KULR Technology Group, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The company develops thermal-management and battery-safety technologies for aerospace, defense, and commercial markets. Figures below are unaudited.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $587,546 | $628,244 | $788,045 | $1,046,149 |
| Gross profit / margin | $163,874 / 28% | $189,038 / 30% | $241,455 / 31% | $331,675 / 32% |
| Operating expenses | $5,325,646 | $3,076,044 | $9,581,916 | $4,691,838 |
| Operating loss | $(5,161,772) | $(2,887,006) | $(9,340,461) | $(4,360,163) |
| Net loss | $(5,254,685) | $(3,027,143) | $(9,391,240) | $(4,741,866) |
| Net loss per share, basic and diluted | $(0.05) | $(0.06) | $(0.09) | $(0.08) |
- Cash and liquidity: Cash was $12.99 million at June 30, 2022, down from $14.86 million at December 31, 2021. Working capital was $8.48 million, versus $13.30 million at year-end.
- Cash flow, six months: Operating activities used $9.01 million; investing activities used $0.55 million; financing activities provided $7.69 million. Cash decreased $1.87 million.
- Debt: The May 2022 promissory note had $5.0 million principal, generated $4.75 million gross cash proceeds, bears 10% annual interest, and is payable in monthly installments through November 13, 2022. The balance-sheet carrying amount, net of debt discount, was $4.84 million. The PPP loan was forgiven July 18, 2022.
- Share count: 107.25 million common shares were outstanding as of August 11, 2022.
Changes versus comparable periods
- Q2 revenue fell 6% year over year; first-half revenue fell 25%. Management attributed the first-half decline primarily to three large DOD contracts in Q1 2021. Contract-services revenue fell 80% for the first half, while product-sales revenue declined 3%.
- Q2 operating expenses rose 73%, led by higher R&D and SG&A. First-half R&D increased 262% to $1.72 million and SG&A increased 86% to $7.86 million. Higher hiring, stock-based compensation, marketing, professional fees, and product-development spending were cited.
- First-half operating cash use more than doubled from $4.08 million in 2021 to $9.01 million in 2022.
Outlook, developments, and risks
- Management expects operating losses and operating cash use to continue for the foreseeable future, but believes current working capital and potential SEPA proceeds are sufficient for at least 12 months after the financial-statement filing date. This assessment depends in part on access to equity financing.
- The SEPA gives the company the option to sell up to $50 million of common stock to Yorkville over a commitment period of up to 24 months. Shares are priced at 98% of the defined market price, subject to contractual limits. No shares had been sold under the SEPA through June 30, 2022.
- Management described a Molicel relationship involving an initial order for more than 75 MWh of battery-cell capacity and plans to purchase more than 700 MWh. The filing says potential revenue could exceed $350 million; this is a stated potential, not a firm revenue forecast or guarantee.
- The company reported more than 300 customers in its active sales funnel, four SafeCase commercial accounts with deployment trials underway, a follow-on Lockheed Martin order, and installation of automated battery-testing capability. Full system capacity was expected to begin in Q4 2022, according to management.
- COVID-related supply and shipment delays affected operations; inventory valued above $325,000 was delayed in Q1 and shipped in Q2. The company is working to diversify production and supply-chain activity to North America. Management also cited potential cost effects from Russia’s invasion of Ukraine.
- Customer and supplier concentration is substantial: the three largest customers represented 84% of Q2 revenue and 86% of first-half revenue; the largest customer represented 59% of receivables at quarter-end. The filing cautions that losing or experiencing delays from significant customers could materially harm results.
- The company disclosed $9.01 million of sponsorship, capital-expenditure, equipment, and R&D commitments in its liquidity discussion, in addition to current and long-term obligations. A separate note says $950,000 remained payable under sponsorship agreements after a $500,000 payment in July; amounts and timing should be reconciled against the broader commitments disclosure.
- Disclosure controls and procedures were not effective at the reasonable-assurance level. A previously identified material weakness in independent review and approval of electronic payments remained unresolved as of June 30, 2022; remediation was in progress.
- No material change to previously disclosed risk factors was reported. The filing reports no legal proceedings and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether Molicel supply, customer trials, and the sales pipeline convert into contracted orders and recognized revenue, and whether the stated potential revenue is achievable.
- Actual cash burn and liquidity against management’s 12-month runway assessment, including note repayment needs and the extent to which the company uses the dilutive SEPA.
- Reconciliation and timing of disclosed commitments, particularly sponsorship and automation-related spending.
- Progress in reducing customer and supplier concentration and restoring gross margins amid higher production, shipping, and new-product costs.
- Whether management remediates the electronic-payment control weakness and provides evidence that the revised controls operate effectively.