KULR Technology Group, Inc. — Q1 2023 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2023, compared with Q1 2022. KULR develops thermal-management, battery-safety and energy-management technologies for aerospace, defense and commercial markets. The financial statements are unaudited.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / prior period |
|---|---|---|
| Revenue | $1.76 million | $0.20 million; up 778% |
| Gross profit / gross margin | $643,388 / 37% | $77,581 / 39% |
| Operating expenses | $6.90 million | $4.26 million |
| Operating loss | $(6.26) million | $(4.18) million |
| Net loss / diluted loss per share | $(6.60) million / $(0.06) | $(4.14) million / $(0.04) |
| Cash used in operating activities | $(4.76) million | $(4.57) million |
| Cash used in investing activities | $(0.36) million | $(0.25) million |
| Cash from financing activities | $1.97 million | $0.09 million |
At March 31, cash was $7.19 million, down from $10.33 million at December 31, 2022. Working capital was $414,334, versus $6.06 million at year-end. Total assets were $20.11 million, total liabilities $11.88 million, and stockholders’ equity $8.23 million. The filing reports no conventional long-term borrowing balance, but prepaid advance liabilities were $7.65 million net of discounts ($7.75 million principal); operating lease liabilities totaled $309,394.
Material changes and financing
- Product sales rose to $1.63 million from $172,599; contract-services revenue was $130,544 versus $27,900. Revenue came from 14 customers, versus 11 in Q1 2022.
- Cost of revenue increased 808%, primarily reflecting $908,377 in customized finished goods and component-material costs for a new product line. Gross margin declined to 37% from 39%.
- Research and development expense rose 92% to $1.39 million, mainly from planned hiring and development initiatives. Selling, general and administrative expense rose 56% to $5.52 million, including higher labor, consulting, and marketing costs.
- On March 10, KULR received a $2 million prepaid advance from Yorkville, bearing 10% annual interest (15% upon specified defaults) and maturing in March 2024. The company repaid $3.25 million of principal and approximately $501,000 of interest on the initial advance by issuing 3.15 million shares during the quarter. While an advance is outstanding, KULR cannot submit draw notices under the related equity purchase agreement.
- Common shares issued increased to 117.96 million at March 31 from 113.20 million at December 31. The company reported 118.32 million shares outstanding as of May 12.
Outlook, risks and unusual items
- Management expects operating losses and operating cash use to continue for the foreseeable future. It says current working capital and potential access to the equity facility are expected to cover working-capital and capital-expenditure needs for at least 12 months after filing, while acknowledging that Yorkville is not obligated to provide further advances under specified conditions. Cash was approximately $4.0 million as of May 5.
- The filing identifies recurring losses, cash burn and declining working capital as conditions that raise substantial doubt about the company’s ability to continue as a going concern; management believes its financing plans alleviate that doubt.
- Customer concentration is significant: one customer accounted for 86% of Q1 revenue and 91% of March 31 accounts receivable. Management cautions that loss, delay or reduced activity from significant customers could materially affect results.
- Cash concentration is also notable: $6.69 million of March 31 cash was uninsured under FDIC limits, and a significant portion was held at one financial institution.
- The company disclosed a continuing material weakness in controls over independent review and approval of electronic payments. Disclosure controls were concluded to be ineffective at the reasonable-assurance level; remediation was in progress.
- Commitments include future spending for automation equipment, sponsorships, research and development, and an asset purchase agreement. The filing also reports a May 4 purchase of seller assets, including intellectual property, for $75,000; it was evaluating the transaction’s accounting treatment. No legal proceedings were reported, and no material changes to previously disclosed risk factors were identified.
- No financial guidance or quantified revenue outlook was provided.
Important facts for investors to verify
- Whether cash burn, the May 5 cash balance and Yorkville financing availability support the stated 12-month liquidity outlook.
- The prepaid advance’s repayment schedule, share-issuance terms, interest burden and constraints on using the remaining equity facility.
- The sustainability and margins of the sharp revenue increase, particularly given customer concentration and the new product-line costs.
- Progress in remediating the electronic-payment control weakness and the impact of outstanding equity awards and future share issuances on dilution.
- How the stated $1 million asset-purchase commitment relates to the separately disclosed May 4 purchase for $75,000.