply chains, ability to maintain regular research and development and manufacturing schedules, as well as the capability to meet customer demands in a timely manner. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
22
Financing Activities
On May 13, 2022, we entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd. (“Yorkville”). Pursuant to the SEPA, the Company shall have the right, but not the obligation, to sell to Yorkville up to $50,000,000 of its shares of common stock any time during the commitment period commencing on May 13, 2022 and terminating on the earliest of (i) the first day of the month following the 24-month anniversary of the SEPA and (ii) the date on which Yorkville shall have made payment of any advances requested pursuant to the SEPA for shares of the Company’s common stock equal to the commitment amount of $50,000,000. Each sale the Company requests (an “Advance”) may be for a number of shares of common stock with an aggregate value of up to $5,000,000. The shares would be purchased at 98.0% of the Market Price (as defined in the SEPA) and would be subject to certain limitations. The Company agreed to file a prospectus supplement dated May 13, 2022 to the Company’s prospectus filed as part of the Registration Statement on Form S-3 that was declared effective on July 13, 2021. Concurrently with the SEPA, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with Yorkville, pursuant to which the Company issued to the Investor a promissory note with an initial principal amount equal to $5,000,000 (the “Promissory Note”) for which the Company received gross proceeds of $4,750,000. The Promissory Note carries an interest rate of 10% per annum and is payable in five monthly installments beginning on June 13, 2022.
The foregoing Is a summary description of certain terms of the SEPA, Note Purchase Agreement and Promissory Note. For a full description of all terms, please refer to the copies of the SEPA, the Note Purchase Agreement and the Promissory Note that are filed as Exhibit 10.1, Exhibit 10.2 and Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 16, 2022.
23
Results of Operations
Three and Six Months Ended June 30, 2022 Compared With Three and Six Months Ended June 30, 2021
Revenue
Our revenues consisted of the following types:
| For the Three Months Ended |
| For the Six Months Ended | |||||||||
| June 30, | June 30, | ||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Product sales | $ | 557,664 | $ | 577,360 | $ | 730,263 | $ | 755,609 | ||||
Contract services |
| 29,882 |
| 50,884 |
| 57,782 |
| 290,540 | ||||
Total revenue | $ | 587,546 | $ | 628,244 | $ | 788,045 | $ | 1,046,149 | ||||
For the three months ended June 30, 2022 and 2021, we generated $587,546 and $628,244 of revenues from 12 and 6 customers, respectively, representing a decrease of $40,698, or 6%. For the six months ended June 30, 2022 and 2021, we generated $788,045 and $1,046,149 of revenues, respectively, representing a decrease of $258,104, or 25%, resulting from three contracts received during the first quarter of 2021.
Revenue from product sales during the three months ended June 30, 2022 decreased by $19,696 or 3% compared to the three months ended June 30, 2021. Revenue from product sales during the six months ended June 30, 2022 decreased by $25,346 or 3% compared to the six months ended June 30, 2021. Product sales during these periods include sales of our component product, carbon fiber 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 three months ended June 30, 2022 decreased by approximately $21,002 or 41% compared to the three months ended June 30, 2021. Revenue from contract services during the six months ended June 30, 2022 decreased by approximately $232,758 or 80% compared to the six months ended June 30, 2021. The decrease in revenue for the six months ended June 30, 2022 is primarily attributable to three large DOD contracts received during the first quarter of 2021 generated $233,656 of revenues during the six months ended June 30, 2021. Our service revenues, which include certain research and development contracts and onsite engineering services, have not been hampered by restrictions arising from working under COVID-19 shelter-in-place regulations.
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, unpredictable, and lumpy, which can influence the timing, consistency and reporting of sales growth.
Cost of Revenues
Cost of revenues consisted of the cost of our products as well as labor expenses directly related to product sales or research contract services.
Generally, we earn greater margins on revenue from products as compared to revenue from services, so 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.
24
For the three months ended June 30, 2022 and 2021, cost of revenues was $423,672 and $439,206, respectively, representing an increase of $15,534, or 4%. The increase was primarily due to increased labor costs to produce finished goods, costs to procure component material for a new product line, and shipping costs from our foreign manufacturer. The gross margin percentage was 28% and 30% for the three months ended June 30, 2022 and 2021, respectively. The decrease in margins realized during the three months ended June 30, 2022 is primarily attributable to an increase in headcount for production, new costs related to material for our new Safe Case product, and shipping costs from our foreign manufacturers.
