UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:March 31, 20182019
OR
¨☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number:
000-55564
KT HIGH-TECH MARKETING,KULR TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware | |
(State or Other Jurisdiction of Incorporation or Organization) | 81-1004273 (I.R.S. Employer Identification No.) |
1999 S. Bascom Ave. Suite 700. Campbell, California | |
(Address of principal executive offices) | 95008 (Zip Code) |
Registrant’s telephone number, including area code:408-663-5247
(Former name, former address and former fiscal year, if changed since last report)N/A
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
None | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes¨x Nox¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b- 2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |
Non-accelerated filer | Smaller reporting company | x | ||
Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Nox
As of May 11, 2018,9, 2019, there were 77,440,00080,092,315 shares of Common Stock, $0.0001 par value, issued and outstanding.
KT HIGH-TECH MARKETING,KULR TECHNOLOGY GROUP, INC. &AND SUBSIDIARY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 20182019
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
KT HIGH-TECH MARKETING,KULR TECHNOLOGY GROUP, INC. &AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash | $ | 425,391 | $ | 895,761 | ||||
Accounts receivable | 185,027 | 151,802 | ||||||
Inventory | 13,767 | 13,767 | ||||||
Prepaid expenses | 65,180 | 106,466 | ||||||
Other current assets | 8,727 | 8,727 | ||||||
Total Current Assets | 698,092 | 1,176,523 | ||||||
Property and equipment, net | 37,872 | 43,493 | ||||||
Total Assets | $ | 735,964 | $ | 1,220,016 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current Liabilities: | ||||||||
Accrued expenses and other current liabilities | $ | 316,138 | $ | 197,713 | ||||
Accrued expenses and other current liabilities - related parties | 244,407 | 282,597 | ||||||
Total Current Liabilities | 560,545 | 480,310 | ||||||
Commitments and contingencies | ||||||||
Stockholders' Equity: | ||||||||
Preferred stock, $0.0001 par value, 20,000,000 shares authorized; Series A Preferred Stock, 1,000,000 shares designated; None issued and outstanding at March 31, 2018 and December 31, 2017 | - | - | ||||||
Common stock, $0.0001 par value, 100,000,000 shares authorized; 77,440,000 shares issued and outstanding at March 31, 2018 and December 31, 2017 | 7,744 | 7,744 | ||||||
Additional paid-in capital | 5,273,239 | 5,090,282 | ||||||
Accumulated deficit | (5,105,564 | ) | (4,358,320 | ) | ||||
Total Stockholders' Equity | 175,419 | 739,706 | ||||||
Total Liabilities and Stockholders' Equity | $ | 735,964 | $ | 1,220,016 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
KT HIGH-TECH MARKETING, INC. & SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
Revenue | $ | 228,040 | $ | - | ||||
Cost of revenue | 49,346 | - | ||||||
Gross Profit | 178,694 | - | ||||||
Operating Expenses: | ||||||||
Research and development | 119,684 | �� | 13,180 | |||||
Research and development - related parties | - | 131,115 | ||||||
Selling, general and administrative | 805,840 | 81,744 | ||||||
Total Operating Expenses | 925,524 | 226,039 | ||||||
Loss From Operations | (746,830 | ) | (226,039 | ) | ||||
Other Income (Expense): | ||||||||
Interest income | 51 | - | ||||||
Interest income - related party | - | 734 | ||||||
Interest expense - related party | (65 | ) | (2,319 | ) | ||||
Total Other Expense | (14 | ) | (1,585 | ) | ||||
Loss Before Income Taxes | (746,844 | ) | (227,624 | ) | ||||
Income tax expense | 400 | 200 | ||||||
Net Loss | $ | (747,244 | ) | $ | (227,824 | ) | ||
Net Loss Per Share | ||||||||
- Basic and Diluted | $ | (0.01 | ) | $ | (0.00 | ) | ||
Weighted Average Number of | ||||||||
Common Shares Outstanding | ||||||||
- Basic and Diluted | 77,219,168 | 49,029,168 |
March 31, | December 31, | |||||||
2019 | 2018 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash | $ | 98,476 | $ | 229,896 | ||||
Accounts receivable | 32,843 | 112,224 | ||||||
Inventory | 8,304 | 9,594 | ||||||
Prepaid expenses | 34,659 | 27,033 | ||||||
Other current assets | 37,815 | 27,569 | ||||||
Total Current Assets | 212,097 | 406,316 | ||||||
Property and equipment, net | 41,791 | 44,791 | ||||||
Total Assets | $ | 253,888 | $ | 451,107 | ||||
Liabilities and Stockholders' Deficiency | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 252,058 | $ | 117,995 | ||||
Accrued expenses and other current liabilities | 432,681 | 374,330 | ||||||
Accrued expenses and other current liabilities - related party | 68,919 | 83,919 | ||||||
Total Current Liabilities | 753,658 | 576,244 | ||||||
Commitments and contingencies | ||||||||
Stockholders' Deficiency: | ||||||||
Preferred stock, $0.0001 par value, 20,000,000 shares authorized; | ||||||||
Series A Preferred Stock, 1,000,000 shares designated; | ||||||||
none issued and outstanding at March 31, 2019 and December 31, 2018 | - | - | ||||||
Series B Preferred Stock, 31,000 shares designated; | ||||||||
30,858 issued and outstanding at March 31, 2019 and December 31, 2018 | 3 | 3 | ||||||
Common stock, $0.0001 par value, 500,000,000 shares authorized; | ||||||||
78,966,105 and 78,706,256 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively | 7,897 | 7,871 | ||||||
Additional paid-in capital | 6,474,582 | 6,283,548 | ||||||
Accumulated deficit | (6,982,252 | ) | (6,416,559 | ) | ||||
Total Stockholders' Deficiency | (499,770 | ) | (125,137 | ) | ||||
