KULR Technology Group, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; the filing was signed March 28, 2023. This is an annual report, not a standalone 2022 fourth-quarter earnings report, and the supplied filing text does not provide separate Q4 financial results.
Business context
KULR develops and commercializes thermal management, battery safety, testing, and related technologies through its wholly owned subsidiary. Its products and services target aerospace and defense as well as commercial markets including energy storage, electric mobility, battery recycling, and computing. The company is evolving from component supply toward design, testing, and integrated battery solutions. In 2022 it acquired Vibetech intellectual property and vibration-mitigation technology, and it continued investment in battery testing, automation, and product development.
Financial performance and liquidity
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $3.995 million | $2.413 million | +66% |
| Product sales | $2.643 million | $1.495 million | +77% |
| Contract services | $1.351 million | $0.918 million | +47% |
| Gross profit | $2.364 million | $1.311 million | +80% |
| Gross margin | 59% | 54% | +5 percentage points |
| Research and development | $3.978 million | $1.662 million | +139% |
| Selling, general and administrative | $16.673 million | $11.162 million | +49% |
| Loss from operations | $(18.286) million | $(11.513) million | Loss widened |
| Net loss | $(19.436) million | $(11.911) million | Loss widened |
| Basic and diluted loss per share | $(0.18) | $(0.15) | Loss per share increased |
- Cash flow: Cash used in operating activities was $17.354 million, versus $6.806 million in 2021. Cash used in investing was $4.648 million, primarily for equipment and intangible assets. Financing provided $17.472 million, mainly from the Yorkville prepaid advance, a promissory note, and warrant exercises.
- Year-end liquidity: Cash was $10.334 million and working capital was $6.055 million, down from $14.863 million and $13.303 million, respectively, at year-end 2021. Total current liabilities were $9.681 million.
- Debt and financing: The $5 million Yorkville promissory note issued in May 2022 was repaid during the year. At December 31, the company had $9 million of prepaid advance principal outstanding, shown at a net carrying amount of $8.852 million. The advance bears 10% annual interest, generally matures after 12 months, and any amount outstanding at maturity must be repaid in cash. The company’s SEPA permits up to $50 million of stock sales, but further SEPA sales are unavailable while a prepaid advance remains outstanding.
- Equity and dilution: The company issued 5.375 million shares during 2022 to repay $6 million of prepaid advance principal, plus premium and interest. Common shares issued and outstanding at year-end were 113.2 million. The filing reports 116.2 million shares outstanding as of March 27, 2023.
Material changes versus 2021
- Revenue increased 66%, driven by custom thermal-runaway-shield kits, heatsink technology, and larger service contracts. Revenue remained concentrated: three customers accounted for 87% of 2022 revenue, compared with 84% in 2021.
- Gross margin improved to 59% from 54%, but operating expenses rose substantially, particularly R&D and SG&A, and the net loss widened.
- Operating cash use more than doubled, and working capital declined materially, increasing reliance on external financing.
- Cash capital expenditures and deposits for equipment increased as the company expanded facilities and pursued automated battery testing and manufacturing capacity.
Outlook, risks, contingencies, and unusual items
- Management outlook: KULR expects continued losses and cash outflows while it scales products and operations. It said cash and anticipated access to financing would be sufficient for at least 12 months from issuance of the financial statements. Cash was approximately $7.3 million as of March 24, 2023. This outlook depends in part on financing access and future revenue; it is not a guarantee.
- Going concern: Recurring losses, operating cash use, and declining working capital were identified as indicators that substantial doubt could exist. Management believes its financing plans alleviate the concern; the auditor identified liquidity and going-concern evaluation as a critical audit matter. The auditor’s opinion was that the financial statements fairly present the company’s financial position and results under U.S. GAAP.
- Subsequent financing: After year-end, shares were issued to settle $3.580 million of prepaid advance principal and interest; the filing reports $5.750 million remaining on the initial advance as of March 28, 2023. Yorkville also provided a second $2 million prepaid advance in March 2023. The company said it could access the remaining $33 million under the SEPA after settling the prepaid advance.
- Customer, execution, and supply risks: Customer concentration is high, and sales cycles may take one to five years. The company warns that commercialization and manufacturing scale-up remain unproven, and that supply-chain disruptions, competition, changing technology, and financing needs could adversely affect results.
- Controls and cybersecurity: Management concluded that disclosure controls and internal control over financial reporting were ineffective at year-end because controls over electronic payments did not ensure appropriate review and approval. Remediation steps included NetSuite workflows and subsequent implementation of dual approval for electronic payments; management targeted remediation during the first half of 2023. A separate 2021 phishing incident resulted in a reported loss of approximately $138,000.
- Unusual items: The Vibetech asset purchase had $3.5 million of stated consideration, comprising $2 million cash and $1.5 million in shares, with significant consideration contingent on the seller’s continued employment. The auditor identified the acquisition accounting as a critical audit matter. A $158,675 gain was recorded upon forgiveness of the PPP loan and interest.
- Other risks and contingencies: The filing cites COVID-related shipping delays, inflation and geopolitical uncertainty, potential uninsured bank balances, and possible dilution from equity financing and awards. It reports no current legal or administrative proceedings and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Current cash, operating cash burn, remaining prepaid advance balances, and the timing and terms of any further Yorkville financing.
- Whether the prepaid advance can be repaid through share issuance before maturity, and the resulting dilution and cash repayment exposure.
- Whether revenue growth is repeatable and customer concentration declines; confirm the status and economics of the major customer contracts.
- Progress in scaling automated testing and manufacturing, and whether investment translates into sustained sales and improved operating margins.
- Whether management’s electronic-payment control remediation was completed and tested effectively after year-end.
- The terms, accounting, and employment conditions attached to Vibetech consideration and executive equity awards.