For the six months ended June 30, 2022 and 2021, cost of revenues was $546,590 and $714,474, respectively, representing a decrease of $167,884, or 23%. The decrease was primarily due to decreased costs as a result of decreased revenues. The gross margin percentage was 31% and 32% for the six months ended June 30, 2022 and 2021, respectively. The decrease in margins realized during the six months ended June 30, 2022 is primarily attributable to an increase in headcount for production, new costs for material for our new Safe Case product, and shipping costs from our foreign manufacturers.
Research and Development
Research and development (“RD”) includes expenses incurred in connection with the RD 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, 2022 and 2021, RD expenses were $999,484 and $352,741, respectively, representing an increase of $646,743 or 183%. The increase during 2022 was comprised primarily of $350,617 related to an increase in employee headcount spent on RD and three new projects for automation, battery and drone design initiated in 2021, $148,513 related to cell check design services, $74,024 related to product development for high-areal capacity battery electrodes and 3D-engineering for solid state rechargeable batteries, $37,000 related to software design services and $17,950 related to drone engineering services.
For the six months ended June 30, 2022 and 2021, RD expenses were $1,720,831 and $475,724, respectively, representing an increase of $1,245,107 or 262%. The increase is primarily comprised of $625,577 related to the increase in employee headcount spent on battery and drone design, $316,956 related to research in cell check technology, $222,020 related to research in solid state batteries and 3D engineering services, and $67,000 related to cell check design services.
We expect that our RD expenses will increase as we expand our future operations.
Selling, General and Administrative
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 June 30, 2022 and 2021, selling, general and administrative expenses were $4,326,162 and $2,723,303, respectively, an increase of $1,602,859, or 59%. The increase is primarily due to increases of approximately $530,484 in labor costs as a result of 25 new hires during the last twelve months, $515,984 for expanded marketing and advertising expenses, $130,389 for legal and professional services, $123,518 for office related expenses and supplies resulting from the increase in headcount, $94,904 for travel and entertainment expenses due to the lifting of COVID-19 restrictions, $37,913 for membership dues and subscriptions, $37,120 for depreciation expense primarily due to facility improvements and computer equipment for the increase in headcount, and $26,825 for directors and officers insurance.
For the six months ended June 30, 2022 and 2021, selling, general and administrative expenses were $7,861,085 and $4,216,114, respectively, an increase of $3,644,971, or 86%. The increase is primarily due to increases of approximately $1,052,004 in labor costs as a result of 25 new hires during the last twelve months, $809,991 for stock-based compensation issued to employees and consultants, $536,383 for expanded marketing and advertising expenses, $319,723 for legal and professional services, $149,000 for NYSE registration fees, $234,406 for office related expenses and supplies, $119,166 for travel and entertainment due to the lifting of COVID-19 restrictions, $76,200 for rent expense due to the execution of a new operating lease agreement during the period, $69,645 for depreciation expense primarily due to facility improvements, and computer equipment for the increase in headcount, and $55,479 for directors and officers insurance.
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Other (Expense) Income
For the three months ended June 30, 2022 and 2021, net other expense was $92,913 and $140,137, respectively, representing a decrease of $47,224 or 34%. The change is primarily attributable to the decrease in debt redemption costs of $140,000, and the change in fair value of accrued issuable equity of $31,977, partially offset by an increase in the amortization of the debt discount and interest expense recorded in connection with notes payable issued in 2022 of $83,145 and $41,608, respectively.
For the six months ended June 30, 2022 and 2021, net other expense was $50,779 and $381,703, respectively, representing a change of $330,924 or 87%. The change is primarily attributable to the change in fair value of accrued issuable equity of $207,594, the decrease in debt redemption costs of $140,000, and a decrease in the amortization of debt discount of $24,979, partially offset by an increase in interest expense of $41,649 recorded in connection with the notes payable issued in 2022.
Liquidity and Capital Resources
As of June 30, 2022 and December 2021, we had cash balances of $12,991,732 and $14,863,301, respectively, and working capital of $8,477,713 and $13,302,935, respectively.
On May 13, 2022, the Company issued a $5,000,000 Promissory Note to an investor for gross proceeds of $4,750,000. On the same date, the Company entered into the SEPA which gives the Company the right, but not the obligation, to sell up to $50,000,000 of its shares of common stock to the same investor during the commitment period. See Financing Activities under Recent Developments above for additional details.
For the six months ended June 30, 2022 and 2021, cash used in operating activities was $9,010,695 and $4,081,565, respectively. 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. Our cash used in operations for the six months ended June 30, 2021 was primarily attributable to our net loss of $4,741,866, adjusted for non-cash expenses in the aggregate amount of $1,723,843, and $1,063,542 of net cash used to fund changes in the levels of operating assets and liabilities.
