KULR Technology Group, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. KULR develops thermal-management, battery-safety and energy-storage technologies, serving aerospace and defense as well as commercial markets. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Revenue | $1.75 million | $1.76 million |
| Gross profit / margin | $511,000 / 29% | $643,000 / 37% |
| Operating expenses | $5.17 million | $6.90 million |
| Operating loss | $4.66 million | $6.26 million |
| Net loss | $5.01 million | $6.60 million |
| Net loss per share, basic and diluted | $0.04 | $0.06 |
| Cash used in operating activities | $3.91 million | $4.76 million |
| Cash at period end | $799,000 | $1.19 million at December 31, 2023 |
| Working capital | Deficit of $3.91 million | Deficit of $2.99 million at December 31, 2023 |
Cash used in investing activities was $13,000; financing activities provided $3.52 million. At March 31, total liabilities were $8.71 million and stockholders’ equity was $2.59 million. Notes payable were $994,000 net of discount, including $744,000 current and $250,000 non-current. Lease liabilities totaled $1.62 million. The company also disclosed approximately $5.8 million in accounts payable and accrued expenses, $1.26 million of merchant cash advance obligations and $981,000 of committed capital expenditures.
Changes versus the prior comparable quarter
- Revenue was nearly flat, but the mix shifted: product sales fell 62% to $615,000, while contract-services revenue rose to $1.13 million. Management attributed the product-sales decline partly to orders expected in the first half that it now expects in the second half of 2024.
- Gross margin declined from 37% to 29%. Management cited about $250,000 of labor and materials on a project without corresponding current-period revenue and about $167,000 of higher depreciation on revenue-generating equipment.
- Research and development expense fell 47% to $955,000, and selling, general and administrative expense fell 17% to $4.21 million, reflecting lower consulting/outsourced services and other planned cost reductions. Management said R&D expense may rise as operations expand and cash availability improves.
- Net loss improved, while operating cash use remained substantial. Financing included $2.91 million of SEPA proceeds and net proceeds from notes payable; the company also used SEPA share issuances to repay its prepaid advance liability.
Outlook, risks and unusual items
- Going concern: Management concluded substantial doubt remains about the company’s ability to continue as a going concern for one year after issuance of the statements. Plans include revenue growth, expense controls and additional financing, but the filing says these plans do not alleviate the doubt and future financing is not assured.
- Subsequent financing and dilution: From April 1 through May 13, the company issued 9.45 million shares through the SEPA for $4.32 million. It also received $440,000 cash from a discounted $500,000 unsecured note due October 2024 and $200,000 from an unsecured note bearing 16% interest. The company reported 182,677,224 shares outstanding on May 13.
- Costly merchant advances: Two 2024 merchant cash advances required weekly repayments and carried stated annualized effective interest rates of 184% and 195%; they are secured by accounts receivable and related cash receipts.
- Exchange listing: NYSE American accepted the company’s plan to regain minimum-stockholders’-equity compliance by June 20, 2025, subject to interim objectives. The company reported regaining compliance with the separate minimum-share-price requirement on May 1, 2024.
- Governance and voting: The CEO received 730,000 Series A voting preferred shares for no consideration. Each carries 100 votes, and the board may cancel the shares if he leaves his company positions. The filing also describes shareholder authorization for certain potentially dilutive issuances and a possible reverse split, which had not been effected as of the filing.
- Concentrations and execution: Two customers accounted for 48% of Q1 revenue; customers representing 79% of receivables were individually identified as significant concentrations. Management cautioned that customer purchasing cycles can be long and irregular and that revenue and margins may fluctuate with customer and product mix.
- No numeric revenue or earnings guidance is provided. Management’s stated expectation that delayed product orders will arrive in the second half of 2024 is not a quantified forecast.
Important facts for investors to verify
- Available liquidity, near-term payment obligations and progress toward reducing operating cash burn.
- Whether expected second-half product orders materialize, and whether gross margins recover from Q1 levels.
- Further SEPA usage, share issuance and dilution, alongside access to financing on acceptable terms.
- Repayment timing and total cost of merchant cash advances and subsequent promissory notes.
- Progress against NYSE American’s equity-compliance plan and any changes in listing status.
- Customer concentration, collections of receivables and execution of committed capital expenditures.