KULR Technology Group, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; filed May 16, 2022. KULR develops thermal-management technologies for batteries, electronics, aerospace, defense, and commercial applications. Its strategy is evolving toward providing integrated system solutions.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior balance date |
|---|---|---|
| Revenue | $200,499 | $417,905 |
| Gross profit / margin | $77,581 / 39% | $142,637 / 34% |
| Operating expenses | $4,256,270 | $1,615,794 |
| Operating loss | $4,178,689 | $1,473,157 |
| Net loss | $4,136,555 | $1,714,723 |
| Net loss per share, basic and diluted | $0.04 | $0.02 |
| Cash from (used in) operations | ($4,574,490) | ($1,663,385) |
| Cash and working capital at period-end | $10,132,676; $9,975,086 | Cash at Dec. 31, 2021: $14,863,301; working capital: $13,302,935 |
Cash used in investing activities was $248,889, mainly for equipment deposits and purchases; financing activities provided $92,754. Total liabilities were $2,823,921, including a $155,226 loan payable and $477,460 in lease liabilities. The filing reports no material off-balance-sheet arrangements.
Changes and management commentary
- Revenue fell 52%. Product sales declined 3%; contract-service revenue fell 88%, partly because three large Department of Defense contracts had generated $233,656 of revenue in Q1 2021. Product sales were 86% of Q1 2022 revenue; two customers accounted for 80% of revenue.
- Management said China COVID-19 lockdowns delayed shipment of more than $325,000 of finished goods. It expected shipment and revenue recognition in Q2 2022; the filing does not establish that the amount was subsequently recognized.
- Gross margin improved to 39% from 34%, which management attributed primarily to the prior-year comparison with two low-margin service contracts.
- R&D rose 487% to $721,347, and selling, general and administrative expense rose 137% to $3,534,923. Management cited increased development activity, hiring, consulting costs, and stock-based compensation. Stock-based compensation totaled $1,242,922, versus $387,972 a year earlier.
- Cash declined by $4.73 million during the quarter. Management expects ongoing operating losses and cash use, but stated that working capital and access to the SEPA were expected to cover anticipated cash use for at least 12 months after filing.
Outlook, financing, and risks
- Management described a financing facility for procuring battery cells and other materials and expanding North American supply and production capacity. It estimated that potential battery-cell supply could support a $250–$350 million revenue opportunity, while cautioning that neither the cell supply nor revenue was assured.
- After quarter-end, April warrant exercises generated $2,933,157 in gross proceeds; the company issued replacement warrants for 2,346,525 shares at $1.00 per share.
- On May 13, 2022, KULR issued Yorkville a $5 million promissory note for $4.75 million in proceeds, bearing 10% annual interest and payable in five monthly installments beginning June 13, 2022. It also entered a 24-month standby equity purchase agreement allowing, but not requiring, sales of up to $50 million of common stock at 98% of the defined market price, subject to conditions and limits.
- Key risks include continued losses and cash burn, customer and vendor concentration, unpredictable contract timing, supply-chain and COVID-related disruptions, and possible higher material costs related to Russia’s invasion of Ukraine. One customer represented 43% of Q1 revenue; one vendor represented 69% of purchases.
- Management reported disclosure controls were not effective at the reasonable-assurance level. A material weakness involving independent review and approval of electronic payments remained as of March 31, 2022; remediation was underway.
- KULR committed $1.35 million under a 2022 sponsorship agreement; $900,000 had been paid by quarter-end. The filing reports no legal proceedings and no material changes to the risk factors in the prior annual report.
Important facts for investors to verify
- Whether the delayed shipments were delivered and the expected $325,000 of revenue was recognized.
- Subsequent cash burn, the repayment of the Yorkville note, and any actual use, pricing, dilution, or availability under the $50 million equity facility.
- Whether customer and supplier concentration, contract timing, and North American production plans changed after the filing.
- Progress in remediating the electronic-payment control weakness.
- Whether the company’s projected battery-cell procurement and stated revenue opportunity resulted in secured supply, customer demand, and realized revenue.