Total Liabilities and Stockholders' Deficiency | $ | 253,888 | $ | 451,107 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
1 |
KT HIGH-TECH MARKETING,KULR TECHNOLOGY GROUP, INC. &AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months Ended | ||||||||
March 31, | ||||||||
2019 | 2018 | |||||||
(revised) | ||||||||
Revenue | $ | 194,952 | $ | 228,040 | ||||
Cost of revenue | 61,517 | 149,947 | ||||||
Gross Profit | 133,435 | 78,093 | ||||||
Operating Expenses: | ||||||||
Research and development | 113,192 | 119,684 | ||||||
Selling, general and administrative | 585,491 | 784,240 | ||||||
Total Operating Expenses | 698,683 | 903,924 | ||||||
Loss From Operations | (565,248 | ) | (825,831 | ) | ||||
Other Expense: | ||||||||
Interest expense, net | (445 | ) | (14 | ) | ||||
Total Other Expense | (445 | ) | (14 | ) | ||||
Net Loss | $ | (565,693 | ) | $ | (825,845 | ) | ||
Net Loss Per Share | ||||||||
- Basic and Diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||
Weighted Average Number of | ||||||||
Common Shares Outstanding | ||||||||
- Basic and Diluted | 78,730,818 | 77,219,168 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2 |
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY
FOR THE THREE MONTHS ENDED MARCH 31, 2019
(unaudited)
Series B Convertible | Additional | Total | ||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Accumulated | Stockholders' | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficiency | ||||||||||||||||||||||
Balance - January 1, 2019 | 30,858 | $ | 3 | 78,706,256 | $ | 7,871 | $ | 6,283,548 | $ | (6,416,559 | ) | $ | (125,137 | ) | ||||||||||||||
Stock-based compensation | - | - | 25,000 | 3 | 36,057 | - | 36,060 | |||||||||||||||||||||
Common stock issued for cash | - | - | 234,849 | 23 | 154,977 | - | 155,000 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (565,693 | ) | (565,693 | ) | |||||||||||||||||||
Balance - March 31, 2019 | 30,858 | $ | 3 | 78,966,105 | $ | 7,897 | $ | 6,474,582 | $ | (6,982,252 | ) | $ | (499,770 | ) |
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2018
(Unaudited)(unaudited)
(revised)
Additional | ||||||||||||||||||||
Common Stock | Paid-In | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance - December 31, 2017 | 77,440,000 | $ | 7,744 | $ | 5,090,282 | $ | (4,358,320 | ) | $ | 739,706 | ||||||||||
Stock-based compensation | - | - | 182,957 | - | 182,957 | |||||||||||||||
Net loss | - | - | - | (747,244 | ) | (747,244 | ) | |||||||||||||
Balance - March 31, 2018 | 77,440,000 | $ | 7,744 | $ | 5,273,239 | $ | (5,105,564 | ) | $ | 175,419 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
KT HIGH-TECH MARKETING, INC. & SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
Cash Flows From Operating Activities: | ||||||||
Net loss | $ | (747,244 | ) | $ | (227,824 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation expense | 5,621 | 153 | ||||||
Stock-based compensation | 182,957 | 12,011 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (33,225 | ) | 6,900 | |||||
Interest receivable - related party | - | (733 | ) | |||||
Prepaid expenses | 41,286 | 7,992 | ||||||
Accrued expenses and other current liabilities | 118,425 | 26,553 | ||||||
Accrued expenses and other current liabilities - related parties | (38,190 | ) | 16,035 | |||||
Total Adjustments | 276,874 | 68,911 | ||||||
Net Cash Used In Operating Activities | (470,370 | ) | (158,913 | ) | ||||
Cash Flows From Investing Activities: | ||||||||
Proceeds from loan from related party | - | 200,000 | ||||||
Net Cash Provided By Investing Activities | - | 200,000 | ||||||
Net (Decrease) Increase In Cash | (470,370 | ) | 41,087 | |||||
Cash - Beginning of Period | 895,761 | 9,087 | ||||||
Cash - End of Period | $ | 425,391 | $ | 50,174 | ||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Cash paid during the year for: | ||||||||
Interest | $ | 65 | $ | - | ||||
Income taxes | $ | 2,400 | $ | - |
Additional | Total | |||||||||||||||||||
Common Stock | Paid-In | Accumulated | Stockholders' | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
Balance - January 1, 2018 | 77,440,000 | $ | 7,744 | $ | 5,090,282 | $ | (4,358,320 | ) | $ | 739,706 | ||||||||||
Stock-based compensation | - | - | 182,957 | - | 182,957 | |||||||||||||||
Net loss | - | - | - | (825,845 | ) | (825,845 | ) | |||||||||||||
Balance - March 31, 2018 | 77,440,000 | $ | 7,744 | $ | 5,273,239 | $ | (5,184,165 | ) | $ | 96,818 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3 |
4
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Three Months Ended | ||||||||
March 31, | ||||||||
2019 | 2018 | |||||||
(revised) | ||||||||
Cash Flows From Operating Activities: | ||||||||
Net loss | $ | (565,693 | ) | $ | (825,845 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation expense | 3,000 | 5,621 | ||||||
Write-down of inventory | 90 | - | ||||||
Stock-based compensation | 47,940 | 182,957 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 79,381 | (33,225 | ) | |||||
Inventory | 1,200 | 17,957 | ||||||
Prepaid expenses | (7,626 | ) | 51,286 | |||||
Other current assets | (10,246 | ) | - | |||||
Accounts payable | 134,063 | 137,407 | ||||||
Accrued expenses and other current liabilities | 46,471 | 31,662 | ||||||
Accrued expenses and other current liabilities - related party | (15,000 | ) | (38,190 | ) | ||||
Total Adjustments | 279,273 | 355,475 | ||||||
Net Cash Used In Operating Activities | (286,420 | ) | (470,370 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from sale of common stock | 155,000 | - | ||||||
