UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 20172021
OR
¨☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
Commission File Number:
000-55564001-40454
KT HIGH-TECH MARKETING,KULR TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware | 81-1004273 |
(State or Other Jurisdiction of Incorporation or |
(I.R.S. Employer Identification No.) |
| |
| 92111 |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code:408-663-5247408-663-5247
(Former name, former address and former fiscal year, if changed since last report)N/A
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock | KULR | NYSE American LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx☒ No¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes¨☒ Nox☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b- 2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-212b-2 of the Exchange Act). Yes¨☐ Nox☒
As of November 16, 2017,12, 2021, there were 77,440,000104,700,707 shares of Common Stock, $0.0001 par value, issued and outstanding.
KT HIGH-TECH MARKETING,KULR TECHNOLOGY GROUP, INC. &AND SUBSIDIARY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20172021
TABLE OF CONTENTS
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| Notes to | 9 | |
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| Item 3. Quantitative and Qualitative Disclosures About Market | 26 | |
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| Item 2. Unregistered Sales of Equity Securities and Use of | 28 | |
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2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.Statements
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
KT HIGH-TECH MARKETING, INC. & SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | |
| | September 30, | | December 31, | ||
|
| 2021 |
| 2020 | ||
| | (unaudited) | | | | |
Assets |
| |
|
| |
|
Current Assets: |
| |
|
| |
|
Cash | | $ | 10,990,056 | | $ | 8,880,140 |
Accounts receivable | |
| 550,379 | |
| 55,492 |
Inventory | |
| 190,766 | |
| 55,452 |
Prepaid expenses and other current assets | |
| 450,756 | |
| 150,468 |
Total Current Assets | |
| 12,181,957 | |
| 9,141,552 |
Property and equipment, net | |
| 385,750 | |
| 57,857 |
Equipment deposits | | | 1,029,805 | | | 0 |
Security deposits | | | 58,941 | | | 8,728 |
Right of use asset | | | 730,115 | | | 0 |
Total Assets | | $ | 14,386,568 | | $ | 9,208,137 |
| |
| | |
|
|
Liabilities and Stockholders' Equity | |
| | |
|
|
Current Liabilities: | |
| | |
|
|
Accounts payable | | $ | 67,359 | | $ | 66,537 |
Accounts payable - related party | | | 0 | | | 2,628 |
Accrued expenses and other current liabilities | |
| 689,346 | |
| 395,012 |
Notes payable, net of debt discount of $0 and $128,198 at September 30, 2021 and December 31, 2020, respectively | |
| 0 | |
| 2,321,802 |
Accrued issuable equity | | | 194,134 | | | 128,380 |
Loan payable, current portion | | | 155,226 | | | 12,936 |
Lease liability, current portion | | | 257,198 | | | 0 |
Deferred revenue | | | 158,816 | | | 20,000 |
Total Current Liabilities | |
| 1,522,079 | |
| 2,947,295 |
Lease liability, non-current portion | | | 475,540 | | | 0 |
Loan payable, non-current portion | | | 0 | | | 142,290 |
Total Liabilities | | | 1,997,619 | | | 3,089,585 |
| |
| | |
|
|
Commitments and contingencies (Note 11) | |
|
| |
|
|
| |
|
| |
|
|
Stockholders' Equity | |
|
| |
|
|
Preferred stock, $0.0001 par value, 20,000,000 shares authorized; Series A Preferred Stock, 1,000,000 shares designated; NaN issued and outstanding at September 30, 2021 and December 31, 2020 | |
| — | |
| — |
Series B Convertible Preferred Stock, 31,000 shares designated; 0 and 13,972 shares issued and outstanding and liquidation preference of $0 and $13,972 at September 30, 2021 and December 31, 2020, respectively | |
| 0 | |
| 1 |
Series C Preferred Stock, 400 shares designated; NaN issued and outstanding at September 30, 2021 and December 31, 2020 | | | 0 | | | 0 |
Series D Preferred Stock, 650 shares designated; NaN issued and outstanding at September 30, 2021 and December 31, 2020 | | | 0 | | | 0 |
Common stock, $0.0001 par value, 500,000,000 shares authorized; 101,992,963 and 89,908,600 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | |
| 10,200 | |
| 8,991 |
Additional paid-in capital | |
| 31,462,955 | |
| 17,355,968 |
Accumulated deficit | |
| (19,084,206) | |
| (11,246,408) |
Total Stockholders' Equity | |
| 12,388,949 | |
| 6,118,552 |
Total Liabilities and Stockholders' Equity | | $ | 14,386,568 | | $ | 9,208,137 |
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash | $ | 1,653,492 | $ | 9,087 | ||||
Accounts receivable | 26,006 | 6,900 | ||||||
Note receivable - related party | - | 85,000 | ||||||
Interest receivable - related party | - | 2,152 | ||||||
Other current receivable | - | 30,000 | ||||||
Other current receivable - related parties | - | 2,000 | ||||||
Inventory | 28,083 | 12,932 | ||||||
Prepaid expenses | 141,443 | 12,344 | ||||||
Other current assets | 8,727 | 3,648 | ||||||
Total Current Assets | 1,857,751 | 164,063 | ||||||
Property and equipment, net | 33,359 | 462 | ||||||
Total Assets | $ | 1,891,110 | $ | 164,525 | ||||
Liabilities and Stockholders' Equity (Deficiency) | ||||||||
Current Liabilities: | ||||||||
Accrued expenses and other current liabilities | $ | 299,726 | $ | 72,445 | ||||
Accrued expenses and other current liabilities - related parties | 507,041 | 359,241 | ||||||
Total Current Liabilities | 806,767 | 431,686 | ||||||
Commitments and contingencies | ||||||||
Stockholders' Equity (Deficiency): | ||||||||
Preferred stock, $0.0001 par value, 20,000,000 shares authorized; Series A Preferred Stock, 1,000,000 shares designated; None issued and outstanding at September 30, 2017 and December 31, 2016 | - | - | ||||||
Common stock, $0.0001 par value, 100,000,000 shares authorized; 77,440,000 and 50,000,000 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 7,744 | 5,000 | ||||||
Additional paid-in capital | 4,768,259 | 1,661,649 | ||||||
Accumulated deficit | (3,691,660 | ) | (1,933,810 | ) | ||||
Total Stockholders' Equity (Deficiency) | 1,084,343 | (267,161 | ) | |||||
Total Liabilities and Stockholders' Equity (Deficiency) | $ | 1,891,110 | $ | 164,525 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Table of ContentsKT HIGH-TECH MARKETING,
KULR TECHNOLOGY GROUP, INC. &AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)(unaudited)
| | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Revenue | | $ | 600,921 | | $ | 136,849 | | $ | 1,647,070 | | $ | 415,477 |
Cost of revenue | |
| 155,138 | |
| 63,403 | | | 869,612 | | | 138,180 |
Gross Profit | |
| 445,783 | |
| 73,446 | |
| 777,458 | |
| 277,297 |
Operating Expenses: | |
| | |
| | |
| | |
| |
Research and development | |
| 481,855 | |
| 51,820 | |
| 957,579 | |
| 221,524 |
Selling, general, and administrative | |
| 3,104,410 | |
| 832,146 | |
| 7,320,524 | |
| 1,719,100 |
Total Operating Expenses | |
| 3,586,265 | |
| 883,966 | |
| 8,278,103 | |
| 1,940,624 |
Loss From Operations | |
| (3,140,482) | |
| (810,520) | |
| (7,500,645) | |
| (1,663,327) |
| |
| | |
| | |
| | |
| |
Other (Expense) Income | |
| | |
| | |
| | |
| |
Interest expense, net | |
| (758) | |
| (1,284) | |
| (2,389) | |
| (5,004) |
Debt redemption costs | | | 0 | | | 0 | | | (140,000) | | | — |
Amortization of debt discount | | | 0 | | | (210,402) | | | (128,198) | | | (307,313) |
Change in fair value of accrued issuable equity | | | 45,600 | | | 9,947 | | | (66,274) | | | (15,853) |
Loss on foreign currency transactions | |
| (292) | |
| 0 | |
| (292) | |
| — |
Total Other Expenses, net | |
| 44,550 | |
| (201,739) | |
| (337,153) | |
| (328,170) |
| |
| | |
| | |
| | |
| |
Net Loss | | | (3,095,932) | | | (1,012,259) | | | (7,837,798) | | | (1,991,497) |
Deemed dividend to Series D preferred stockholders | | | 0 | | | 0 | | | (2,624,326) | | | — |
Net Loss Attributable to Common Stockholders | | $ | (3,095,932) | | $ | (1,012,259) | | $ | (10,462,124) | | $ | (1,991,497) |
| | | | | | | | | | | | |
| |
| | |
| | |
| | |
| |
Net Loss Per Share | |
| | |
| | |
| | |
| |
- Basic and Diluted | | $ | (0.03) | | $ | (0.01) | | $ | (0.11) | | $ | (0.02) |
| |
| | |
| | |
| | |
| |
Weighted Average Number of Common Shares Outstanding | |
| | |
| | |
| | |
| |
- Basic and Diluted | |
| 99,018,630 | |
| 82,466,734 | |
| 93,816,203 | |
| 82,042,241 |
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue | $ | 15,106 | $ | - | $ | 26,006 | $ | 6,900 | ||||||||
Cost of revenue | 52,384 | - | 108,579 | 7,749 | ||||||||||||
Gross Loss | (37,278 | ) | - | (82,573 | ) | (849 | ) | |||||||||
Operating Expenses: | ||||||||||||||||
Research and development | 157,876 | 14,090 | 207,504 | 16,173 | ||||||||||||
Research and development - related parties | 38,767 | 91,643 | 439,824 | 285,701 | ||||||||||||
General and administrative | 605,273 | 92,358 | 1,019,235 | 298,324 | ||||||||||||
Total Operating Expenses | 801,916 | 198,091 | 1,666,563 | 600,198 | ||||||||||||
Loss From Operations | (839,194 | ) | (198,091 | ) | (1,749,136 | ) | (601,047 | ) | ||||||||
Other Income (Expense): | ||||||||||||||||
Interest income | 142 | 6 | 142 | 24 | ||||||||||||
Interest income - related party | - | 750 | 1,337 | 1,402 | ||||||||||||
Interest expense - related party | - | - | (9,593 | ) | - | |||||||||||
Total Other (Expense) Income | 142 | 756 | (8,114 | ) | 1,426 | |||||||||||
