KULR Technology (KULR) - 2022 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements KULR Technology Group's Q1 2022 unaudited financials show decreased assets and revenue, with a widened net loss driven by higher operating expenses Condensed Consolidated Balance Sheets As of March 31, 2022, total assets decreased to $16.0 million from $19.2 million, primarily due to reduced cash, while equity declined from $16.4 million to $13.2 million Condensed Consolidated Balance Sheet Highlights (unaudited) | Balance Sheet Item | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash | $10,132,676 | $14,863,301 | | Total Current Assets | $12,531,107 | $15,761,298 | | Total Assets | $16,013,756 | $19,231,303 | | Liabilities & Equity | | | | Total Current Liabilities | $2,556,021 | $2,458,363 | | Total Liabilities | $2,823,921 | $2,866,261 | | Total Stockholders' Equity | $13,189,835 | $16,365,042 | Condensed Consolidated Statements of Operations For Q1 2022, revenue decreased 52% to $200,499, gross profit fell, and operating expenses surged to $4.3 million, resulting in a widened net loss of $4.1 million Consolidated Statements of Operations Summary (unaudited) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Revenue | $200,499 | $417,905 | | Gross Profit | $77,581 | $142,637 | | Total Operating Expenses | $4,256,270 | $1,615,794 | | Loss From Operations | $(4,178,689) | $(1,473,157) | | Net Loss | $(4,136,555) | $(1,714,723) | | Net Loss Per Share (Basic & Diluted) | $(0.04) | $(0.02) | Condensed Consolidated Statement of Changes in Stockholders' Equity Stockholders' equity decreased from $16.4 million to $13.2 million in Q1 2022, primarily driven by the $4.1 million net loss, partially offset by stock option exercises and compensation - Total Stockholders' Equity decreased by approximately $3.2 million during Q1 2022, primarily due to the net loss of $4.1 million[12] - The company recorded $0.4 million in treasury stock from shares withheld upon the vesting of restricted common stock to cover tax obligations[12][52] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly increased to $4.6 million in Q1 2022, leading to a $4.7 million net decrease in cash, with the period ending at $10.1 million Consolidated Statements of Cash Flows Summary (unaudited) | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | $(4,574,490) | $(1,663,385) | | Net Cash Used In Investing Activities | $(248,889) | $0 | | Net Cash Provided By (Used In) Financing Activities | $92,754 | $(1,050,000) | | Net Decrease In Cash | $(4,730,625) | $(2,713,385) | | Cash - End of Period | $10,132,676 | $6,166,755 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail liquidity, customer concentration, revenue disaggregation, stock-based compensation, and subsequent financing events, including a $50 million Standby Equity Purchase Agreement and a $5 million promissory note - The company believes its current working capital, combined with a new Standby Equity Purchase Agreement for up to $50 million, is sufficient to fund operations for at least the next twelve months[23][65] - The company has significant customer concentration, with two customers (Customer B and C) accounting for 43% and 37% of total revenue, respectively, in Q1 2022[27] Revenue Breakdown (Q1 2022 vs Q1 2021) | Revenue Type | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Product sales | $172,599 | $178,249 | | Contract services | $27,900 | $239,656 | | Total revenue | $200,499 | $417,905 | - Total stock-based compensation expense for Q1 2022 was $1.2 million, a significant increase from $0.4 million in Q1 2021[61][62] - Subsequent to the quarter end, in May 2022, the company entered into a $50 million Standby Equity Purchase Agreement and issued a $5 million promissory note to Yorkville[65][66] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2022 revenue decline to contract services and China lockdowns, with surging operating expenses offset by new financing for strategic growth Overview KULR is evolving from a component supplier to a total system solutions provider for thermal management, securing $55 million in financing to expand North American manufacturing and procure battery cells - The company's business model is shifting from component supply to providing total system solutions for battery safety and sustainability[68][69] - COVID-19 lockdowns in China delayed the shipment of over $0.3 million worth of inventory in Q1 2022, which is expected to be recognized in a future quarter[70][74] - KULR secured a financing facility for up to $55 million to procure battery cells (500 MWh capacity) and expand manufacturing capabilities in North America[71] Results of Operations Q1 2022 revenue decreased 52% due to declines in contract services and product sales, while R&D expenses surged 487% and SG&A expenses rose 137% from increased costs Revenue Comparison (Q1 2022 vs Q1 2021) | Revenue Type | Q1 2022 | Q1 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Product sales | $172,599 | $178,249 | -3% | | Contract services | $27,900 | $239,656 | -88% | | Total revenue | $200,499 | $417,905 | -52% | - Gross margin increased to 39% in Q1 2022 from 34% in Q1 2021, attributed to the absence of low-margin service contracts that were present in the prior year[84] - R&D expenses increased by 487% YoY to $0.7 million, driven by increased employee headcount, new automation projects, and product development for advanced batteries[86] - SG&A expenses increased by 137% YoY to $3.5 million, primarily due to an $0.9 million increase in stock-based compensation and a $0.5 million increase in labor costs from new hires[89] Liquidity and Capital Resources As of March 31, 2022, the company had $10.1 million in cash and $10.0 million in working capital, with subsequent financing including a $5 million promissory note and a $50 million SEPA to meet future commitments Liquidity Position | Metric | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash | $10,132,676 | $14,863,301 | | Working Capital | $9,975,086 | $13,302,935 | - In May 2022, the company secured a $5M promissory note and a $50M Standby Equity Purchase Agreement (SEPA) to bolster its capital resources[92] - Cash used in operating activities increased to $4.6 million in Q1 2022 from $1.7 million in Q1 2021, primarily due to a larger net loss[93] Item 3. 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[103] Item 4. Controls and Procedures Management concluded that as of March 31, 2022, the company's disclosure controls and procedures were not effective - Management concluded that disclosure controls and procedures were not effective as of March 31, 2022[104] - A material weakness in internal control over financial reporting was identified, specifically related to a lack of independent review and approval of electronic payments. A remediation plan is underway[105] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company reported no legal proceedings - There are no legal proceedings to report[110] Item 1A. 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 28, 2022 - No material changes to risk factors from the latest Form 10-K[111] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In April 2022, the company issued new warrants to purchase an aggregate of 2.3 million shares of common stock at an exercise price of $1.00 per share, expiring on December 31, 2025 - In April 2022, new warrants for 2.3 million shares were issued with an exercise price of $1.00 per share[112] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[113] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[114] Item 5. Other Information The company reported no other information - None[115] Item 6. Exhibits This section lists the exhibits filed with the quarterly report, including Sarbanes-Oxley certifications and Inline XBRL data files - The report includes required certifications (31.1, 31.2, 32.1) and Inline XBRL financial data files as exhibits[117][118]