For the six months ended June 30, 2022 and 2021, cash used in investing activities was $546,784 and $36,492, respectively. 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, 2022 and 2021, cash provided by financing activities was $7,685,910 and $7,397,500, respectively. Cash provided by financing activities during the six months ended June 30, 2022 was due to proceeds 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. Cash provided by financing activities during the six months ended June 30, 2021 was due to $6,500,000 of proceeds from the sale of preferred stock and $3,712,500 received in connection with the exercise of warrants, partially offset by the $2,450,000 of principal repayments on notes payable and $365,000 of financing costs paid during the period.
Future cash requirements for our current liabilities include approximately $5,056,744, of principal for the promissory note and loan payable, $2,087,402 for accounts payable and accrued expenses (including lease liabilities). The Company has also committed to spend $1,800,000 related to various sponsorship agreements, $981,648 related to capital expenditures for the construction of a new automation facility, $357,119 for automation and testing equipment, and $610,960 for research and development. Cash requirements for long term liabilities consist of $212,852 for lease payments, $98,482 for loans payable, and $49,350 for research and development. The Company intends to meet these cash requirements from its current cash balance, proceeds from the SEPA and from future revenues.
In March 2020, the World Health Organization declared COVID-19, a novel strain coronavirus, a pandemic. During 2020 and continuing into 2022, the global economy has been, and continues to be, affected by COVID-19. While the Company continues to see signs of economic recovery as certain governments begin to gradually ease restrictions, provide economic stimulus and accelerate vaccine distribution, the rate of recovery on a global basis has been affected by resurgence of the virus or its variants in certain jurisdictions. The Company continues to monitor the impact of COVID-19 on its business and operational assumptions; however, given the uncertainty around the extent and timing of the potential future spread or mitigation of the Coronavirus and around the imposition or relaxation of protective measures, we cannot reasonably estimate the impact to our future results of operations, cash flows, or financial condition.
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The short and long-term worldwide implications of Russia’s invasion of Ukraine are difficult to predict at this time. The imposition of sanctions on Russia by the United States or other countries and possible counter sanctions by Russia, and the resulting economic impacts on oil prices and other materials and goods, could affect the price of materials used in the manufacture of our product candidates. If the price of materials used in the manufacturing of our product candidates increase, that would adversely affect our business and the results of our operations.
Our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate our continuation as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the unaudited condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values.
Off-Balance Sheet Arrangements
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
For a description of our critical accounting estimates, see Critical Accounting Estimates in Item 7 of our Annual Report on Form 10-K which was filed with the SEC on March 28, 2022.
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.
ITEM 3. 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.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our management, with the participation of our principal executive officer and principal financial officer, concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective at the reasonable assurance level.
During the year ended December 31, 2021, our management identified a material weakness in our internal control over financial reporting whereas we did not design or maintain effective controls to ensure that there is an independent review and approval of electronic payments (wires, EFT’s, ACH’s and credit card payments) as our policy of providing timely support to ensure completeness and accuracy of the payment was not followed which continued to exist as of June 30, 2022. We are currently in the process of implementing a detailed plan for remediation of the material weakness, including developing and maintaining preventative controls around the electronic payment process to ensure proper segregation of duties.
Changes in Internal Control Over Financial Reporting
Except as disclosed above, there has been no change in our internal control over financial reporting that occurred during the second quarter of 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over current or future financial reporting.
Inherent Limitations of the Effectiveness of Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. A control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
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, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During April 2022, the Company issued new warrants to purchase an aggregate of 2,346,525 shares of common stock at an exercise price of $1.00 per share. The new warrants expire on December 31, 2025.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibit |
| Description |
31.1 |
| |
|
|
|
31.2 |
| |
|
|
|
32.1 |
| |
|
|
|
101.INS |
| Inline XBRL Instance* |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension Schema* |
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation* |
|
|
|
101.DEF |
| Inline XBRL Taxonomy Extension Definition* |
|
|
|
101.LAB |
| Inline XBRL Taxonomy Extension Labels* |
|
|
|
101.PRE |
| Inline XBRL Taxonomy Extension Presentation* |
104 | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit)* |
*Filed herewith. A summary of the accrued issuable equity activity during the six months ended June 30, 202
**Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: August 15, 2022 | By: | /s/ Michael Mo |
|
| Michael Mo |
|
| Chief Executive Officer |
|
| (Principal Executive Officer) |
Dated: August 15, 2022 | By: | /s/ Simon Westbrook |
|
| Simon Westbrook |
|
| Chief Financial Officer |
|
| (Principal Financial and Accounting Officer) |
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