Loss Before Income Taxes | (839,052 | ) | (197,335 | ) | (1,757,250 | ) | (599,621 | ) | ||||||||
Income tax expense | 200 | 200 | 600 | 600 | ||||||||||||
Net Loss | $ | (839,252 | ) | $ | (197,535 | ) | $ | (1,757,850 | ) | $ | (600,221 | ) | ||||
Net Loss Per Share | ||||||||||||||||
- Basic and Diluted | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.03 | ) | $ | (0.01 | ) | ||||
Weighted Average Number of Common Shares Outstanding | ||||||||||||||||
- Basic and Diluted | 76,843,759 | 48,279,363 | 59,570,769 | 45,024,559 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Table of ContentsKT HIGH-TECH MARKETING,
KULR TECHNOLOGY GROUP, INC. &AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY) EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20172021
(Unaudited)(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Series B Convertible | | Series C Convertible | | Series D Convertible | | | | | | | Additional | | | | | Total | |||||||||||
| | Preferred Stock | | Preferred Stock | | Preferred Stock | | Common Stock | | Paid-In | | Accumulated | | Stockholders' | |||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount | | Shares | | Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity | |||||||
Balance - January 1, 2021 |
| 13,972 | | $ | 1 | | — | | $ | — | | — | | $ | — |
| 89,908,600 | | $ | 8,991 | | $ | 17,355,968 | | $ | (11,246,408) | | $ | 6,118,552 |
Common stock issued upon conversion of Series B Convertible Preferred Stock |
| (13,972) | |
| (1) | | — | |
| — | | — | | | — |
| 698,600 | |
| 70 | |
| (69) | |
| 0 | |
| 0 |
Stock-based compensation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued for services | | — | | | — | | — | | | — | | — | | | — | | 20,000 | | | 2 | | | 49,798 | | | 0 | | | 49,800 |
Restricted common stock issued | | — | | | — | | — | | | — | | — | | | — | | 2,000,000 | | | 200 | | | (200) | | | 0 | | | 0 |
Amortization of restricted common stock | | — | | | — | | — | | | — | | — | | | — | | — | | | 0 | | | 126,625 | | | 0 | | | 126,625 |
Amortization of stock options | | — | | | — | | — | | | — | | — | | | — | | — | | | 0 | | | 9,112 | | | 0 | | | 9,112 |
Amortization of market-based award | | — | | | — | | — | | | — | | — | | | — | | — | | | 0 | | | 130,245 | | | 0 | | | 130,245 |
Net loss | | — | | | — | | — | | | — | | — | | | — | | — | | | 0 | | | 0 | | | (1,714,723) | | | (1,714,723) |
Balance - March 31, 2021 |
| — | | | — | | — | | | — | | — | | | — |
| 92,627,200 | | | 9,263 | | | 17,671,479 | | | (12,961,131) | | | 4,719,611 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of Series D Convertible Preferred Stock, common stock and warrants for cash [1] | | — | | | — | | — | | | — | | 650 | | | — | | 1,300,000 | | | 130 | | | 6,134,870 | | | 0 | | | 6,135,000 |
Common stock issued upon the conversion of Series D Convertible Preferred Stock |
| — | |
| — | | — | |
| — | | (650) | | | — |
| 3,170,730 | |
| 317 | |
| (317) | |
| 0 | |
| 0 |
Common stock issued upon the exercise of warrants | | — | | | — | | — | | | — | | — | | | — | | 3,000,000 | | | 300 | | | 3,712,200 | | | 0 | | | 3,712,500 |
Stock-based compensation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued for services | | — | | | — | | — | | | — | | — | | | — | | 55,000 | | | 6 | | | 109,994 | | | 0 | | | 110,000 |
Restricted common stock issued |
| — | |
| — | | — | |
| — | | — | | | — |
| 415,000 | |
| 42 | |
| (42) | |
| 0 | |
| 0 |
Amortization of restricted common stock | | — | | | — | | — | | | — | | — | | | — | | — | | | 0 | | | 433,689 | | | 0 | | | 433,689 |
Amortization of stock options | | — | | | — | | — | | | — | | — | | | — | | — | | | 0 | | | 15,779 | | | 0 | | | 15,779 |
Amortization of market-based award | | — | | | — | | — | | | — | | — | | | — | | — | | | 0 | | | 489,774 | | | 0 | | | 489,774 |
Net loss |
| — | |
| — | | — | |
| — | | — | | | — |
| — | |
| 0 | |
| 0 | |
| (3,027,143) | |
| (3,027,143) |
Balance - June 30, 2021 | | — | | | — | | — | | | — | | — | | | — | | 100,567,930 | | | 10,058 | | | 28,567,426 | | | (15,988,274) | | | 12,589,210 |
Common stock issued upon the exercise of warrants | | — | | | — | | — | | | — | | — | | | — | | 1,185,033 | | | 119 | | | 1,494,097 | | | 0 | | | 1,494,216 |
Stock-based compensation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued for services | | — | | | — | | — | | | — | | — | | | — | | 85,000 | | | 9 | | | 186,391 | | | 0 | | | 186,399 |
Restricted common stock issued | | — | | | — | | — | | | — | | — | | | — | | 155,000 | | | 15 | | | (15) | | | 0 | | | 0 |
Amortization of restricted common stock | | — | | | — | | — | | | — | | — | | | — | | — | | | 0 | | | 440,333 | | | 0 | | | 440,333 |
Amortization of stock options | | — | | | — | | — | | | — | | — | | | — | | — | | | 0 | | | 20,516 | | | 0 | | | 20,516 |
Amortization of market-based award | | — | | | — | | — | | | — | | — | | | — | | — | | | 0 | | | 754,207 | | | 0 | | | 754,207 |
Net loss | | — | | | — | | — | | | — | | — | | | — | | — | | | 0 | | | 0 | | | (3,095,932) | | | (3,095,932) |
Balance - September 30, 2021 |
| — | | $ | — | | — | | $ | — | | — | | $ | — |
| 101,992,963 | | $ | 10,200 | | $ | 31,462,955 | | $ | (19,084,206) | | $ | 12,388,949 |
Additional | ||||||||||||||||||||
Common Stock | Paid-In | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance - December 31, 2016 | 50,000,000 | $ | 5,000 | $ | 1,661,649 | $ | (1,933,810 | ) | $ | (267,161 | ) | |||||||||
Stock-based compensation | - | - | 411,181 | - | 411,181 | |||||||||||||||
Equity of KT High-Tech Marketing, Inc. at | ||||||||||||||||||||
the time of the reverse recapitalization | 27,440,000 | 2,744 | 2,695,429 | - | 2,698,173 | |||||||||||||||
Net loss | - | - | - | (1,757,850 | ) | (1,757,850 | ) | |||||||||||||
Balance - September 30, 2017 | 77,440,000 | $ | 7,744 | $ | 4,768,259 | $ | (3,691,660 | ) | $ | 1,084,343 |
[1] Represents gross proceeds of $6,500,000, net of cash issuance costs of $365,000.
The accompanying notes are an integral part of these condensed consolidated financial statements. statements
5
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 | ||||||||||||||||||||||||||||||
| | Series B Convertible | | Series C Convertible | | Series D Convertible | | | | | | | Shares | | Additional | | | | | | Total | |||||||||||
| | Preferred Stock | | Preferred Stock | | Preferred Stock | | Common Stock | | to be | | Paid-In | | Accumulated | | Stockholders' | ||||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Issued |
| Capital |
| Deficit |
| Deficiency | ||||||||
Balance - January 1, 2020 |
| 14,487 | | $ | 1 | | 24.01 | | $ | — | | — | | $ | — | | 81,071,831 | | $ | 8,107 | | $ | — | | $ | 7,591,239 | | $ | (8,396,312) | | $ | (796,965) |
Common stock issued as a commitment fee for the Standby Equity Distribution Agreement | | — | | | — | | — | | | — | | — | | | — | | 95,847 | | | 10 | | | — | | | 63,249 | | | — | | | 63,259 |
Stock-based compensation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of stock options | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | — | | | 10,528 | | | — | | | 10,528 |
Net loss | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | — | | | — | | | (550,253) | | | (550,253) |
Balance - March 31, 2020 | | 14,487 | | | 1 | | 24.01 | | | — | | — | | | — | | 81,167,678 | | | 8,117 | | | — | | | 7,665,016 | | | (8,946,565) | | | (1,273,431) |
Common stock issued as a commitment fee for the Standby Equity Distribution Agreement [1] | | — | | | — | | — | | | — | | — | | | — | | 561,564 | | | 56 | | | — | | | 679,381 | | | — | | | 679,437 |
Stock-based compensation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common Stock | | — | | | — | | — | | | — | | — | | | — | | 30,000 | | | 3 | | | — | | | 29,997 | | | — | | | 30,000 |
Amortization of stock options | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | — | | | 9,588 | | | — | | | 9,588 |
Net loss | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | — | | | — | | | (428,985) | | | (428,985) |
Balance - June 30, 2020 | | 14,487 | | | 1 | | 24.01 | | | — | | — | | | — | | 81,759,242 | | | 8,176 | | | — | | | 8,383,982 | | | (9,375,550) | | | (983,391) |
Common stock issued pursuant to the | | — | | | — | | — | | | — | | — | | | — | | 1,159,449 | | | 116 | | | — | | | 1,394,884 | | | — | | | 1,395,000 |
Common stock to be issued pursuant to the SEDA agreement | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | 40,000 | | | — | | | — | | | 40,000 |
Stock-based compensation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common Stock | | — | | | — | | — | | | — | | — | | | — | | 35,000 | | | 3 | | | — | | | 24,997 | | | — | | | 25,000 |
Amortization of stock options | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | — | | | 10,038 | | | — | | | 10,038 |
Common stock issued upon | | (515) | | | | | | | | | | | | | | | 25,758 | | | 3 | | | — | | | (3) | | | — | | | — |
Common stock issued upon | | — | | | | | (5.11) | | | — | | | | | | | 56,777 | | | 6 | | | — | | | (6) | | | — | | | — |
Net loss | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | — | | | — | | | (1,012,259) | | | (1,012,259) |
Balance - September 30, 2020 | | 13,972 | | $ | 1 | | 18.90 | | $ | — | | — | | $ | — | | 83,036,226 | | $ | 8,304 | | $ | 40,000 | | $ | 9,813,892 | | $ | (10,387,809) | | $ | (525,612) |
[1] Represents gross proceeds of $757,695 less $78,258 of amortized deferred offering costs.