Net Cash Provided By Financing Activities | 155,000 | - | ||||||
Net Decrease In Cash | (131,420 | ) | (470,370 | ) | ||||
Cash - Beginning of Period | 229,896 | 895,761 | ||||||
Cash - End of Period | $ | 98,476 | $ | 425,391 | ||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 446 | $ | 65 | ||||
Income taxes | $ | - | $ | 2,400 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4 |
KT HIGH-TECH MARKETING,KULR TECHONOLOGY GROUP, INC. & SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 Business Organization, Nature of Operations and Basis of Presentation
Organization and Operations
KT High-Tech Marketing,KULR Technology Group, Inc. ("KT High-Tech"), through its wholly-owned subsidiary, KULR Technology Corporation (“KULR”) (collectively referred to as “KULR” or the “Company”), is primarily focused on developingdevelops and commercializing itscommercializes high-performance thermal management technologies which it acquired through assignment fromfor electronics, batteries, and license with KULR’s co-founder Dr. Timothy Knowles, inother components across a range of applications. Currently, the high value, high-performance consumer electronicCompany is focused on targeting the following applications: electric vehicles and autonomous driving systems (collectively referred to herein as “E-Mobility”); artificial intelligence and Cloud computing; energy storage applications.storage; and 5G communication technologies. KULR owns proprietary carbon fiber based (Carbon Fiber Velvet or “CFV”) thermalprovides heat management solutions that it believes are more effective at conducting, dissipatingto enhance the performance and storing heat generated by an electronic system’s internal components (i.e. semiconductor, integrated circuits “chips”)safety of battery packs used in comparison to traditional materials, such as copperelectric vehicles, communication devices aerospace and aluminum. KULR’s technologies can be applied inside a wide array of electronic applications where heat is often a problem, such as mobile devices, cloud computing, virtual reality platforms, satellites, internet of things, drones, and connected cars.defense.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the condensed consolidated financial statements of the Company as of March 31, 20182019 and for the three months then ended. The results of operations for the three months ended March 31, 20182019 are not necessarily indicative of the operating results for the full year ending December 31, 20182019 or any other period. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 20172018 and for the year then ended, which were filed with the Securities and Exchange Commission (“SEC”) on Form 10-K on April 17, 2018.March 29, 2019.
Reverse Recapitalization
On June 8, 2017, KT High-Tech entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with KULR and 100% of the shareholders of KULR (the “KULR Shareholders”). On June 19, 2017 (the “Closing Date”), the Company closed the transaction contemplated by the Share Exchange Agreement. Pursuant to the Share Exchange Agreement, the KULR Shareholders agreed to transfer an aggregate of 25,000,000 shares of KULR’s common stock to the Company in exchange for the Company’s issuance of an aggregate of 50,000,000 shares of the Company’s common stock to the KULR Shareholders (the “Share Exchange”). On the Closing Date, KULR became a wholly-owned subsidiary of KT High-Tech, the KULR Stockholders beneficially owned approximately 64.57% of KT High-Tech’s common stock on a fully-diluted basis, KT High-Tech began operating KULR’s business of developing and commercializing its thermal management technologies and a representative of the KULR Stockholders was appointed to be the Company’s second Board Director.
The closing of the Share Exchange Agreement was accounted for as a reverse recapitalization under the provisions of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 805-40. The condensed consolidated statements of operations herein reflect the historical results of KULR prior to the completion of the reverse recapitalization since it was determined to be the accounting acquirer, and do not include the historical results of operations for KT High-Tech prior to the completion of the reverse recapitalization. KT High-Tech’s assets and liabilities are consolidated with the assets and liabilities of KULR as of the Closing Date. The number of shares issued and outstanding and additional paid-in capital of KT High-Tech have been retroactively adjusted to reflect the equivalent number of shares issued by KT High-Tech in the Share Exchange, while KULR’s accumulated deficit is being carried forward as the Company’s accumulated deficit. All costs attributable to the reverse recapitalization were expensed.
Note 2 Going Concern and Management’s Plans
As of March 31, 2018,The Company has not yet achieved profitability and expects to continue to incur cash outflows from operations. It is expected that its research and development and general and administrative expenses will continue to increase and, as a result, the Company had cash, working capital and an accumulated deficit of $425,391, $137,547 and $5,105,564, respectively. During the three months ended March 31, 2018 and 2017, the Company incurred net losses of $747,244 and $227,824, respectively.will eventually need to generate significant product revenues to achieve profitability. These conditions indicate that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the financial statement issuance date.
