KULR Technology (KULR) - 2021 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The company's financial statements for the quarter ended March 31, 2021, show a significant increase in revenue compared to the prior year, but also a wider net loss. Total assets decreased, primarily due to a reduction in cash. The company completed a conversion of all outstanding Series B Preferred Stock into common stock. Subsequent to the quarter-end, the company secured $6.5 million in financing through a Series D convertible preferred stock offering Condensed Consolidated Balance Sheets As of March 31, 2021, the company's total assets were $7.2 million, a decrease from $9.2 million at the end of 2020, mainly due to a $2.7 million decrease in cash. Total liabilities also decreased to $2.5 million from $3.1 million, driven by repayments of notes payable. Consequently, total stockholders' equity fell to $4.7 million from $6.1 million Condensed Consolidated Balance Sheet Highlights (unaudited) | Balance Sheet Items | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash | $6,166,755 | $8,880,140 | | Total Current Assets | $7,150,563 | $9,150,280 | | Total Assets | $7,203,649 | $9,208,137 | | Total Current Liabilities | $2,451,111 | $2,947,295 | | Total Liabilities | $2,484,038 | $3,089,585 | | Total Stockholders' Equity | $4,719,611 | $6,118,552 | Condensed Consolidated Statements of Operations For the three months ended March 31, 2021, revenue increased significantly to $417,905 from $77,500 in the same period of 2020. However, the net loss widened to $1,714,723 from $550,253, primarily due to a substantial increase in selling, general, and administrative expenses. Net loss per share was ($0.02), compared to ($0.01) in the prior-year quarter Statement of Operations Summary (unaudited) | Metric | Three Months Ended Mar 31, 2021 | Three Months Ended Mar 31, 2020 | | :--- | :--- | :--- | | Revenue | $417,905 | $77,500 | | Gross Profit | $142,637 | $47,457 | | Loss From Operations | ($1,473,157) | ($529,666) | | Net Loss | ($1,714,723) | ($550,253) | | Net Loss Per Share | ($0.02) | ($0.01) | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased from $6.1 million at the beginning of 2021 to $4.7 million at the end of Q1 2021. The decrease was primarily driven by the net loss of $1.7 million for the period. Key equity activities included the conversion of all outstanding Series B Preferred Stock and significant stock-based compensation expenses - Total stockholders' equity decreased by approximately $1.4 million during the quarter, from $6,118,552 to $4,719,611[14] - The decrease was primarily due to a net loss of $1,714,723[14] - All 13,972 shares of Series B Convertible Preferred Stock were converted into 698,600 shares of common stock during the quarter[14][59] Condensed Consolidated Statements of Cash Flows The company used $1.7 million in cash from operating activities during Q1 2021, a significant increase from $0.7 million used in Q1 2020. Cash used in financing activities was $1.05 million, primarily for note repayments. This resulted in a net decrease in cash of $2.7 million, with the cash balance ending at $6.2 million Cash Flow Summary (unaudited) | Cash Flow Activity | Three Months Ended Mar 31, 2021 | Three Months Ended Mar 31, 2020 | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | ($1,663,385) | ($698,110) | | Net Cash (Used In) Provided By Financing Activities | ($1,050,000) | $1,223,401 | | Net (Decrease) Increase In Cash | ($2,713,385) | $525,291 | | Cash - End of Period | $6,166,755 | $634,148 | Notes to Condensed Consolidated Financial Statements Key notes highlight the company's business in high-performance thermal management, its liquidity position, and significant customer concentration. The company believes its current working capital is sufficient for at least the next twelve months. Subsequent to the quarter, KULR entered into a $6.5 million financing agreement, repaid all outstanding notes payable, and committed to a new office lease and a multi-year technology development agreement - The company develops and commercializes high-performance thermal management technologies for electronics and batteries, targeting aerospace, DOD, and mass-market commercial applications like EVs and 5G[19] - For Q1 2021, five customers (C, D, E) accounted for 88% of total revenue. As of March 31, 2021, two customers (D, E) represented 78% of accounts receivable[29] - On May 19, 2021, the company entered into a Securities Purchase Agreement for gross proceeds of $6,500,000 through the issuance of Series D convertible preferred stock and warrants. In connection with this financing, the company repaid its entire notes payable obligation of $1,540,000[86][101] - The company appointed a new President and Chief Operating Officer (COO) effective March 1, 2021, granting him 2,000,000 restricted shares and eligibility for up to 1,500,000 performance-based shares[79][96] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports a 439% increase in revenue for Q1 2021 compared to Q1 2020, driven by growth in both product sales and contract services. However, gross margin decreased from 61% to 34% due to a low-margin large contract. Operating expenses rose significantly, led by higher marketing costs and stock-based compensation for the new COO. The company secured $6.5 million in financing in May 2021, which management believes provides sufficient working capital for at least the next twelve months Overview KULR develops and commercializes high-performance thermal management technologies for batteries and electronics. The company targets both high-end aerospace/DOD applications and commercial markets like electric vehicles and