KT HIGH-TECH MARKETING, INC. & SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended | ||||||||
September 30, | ||||||||
2017 | 2016 | |||||||
Cash Flows From Operating Activities: | ||||||||
Net loss | $ | (1,757,850 | ) | $ | (600,221 | ) | ||
Adjustments to reconcile net loss to net cash | ||||||||
provided by operating activities: | ||||||||
Depreciation expense | 3,374 | 500 | ||||||
Stock-based compensation | 411,181 | 23,636 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (19,106 | ) | (3,600 | ) | ||||
Other current receivable | 30,000 | - | ||||||
Other current receivable - related parties | 2,000 | - | ||||||
Interest receivable - related party | 2,152 | (1,402 | ) | |||||
Inventory | (15,151 | ) | 7,749 | |||||
Prepaid expenses | (115,945 | ) | (34,292 | ) | ||||
Other current assets | 861,377 | - | ||||||
Accrued expenses and other current liabilities | 189,083 | (70,134 | ) | |||||
Accrued expenses and other current liabilities - related parties | 145,300 | 124,311 | ||||||
Total Adjustments | 1,494,265 | 46,768 | ||||||
Net Cash Used In Operating Activities | (263,585 | ) | (553,453 | ) | ||||
Cash Flows From Investing Activities: | ||||||||
Purchase of note receivable - related party | - | (85,000 | ) | |||||
Proceeds from collection of note receivable - related party | 85,000 | - | ||||||
Cash acquired in reverse recapitalization | 1,859,261 | - | ||||||
Purchases of property and equipment | (36,271 | ) | - | |||||
Net Cash Provided By (Used In) Investing Activities | 1,907,990 | (85,000 | ) | |||||
Cash Flows From Financing Activities: | ||||||||
Proceeds from issuance of Series A1 convertible preferred stock | - | 550,000 | ||||||
Net Cash Provided By Financing Activities | - | 550,000 | ||||||
Net Increase (Decrease) In Cash | 1,644,405 | (88,453 | ) | |||||
Cash - Beginning | 9,087 | 138,753 | ||||||
Cash - Ending | $ | 1,653,492 | $ | 50,300 | ||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | - | $ | - | ||||
Income taxes | $ | 1,600 | $ | - |
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
(unaudited)
| | | | | | |
| | For the Nine Months Ended | ||||
| | September 30, | ||||
|
| 2021 |
| 2020 | ||
Cash Flows From Operating Activities: |
| |
|
| |
|
Net loss | | $ | (7,837,798) | | $ | (1,991,497) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | |
| |
Amortization of debt discount | | | 128,198 | | | 307,313 |
Depreciation and amortization expense | |
| 29,166 | |
| 10,573 |
Bad debt expense | | | 0 | | | 933 |
Change in fair value of accrued issuable equity | | | 66,274 | | | 15,853 |
Stock-based compensation | |
| 2,765,959 | |
| 252,831 |
Changes in operating assets and liabilities: | |
| | |
| |
Accounts receivable | |
| (494,887) | |
| (40,915) |
Inventory | |
| (135,314) | |
| (21,070) |
Prepaid expenses and other current assets | |
| (300,288) | |
| (97,267) |
Security deposits | | | (50,213) | | | 0 |
Right of use asset | | | 84,702 | | | 0 |
Accounts payable | |
| (1,806) | |
| (254,260) |
Accrued expenses and other current liabilities | |
| 294,334 | |
| (280,129) |
Lease liability | | | (82,079) | | | 0 |
Deferred revenue | | | 138,816 | | | 21,600 |
Total Adjustments | |
| 2,442,862 | |
| (84,538) |
Net Cash Used In Operating Activities | | | (5,394,936) | |
| (2,076,035) |
| | | | | | |
Cash Flows From Investing Activities: | | | | | | |
Deposits for equipment purchases | | | (1,029,805) | | | 0 |
Purchase of property and equipment | | | (357,059) | | | (46,087) |
Net Cash Used In Investing Activities | | | (1,386,864) | | | (46,087) |
| |
| | |
| |
Cash Flows from Financing Activities: | |
| | |
| |
Proceeds from sale of Series D Convertible Preferred Stock, common stock and warrants | | | 6,500,000 | | | 0 |
Proceeds from sale of common stock [1] | | | 0 | | | 1,461,695 |
Repayments of notes payable | |
| (2,450,000) | |
| (159,000) |
Proceeds from the exercise of warrants | | | 5,206,716 | | | 0 |
Proceeds from Paycheck Protection Program loan | | | 0 | | | 155,226 |
Proceeds from note payable | | | 0 | | | 3,710,000 |
Payment of debt issuance costs | | | 0 | | | (330,000) |
Payment of financing costs | | | (365,000) | | | (15,000) |
Net Cash Provided By Financing Activities | |
| 8,891,716 | |
| 4,822,921 |
| |
| | |
| |
Net Increase In Cash | |
| 2,109,916 | |
| 2,700,799 |
Cash - Beginning of Period | |
| 8,880,140 | |
| 108,857 |
Cash - End of Period | | $ | 10,990,056 | | $ | 2,809,656 |
[1] | For the nine months ended September 30, 2020, the amount represents gross proceeds of $2,152,695 less $691,000 withheld by the investor to pay down a portion of the note payable held by the same investor. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
KT HIGH-TECH MARKETING,KULR TECHNOLOGY GROUP, INC. &AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(unaudited)
| | | | | | |
| | For the Nine Months Ended | ||||
|
| September 30, | ||||
|
| | 2021 |
| | 2020 |
Supplemental Disclosures of Cash Flow Information: |
| | |
| | |
| | | | | | |
Cash paid during the period for: | | | | | | |
Interest | | $ | 735 | | $ | 3,890 |
Income taxes | | $ | — | | $ | 0 |
| | | | | | |
Non-cash investing and financing activities: | | | | | | |
Right of use asset for lease liability | | $ | 814,817 | | $ | 0 |
Beneficial conversion feature on Series D Convertible Preferred Stock | | $ | 2,624,326 | | $ | 0 |
Common stock issued as a commitment fee for the SEDA agreement | | $ | — | | $ | 63,259 |
Deferred offering costs reclassified to equity | | $ | — | | $ | 13,042 |
Common stock issued upon conversion of Series B Convertible Preferred Stock | | $ | 70 | | $ | 3 |
Common stock issued upon the conversion of Series C Convertible Preferred Stock | | $ | 0 | | $ | 6 |
Common stock issued upon the conversion of Series D Convertible Preferred Stock | | $ | 317 | | $ | 0 |
Common stock issued in satisfaction of accrued issuable equity | | $ | 209,200 | | $ | 0 |
Original issuance discount on note payable | | $ | — | | $ | 290,000 |
Common stock issued for repayment of note payable | | $ | — | | $ | 691,000 |
Subscriptions receivable for accrued issuable equity | | $ | — | | $ | 40,000 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION
(UNAUDITED)
Organization and Operations
KT High-Tech Marketing,KULR Technology Group, Inc. ("KT High-Tech") was incorporated on December 11, 2015. Prior to the reverse recapitalization discussed below, KT High-Tech was an early-stage company planning to market and distribute technology products and components targeting the energy and consumer electronics industries. KT High-Tech intended to market and sell the products to both the end user and supply chain markets and to seek partnerships in developing and distributing such products. After the reverse recapitalization discussed below, KTHT integrated, through its existing business operations with those of itswholly-owned subsidiary, KULR Technology Corporation.
KULR, a wholly-owned subsidiary of KT High-TechCorporation (collectively referred to as “KULR” or the “Company”), was formed in 2013develops and is based in Santa Clara, California. KULR is primarily focused on commercializing itscommercializes high-performance thermal management technologies infor electronics, batteries, and other components across a range of applications. Currently, the Company is focused on targeting high value, high-performance consumer electronicperformance aerospace and energy storage applications. KULR owns proprietary carbon fiber based (Carbon Fiber Velvet or “CFV”) thermal management solutions that it believes are more effective at storing, conducting, and dissipating waste heat generated by an electronic system’s internal components (i.e. semiconductor, integrated circuits “chips”) in comparison to traditional materials, such as copper and aluminum. KULR’s technologies can be applied inside a wide arrayDepartment of electronicDefense ("DOD") applications, such as mobile devices, cloud computing, virtual reality platforms, satellites, internet of things, drones,satellite communications, directed energy systems and connected cars. In additionhypersonic vehicles, and applying them to thermal management of electronic systems, KULR has developed a highly effective, passivemass market commercial applications, such as lithium-ion battery energy storage, solution for lithium ion batteries that has been testedelectrical vehicles, 5G communication, cloud computer infrastructure, and endorsed by the National Aeronauticsconsumer and Space Administration (“NASA”).industrial devices.
Reverse Recapitalization
On June 8, 2017, KT High-Tech entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with KULR and 100% of the shareholders of KULR (the “KULR Shareholders”). On June 19, 2017 (the “Closing Date”), the Company closed the transaction contemplated by the Share Exchange Agreement. Pursuant to the Share Exchange Agreement, the KULR Stockholders agreed to transfer an aggregate of 25,000,000 shares of KULR’s common stock to the Company in exchange for the Company’s issuance of an aggregate of 50,000,000 shares of the Company’s common stock to the KULR Stockholders (the “Share Exchange”). KULR became a wholly-owned subsidiary of KT High-Tech and the KULR Stockholders now beneficially own approximately 64.57% of KT High-Tech’s common stock on a fully-diluted basis. Upon the closing of the Share Exchange Agreement, a representative of the KULR Stockholders was appointed to be the Company’s second Board Director.
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 September 30, 20172021 and for the three and nine months then ended.ended September 30, 2021 and 2020. The results of operations for the three and nine months ended September 30, 20172021 are not necessarily indicative of the operating results for the full year ending December 31, 20172021 or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with KULR’s and KT High-Tech’sthe Company’s audited financial statements and related disclosures as of December 31, 20162020 and for the year then ended, which are included in the Form 8-K/A and Form 10-Kwere filed with the Securities and Exchange Commission (“SEC”) on JuneForm 10-K on March 19, 20172021.
Risks and Uncertainties
In March 2020, the World Health Organization declared COVID-19, a novel strain coronavirus, a pandemic. During 2020 and continuing into 2021, 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 and estimates and has determined there were no material adverse impacts on the Company’s results of operations and financial position at September 30, 2017, respectively.
2021.
The closingfull extent of the Share Exchange Agreement was accounted for asfuture impact of COVID-19 on the Company’s operations and financial condition is uncertain. Accordingly, COVID-19 could have a reverse recapitalization undermaterial adverse effect on the provisions of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 805-40. The condensed consolidated statementsCompany’s business, results of operations, herein reflectfinancial condition and prospects during 2021 and beyond, including the historical results of KULR priordemand for its products, interruptions to supply chains, ability to maintain regular research and development and manufacturing schedules as well as the completion of the reverse recapitalization since it was determinedcapability to be the accounting acquirer, andmeet customer demands in a timely manner. The financial statements do not include any adjustments that might result from the historical resultsoutcome of operations for KT High-Tech prior to the completion of the reverse recapitalization. The balance sheet as of December 31, 2016 presented herein reflects the assets and liabilities of KULR. KT High-Tech’s assets and liabilities are consolidated with the assets and liabilities of KULR as of the Closing Date. The number of shares issued and outstanding and additional paid-in capital of KT High-Tech have been retroactively adjusted to reflect the equivalent number of shares issued by KT High-Tech in the Share Exchange, while KULR’s accumulated deficit is being carried forward as the Company’s accumulated deficit. All costs attributable to the reverse recapitalization were expensed.this uncertainty.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UseSince the date 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 inAnnual Report on Form 10-K for the related notes to the financial statements. The Company’s significant estimates used in these financial statements include, but are not limited to, stock-based compensation, the collectability of receivables, inventory valuations, the recoverability and useful lives of long-lived assets and the valuation allowance relatedyear ended December 31, 2020, there have been no material changes to the Company’s deferred tax assets. Certainsignificant accounting policies, except as disclosed in this note.
9
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Liquidity
During the nine months ended September 30, 2021, the Company raised gross proceeds of $6,500,000 in connection with the sale of preferred stock, common stock and warrants, and raised proceeds of $5,206,716 in connection with the exercise of warrants to purchase common stock. During the nine months ended September 30, 2021, the Company repaid outstanding notes payable in the amount of $2,450,000. Subsequent to September 30, 2021, the Company received an aggregate of $6,500,000 in connection with the exercise of warrants. See Note 12 – Subsequent Events for additional details.
As of September 30, 2021, the Company had cash of $10,990,056 and working capital of $10,659,878. 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 is sufficient in comparison to its anticipated cash usage for a period of at least twelve months subsequent to the filing date of these financial statements.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, accounts receivable, revenue and accounts payable.
Cash Concentrations
A significant portion of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. Itcash is reasonably 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
held at one major financial institution. The Company maintains cash with major financial institutions.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 $250,000 at each institution. There were aggregatewas an uninsured cash balancesbalance of $1,225,642$10,489,922 and $0 at$8,513,010 as of September 30, 20172021 and December 31, 2016,2020, respectively.