Based upon the Company’s forecast for continued operating losses, it expects that the cash itThe Company is currently has available will fundfunding its operations into the fourth quarteron a month-to-month basis by means of 2018 while it continues to apply efforts to raise additional capital. Thereafter, the Company will require external funding to sustain operations and to follow through on the execution of its business plan.private placements. Although the Company’s management believes that it has access to capital resources, there are currently no commitments in place for new financing at this time and there is no assurance that the Company will be able to obtain funds on commercially acceptable terms, if at all. If the Company is unable to obtain adequate funds on reasonable terms, it may be required to significantly curtail or discontinue operations or obtain funds by entering into financing agreements on unattractive terms. The Company’s operating needs include the planned costs to operate its business, including amounts required to fund working capital and capital expenditures.
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The unaudited condensed consolidated financial statements do not include any adjustment that might become necessary should the Company be unable to continue as a going concern.
Note 3 Summary of Significant Accounting Policies
The Company’s significant accounting policies are disclosed in Note 2 – SummarySince the date of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Since the date of the Annual Report,2018, there have been no material changes to the Company’s significant accounting policies, except as disclosed below.in this note.
5 |
Note 3 Summary of Significant Accounting Policies – Continued
Concentrations of Credit Risk
The Company maintains cash with major financial institutions. Cash held in USU.S. bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 at each institution. There were aggregateno uninsured cash balances as of $91,754 and $611,450 at March 31, 20182019 and December 31, 2017, respectively.2018.
During the three months ended March 31, 2018, 48% and 47% of the Company’s revenues were generated from Customer A and Customer B, respectively. As of March 31, 2018, receivables from Customer A, Customer B and Customer C comprised 26%, 58% andconcentrations are as follows:
Revenues | Accounts Receivable | |||||||||||||||
For the Three Months Ended | As of | As of | ||||||||||||||
March 31, | March 31, 2019 | December 31, 2018 | ||||||||||||||
2019 | 2018 | |||||||||||||||
Customer A | 61 | % | * | * | 63 | % | ||||||||||
Customer B | 17 | % | * | 72 | % | * | ||||||||||
Customer C | * | 48 | % | * | * | |||||||||||
Customer D | * | * | * | 37 | % | |||||||||||
Customer E | * | 47 | % | * | * | |||||||||||
Customer F | * | * | 16 | % | * | |||||||||||
Total | 78 | % | 95 | % | 88 | % | 100 | % |
* Less than 10%, respectively, of the Company’s total accounts receivable. As of December 31, 2017, receivables from Customer D and Customer E comprised 43% and 24%, respectively, of the Company’s total accounts receivable.
Revenue Recognition
On January 1, 2018, theThe Company adoptedrecognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process, than required under existing accounting principles generally accepted in the United States of America (“U.S. GAAP”) including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.
The Company adopted ASC 606 for all applicable contracts using the modified retrospective method, which would have required a cumulative-effect adjustment, if any, as of the date of adoption. The adoption of ASC 606 did not have a material impact on the Company's condensed consolidated financial statements as of the date of adoption. As a result, a cumulative-effect adjustment was not required.following five steps are applied to achieve that core principle:
· | Step 1: Identify the contract with the customer; |
· | Step 2: Identify the performance obligations in the contract; |
· | Step 3: Determine the transaction price; |
· | Step 4: Allocate the transaction price to the performance obligations in the contract; and |
· | Step 5: Recognize revenue when the company satisfies a performance obligation. |
The Company recognizes revenue primarily from the following different types of contracts:
· | Product sales |
· | Contract services |
6 |
Note 3 Summary of Significant Accounting Policies – Continued
Revenue Recognition – Continued
The following table summarizes our revenue recognized in our condensed consolidated statements of operations:
For the Three Months Ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
(unaudited) | (unaudited) | |||||||
Product sales | $ | 118,352 | $ | - | ||||
Contract services | 109,688 | - | ||||||
Total revenue | $ | 228,040 | $ | - |
For the Three Months Ended | ||||||||
March 31, | ||||||||
2019 | 2018 | |||||||
Product sales | $ | 169,440 | $ | 118,352 | ||||
Contract services | 25,512 | 109,688 | ||||||
Total revenue | $ | 194,952 | $ | 228,040 |
As of March 31, 20182019 and December 31, 2017,2018, the Company did not have any contract assets or contract liabilities from contracts with customers. The contract liabilities represent payments received from customers for which the Company had not yet satisfied its performance obligation under the contract. During the three months ended March 31, 2019 and 2018, and 2017, there$0 of revenue was no revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods. As of March 31, 2018, there were no remaining performance obligations that the Company had not satisfied.
Reclassifications of Prior Year Presentation
Certain prior year balance sheet amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. During the three months ended March 31, 2018 and 2017, 220,832 and 970,832 weighted average shares of non-vested restricted stock awards, respectively, were excluded from weighted average common stock outstanding. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common and dilutive common-equivalent shares outstanding during each period. Dilutive common-equivalent shares consist of shares of non-vested restricted stock, if not anti-dilutive.
