KULR Technology Group, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. KULR develops thermal management and battery safety technologies and related products and services for aerospace, defense, and commercial markets. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $3.04 million | $1.39 million | $7.50 million | $2.18 million |
| Gross profit / margin | $1.34 million / 44% | $0.46 million / 33% | $2.98 million / 40% | $0.70 million / 32% |
| Operating expenses | $6.43 million | $5.42 million | $20.42 million | $15.00 million |
| Operating loss | $(5.10) million | $(4.96) million | $(17.44) million | $(14.30) million |
| Net loss | $(5.56) million | $(5.59) million | $(18.50) million | $(14.98) million |
| Loss per diluted share | $(0.05) | $(0.05) | $(0.16) | $(0.14) |
- Revenue grew 118% in Q3 and 244% year to date. Product sales rose 38% in Q3 and 161% year to date, primarily on higher Thermal Runway Shield sales. Contract services also increased substantially, including $975,270 from two contracts in the first nine months.
- Gross margin improved year over year in both periods, which management attributed to a higher proportion of contract services. Despite increased revenue, operating losses remained substantial; nine-month net loss widened by $3.52 million.
- Research and development expense increased 53% in Q3 and 75% year to date, principally from planned hiring and capacity-building. Year-to-date selling, general and administrative expense increased 27%, including higher labor, depreciation and amortization, and consulting costs.
- Cash was $1.17 million at September 30, down from $10.33 million at December 31, 2022. Working capital was a deficit of $6.36 million, versus a $6.06 million surplus at year-end. Nine-month operating cash outflow was $10.89 million; investing outflow was $0.99 million; financing inflow was $2.72 million.
- Prepaid advance liability was $5.91 million net of discount on the balance sheet ($5.97 million gross principal). Total liabilities were $11.41 million and stockholders’ equity was $1.20 million. Cash plus current assets were insufficient to cover current liabilities.
Material changes and financing
- On September 15, KULR sold 8,214,285 shares at $0.35 per share, generating $2.875 million gross and $2.287 million net proceeds. Shares issued and outstanding at September 30 were 127.6 million; 127.9 million shares were outstanding as of November 10.
- The company issued 4.08 million shares during the first nine months to Yorkville under its prepaid advance arrangement, applying $4.47 million of value to principal and interest. It also paid Yorkville $1.84 million in September, comprising $1.50 million principal, accrued interest, and a 5% payment premium.
- The November 7 amendment set further principal repayments of $1.50 million by December 31, 2023, $2.00 million by January 31, 2024, and the remaining approximately $2.47 million by March 1, 2024. Each payment also includes accrued interest and a 5% premium.
Outlook, risks and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern for one year after issuance, and that its plans do not alleviate that doubt. The company reported recurring losses and operating cash use, no committed additional financing, and significant near-term cash obligations. Plans include revenue growth, cost management, additional financing, and negotiating extension or equity conversion of the Yorkville advance; success is not assured.
- Additional stated cash requirements included $4.83 million for accounts payable and accrued expenses, $0.17 million for lease payments, $0.81 million for automation equipment, and $0.50 million for an asset purchase agreement.
- Revenue is concentrated: three customers represented 85% of Q3 revenue, and one customer represented 56%. Management cautioned that customer delays, reduced activity, or loss could materially affect results. One vendor accounted for 25% of Q3 purchases.
- Management reported five consecutive quarters of rising trailing-twelve-month revenue, reaching $9.90 million at September 30. No quantitative earnings or revenue guidance was provided; the filing says R&D costs may rise as operations expand, subject to adequate capital.
- Management concluded disclosure controls were effective at a reasonable assurance level and reported remediation of the prior material weakness relating to electronic-payment controls. No legal proceedings or material changes to previously disclosed risk factors were reported.
Most important facts for investors to verify
- Whether KULR can fund the amended Yorkville repayment schedule and other near-term commitments, and whether it can obtain financing on acceptable terms.
- Cash burn, working-capital deficit, and progress toward sustainable operating profitability as revenue expands.
- Revenue durability and gross margins, particularly reliance on a few customers and growth in contract services.
- Potential dilution from further equity issuance or the prepaid advance terms; the filing identifies 20.9 million potential shares related to the advance as excluded from diluted EPS as anti-dilutive.
- Whether planned automation investment and capacity expansion generate sufficient additional revenue to justify spending.