Customer and Revenue Concentrations
DuringThe 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 |
| ||||||||
| | For the Three Months Ended | | For the Nine Months Ended | | | | |
| ||||
| | September 30, | | September 30, | | As of |
| As of |
| ||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| September 30, 2021 | | December 31, 2020 |
|
Customer A |
| 88 | % | * | | 41 | % | * | | 96 | % | * | |
Customer B |
| * | | 26 | % | * | | * | | * | | 70 | % |
Customer C |
| * | | * | | * | | 12 | % | * |
| * | |
Customer D |
| * | | * |
| 40 | % | * | | * | | * | |
Customer E |
| * | | 35 | % | * | | 44 | % | * | | * | |
Customer F |
| * | | 12 | % | * | | * |
| * | | * | |
Customer G | | * | | * | | * | | * | | * | | 19 | % |
Customer H | | * | | * | | * | | * | | * | | 10 | % |
Total |
| 88 | % | 73 | % | 81 | % | 56 | % | 96 | % | 99 | % |
* | 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
10
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 nine months ended September 30, 2016, 100% of the Company’s revenues were generated from Customer A. During the three months ended September 30, 2017, 76%2021 and 24% of the Company’s revenues were generated from Customer C and Customer A, respectively. During the nine months ended September 30, 2017, 44%, 42% and 14% of the Company’s revenues were generated from Customer C, Customer B and Customer A, respectively. As of September 30, 2017, receivables from Customer C, Customer B and Customer A comprised 44%, 42%, and 14%, respectively, of the Company’s total accounts receivable. As of December 31, 2016, a receivable from Customer A comprised 100% of the Company’s total account receivable.2020:
| | | | | | | | | |
| | For the Three Months Ended |
| For the Nine Months Ended | | ||||
|
| September 30, |
| September 30, | | ||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
Vendor A |
| * | | 29 | % | * | | 17 | % |
Vendor B |
| * | | 13 | % | * |
| * | |
Vendor C |
| * | | * | | * | | 11 | % |
Vendor D |
| * | | * | | * | | 13 | % |
Vendor E | | * | | 11 | % | * | | * | |
Vendor F | | * | | * | | 11 | % | * | |
Vendor G |
| 26 | % | * | | 11 | % | * | |
Vendor H |
| 10 | % | * | | * | | * | |
Vendor I | | 12 | % | * | | * | | * | |
|
| 48 | % | 53 | % | 22 | % | 41 | % |
* | Less than 10% |
Inventory
Inventory
Inventory is comprised of CFVcarbon fiber velvet ("CFV") thermal managementinterface solutions and heatsinks,internal short circuit batteries, which are available for sale. Inventories are stated at the lower of cost andor net realizable value. Cost is determined by the first-in, first-out method. InventoryThe 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. As of September 30, 20172021 and December 31, 2016,2020, the Company’sCompany's inventory was comprised solely of finished goods.
Convertible Instruments
The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with ASC Topic 815. The accounting treatment of derivative financial instruments requires that the Company record embedded conversion options and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. Embedded conversion options and any related freestanding instruments are recorded as a discount to the host instrument.
Fair Value of Financial Instruments
The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)
The carrying amounts of the Company’s financial instruments, such as cash, accounts receivable and accrued expenses and other current liabilities approximate fair values due to the short-term nature of these instruments. The carrying amounts of the Company’s short–term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates, are comparable to rates of returns for instruments of similar credit risk.
Revenue Recognition
The Company recognizes revenue whenin 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 realized or realizablepossible more judgment and earned. 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 the core principle of ASC 606:
● | 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. |
11
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company considersrecognizes revenue realized or realizable and earned when all ofprimarily from the following criteria are met: (i) persuasive evidencedifferent types of an arrangement exists, (ii)contracts:
● | Product sales – Revenue is recognized at the point in time that the product is transferred to the customer, which is generally at the time products leave the Company’s distribution center. |
● | 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 services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. Sales areCompany's revenue recognized upon shipment to the customer, free on board shipping point, or the point of customer acceptance.
Duringduring the three months ended September 30, 2017 and 2016, the Company recognized $15,106 and $0 of revenue related to the sale of PCM heat sinks and CFV thermal interfaces, respectively. During the nine months ended September 30, 20172021 and 2016,2020:
| | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Product sales | | $ | 600,921 | | $ | 136,849 | | $ | 1,356,530 | | $ | 235,979 |
Contract services | |
| — | |
| — | |
| 290,540 | |
| 179,498 |
Total revenue | | $ | 600,921 | | $ | 136,849 | | $ | 1,647,070 | | $ | 415,477 |
As of September 30, 2021 and December 31, 2020, the Company recognized $26,006had $158,816 and $6,900$20,000 of deferred revenue, related torespectively, from contracts with customers. The contract liabilities represent payments received from customers for which the sale of PCM heat sinks and CFV thermal interfaces, respectively.
Research and Development
Research and development expenses are charged to operations as incurred.Company had not yet satisfied its performance obligation under the contract, or the customers have not officially accepted the goods or services provided under the contract. During the three months ended September 30, 2017 and 2016, the Company incurred $196,643 and $105,733, respectively, of research and development expenses. During the nine months ended September 30, 20172021 and 2016,2020, there was 0 revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods.
As of September 30, 2021 and December 31, 2020, the Company incurred $647,328had $62,908 and $301,874,$31,212, respectively, of researchdeferred labor costs, which is included in prepaid expenses and development expenses.
Stock-Based Compensation
other current assets in the Company's condensed consolidated balance sheets. Deferred labor costs represent costs to fulfill the Company's contract service revenue. The Company measureswill recognize the deferred labor costs as cost of revenues at the point in time that the Company satisfies its performance obligation under the respective contract, which is generally at the time the services receivedare fulfilled and/or accepted by the customer.
Shipping and Handling Costs
Amounts billed to a customer in exchangea sales transaction related to shipping and handling are recorded as revenue. Costs incurred for an awardshipping and handling are included as cost of equity instruments basedrevenues on the fair valueaccompanying condensed consolidated statements of the award. For employees, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. The fair value of the Company’s restricted equity instruments was estimated by management based on observations of the cash sales prices of both restricted shares and freely tradable shares. Awards granted to directors are treated on the same basis as awards granted to employees. Upon the exercise of an option or warrant, the Company issues new shares of common stock out of its authorized shares.operations.
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. During the three months ended September 30, 2017 and 2016, 596,241 and 1,720,637 weighted average shares ofperiod, less unvested common stock, respectively, were excluded from weighted average common stock outstanding. During the nine months ended September 30, 2017 and 2016, 782,051 and 4,975,441 weighted average shares of unvested common stock, respectively, were excluded from weighted average common stock outstanding.issued restricted stock. Diluted net loss per common share is computed by dividing net loss by the weighted average number of vestedcommon and dilutive common-equivalent shares outstanding during each period, if not antidilutive.
12
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following shares were excluded from the calculation of weighted average dilutive common shares plusbecause their inclusion would have been anti-dilutive:
| | | | |
| | September 30, | ||
|
| 2021 |
| 2020 |
Series B Convertible Preferred Stock |
| — |
| 698,600 |
Series C Convertible Preferred Stock | | — | | 189,000 |
Unvested restricted stock | | 2,615,000 | | — |
Market-based equity awards | | 3,000,000 | | — |
Options |
| 590,000 |
| 395,000 |
Warrants | | 5,202,878 | | 210,025 |
Total |
| 11,407,878 |
| 1,492,625 |
Reclassifications
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported consolidated net loss.
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (the "FASB") issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted ASU 2019-12 effective January 1, 2021 and its adoption did not have a material impact on the Company's condensed consolidated financial statements and related disclosures.
Recently Issued Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. ASU 2020-06 requires entities to provide expanded disclosures about the terms and features of convertible instruments and amends certain guidance in ASC 260, Earnings per Share, relating to the computation of earnings per share for convertible instruments and contracts in an entity’s own equity. The guidance becomes effective for the Company on January 1, 2024, with early adoption permitted. The Company is currently evaluating the impact of common shares (computed usingthis new standard on its condensed consolidated financial statements.
On May 3, 2021, the treasury stock method)FASB issued ASU 2021-04, Earnings Per Share (Topic 260), if dilutive, resulting fromDebt—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 conversion of preferred stock.
Income Taxes
The Company recognizes deferred tax assets and liabilities fornew standard prospectively to modifications or exchanges occurring after the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basiseffective date of the difference betweennew standard. Early adoption is permitted, including adoption in an interim period. If an issuer elects to early adopt the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax ratesnew standard in effect foran interim period, the years in which the temporary differences are expected to reverse.
The Company utilizes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected toguidance should be taken in a tax return.
Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statementsapplied as of September 30, 2017 and December 31, 2016.the beginning of the fiscal year that includes that interim period. The Company does not expect any significant changes inthis new standard to have a material impact on its unrecognized tax benefits within twelve monthsfinancial statements.
13
Table of the reporting date.Contents
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Subsequent Events
The Company’s policy is to classify assessments, ifCompany evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any for tax related interest as interest expense and penalties as general and administrative expensesrecognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements, of operations.except as disclosed.
Liquidity and Management’s Plans
NOTE 3 PREPAID EXPENSES AND OTHER CURRENT ASSETS
As of September 30, 2017, the Company had a cash balance, working capital and an accumulated deficit of $1,653,492, $1,050,984 and $3,691,660, respectively. During the three and nine months ended September 30, 2017, the Company incurred a net loss of $839,252 and $1,757,850 respectively.
As a result of the closing of the Share Exchange, the Company believes it has sufficient cash to sustain its operations for at least a year from the date of this filing.
On June 13, 2017, the Company collected the $85,000 note receivable from KULR’s Chief Executive Officer (“CEO”) in full as well as outstanding accrued interest in the amount of $3,488.
As of September 30, 20172021 and December 31, 2016,2020, prepaid expenses and other current assets consisted of the following:
September 30, 2017 | December 31, 2016 | |||||||
(unaudited) | ||||||||
Business development services | $ | 70,000 | $ | - | ||||
Research and development services | 60,000 | - | ||||||
Professional fees | 10,000 | - | ||||||
Salary | - | 7,500 | ||||||
Conference fees | 1,286 | 4,844 | ||||||
Other | 157 | - | ||||||
Total prepaid expenses | $ | 141,443 | $ | 12,344 |
| | | | | | |
|
| September 30, |
| December 31, | ||
|
| 2021 |
| 2020 | ||
Deferred labor costs | | $ | 62,908 | | $ | 31,212 |
Filing | | | 2,729 | | | 9,944 |
Insurance | | | 66,572 | | | 16,035 |
Marketing | | | 115,794 | | | 58,103 |
Other | | | 11,662 | | | 25,820 |
Professional fees | | | 63,582 | | | 9,354 |
Subscriptions | | | 30,009 | | | 0 |
Vendor deposits | | | 97,500 | | | 0 |
Total prepaid expenses | | $ | 450,756 | | $ | 150,468 |
NOTE 4 EQUIPMENT DEPOSITS
The Company entered into agreements with third party contractors for the design and build of a battery packaging and inspection automation system and a cell testing system. On July 22, 2021 and September 27, 2021, the Company paid deposits of $330,000 and $699,805 in connection with these agreements.