As of March 31, 2018 and 2017, 125,000 and 875,000, respectively,The following shares of non-vested restricted stock awards were excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive.anti-dilutive:
For the Three Months Ended | ||||||||
March 31, | ||||||||
2019 | 2018 | |||||||
Non-vested restricted stock | - | 125,000 | ||||||
Series B Convertible Preferred Stock | 1,542,900 | - | ||||||
Options | 300,000 | - | ||||||
Total | 1,842,900 | 125,000 |
Recent Accounting PronouncementsOperating Leases
In May 2017,The Company leases properties under operating leases. For leases in effect upon adoption of Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” at January 1, 2019 and for any leases commencing thereafter, the FASB issued ASU No. 2017-09, “Compensation — Stock Compensation (Topic 718): ScopeCompany recognizes a liability to make lease payments, the “lease liability”, and an asset representing the right to use the underlying asset during the lease term, the “right-of-use asset”. The lease liability is measured at the present value of Modification Accounting,” (“ASU 2017-09”). ASU 2017-09 provides clarity on the accountingremaining lease payments, discounted at the Company’s incremental borrowing rate. The right-of-use asset is measured at the amount of the lease liability adjusted for modificationsthe remaining balance of stock-based awards. ASU 2017-09 requires adoptionany lease incentives received, any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term, any unamortized initial direct costs, and any impairment of the right-of-use-asset. Operating lease expense consists of a single lease cost calculated so that the remaining cost of the lease is allocated over the remaining lease term on a prospectivestraight-line basis, variable lease payments not included in the annuallease liability, and interim periods for fiscal years beginning after December 15, 2017 for share-based payment awards modified on or afterany impairment of the adoption date. The Company adopted ASU 2017-09 effective January 1, 2018 and its adoption did not have a material impact on the Company’s condensed consolidated financial statements.right-of-use asset.
Note 4 Prepaid ExpensesThe Company evaluated their operating leases and elected to apply the short-term lease measurement and recognition exemption in which the right of use assets and lease liabilities are not recognized for short-term leases.
As of March 31, 2018 and December 31, 2017, prepaid expenses consisted of the following:
7 |
March 31, 2018 | December 31, 2017 | |||||||
(unaudited) | ||||||||
Business development services | $ | 10,000 | $ | 40,000 | ||||
Research and development services | 15,000 | 25,000 | ||||||
Professional fees | 10,000 | 10,000 | ||||||
Other | 30,180 | 31,466 | ||||||
Total prepaid expenses | $ | 65,180 | $ | 106,466 |
Note 54 Accrued Expenses and Other Current Liabilities
As of March 31, 20182019 and December 31, 2017,2018, accrued expenses and other current liabilities consisted of the following:
March 31, | December 31, | |||||||
2019 | 2018 | |||||||
(unaudited) | ||||||||
Accrued payroll and vacation | $ | 313,575 | $ | 252,043 | ||||
Accrued legal and professional fees | 36,280 | 47,502 | ||||||
Accrued travel expenses | 51,660 | 48,248 | ||||||
Payroll and income tax payable | 10,212 | 12,678 | ||||||
Accrued research and development expenses | - | 2,850 | ||||||
Credit card payable | 4,938 | 4,586 | ||||||
Accrued issuable equity | 15,840 | 3,960 | ||||||
Accrued rent | 176 | 176 | ||||||
Other | - | 2,287 | ||||||
Total accrued expenses and other current liabilities | $ | 432,681 | $ | 374,330 |
March 31, 2018 | December 31, 2017 | |||||||
(unaudited) | ||||||||
Accrued legal and professional fees | $ | 189,366 | $ | 71,241 | ||||
Accrued payroll and vacation | 52,741 | 69,425 | ||||||
Payroll and income tax payable | 12,883 | 14,223 | ||||||
Accrued research and development expenses | 13,164 | 14,611 | ||||||
Credit card payable | 650 | 110 | ||||||
Other | 47,334 | 28,103 | ||||||
Total accrued expenses and other current liabilities | $ | 316,138 | $ | 197,713 |
The Company has agreed to issue an aggregate of 25,000 shares of common stock for legal and consulting fees. See Note 6 – Stockholders’ Deficiency – Stock-Based Compensation for details of related expense recognized. As of March 31, 2019, the shares had not been issued and, as a result, $15,840 of accrued issuable equity at fair value is included within accrued expenses and other current liabilities.
Note 65 Related Party Transactions
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities – related parties consist of: (i)of a liability of $225,844$68,919 and $254,344$83,919 as of March 31, 20182019 and December 31, 2017,2018, respectively, to Energy Science Laboratories, Inc. (“ESLI”), a company controlled by the Company’s Chief Technology Officer (“CTO”), in connection with consulting services provided to the Company associated with the development of the Company’s CFV thermal management solutions; and (ii) a liability of $18,563 and $28,253 as of March 31, 2018 and December 31, 2017, respectively, to the Company’s Chief Executive Officer (“CEO”)solutions in connection with Company-related travel and entertain expenses incurred by the CEO.prior periods.
Note 6 Stockholders' Deficiency
Consulting AgreementsCommon Stock
During the three months ended March 31, 2018 and 2017,2019, the Company recordedsold an aggregate expense of $0 and $39,000 (of which, $19,500 and $19,500 was included within research and development expenses and selling, general and administrative expenses, respectively), respectively, related234,849 shares of common stock at $0.66 per share to consulting agreements with its CEO and CTO, which were terminated in connection with the closingaccredited investors for aggregate gross proceeds of the Share Exchange Agreement on June 19, 2017.
During the periods ended March 31, 2018 and 2017, the Company recorded research and development expense of $0 and $111,615 related to consulting services provided to the Company by ESLI associated with the development of the Company’s CFV thermal management solutions. ESLI is controlled by the Company’s CTO.
Note 7 Stockholders' Equity
Reverse Recapitalization
See Note 1 - Business Organization, Nature of Operations and Basis of Presentation – Reverse Recapitalization for details of the Share Exchange.$155,000.
