KULR Technology Group, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. KULR develops energy-management technologies and products, including battery thermal-management and safety solutions, battery-management software, and vibration-mitigation systems. Financial statements are unaudited.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1.39 million | $0.60 million | $2.18 million | $1.65 million |
| Gross profit / margin | $0.46 million / 33% | $0.45 million / 74% | $0.70 million / 32% | $0.78 million / 47% |
| Operating expenses | $5.42 million | $3.59 million | $15.00 million | $8.28 million |
| Operating loss | $(4.96) million | $(3.14) million | $(14.30) million | $(7.50) million |
| Net loss | $(5.59) million | $(3.10) million | $(14.98) million | $(7.84) million |
| Basic and diluted loss per share | $(0.05) | $(0.03) | $(0.14) | $(0.11) |
| Cash used in operating activities | Not reported quarterly in the supplied filing text | Not reported quarterly in the supplied filing text | $(13.37) million | $(5.39) million |
Q3 revenue rose 132% year over year, with product sales up 128%; nine-month revenue increased 32%. The nine-month services decline reflected the prior-year contribution from three large Department of Defense contracts. Higher production labor, customized materials, shipping costs, and new-product shipments reduced gross margins. R&D and selling, general and administrative costs also rose substantially.
Balance sheet, liquidity, and financing
- At September 30, cash was $16.17 million, working capital was $2.08 million, and total assets were $25.93 million. Working capital had been $13.30 million at December 31, 2021.
- Total liabilities were $18.00 million, including $14.68 million of current prepaid-advance liability, net of discount. Stockholders’ equity was $7.93 million, down from $16.37 million at year-end 2021.
- Operating cash use of $13.37 million and investing cash use of $2.77 million were offset by $17.44 million of financing cash inflows; cash increased $1.31 million over the nine-month period.
- The May 2022 Yorkville note, with $5.0 million face value and 10% interest, was repaid in September. Reported note interest included a 10% payment premium and a $100,000 late-payment premium. The PPP loan and interest were forgiven, producing $158,675 of reported gain.
- A September supplemental agreement enabled a $15.0 million advance from Yorkville. The advance bears 10% interest, may rise to 15% on default, and generally must be repaid in cash at 12-month maturity if not settled through shares. The company reported $14.75 million principal outstanding at September 30; the net balance-sheet carrying amount was $14.68 million.
- After quarter-end, KULR issued shares to settle $5.75 million of advance principal and $100,000 of interest. The filing reports a $9.0 million remaining principal balance as of November 14, 2022. The SEPA and supplemental agreement provide financing capacity, but share sales are subject to contractual limits and the company cannot initiate SEPA sales while an advance remains outstanding.
Outlook, risks, and unusual items
- Management expects continued operating losses and operating cash use, but believes working capital and SEPA-related availability will be sufficient for at least 12 months after filing. No specific revenue or earnings guidance is provided. Management expects R&D spending to increase and says margins may normalize with anticipated volume production.
- Customer and sales concentration is significant: the three largest customers represented 91% of Q3 revenue and 81% of nine-month revenue. One vendor accounted for 65% of Q3 cost of revenue. Customer loss, delayed payment, or supply disruption could materially affect results.
- Management cited lengthy, unpredictable customer purchasing cycles. COVID-related restrictions in Shanghai disrupted imports and delayed shipments; the company is pursuing North American supply-chain localization. The filing also identifies uncertainty around COVID-19 and potential material-cost effects from geopolitical events.
- Major investments and commitments include $4.47 million of equipment deposits at quarter-end, remaining sponsorship commitments of $950,000, and other disclosed automation, facility, and R&D commitments. Management reported installation of automated battery-testing capability, with full capacity expected in Q4 2022.
- On October 5, 2022, KULR agreed to acquire assets and intellectual property for $3.5 million: $2.0 million cash paid in installments and $1.5 million in shares issued in future installments. The company was evaluating the accounting treatment as a potential business combination.
- Disclosure controls were judged ineffective at the reasonable-assurance level. A material weakness involving independent review and approval of electronic payments remained unresolved at September 30; management expected remediation by year-end but gave no assurance. The filing reports no legal proceedings and no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Whether revenue growth can continue while gross margins recover and operating expenses and cash burn are controlled.
- Whether KULR can settle the remaining Yorkville advance without excessive dilution or cash repayment, and the full effect of its pricing and repayment terms.
- Customer and supplier concentration, product demand, and progress diversifying and securing supply chains.
- Cash requirements and funding for the post-quarter acquisition, equipment and facility commitments, sponsorships, and ongoing operations.
- Remediation of the electronic-payment control weakness and the share-count impact of financing and equity awards; shares outstanding were 107.57 million at September 30 and 112.75 million on November 11, 2022.