NOTE 5 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
As of September 30, 20172021 and December 31, 2016,2020, accrued expenses and other current liabilities consisted of the following:
| | | | | | |
| | September 30, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Board compensation | | $ | 60,808 | | $ | 0 |
Payroll and vacation | | | 219,547 | | | 278,854 |
Legal and professional fees | |
| 232,200 | |
| 81,902 |
Research and development | |
| 97,222 | |
| 0 |
Other | |
| 79,569 | |
| 34,256 |
Total accrued expenses and other current liabilities | | $ | 689,346 | | $ | 395,012 |
September 30, 2017 | December 31, 2016 | |||||||
(unaudited) | ||||||||
Accrued legal and professional fees | $ | 116,667 | $ | 18,000 | ||||
Accrued payroll and vacation | 88,615 | - | ||||||
Payroll and income tax payable | 12,742 | 36,422 | ||||||
Accrued research and development expenses | 32,717 | 6,250 | ||||||
Credit card payable | 25,101 | 9,521 | ||||||
Other | 23,884 | 2,252 | ||||||
Total accrued expenses and other current liabilities | $ | 299,726 | $ | 72,445 |
14
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 6 ACCRUED ISSUABLE EQUITY
A summary of the accrued issuable equity activity during the nine months ended September 30, 2021 is presented below.
| | | |
Balance, January 1, 2021 |
| $ | 128,380 |
Additions |
| | 208,680 |
Reclassifications to equity upon issuance | | | (209,200) |
Mark-to market | | | 66,274 |
Balance, September 30, 2021 | | $ | 194,134 |
During the nine months ended September 30, 2021, the Company entered into certain contractual arrangements for services in exchange for a fixed number of shares of common stock of the Company, having an aggregate grant date value of $208,680, and settled certain of its accrued issuable equity obligations through the issuance of an aggregate of 100,000 shares with an aggregate fair value of $209,200.
During the three and nine months ended September 30, 2021, the Company recorded income of $45,600 and a charge of $66,274, respectively, related to the change in fair value of accrued issuable equity.
NOTE 7 LEASES
On April 5, 2021, the Company entered into a new lease agreement for office space in San Diego, California, effective June 1, 2021. The initial lease term is three years and there is an option to renew for an additional five years. Management does not expect to exercise its option to renew. Monthly rental payments under the new lease begin at $23,787, which is comprised of $18,518 of base rent plus $5,268 of common area maintenance fees, with annual escalation of 3.5%. The Company paid a security deposit of $50,213 in connection with the new lease agreement.
The Company determined that the value of the lease liability and the related right-of-use asset at inception was $814,817, using an estimated incremental borrowing rate of 5%.
The Company also rents office space in San Diego, California on a month-to-month basis, at monthly rent of $5,127, which is comprised of $4,572 of base rent plus $555 of association fees.
During the three and nine months ended September 30, 2021, aggregate operating lease expense was $89,305 and $144,765, respectively. For the three and nine months ended September 30, 2020, operating lease expense was $15,616 and $42,832, respectively. As of September 30, 2017 and December 31, 2016, accrued expenses and other current2021, the Company did not have any financing leases.
Maturities of lease liabilities – related parties consisted of the following:
September 30, 2017 | December 31, 2016 | |||||||
(unaudited) | ||||||||
Accrued research and development expenses - related parties | $ | 507,041 | $ | 351,540 | ||||
Due to related party | - | 7,701 | ||||||
Total accrued expenses and other current liabilities - related parties | $ | 507,041 | $ | 359,241 |
Accrued research and development expenses – related parties consists of (a) a liability of $110,000 and $77,500 as of September 30, 2017 and December 31, 2016, respectively,2021 were as follows:
| | | |
Maturity Date |
|
| |
Remaining three months ending December 31, 2021 | | $ | 71,361 |
2022 | |
| 289,981 |
2023 | |
| 297,917 |
2024 | |
| 125,530 |
Total lease payments | |
| 784,789 |
Less: Imputed interest | |
| (52,051) |
Present value of lease liabilities | |
| 732,738 |
Less: current portion | |
| (257,198) |
Lease liabilities, non-current portion | | $ | 475,540 |
15
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Supplemental cash flow information related to the Company’s Chief Technology Officer (“CTO”) in connection with consulting services provided tolease was as follows:
| | | | | | |
|
| For the Nine Months Ended September 30, | ||||
|
| 2021 |
| 2020 | ||
Cash paid for amounts included in the measurement of lease liabilities | | | | | | |
Operating cash flows from operating lease | | $ | 82,079 | | $ | 0 |
| | | | | | |
Right-of-use asset obtained in exchange for lease obligations | | | | | | |
Operating lease | | $ | 814,817 | | $ | 0 |
NOTE 8 NOTES PAYABLE
A summary of notes payable activity during the Company;nine months ended September 30, 2021 is presented below:
| | | | | | | | | |
| | Notes | | Debt | |
| | ||
|
| Payable |
| Discount |
| Total | |||
Balance, January 1, 2021 | | $ | 2,450,000 | | $ | (128,198) | | $ | 2,321,802 |
Repayments in cash | |
| (2,450,000) | |
| — | |
| (2,450,000) |
Amortization of debt discount | |
| — | |
| 128,198 | |
| 128,198 |
Outstanding, September 30, 2021 | | $ | — | | $ | — | | $ | — |
NOTE 9 RELATED PARTY TRANSACTIONS
During the three and (b)nine months ended September 30, 2021, the Company had no material related party transactions.
Accounts Payable – Related Party
Accounts payable – related party consisted of a liability of $397,041$0 and $274,040$2,628, as of September 30, 20172021 and December 31, 2016,2020, respectively, to Energy Science Laboratories, Inc. (“ESLI”), a company controlled by the Company’s CTO,Chief Technology Officer (“CTO”), in connection with consulting services provided to the Company associated with the development of the Company’s CFV thermal management solutions.solutions in prior periods.
DueNOTE 10STOCKHOLDERS’ EQUITY
Series D Preferred Stock
On May 19, 2021, the Company entered into a Securities Purchase Agreement (“SPA”) with an investor, pursuant to which the Company agreed to issue to the investor an aggregate of 650 shares of Series D convertible preferred stock (the “Series D Preferred”) pursuant to a new designation of preferred stock, and one-year warrants to purchase 2,600,000 shares of common stock (the “Warrants”) at a price of $2.50 per share, for aggregate gross proceeds of $6,500,000 (the “Offering”). The Company also agreed to pay the investor a commitment fee of 1,300,000 shares of common stock at the closing of the Offering. The closing of the Offering occurred on May 20, 2021. In connection with the closing of the financing, the Company repaid in full its aggregate remaining notes payable obligation of $1,400,000.
The Series D Preferred have a fixed conversion price of $2.05, are convertible into an aggregate of 3,170,732 shares of common stock and have the right to vote on an as-converted basis. Holders of the Series D Preferred shall be entitled to receive cumulative dividends annually at an annual rate equal to ten percent (10%). Dividends shall be payable in cash or, at the option of the holder of the Series D Preferred, converted into shares of common stock as provided in the certificate of designation for the Series D Preferred. Provided that the shares of common stock issuable upon conversion of the Series
16
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
D Preferred is registered pursuant to an effective registration statement, the Company shall have the option, but not the obligation, to redeem, in cash, all or part of the Series D Preferred.
The Company determined that the Series D Preferred was permanent equity given that there was no redemption provision at the holder’s option and it was determined that the conversion option was clearly and closely related party consisted of certain amounts owed by KULR to KT High-Tech, which were eliminated in consolidationthe equity host, so it didn’t need to be bifurcated. The Company further determined that the $10,000 cash structuring fee paid to the investor, would be accounted for as a resultreduction of the reverse recapitalization.
Reverse Recapitalization
See Note 1 - Business Organization, Nature$6,500,000 of Operationsgross proceeds. The remaining proceeds of $6,490,000 were allocated on a relative fair value basis to the Series D Preferred ($3,875,675), the commitment shares ($1,339,582) and Basis of Presentation - Reverse Recapitalization for detailsthe Warrant ($1,274,743). The Company used the Black-Scholes option pricing model to determine the fair value of the Share Exchange.Warrant using the following assumptions: exercise price of $2.50 per share, market price of $2.05 per share, expected term of 1.0 year, volatility of 142% and a risk-free interest rate of 0.05%. Finally, the Company determined that the Series D Preferred had a beneficial conversion feature equal to $2,624,326 which is a deemed dividend and represents an adjustment to the numerator in the loss per share calculation. The cash issuance costs of $365,000 (inclusive of the $10,000 cash structuring fee) were charged to additional paid-in-capital.
On June 17, 2021, all of the outstanding shares of Series D Preferred were converted into common stock. See “Common Stock”, below.
Common Stock
On May 20, 2021, the Company issued 1,300,000 shares of common stock with an issuance date value of $2,665,000 as a commitment fee to the investor, for the purchase of Series D Preferred. The value of the shares of common stock issued was accounted for as a reduction of the proceeds from the sale of the Series D Preferred.
On June 17, 2021, the Company issued 3,170,730 shares of common stock upon the conversion of 650 shares of Series D Preferred, after which no Series D Preferred shares remained outstanding.
Stock-Based Compensation
During the three month and nine months ended September 30, 2017, the Company received aggregate consideration of $32,000 related to certain restricted common stock awards that were issued in 2013 and 2014.
During the three months ended September 30, 2017 and 2016,2021, the Company recognized stock-based compensation expense of $187,023$1,292,096 and $8,688,$2,765,959, respectively of which $0 and $15,190, respectively, is included in research and development expenses, and $1,292,096 and $2,750,770, respectively, is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. During the three and nine months ended September 30, 2020, the Company recognized stock-based compensation expense of $158,014 and $252,831, respectively, of which $7,424 and $22,961, respectively was charged to research and development expense and $150,590 and $229,870, respectively is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.
The following table presents information related to stock-based compensation for the three months and nine months ended September 30, 2021 and 2020:
| | | | | | | | | | | | |
|
| For the Three Months Ended | | For the Nine Months Ended | ||||||||
|
| September 30, | | September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Common stock for services | | $ | 77,040 | | $ | 147,976 | | $ | 345,679 | | $ | 222,676 |
Amortization of restricted common stock | |
| 440,333 | |
| — | |
| 1,000,647 | |
| — |
Amortization of market-based awards | |
| 754,207 | |
| — | |
| 1,374,226 | |
| — |
Stock options | |
| 20,516 | |
| 10,038 | |
| 45,407 | |
| 30,155 |
Total | | $ | 1,292,096 | | $ | 158,014 | | $ | 2,765,959 | | $ | 252,831 |
17
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Common Stock Issued for Services
For the three and nine months ended September 30, 2021, the Company issued 85,000 and 160,000 shares of immediately vested common stock, respectively, having an aggregate grant date value of $186,399 and $346,199, respectively.
Warrants
During the three and nine months ended September 30, 2021, the Company issued an aggregate of 1,185,033 and 4,185,033 shares of common stock, respectively, in connection with exercises of outstanding warrants pursuant to which we received gross proceeds in the aggregate amount of $1,494,216 and $5,206,716, respectively.