Stock-Based Compensation
During the three months ended March 31, 20182019 and 2017,2018, the Company recognized stock-based compensation expense of $182,957$47,940 (which includes the issuance of 25,000 shares of immediately-vested common stock for legal fees) and $12,011,$182,957, respectively, related to restricted common stock awardsand stock options which isare included within general and administrative expenses on the condensed consolidated statements of operations. As of March 31, 2018,2019, there was $94,867$83,095 of unrecognized stock-based compensation expense of which, $94,867 was subject to re-measurement, that will be recognized over the weighted average remaining vesting period of 0.12.75 years.
Note 7 Leases
The Company has two operating leases for real estate which have remaining terms that are less than one year. The Company elected not to recognize short-term leases on the balance sheet and all costs were recognized as selling, general and administrative expenses on the condensed consolidated statements of operations. For the three months ended March 31, 2019 and 2018, operating lease expense was $40,385 and $15,161, respectively. As of March 31, 2019, the Company does not have any financing leases.
8 |
Note 8 Commitments and Contingencies
Patent License Agreement
On March 21, 2018, the Company entered into an agreement with the National Renewable Energy Laboratory (“NREL”) granting the Company an exclusive license to commercialize its patented Internal Short Circuit technology. The agreement shall be effective for as long as the licensed patents are enforceable, subject to certain early termination provisions specified in the agreement. In consideration, the Company agreed to pay to NREL the following: (i) a cash payment of $12,000 payable over one year, (ii) royalties ranging from 1.5% to 3.75% on the net sales price of the licensed products, as defined in the agreement, with minimum annual royalty payments ranging from $0 to $7,500. In addition, the Company shall use commercially reasonable efforts to bring the licensed products to market through a commercialization program that requires that certain milestones be met, as specified in the agreement. As of the date of filing, there had been no sales of the licensed products, such that no royalties had been earned.
Note 9 Subsequent Events
ThereCommon Stock
On April 12, 2019, the Company sold an aggregate of 717,120 shares of common stock at $0.66 per share to accredited investors for aggregate gross proceeds of $473,300.
On April 30, 2019, the Company conducted a closing for the sale of an aggregate of 409,090 shares of common stock at $0.66 per share to accredited investors for aggregate gross proceeds of $270,000, which represented the final closing of its private placement offering of its common stock.
Securities Purchase Agreement
On April 2, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the stockholders (the “Sellers”) holding 100% of the ownership interest in TECHTOM Co., Ltd. (“TECHTOM”), a Japanese limited liability company, pursuant to which the Company agreed to purchase from the Sellers, subject to the satisfaction of certain closing conditions, all ownership interests in TECHTOM and any and all claims, notes and other liabilities owed by TECHTOM to the Sellers (the “Acquisition”). Although no assurances can be made that the Acquisition will be completed, upon such Acquisition, TECHTOM would become a wholly-owned subsidiary of the Company.
Pursuant to the Purchase Agreement, the Company agreed to pay the Sellers, against delivery of all Ownership and Claims, the following aggregate acquisition price: (i) $1,700,000 cash consideration (the “Cash Consideration”); and (ii) one hundred (100) shares of the Company’s Series C Convertible Preferred Stock (“Series C Preferred”), which class of Series C Preferred is to be designated prior to the closing of the Acquisition. It is contemplated that the Series C Preferred will have, beenamong others, the following rights, preferences and limitation: (i) a stated value of $10,000 per share; (ii) no events that have occurred subsequentright to receive dividends; (iii) the right to convert each share into twenty thousand shares of the Company’s common stock, which right is subject to a 4.99% beneficial ownership limitation; and (iv) the right to vote with the Company’s shareholders on an as-converted basis. The rights and preferences of the Series C Preferred are set forth in further detail in the form of Certificate of Designation attached as an exhibit to the Purchase Agreement and which description is qualified in its entirety to such exhibit, which is incorporated herein by reference.
9 |
Note 10 Revision of Financial Statements for the Quarter Ended March 31, 2018 that require disclosure
During the course of preparing the quarterly report on Form 10-Q for the quarter ended June 30, 2018, the Company identified certain errors related to cost of revenue not being recorded in connection with a product sale to a customer, which resulted in the understatement of its net loss for the three months ended March 31, 2018. The reason for the error was related to certain information not being provided to the Company’s accounting staff as a result of the Company’s transition of certain accounting duties from its then-Interim Chief Financial Officer, who left the Company in the first quarter of 2018.
