KULR Technology Group, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The unaudited consolidated statements compare with the corresponding 2020 periods. KULR develops thermal-management technologies for batteries, electronics, aerospace and defense, and commercial applications.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $600,921 | $136,849 | $1,647,070 | $415,477 |
| Gross profit | $445,783 | $73,446 | $777,458 | $277,297 |
| Gross margin | 74% | 54% | 47% | 67% |
| Operating expenses | $3,586,265 | $883,966 | $8,278,103 | $1,940,624 |
| Net loss | $3,095,932 | $1,012,259 | $7,837,798 | $1,991,497 |
| Net loss attributable to common stockholders | $3,095,932 | $1,012,259 | $10,462,124 | $1,991,497 |
Quarterly revenue rose 339%; nine-month revenue rose 296%, primarily from new contracts. Product sales drove growth; nine-month revenue also included $290,540 of contract-services revenue. Q3 margin improved with product mix, while the nine-month margin declined due in part to a second-quarter contract with a 13% gross margin. The nine-month common-stockholder loss includes a $2,624,326 deemed dividend related to Series D preferred stock.
- Expenses: Q3 research and development (R&D) was $481,855, up from $51,820; nine-month R&D was $957,579, up from $221,524. Selling, general and administrative expense was $3,104,410 for Q3 and $7,320,524 for nine months, substantially higher year over year. Management cited stock compensation, marketing, hiring, professional fees, and travel among the drivers.
- Cash flow: Nine-month operating cash used was $5,394,936, versus $2,076,035 in 2020; investing cash used was $1,386,864, versus $46,087; financing cash provided was $8,891,716, versus $4,822,921. Cash increased by $2,109,916 to $10,990,056.
- Liquidity and obligations: At September 30, cash was $10,990,056 and working capital was $10,659,878. Total liabilities were $1,997,619; notes payable were fully repaid during the period. The balance sheet also reports a $155,226 current loan payable and $732,738 in lease liabilities. Management expects continued operating losses and cash use but believes working capital will cover anticipated cash needs for at least 12 months after filing.
Material changes and capital
- KULR received $6.5 million gross from a May 2021 financing involving Series D preferred stock, common stock and warrants, and $5,206,716 from warrant exercises during the first nine months. It repaid $2.45 million of notes payable.
- All Series D preferred shares were converted into common stock in June. The financing carried a 10% annual cumulative dividend while outstanding; no Series D shares remained at September 30.
- Common shares outstanding increased to 101,992,963 at September 30 from 89,908,600 at December 31, 2020. The filing reports 104,700,707 shares issued and outstanding as of November 12, 2021.
- After quarter-end, warrant exercises generated a further $6.5 million gross: $4.0 million in October and $2.5 million in November. The company also issued 107,744 unregistered shares as an equity incentive grant in November.
- KULR began trading on NYSE American in June 2021 and added executives and independent directors during the year.
Outlook, risks and unusual items
- No numerical revenue, earnings or cash-flow guidance is provided. Management expects operating losses and operating cash use to continue and expects R&D expenses to increase as operations expand.
- Management describes the sales cycle as lengthy, unpredictable and uneven. Revenue and receivables were highly concentrated: one customer accounted for 88% of Q3 revenue and 96% of September 30 receivables. The filing cautions that customer loss, delays or reduced activity could materially harm results.
- COVID-19 had no material adverse effect on results or financial position through September 30, according to the filing, but future effects remain uncertain, including on demand, supply chains, schedules and customer delivery.
- Cash held at one major financial institution included an uninsured balance of $10,489,922 at September 30.
- The company entered into equipment-system agreements and paid $1,029,805 in equipment deposits. It also disclosed multi-year sponsorship, technology-development and battery R&D spending commitments.
- Disclosure controls and procedures were not effective at the reasonable-assurance level. Management is remediating a previously identified material weakness involving independent review and approval of electronic payments; no material control changes occurred during Q3.
- The filing reports no legal proceedings and no material changes to the risk factors in the 2020 Form 10-K. It reports no material off-balance-sheet arrangements.
Investor verification checklist
- Confirm the durability and timing of new customer contracts, customer concentration, and whether revenue growth can continue beyond the reported periods.
- Assess the causes and sustainability of margin changes, particularly the low-margin Q2 contract and the Q3 product mix.
- Track operating cash burn, planned equipment spending, disclosed development commitments, and management’s stated liquidity runway.
- Verify subsequent warrant-exercise proceeds, share-count dilution, and the potential effect of outstanding warrants, restricted stock, options and market-based awards.
- Monitor remediation and testing of the electronic-payment control weakness, and the company’s exposure to uninsured cash balances.