A summary of warrants activity during the nine months ended September 30, 2017 and 2016, the Company recognized stock-based compensation expense2021 is presented below:
| | | | | | | | | | |
| | | | Weighted | | Weighted | | | | |
| | | | Average | | Average | | | | |
| | Number of | | Exercise | | Remaining | | Intrinsic | ||
|
| Warrants |
| Price |
| Term (Yrs) |
| Value | ||
Outstanding, January 1, 2021 |
| 6,787,911 | | $ | 1.25 |
|
|
| |
|
Issued |
| 2,600,000 | |
| 2.50 |
|
|
| |
|
Exercised |
| (4,185,033) | |
| (1.24) |
|
|
| |
|
Expired |
| — | |
| — |
|
|
| |
|
Forfeited |
| — | |
| — |
|
|
| |
|
Outstanding, September 30, 2021 |
| 5,202,878 | | $ | 1.88 |
| 4.4 | | $ | 2,158,307 |
| | | | | | | | | | |
Exercisable, September 30, 2021 |
| 5,202,878 | | $ | 1.88 |
| 4.4 | | $ | 2,158,307 |
The following table presents information related to warrants as of $411,181 and $23,636 respectively,September 30, 2021:
| | | | | | | |
Warrants Outstanding | | Warrants Exercisable | |||||
| | | | | Weighted | | |
| | | Outstanding | | Average | | Exercisable |
Exercise | | Number of | | Remaining Life | | Number of | |
Price |
| Warrants |
| In Years |
| Warrants | |
$ | 1.25 |
| 2,594,553 |
| 4.3 |
| 2,594,553 |
$ | 1.50 |
| 8,325 |
| 0.2 |
| 8,325 |
$ | 2.50 |
| 2,600,000 |
| 4.6 |
| 2,600,000 |
| |
| 5,202,878 |
| 4.4 |
| 5,202,878 |
Restricted Common Stock
The following table presents information related to restricted common stock awards which is included within general and administrative expenses on the condensed statements(excluding Market-Based Awards) as of operations. September 30, 2021:
| | | | | |
| | | | Weighted Average | |
| | Shares of Restricted | | Grant Date | |
|
| Common Stock |
| Fair Value | |
Non-vested balance, January 1, 2021 |
| 72,500 | | $ | 1.24 |
Granted |
| 2,570,000 | |
| 2.55 |
Vested |
| (27,500) | |
| 2.06 |
Forfeited |
| — | |
| — |
Non-vested shares, September 30, 2021 |
| 2,615,000 | | $ | 2.52 |
18
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As of September 30, 2017,2021, there was $464,846$5,560,259 of unrecognized stock-based compensation expense of which, $341,520 was subjectrelated to re-measurement,restricted stock that will be recognized over the weighted average remaining vesting period of 0.63.2 years.
Stock Options
A summary of options activity (excluding Market-Based Awards) during the nine months ended September 30, 2021 is presented below:
| | | | | | | | | | |
|
| |
| Weighted |
| Weighted |
|
| | |
| | | | Average | | Average | | | | |
| | Number of | | Exercise | | Remaining | | Intrinsic | ||
|
| Options |
| Price |
| Term (Yrs) |
| Value | ||
Outstanding, January 1, 2021 |
| 370,000 | | $ | 0.66 |
|
|
| |
|
Granted |
| 220,000 | |
| 2.30 |
|
|
| |
|
Exercised |
| — | |
| — |
|
|
| |
|
Expired |
| — | |
| — |
|
|
| |
|
Forfeited |
| — | |
| — |
|
|
| |
|
Outstanding, September 30, 2021 |
| 590,000 | | $ | 1.27 |
| 3.2 | | $ | 527,600 |
| | | | | | | | | | |
Exercisable,September 30, 2021 |
| 324,167 | | $ | 0.66 |
| 2.3 | | $ | 460,317 |
The following table presents information related to stock options (excluding Market-Based Awards) as of September 30, 2021:
| | | | | | | |
Options Outstanding | | Options Exercisable | |||||
| | | | | Weighted | |
|
| | | Outstanding | | Average | | Exercisable |
Exercise | | Number of | | Remaining Life | | Number of | |
Price |
| Options |
| In Years |
| Options | |
$ | 0.66 |
| 370,000 |
| 2.3 |
| 324,167 |
$ | 1.99 | | 10,000 | | — | | — |
$ | 2.03 | | 20,000 | | — | | — |
$ | 2.05 | | 10,000 | | — | | — |
$ | 2.08 | | 10,000 | | — | | — |
$ | 2.13 |
| 20,000 |
| — |
| — |
$ | 2.27 | | 30,000 | | — | | — |
$ | 2.43 | | 20,000 | | — | | — |
$ | 2.44 | | 100,000 | | — | | — |
| |
| 590,000 |
| 2.3 |
| 324,167 |
As of September 30, 2021, there was $175,780 of unrecognized stock-based compensation expense related to stock options, which will be recognized over the weighted average remaining vesting period of 2.9 years.
19
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 Three Months Ended | | For the Nine Months Ended | | ||||||
|
| September 30, | | September 30, |
| ||||||
|
| 2021 |
| 2020 | | 2021 |
| 2020 |
| ||
Risk free interest rate | | 0.20% - 0.23 | % | N/A | | | 0.20% - 0.85 | % | | 1.58 | % |
Expected term (years) | | 3.50 | | N/A | |
| 2.5 - 3.5 | |
| 2.50 | |
Expected volatility | | 109.00 | % | N/A | | | 93% - 109 | % | | 93.00 | % |
Expected dividends | | 0 | % | N/A | | | 0 | % | | 0 | % |
For the three and nine months ended September 30, 2021, the stock options had a weighted average grant date value of $1.55 and $0.80 per option share, respectively. For the nine months ended September 30, 2020, the stock options had a weighted average grant date value of $0.36 per option share. There were 0 stock options granted during the three months ended September 30, 2020.
See Market-Based Awards below for additional information.
Market-Based Awards
The following table presents information related to market-based awards as of September 30, 2021:
| | | | | |
| | Number of | | Grant Date | |
Award |
| Shares |
| Fair Value | |
Restricted stock units |
| 1,500,000 | | $ | 1.94 |
Stock options |
| 1,500,000 | | $ | 1.72 |
Total |
| 3,000,000 | | $ | 3.66 |
On March 1, 2021, in connection with the appointment of the Company’s Chief Operating Officer (the “COO”), the COO became eligible to receive of up to 1,500,000 shares of the Company’s common stock which will be earned based upon achieving certain market capitalization milestones up to $4 billion. The grant date value of this award of $2,911,420 was determined using a Monte Carlo valuation model for market-based vesting awards and will be amortized over each of the tranches’ prospective derived service period.
On June 10, 2021, the Chief Executive Officer (the “CEO”) received an option for the purchase of up to 1,500,000 shares of the Company’s common stock at an exercise price of $2.60, which will be earned based upon achieving certain market capitalization milestones up to $4 billion. The grant date value of this award of $2,579,000 was determined using a Monte Carlo valuation model for market-based vesting awards and will be amortized over each of the tranches’ prospective derived service period.
The following assumptions were used in applying the Monte Carlo valuation model to the Company’s market-based awards described above.
| | | | | | | |
| | March 1, | | June 10, | | ||
|
| 2021 |
| 2021 | | ||
Risk free interest rate |
| | 0.71 | % | | 0.73 | % |
Expected volatility |
| | 98.9 | % | | 98.5 | % |
Expected dividend yield |
| | 0 | % | | 0 | % |
Expected life of market-based awards |
| | 2.1 | years | | 2.2 | years |
Fair value of common stock on date of grant | | $ | 2.61 | | $ | 2.62 | |
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KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As of September 30, 2021, there was $4,116,195 of unrecognized stock-based compensation expense related to market-based awards which will be amortized over the remaining weighted average vesting period of 1.86 years.
NOTE 11COMMITMENTS AND CONTINGENCIES
Technology Development and Sponsorship Agreement
On March 31, 2021, the Company entered into a multi-year technology development and sponsorship agreement, pursuant to which the Company has committed to spend an aggregate of $900,000 in sponsorship fees, payable in 3 installments, of which $250,000 was paid on April 1, 2021, $300,000 is payable on January 1, 2022, and $350,000 is payable on January 1, 2023. The April 1, 2021 payment of $250,000 was recorded as a prepaid expense and is being amortized over the performance period. During the nine months ended September 30, 2021, $166,667 of sponsorship fees expense was recognized related to the agreement.
In addition, the Company has committed to paying an aggregate of $750,000 related to technology development fees, which is to be paid in 3 equal installments during 2021, 2022 and 2023. As of September 30, 2021, 0 portion of the technology fees has been paid.
Research and Development Agreements
On April 5, 2021, the Company entered into a research and development agreement to develop high-areal-capacity battery electrodes to increase the energy density of batteries. Pursuant to the terms of the agreement, the Company has committed to spend an aggregate amount of $580,375, payable in 8 quarterly installments of $72,547. During the nine months ended September 30, 2021, $145,094 of expense was recognized related to this agreement.
On August 18, 2021, the Company entered into a multi-year research and development agreement for a solid-state rechargeable battery, pursuant to which the Company has committed to spend an aggregate amount of $592,196 in 8 quarterly payments of $74,025. During the nine months ended September 30, 2021, $24,675 of expense was recognized related to the agreement.
NOTE 12SUBSEQUENT EVENTS
Common Stock
During October 2021, the Company issued an aggregate of 1,600,000 shares of common stock upon the exercise of outstanding warrants pursuant to which the Company received an aggregate of $4,000,000 of gross proceeds.
During November 2021, the Company issued 107,744 unregistered shares of common stock as an equity incentive grant, which shares are subject to a four-year vesting schedule.
During November 2021, the Company issued an aggregate of 1,000,000 shares of common stock upon the exercise of outstanding warrants pursuant to which the Company received an aggregate of $2,500,000 of gross proceeds.
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Operations
The following discussion and analysis of the results of operations and financial condition of KT High-Tech Marketing, Inc. ("KT High-Tech" and, including its subsidiary, KULR Technology Corporation (“KULR”), theGroup, Inc. (the “Company”) as of September 30, 20172021 and for the three and nine months ended September 30, 20172021 and 20162020 should be read in conjunction with our condensed consolidated financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis should be read in conjunction with KULR’s and KT High-Tech’sthe Company’s audited financial statements and related disclosures as of December 31, 20162020 and for the year then ended, which are included in the Form 8-K and Form 10-K filed with the Securities and Exchange Commission (“SEC”) on JuneMarch 19, 2017 and March 30, 2017, respectively.2021. 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.
Forward-Looking Statements
The information in this report This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. All statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other thanfactors. These statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can beoften identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “should”“continue,” and similar expressions or variations. Actual results could differ materially because of the factors discussed in “Risk Factors” elsewhere in this Quarterly Report, in our other variations or similar words. No assurances can be givenreports filed with the SEC, and other factors that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual resultswe may differ significantly from management’s expectations.
The following discussion and analysis should be read in conjunction with our financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.
know.
Overview
KT High-Tech Marketing,KULR Technology Group, Inc. (the "Company") was incorporated on December 11, 2015 under the laws of the State of Delaware, and was formerly known as Grant Hill Acquisition Corporation. In April 2016, the Company implemented a change of control by issuing shares to new shareholders, redeeming shares of existing shareholders, electing new officers and directors and accepting the resignations of its then existing officers and directors. In connection with the change of control, the shareholders of the Company and its board of directors unanimously approved the change of the Company’s name from Grant Hill Acquisition Corporation to KT High-Tech Marketing, Inc. in April 2016.
On June 19, 2017, the Company closed a share exchange agreement (the “Share Exchange Agreement”) with, through our wholly-owned subsidiary KULR Technology Corporation, a Delaware Corporation (“KULR”),develops and 100% of the shareholders of KULR (the “KULR Shareholders”). Upon the closing of the Share Exchange Agreement, KULR became a wholly owned subsidiary of the Company. The acquisition of KULR is treated as a reverse acquisition, and the business of KULR was integrated into the Company (the transaction, the “Reverse Acquisition”).