The following tables reconcile the prior period as reported balances to the as revised balances:
March 31, 2018 | ||||||||||||
As Reported | Adjustment | As Revised | ||||||||||
Condensed Consolidated Balance Sheet: | ||||||||||||
Total Current Assets | $ | 698,092 | $ | (27,957 | ) | $ | 670,135 | |||||
Total Assets | $ | 735,964 | $ | (27,957 | ) | $ | 708,007 | |||||
Total Current Liabilities | $ | 560,545 | $ | 50,644 | $ | 611,189 | ||||||
Total Liabilities | $ | 560,545 | $ | 50,644 | $ | 611,189 | ||||||
Total Stockholders' Equity | $ | 175,419 | $ | (78,601 | ) | $ | 96,818 |
For The Three Months Ended March 31, 2018 | ||||||||||||
As Reported | Adjustment | As Revised | ||||||||||
Condensed Consolidated Statement of Operations: | ||||||||||||
Revenue | $ | 228,040 | $ | - | $ | 228,040 | ||||||
Cost of Revenue | $ | 49,346 | $ | 100,601 | $ | 149,947 | ||||||
Operating Expenses | $ | 925,924 | $ | (22,000 | ) | $ | 903,924 | |||||
Loss From Operations | $ | (747,230 | ) | $ | (78,601 | ) | $ | (825,831 | ) | |||
Net Loss | $ | (747,244 | ) | $ | (78,601 | ) | $ | (825,845 | ) | |||
Net Loss Per Share - Basic and Diluted | $ | (0.01 | ) | $ | - | $ | (0.01 | ) | ||||
Weighted Average Number of Common Shares Outstanding | ||||||||||||
- Basic and Diluted | 77,219,168 | - | 77,219,168 |
For The Three Months Ended March 31, 2018 | ||||||||||||
As Reported | Adjustment | As Revised | ||||||||||
Condensed Consolidated Statement of Cash Flows: | ||||||||||||
Cash Flows From Operating Activities: | ||||||||||||
Net Loss | $ | (747,244 | ) | $ | (78,601 | ) | $ | (825,845 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities | $ | 276,874 | $ | 78,601 | $ | 355,475 | ||||||
Net Cash Used In Operating Activities | $ | (470,370 | ) | $ | - | $ | (470,370 | ) |
In accordance with SEC Staff Accounting Bulletin No 108, the Company has evaluated this error, based on an analysis of quantitative and qualitative factors, as to whether it was material to the condensed consolidated statement of operations for the three months ended March 31, 2018 and if amendments of previously filed financial statements.statements with the SEC are required. The Company has determined that quantitatively and qualitatively, the error has no material impact to the condensed consolidated statement of operations for the three months ended March 31, 2018 or other prior periods.
9
10 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the results of operations and financial condition of KT High-Tech Marketing, Inc. ("KT High-Tech" and, including its subsidiary, KULR Technology Corporation (“KULR”), theGroup, Inc. (the “Company”) as of March 31, 20182019 and for the three months ended March 31, 20182019 and 20172018 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 20172018 and for the year then ended, which are included in the Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 17, 2018.March 29 , 2019. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us”, “we”, “our” and similar terms refer to the Company. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Actual results could differ materially because of the factors discussed in “Risk Factors” elsewhere in this Annual Report, and other factors that we may not know.
Overview
The Company ownsKULR Technology Group, Inc., through our wholly-owned subsidiary KULR Technology Corporation, develops and commercializes high-performance thermal management technologies for electronics, batteries, and other components across an array of applications. Currently, we are focused on targeting the following applications: electric vehicles and autonomous driving systems (collectively referred to herein as “E-Mobility”); artificial intelligence and Cloud computing; energy storage; and 5G communication technologies. Our proprietary, core technology is a carbon fiber based (Carbon Fiber Velvetmaterial, with roots in aerospace and defense, that provides what we believe to be superior thermal conductivity and heat dissipation in an ultra-lightweight and pliable material. By leveraging our proprietary cooling solutions and that have been developed through longstanding partnerships with NASA, the Jet Propulsion Lab and others, our products and services make E-Mobility products and other products safer and more stable.
Our management believes that the E-Mobility industry has created and will create significant new opportunities for the application of our technology and know-how. We believe these new opportunities will be further driven by certain changing preferences that we’ve observed in younger generations that must increasingly cope with higher population density, global warming, and the rapidly evolving communications and computing needs of their personal devices and the surrounding infrastructure. As a result, we predict that the younger generations will increasingly prefer to attend meetings by video conference; rent a car, bike, or “CFV”) thermal management solutions that it believes are more effective at conducting, dissipatingscooter, or call an app-based car service instead of owning a vehicle; and storing heat generated by an electronic system’s internal components (i.e. semiconductor, integrated circuits “chips”)leverage the Cloud to perform tasks traditionally done in comparison to traditional materials,person, such as coppershopping for lunch, clothes, electronics and aluminum. KULR’s technologiesother consumer goods that also leverages an expanding E-Mobility delivery network.
In addition to evolving demands led by consumer-preferences, we have observed trending manufacturer-led opportunities in industries that have become increasingly more reliant on the Cloud, on portability and on high-demand processing power. For example, car manufacturers are increasingly providing options that take over the responsibility for driving, diagnosing its own service requirements and analyzing on-board systems data and efficiency. The communications and entertainment industries are leveraging increasingly more powerful and portable devices to deliver live and high-definition content and experiences. These innovations will require high bandwidth communication devices that can be applied insidehandle the power drain and computational requirements to keep up with the sophisticated security and software tools that will power these advanced product offerings. As a result of these manufacturer and consumer trends, we believe that the new generations of high-powered, small form-factor semiconductors are out-pacing the development inlithium ion batteries.
The above-described advances in micro technology, portable power, and compact energy efficient devices linked to an ever-widening Internet of Things (“IoT”) via the Cloud are driving opportunities that forms the focus of the Company’s business development plan.We believe that our core technology and historical development focus on improving lithium-ion battery performance and safety, positions us in a competitively advantageous position to enhance key components to the evolving mobile applications for a wide arrayrange of electronic applications where heat is often a problem, such as mobile devices, cloud computing, virtual reality platforms, satellites, internet of things, drones,consumer products and connected cars.
Three key vectorsIoT. We have driven advancements in semiconductors and electronics systems – performance, power, and size. These vectors, however, often counteract one another. Asfound thatas chip performance increases, power consumption increases, and more heat is generated as a byproduct. When chip size reduces, there is an increased potential for a hot spot on the chip, which can degrade system performance. Electronicperformance, or even cause spontaneous combustion. However, electronic system components must operate within a specific temperature range on both the high and low end to operate properly. KULR resolves many of the tradeoffs associated with other thermalAfter strenuous testing, we believe we have developed heat management materials. KULR’s productssolutions that significantly improve upon traditional heat storage and dissipation solutions and that improve upon their rigidity problems and durability. ItsWe also believe that the traditional solutions are not equipped to handle the evolving marketplace. However, through a combination of custom design services and provision of proprietary hardware solutions, our products are lightweight and reduce manufacturing complexity associated withand provide a lighter weight solution than traditional thermal management materials.materials and, we believe, can meet the heat management demands of components and batteries being designed into the newest mobile technologies and applications.