energy storage. The business model is evolving from a component supplier to a provider of total system solutions, and the company is actively seeking partnerships to accelerate this transition - KULR's core technology is a proprietary carbon fiber material providing superior thermal conductivity and heat dissipation[91] - The business model is shifting from component supply to providing design, testing, and total system solutions to capture more value[92] Recent Developments Key recent developments include the appointment of Keith Cochran as President and COO, a multi-year technology development and sponsorship agreement with a commitment of $1.65 million, and a new 36-month office lease. In May 2021, the company raised $6.5 million in gross proceeds through a securities purchase agreement for Series D preferred stock and warrants, subsequently repaying its $1.54 million notes payable obligation in full - Appointed Keith Cochran as President and Chief Operating Officer on March 8, 2021[96] - Entered into a multi-year technology development and sponsorship agreement on March 31, 2021, committing to spend $1,650,000 over three installments[98] - Raised $6.5 million in gross proceeds on May 19, 2021, through a Securities Purchase Agreement (SPA) and subsequently repaid its entire notes payable obligation of $1,540,000[101] Results of Operations Revenue for Q1 2021 increased 439% year-over-year to $417,905. This was driven by a 537% increase in product sales and a significant rise in contract services. Cost of revenues increased 816%, causing gross margin to fall to 34% from 61% in the prior year, mainly due to a single large, low-margin contract. Selling, general, and administrative expenses grew 221% to $1.5 million, primarily from increased marketing, stock-based compensation, and new hires Revenue Breakdown (Q1 2021 vs Q1 2020) | Revenue Type | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Product sales | $178,249 | $28,000 | | Contract services | $239,656 | $49,500 | | Total revenue | $417,905 | $77,500 | - Gross margin decreased from 61% in Q1 2020 to 34% in Q1 2021, primarily due to a 15% margin on a single large contract[108] - Selling, general and administrative expenses increased by $1,027,401 (221%), driven by higher marketing spend (approx. $486,000) and stock-based compensation (approx. $376,000)[112] Liquidity and Capital Resources As of March 31, 2021, the company had $6.2 million in cash and $4.7 million in working capital. Cash used in operations was $1.7 million for the quarter. In May 2021, the company raised $6.5 million in gross proceeds from a Series D preferred stock offering and used part of the funds to repay its entire $1.54 million notes payable obligation. Management believes the current working capital is sufficient to fund operations for at least the next twelve months - As of March 31, 2021, the company had cash of $6,166,755 and working capital of $4,699,452[114] - Cash used in operating activities was $1,663,385 for Q1 2021, compared to $698,110 in Q1 2020[115] - On May 19, 2021, the company secured $6.5 million in gross proceeds from a financing and repaid its notes payable obligation of $1,540,000[123] - Management believes current working capital is sufficient for at least the next twelve months[124] Quantitative and Qualitative Disclosures About Market Risk The company is a smaller reporting company and is not required to provide the information for this item - As a smaller reporting company, KULR is not required to provide quantitative and qualitative disclosures about market risk[127] Controls and Procedures Management concluded that as of March 31, 2021, the company's disclosure controls and procedures were not effective. This was due to a material weakness identified in internal control over financial reporting related to the lack of independent review and approval of electronic payments. The company is implementing a remediation plan - Management concluded that disclosure controls and procedures were not effective as of the end of the reporting period[128] - A material weakness was identified in internal control over financial reporting regarding the lack of independent review and approval of electronic payments[129] - No changes in internal control over financial reporting occurred during Q1 2021 that materially affected, or are reasonably likely to materially affect, internal controls[130] PART II - OTHER INFORMATION Legal Proceedings The company reported no legal proceedings - None[133] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K filed on March 19, 2021 - There have been no material changes to the risk factors discussed in the Annual Report on Form 10-K filed with the SEC on March 19, 2021[134] Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2021, the company issued 698,600 shares of common stock upon the conversion of 13,972 shares of its Series B Convertible Preferred Stock. This transaction was exempt from registration requirements - In Q1 2021, the company issued 698,600 shares of common stock upon the conversion of 13,972 shares of Series B Convertible Preferred Stock[135] - The transaction was exempt from registration requirements under Section 4(a)(2) or Section 3(a)(9) of the Securities Act of 1933[136] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[137] Mine Safety Disclosures This item is not applicable to the company - Not applicable[138] Other Information The company reported no other information - None[139] Exhibits The report lists exhibits filed, including CEO and CFO certifications (302 and 906) and XBRL data files - Exhibits filed include Sarbanes-Oxley Act certifications (31.1, 31.2, 32.1) and XBRL data files (101 series)[141]