KULR was formed in 2013 and is based in Santa Clara, California. Since its inception, KULR primarily focused on developing and commercializing itscommercializes high-performance thermal management technologies for batteries, electronics, and other components across an array of battery-powered applications. For aerospace and 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 by which it acquired through assignment from and license with KULR’s co-founder Dr. Timothy Knowles, inwe aim to mitigate the high value, high-performance consumer electronic andeffects of thermal runaway propagation. This total battery safety solution can be used for electric vehicles, energy storage, applications. Priorbattery recycling transportation, cloud computing and 5G communication devices. Our proprietary core technology is a carbon fiber material that provides what we believe to 2013,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 NASA, the Company’s technologies were used in numerous advanced spaceJet Propulsion Lab and industrial applications for NASA, Boeing, and Raytheon. A few notable achievements were the use of KULR’s technologies in: the Mars Lander/Rover (battery heat sink), X-31 Battery Heat Sink, Mercury Messenger (battery heat sink), and X-51 Scramjet (heat exchanger).
Prior to the Reverse Acquisition, the Company was an early-stage company planning to market and distribute technologyothers, our products and components targeting the energy and consumer electronics industries. The Company intended to market and sell theservices make commercial battery powered products to both the end user and supply chain markets and to seek partnerships in developing and distributing such products.
After the Reverse Acquisition, the Company integrated its existing business operations with those of its subsidiary, KULR. KULR owns proprietary carbon fiber based (Carbon Fiber Velvet or “CFV”) thermal management solutions that it believes are more effective at conducting, dissipating and storing heat generated by an electronic system’s internal components (i.e. semiconductor, integrated circuits “chips”) in comparison to traditional materials, such as copper and aluminum. KULR’s technologies can be applied inside a wide array of electronic applications, such as mobile devices, cloud computing, virtual reality platforms, satellites, internet of things, drones, and connected cars.
Thermal Management Solutions
Three key vectors have driven advancements in semiconductorssafer and electronics systems – performance, power,cooler and size. These vectors, however, often counteract one another. As chip performance increases, power consumption increaseslighter.
KULR’s business model continues to evolve from being a component supplier, to providing more design and more heattesting services to our customers. The next step of evolution is generatedto provide total system solutions to address market needs. In order to scale up as a byproduct. When chip size reduces, there is an increased potential for a hot spot onsystems provider more quickly and efficiently in (i) the chip, which can degrade system performance. Electronic system components must operate within a specific temperature range on both the highLi-ion battery energy storage and low end to operate properly. KULR resolves many of the tradeoffs associated with otherrecycling markets, (ii) battery cell design and safety testing, and (iii) advanced thermal management materials. KULR’ssystems, 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, improve heat storage and dissipation, rigidity problems and durability. Its products are lightweight and reduce manufacturing complexity associated with traditional thermal management materials.
In additionwhich KULR will take to thermal management of electronic systems,market directly to capture more value for KULR has developed, in partnership with NASA JSC, a highly effective, lightweight and passive thermal protection technology. Thermal Runaway Shield (TRS) for lithium ion batteries. KULR’s lithium ion battery (Li-B) TRS product prevents a potentially dangerous combustible condition known as thermal runaway from occurring in neighboring Li-B cells by acting as a shield or barrier in between individual Li-B cells in a battery pack. Although rare, incidents of thermal runaway occurring spontaneously in Li-B cargo shipments and inside electronics, including smartphones, hover boards and electric vehicles, are a cause of public concern.
shareholders.
Recent Developments
COVID-19
In March 2020, the World Health Organization declared COVID-19, a novel strain coronavirus, a pandemic. During 2020 and continuing into 2021, 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.
22
New Officer Hires
During 2021, the Company hired the following officers:
● | On March 8, 2021, Keith Cochran joined KULR as President and Chief Operating Officer. |
● | On April 19, 2021, Antonio Martinez joined the Company as its new Vice President of Operations. |
● | On June 10, 2021, Greg Provenzano joined the Company as its new Vice President of Sales and Marketing. |
Appointment of Members to the Board of Directors
On June 6, 2017,7, 2021, the Company filedfollowing new independent director appointments became effective:
● | Morio Kurosaki (Chair of Audit Committee) |
● | Stayce Harris (Chair of Compensation Committee) |
● | Joanna Massey (Chair of Nominating and Governance Committee) |
Operating Lease
On April 5, 2021, we entered into an agreement to lease office space for a Certificatethirty-six-month period, commencing June 1, 2021 with the option to renew for an additional 5 years. Monthly rental payments under the new lease total $23,787, which are comprised of Designation$18,518 of base rent plus $5,269 for common area costs, with annual escalation of 3.5%.
Series D Preferred Stock
On May 20, 2021, we sold an aggregate of 650 shares of Series A VotingD Preferred Stock with the Secretarypursuant to a new designation of State of the State of Delaware (the “Certificate of Designation”). Pursuantpreferred stock, and one-year warrants to the Certificate of Designation, the Company designated 1,000,000purchase 2,600,000 shares of preferred “A”common stock $0.0001 par valueat a price of $2.50 per share, (individually or collectively the “Preferred A Stock”).for aggregate gross proceeds of $6,500,000. The Series D Preferred A Stock are notshares were convertible into any series or classan aggregate of 3,170,732 shares of common stock at a fixed conversion price of the Company. In addition, holders of the Preferred A Stock are not entitled to receive dividends, nor do they have rights to distribution from the assets of the Company in the event of any liquidation, dissolution, or winding up of the Company. Each record holder of Preferred A Stock have$2.05 and had the right to vote on any matteran as-converted basis. We also paid the investor a commitment fee of 1,300,000 shares of common stock in connection with holdersthe sale of the Series D Preferred. Notes payable obligations in the aggregate amount of $1,540,000, were paid in full upon the closing of the sale of the Series D Preferred.
On June 17, 2021, we issued an aggregate of 3,170,730 shares of our common stock upon conversion of 650 shares of our Series D Preferred Stock, after which no Series D Preferred shares remained outstanding.
Exercise of Warrants
During the nine months ended September 30, 2021, we issued 4,185,033 shares of common stock upon the exercise of warrants for proceeds of $5,206,716.
NYSE American Exchange Listing
On June 7, 2021, the Company’s common stock was up listed and other securities entitled to vote, if any, voting together as one (1) class. Each record holder of Preferred A Stock has that number of votes equal to one-hundred (100) votes per share of Preferred A Stock held by such holder. The record holders ofnow trades on the Preferred A Stock are entitled to the same notice of any regular or special meeting of the shareholders as may or shall be given to holders of common stock entitled to vote at such meetings.NYSE American Exchange.
23
As discussed above, effective on June 19, 2017, pursuant to the Share Exchange Agreement, KULR became a wholly-owned subsidiaryTable of the Company. Accordingly, the Company, through its subsidiary, KULR, will primarily focus its operations on KULR’s thermal management business.Contents
Upon closing of the Share Exchange Agreement on June 19, 2017, the following persons constituted the executive officers and directors of the Company:
* newly appointed as of June 19, 2017
Results of Operations
Three and Nine Months Ended September 30, 2021 Compared With the Three and Nine Months Ended September 30, 2020
The closingRevenues
Our revenues consisted of the Share Exchange Agreement was accounted for as a reverse recapitalization underfollowing during the provisions of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 805-40. The condensed consolidated statements of operations herein reflect the historical results of KULR prior to the completion of the reverse recapitalization since it was determined to be the accounting acquirer,three months ended September 30, 2021 and do not include the historical results of operations for KT High-Tech prior to the completion of the reverse recapitalization.2020:
| | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Product sales | | $ | 600,921 | | $ | 136,849 | | $ | 1,356,530 | | $ | 235,979 |
Contract services | |
| — | |
| — | |
| 290,540 | |
| 179,498 |
Total revenue | | $ | 600,921 | | $ | 136,849 | | $ | 1,647,070 | | $ | 415,477 |
Revenues
Revenues consisted of sales of our CFV thermal management solution and PCM heat sinks.
For the three months ended September 30, 20172021 and 2016,2020, we generated $15,106$600,921 and $0$136,849 of revenues, respectively, representing an increase of $464,072, or 339%. For the nine months ended September 30, 2021 and 2020, we generated $1,647,070 and $415,477 of revenues, respectively, representing an increase of $1,231,593, or 296%, primarily resulting from three new contracts received during the first three quarters of 2021. Revenue from product sales during the three and nine months ended September 30, 2021 increased by 339% and 475%, respectively, compared to the three and nine months ended September 30, 2020, primarily resulting from two large contracts received during the first three quarters of 2021. Product sales during these periods included sales of our component product, carbon fiber velvet (“CFV”) thermal management solution, ISC battery cells and devices, patented TRS technology, and thermal fiber thermal interface (“FTI”) materials. 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 consists 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 compared to revenue from services, so product mix plays an important role 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 period, customers and products, due to the learning process, customer negotiating strengths, and product mix.
For the three months ended September 30, 2021 and 2020, cost of revenues was $155,138 and $63,403, respectively, an increase of $15,106.
$91,735 or 145%. The increase was primarily due to higher revenues earned during the three months ended September 30, 2021. The gross margin percentage was 74% and 54% for the three months ended September 30, 2021 and 2020, respectively. The increase in margins during the third quarter of 2021 is primarily the result of changes in product mix sold during the third quarter.
For the nine months ended September 30, 20172021 and 2016, we generated $26,0062020, cost of revenues was $869,612 and $6,900 of revenues,$138,180, respectively, an increase of $19,106,$731,432 or 277%529%. The increase was primarily due to higher revenues earned during the nine months ended September 30, 2021. The gross margin percentage was 47% and 67% for the nine months ended September 30, 2021 and 2020, respectively. The decrease in margins realized during the nine months ended September 30, 2021 is primarily attributable to an individual contract that resulted in a gross margin of 13% during the second quarter of 2021.
24
Research and Development
Cost of Revenues
Cost of revenues consists of researchResearch and development expenses directly related to sales as well as(“R&D”) include expenses incurred in connection with the costR&D of our CFV thermal management solution and PCM heat sinks.
solid-state rechargeable batteries. R&D expenses are expensed as they are incurred.
For the three months ended September 30, 20172021 and 2016, cost2020, R&D expenses were $481,855 and $51,820, respectively, representing an increase of revenues$430,035 or 830%. For the nine months ended September 30, 2021 and 2020, R&D expenses were $52,384$957,579 and $0,$221,524, respectively, representing an increase of $736,055 or 332%. The increase is primarily due to thermal energy management report fees and energy storage development services provided during the period. We expect that our R&D expenses will increase as we expand our future operations.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of salaries, stock-based compensation, legal and professional expense, marketing and advertising expense, payroll taxes and other benefits, and rent expense.
For the three months ended September 30, 2021 and 2020, selling, general and administrative expenses were $3,104,410 and $832,146, respectively, an increase of $52,384.$2,272,264 or 273%. The increase wasis primarily attributable to an increase of approximately $1,116,000 of stock-based compensation, an increase of approximately $252,000 of marketing and advertising expense, an increase of approximately $210,000 for professional fees resulting from engagements for financial services, quality and automation services, as well as an increase of approximately $342,000 in labor costs as the result of sixteen new hires, an increase of approximately $193,000 of miscellaneous expenses, and an increase of approximately $92,000 of travel and entertainment expenses due toresearch the lifting of COVID-19 dining and development expenses that were attributable to a sales agreement.
traveling restrictions.
