Business context and reporting period
KULR Technology Group, Inc. develops thermal-management and battery-safety products and services for markets including electric vehicles, aerospace and defense, cloud computing, energy storage, and 5G. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2020; comparisons are with the corresponding 2019 periods.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $201,128 | $56,310 | $278,628 | $251,262 |
| Gross profit | $159,715 | $27,760 | $211,289 | $161,195 |
| Gross margin | 79% | 49% | 76% | 64% |
| Operating expenses | $482,856 | $648,809 | $1,064,096 | $1,347,492 |
| Net loss | $428,985 | $621,416 | $979,238 | $1,187,109 |
| Basic and diluted loss per share | $(0.01) | $(0.01) | $(0.01) | $(0.01) |
At June 30, 2020, cash was $767,906, total assets $1.20 million, and total liabilities $2.18 million. Working capital was negative $931,889, versus a deficit of $824,481 at December 31, 2019. Stockholders’ deficiency was $983,391. Cash used in operations for the first half was $1.27 million, compared with $968,882 in 2019; investing used $30,000, and financing provided $1.96 million.
Debt included $1.275 million principal outstanding on a full-recourse note due May 31, 2021, plus approximately $155,000 in PPP borrowing. The note’s carrying amount, net of debt discount, was $1,151,911. The $3,555 line-of-credit balance at quarter-end was paid off in July. Cash at June 30 included $517,906 above the FDIC-insured limit at the company’s bank.
Material changes versus prior periods
Second-quarter revenue grew 257%, reflecting new or expanding customer relationships and substantially higher contract-services revenue; product sales rose about 36%. First-half revenue increased 11%, but product sales fell 55%, partly due to COVID-related shipping delays and order timing, while contract-services revenue increased 508%. Improved gross margins reflected product mix and services for a major new customer. First-half operating expenses declined 21%, including lower R&D, payroll, travel, and rent costs. Higher debt-discount amortization and a fair-value adjustment on accrued issuable equity increased other expense.
Outlook, risks, and unusual items
Management provided no quantified revenue or earnings guidance. It expects R&D and general and administrative expenses to increase as operations expand, and says significant revenue growth and/or additional capital will be needed to reach profitability. The filing states that substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance.
The company had approximately $7.24 million of conditional capacity remaining under its $8 million, 24-month standby equity distribution agreement (SEDA) at quarter-end. Shares sold under the SEDA are priced at 80% of the lowest daily volume-weighted average price over a specified five-day period, creating potential dilution. After quarter-end, KULR reported $220,000 received for June subscriptions, additional SEDA proceeds, and a July note with $2.5 million principal; reported net proceeds were $2.09 million after fees, including a $200,000 advisory fee. The earlier note also carries a 10% premium for voluntary prepayment.
COVID-19 could affect demand, supply chains, R&D, manufacturing, and customer delivery schedules; management said its future financial impact could not be reasonably estimated. Revenue and receivables were concentrated: two customers generated 69% of Q2 revenue, and three customers represented 99% of quarter-end receivables. Management also describes customer purchasing cycles as lengthy and uneven. The filing reports no legal proceedings and no material changes to previously disclosed risk factors. It notes patents issued in July and August 2020 for thermal-runaway shield and fiber thermal-interface technologies.
Important facts for investors to verify
- Reconcile the Q2 product-sales amount: the financial statements and revenue note report $67,130, while MD&A reports $71,130; both show total Q2 revenue of $201,128.
- Assess cash runway and refinancing needs against operating cash use, the working-capital deficit, debt maturities, and the explicit going-concern warning.
- Review the SEDA’s conditions, pricing discount, subsequent issuances, remaining availability, and potential dilution; compare the June 30 share count of 81,759,242 with 82,565,401 shares reported outstanding on August 14.
- Monitor customer concentration, product-shipment delays, and whether services-led revenue growth converts into sustained product sales and cash collections.
- Confirm PPP loan forgiveness status; the filing provides no assurance that any portion will be forgiven.