For the nine months ended September 30, 20172021 and 2016, cost of revenues2020, selling, general and administrative expenses were $108,579$7,320,524 and $7,749,$1,719,100, respectively, an increase of $100,830,$5,601,424 or 1,301%326%. The increase wasis primarily attributable to an increase of approximately $2,511,000 of stock-based compensation, an increase of approximately $1,389,000 of marketing and advertising expense, an increase of approximately $648,000 in labor costs as the result of eight new hires, an increase of approximately $433,000 for professional fees resulting from engagements for financial services, quality and automation services, and an increase of approximately $451,000 of miscellaneous expenses, and an increase of approximately $163,000 of travel and entertainment expenses due to researchthe lifting of COVID-19 dining and development expenses that were attributable to a sales agreement.traveling restrictions.
Research and Development
Research and development includes expenses incurred in connection with the research and development of our CFV thermal management solution. Research and development expenses are expensed as they are incurred.
Other Expenses
For the three months ended September 30, 2017, research2021 and development expenses increased to $157,876 from $14,090 in the comparable 2016 period,2020, other income (expenses) were $44,550 and $(201,739), respectively, representing an increase of $143,786, or 1,020%.$246,289. The increase in other income is primarily attributabledue to a research consulting agreement which commencedno 2021 charges for amortization of debt discount and the increased income from the change in September 2016 as well as new consulting agreements and service contracts which commenced in the third quarterfair value of 2017.
accrued issuable equity of $45,600.
For the nine months ended September 30, 2017, research2021 and development2020, other expenses increased to $207,504 from $16,173 in the comparable 2016 period,were $337,153 and $328,170, respectively, representing an increase of $191,331,$8,983 or 1,183%3%. The increase in other expense is primarily attributabledue to a research consulting agreement which commenced in September 2016 as well as new consulting agreements and service contracts which commenced in the third quarter2021 debt redemptions costs of 2017.
We expect that our research and development expenses will to continue increase in the future.
Research and Development – Related Parties
Research and development – related parties includes expenses$140,000 associated with the developmentrepayment of our CFV thermal management solutions providednotes payable, and an increase of $50,000 of expenses related to the change in fair value of accrued issuable equity, partially offset by Energy Science Laboratories, Inc. (“ESLI”), a research and development company owned by our Chief Technology Officer (“CTO”)”, as well as services provided from our CTO. Research and development – related parties expenses are expensed as they are incurred.
Fordecrease of amortization of debt discount of $179,000 during the threenine months ended September 30, 2017, research2021.
Liquidity and development – related parties decreased by$52,876, or 58%, to $38,767 from $91,643 in the comparable 2016 period. The decrease is due toCapital Resources
As of September 30, 2021, we had a decrease in the amountcash balance of work provided by ESLI$10,990,056 and working capital of $10,659,878. We incurred a net loss of $7,837,798 during the 2017nine months ended September 30, 2021 and had an accumulated deficit totaling $19,084,206 as of September 30, 2021. While the Company anticipates it will continue to incur operating losses and use cash in operating activities for the near future, the Company believes that its current working capital is sufficient in comparison to its anticipated cash usage for a period as we brought more of our research and development in-house.
at least twelve months subsequent to the filing date of these financial statements.
For the nine months ended September 30, 2017, research2021 and development – related parties increased by$154,123, or 54%, to $439,824 from $285,701 in the comparable 2016 period. The increase is due to an increase in the amount of work provided by ESLI during the 2017 period.
We expect that our research and development expenses will continue to increase in the future.
General and Administrative
General and administrative expenses consist primarily of salaries, payroll taxes and other benefits, legal and professional fees, stock-based compensation, marketing, travel, rent and office expenses.
For the three months ended September 30, 2017, general and administrative expenses increased by $512,915, or 555%, to $605,273 from $92,358 in the comparable 2016 period. The increase is primarily due to an increase in non-cash stock-based compensation expense of approximately $178,000, increased payroll expenses from the hiring of new employees in the third quarter of 2017, increased marketing expenses as well as increased professional fees related to being a public company.
For the nine months ended September 30, 2017, general and administrative expenses increased by $720,911, or242%, to $1,019,235 from $298,324 in the comparable 2016 period. The increase is primarily to an increase in non-cash stock-based compensation expense of approximately $388,000, increased payroll expenses from the hiring of new employees in the third quarter of 2017, increased marketing expenses as well as increased professional fees incurred with regards to the Share Exchange and being a public company.
Interest Income – Related Party
Interest income – related party consists of income generated from our loan receivable from our CEO.
For the three months ended September 30, 2017, interest income – related party decreased by $750 to $0 from $750. The decrease was due to the collection of a note receivable in the second quarter of 2017.
For the nine months ended September 30, 2017, interest income – related party decreased by $65 to $1,337 from $1,402. The decrease was due to the collection of a note receivable in the second quarter of 2017.
Interest Expense – Related Party
Interest expense – related party consists of interest on a KT High-Tech promissory note purchased by KULR in 2017. Since the KT High-Tech and KULR reverse recapitalization, all interest expense related to the promissory note has been eliminated in consolidation.
For the nine months ended September 30, 2017, interest expense – related party was $9,593.
Liquidity and Capital Resources
Operating Activities
For the nine months ended September 30, 2017 and 2016,2020, cash used in operating activities was $263,585$5,394,935 and $553,453,$2,076,035, respectively. Our cash used in operations for the nine months ended September 30, 20172021 was primarily
25
attributable to our net loss of $1,757,850,$7,837,798, adjusted for net non-cash expenseexpenses in the aggregate amount of $414,555, partially offset by $1,079,710$2,989,598, and $546,735 of net cash provided byused to fund changes in the levels of operating assets and liabilities. Our cash used in operations for the nine months ended September 30, 20162020 was primarily attributable to our net loss of $600,221,$1,991,497, adjusted for net non-cash expenseexpenses in the aggregate amount of $24,136, partially offset by $22,632$587,503, and $672,041 of net cash provided byused to fund changes in the levels of operating assets and liabilities.
Investing Activities
For the nine months ended September 30, 2021 and 2020, cash used in investing activities was $1,386,864 and $46,087, respectively, related to equipment purchases and improvements to the new executive offices.
For the nine months ended September 30, 20172021 and 2016,2020, cash provided by (used in) investingfinancing activities was $1,907,990$8,891,716 and $(85,000),$4,822,921, respectively. Cash provided by investingfinancing activities during the nine months ended September 30, 2017 resulted2021 represents $6,500,000 of proceeds from $1,859,261the sale of cash acquiredpreferred stock and $5,206,716 received in connection with the Share Exchange as well as $85,000exercise of proceeds received from the collection of our note receivable from our CEO,warrants, partially offset by $36,271the $2,450,000 principal repayments on notes payable and $365,000 of purchases of property and equipment. Our cash used in investingfinancing costs paid during the period. Cash provided by financing activities forduring the nine months ended September 30, 2016 was related to the purchase2020 consisted of a note receivable in the amount$3,710,000 of $85,000net proceeds from our CEO.
Financing Activities
Net cash provided by financing activities for nine months ended September 30, 2016 was $550,000 which was related to the issuance of notes payable, $155,226 of proceeds from the Paycheck Protection Program loan, and $1,461,695 of net proceeds from the sale of common stock. These amounts were partially offset by $330,000 for the payment of debt issuance costs, $159,000 for the repayments on notes payable and $15,000 of cash paid for financing costs.
Subsequent to September 30, 2021, the Company received an aggregate of 1,833,334 shares$6,500,000 in connection with the exercise of Series A1 convertible preferred stockwarrants.
In March 2020, the World Health Organization declared COVID-19, a novel strain coronavirus, a pandemic. During 2020 and continuing into 2021, the global economy has been, and continues to investors. There were nobe, 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, from financing activities for the nine months ended September 30, 2017.or financial condition.
Off-Balance Sheet Arrangements
Summary
AsThere 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 September 30, 2017, we had a cash balance, workingoperations, liquidity, capital of and an accumulated deficit of $1,653,492, $1,050,984 and $3,691,660, respectively. During the three and nine months ended September 30, 2017, we incurred a net loss of $839,252 and $1,757,850, respectively.
As a result of the closing of the Share Exchange, we believe we have sufficient cashexpenditures or capital resources that is material to sustain our operations for at least a year from the date of this filing.
stockholders.
Critical Accounting Policies
There are no material changes from theFor a description of our critical accounting policies, set forthsee Note 2 – Summary of Significant Accounting Policies in “Management’s Discussion and AnalysisPart 1, Item 1 of Financial Condition and Results of Operations” of our Currentthis Quarterly Report on Form 8-K which was filed with the SEC on June 19, 2017. Please refer to that document for disclosures regarding the critical accounting policies related to our business.10-Q.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Risk
The Company is a smaller reporting company, as defined by Rule 229.10(f)(1), and is not required to provide the information required by this Item.
Item 4. Controls and Procedures.Procedures
Evaluation of Disclosure Controls and Procedures
Our management, has evaluated, under the supervision and with the participation of our principal executive officer and principal financial officers,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, pursuant to Rule 13a-15(b)as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”).Act. Based on thatthis evaluation, our management, with the participation of our principal executive officer and principal financial officers officer,
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concluded that, as of the end of the period covered by this report, due to the inadequate recordation of certain transactions and communication of those transactions to those integral to our disclosure procedures, our disclosure controls and procedures were not effective in ensuring that information required to be disclosedat the reasonable assurance level.
During the year ended December 31, 2020, our management identified a material weakness in our Exchange Act reportsinternal control over financial reporting whereas we did not design or maintain effective controls to ensure that there is (1) recorded, processed, summarizedan independent review and reported inapproval 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. We are currently implementing a timely manner,detailed plan for remediation of the material weakness, including developing and (2) accumulated and communicatedmaintaining preventative controls around the electronic payment process to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. ensure proper segregation of duties.
Changes in Internal Control over Financial Reporting
There havehas been no changeschange in our internal control over financial reporting that occurred during the period covered by this reportthird quarter of 2021 that havehas materially affected, or areis reasonably likely to materially affect, our internal control over 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.II – OTHER INFORMATION
Proceedings
None.
Not applicable. See, however,There have been no material changes to the risk factors discussed in Item 1A of1A. Risk Factors in our CurrentAnnual Report on Form 8-K,10-K which was filed with the Securities and Exchange CommissionSEC on JuneMarch 19, 2017.2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.Proceeds
During the three months ended September 30, 2021, we issued 51,700 unregistered shares of common stock upon the exercise of warrants.
None.During the three months ended September 30, 2021, the Company issued 155,000 unregistered shares of common stock for services, which shares are subject to a 6-month vesting schedule.
Each of the foregoing transactions was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof. In the alternative, the common stock issued upon the exercise of conversion rights is an exempt security pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities.
Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.applicable.
Information
None.
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Exhibits
Exhibit | Description | |
31.1 | ||
31.2 | ||
32.1 | ||
101.INS | XBRL Instance | |
101.SCH | Inline XBRL Taxonomy Extension | |
101.CAL | Inline XBRL Taxonomy Extension Calculation | |
101.DEF | Inline XBRL Taxonomy Extension Definition | |
101.LAB | Inline XBRL Taxonomy Extension Label | |
101.PRE | Inline XBRL Taxonomy Extension Presentation | |
| | |
104 | | Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
*Filed herewith
**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.
Date: November | By | /s/Michael Mo |
Michael Mo | ||
Chief Executive Officer | ||
(Principal Executive Officer) |
Date: November 15, 2021 | By | /s/Simon Westbrook |
Simon Westbrook | ||
Chief Financial Officer | ||
( |
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