11 |
Our management’s growth strategy has put particular focus on targeting E-Mobility applications for its core technology. We believe we are well-positioned to provide a broad range of E-mobility solutions, and intend to expand our business through internal growth and acquisition. In the case of acquisitions, we seek to acquire businesses in related markets that are synergistic to our existing operations, technologies, and management experience. This focus will highlight markets in which we can: (1) integrate our existing technology into the acquiree’s product offerings or simultaneously offer our products and services through the acquiree’s customer base and channels; (2) gain a leading market position and provide vertically integrated services where we can secure economies of scale, premium market positioning, and operational synergies; and/or (3) establish a leading position in selected markets and channels of the acquiree through a joint broad-based, hi-tech, E-Mobility branding campaign. We have developed an acquisition discipline based on a set of financial, market and management criteria to evaluate opportunities. If we were to successfully close an acquisition, we would seek to integrate it while minimizing disruption to our existing operations and those of the acquired business, while exploiting the technical and managerial synergies from integration.
In additionWe have not yet achieved profitability and expect to thermal management of electronic systems, KULR has developed, in partnership with NASA Johnson Space Center (“NASA JSC”), a highly effective, lightweightcontinue to incur cash outflows from operations. It is expected that our research and passive thermal protection technology. Thermal Runaway Shield (“TRS”) for lithium-ion batteries. KULR’s lithium-ion battery (“Li-B”) TRS product prevents a potentially dangerous combustible condition known as thermal runaway propagation from occurring in neighboring Li-B cells by actingdevelopment and general and administrative expenses will continue to increase and, as a shield or barrier in between individual Li-B cells in a battery pack. Although rare, incidents of thermal runaway propagation occurring spontaneously in Li-B cargo shipments and inside electronics, including hoverboards, smartphones, and electric vehicles, are a cause of public concern.
As of March 31, 2018,result, we had cash, working capital and an accumulated deficit of $425,391, $137,547 and $5,105,564, respectively. During the three months ended March 31, 2018 and 2017, we incurred net losses of $747,244 and $227,824, respectively.will eventually need to generate significant product revenues to achieve profitability. These factors raiseconditions indicate that there is substantial doubt about our ability to continue as a going concern as expressed inwithin one year after the notes to our condensed consolidated financial statements.statement issuance date. Historically, we have been able to raise funds to support our business operations, although there can be no assurance, we will be successful.successful in raising additional funds in the future.
Recent Developments
In January 2018,Common Stock
During the three months ended March 31, 2019, we sold an aggregate of 234,849 shares of common stock at $0.66 per share to accredited investors for aggregate gross proceeds of $155,000.
On April 12, 2019, we sold an aggregate of 717,120 shares of common stock at $0.66 per share to accredited investors for aggregate gross proceeds of $473,300.
On April 30, 2019, we conducted a final closing for the sale of an aggregate of 409,090 shares of common stock at $0.66 per share to accredited investors for aggregate gross proceeds of $270,000, which represented the final closing of our private placement offering of our common stock.
Securities Purchase Agreement
On April 2, 2019, the Company entered into a Product DevelopmentSecurities Purchase Agreement (the “Purchase Agreement”) with the stockholders (the “Sellers”) holding 100% of the ownership interest in TECHTOM Co., Ltd. (“TECHTOM”), a top automotive manufacturerJapanese limited liability company, pursuant to developwhich the Company agreed to purchase from the Sellers, subject to the satisfaction of certain closing conditions, all ownership interests in TECHTOM and any and all claims, notes and other liabilities owed by TECHTOM to the Sellers (the “Acquisition”). Although no assurances can be made that the Acquisition will be completed, upon such Acquisition, TECHTOM would become a TRS-based solution for their electrical vehicle battery packs. The agreement is milestone-based and while there is no guarantee that KULR TRS products will ever be integrated into our strategic partner’s vehicles, we continue to advancewholly-owned subsidiary of the milestones.Company.
In March 2018, we entered
Pursuant to the Purchase Agreement, the Company agreed to pay the Sellers, against delivery of all Ownership and Claims, the following aggregate acquisition price: (i) $1,700,000 cash consideration (the “Cash Consideration”); and (ii) one hundred (100) shares of the Company’s Series C Convertible Preferred Stock (“Series C Preferred”), which class of Series C Preferred is to be designated prior to the closing of the Acquisition. It is contemplated that the Series C Preferred will have, among others, the following rights, preferences and limitation: (i) a stated value of $10,000 per share; (ii) no right to receive dividends; (iii) the right to convert each share into an agreementtwenty thousand shares of the Company’s common stock, which right is subject to a 4.99% beneficial ownership limitation; and (iv) the right to vote with the National Renewable Energy Laboratory (“NREL”) granting usCompany’s shareholders on an exclusive licenseas-converted basis. The rights and preferences of the Series C Preferred are set forth in further detail in the form of Certificate of Designation attached as an exhibit to commercializethe Purchase Agreement and which description is qualified in its patented Internal Short Circuit technology. This technology was jointly developedentirety to such exhibit, which is incorporated herein by NREL and NASA to provide a reliable testing method for lithium-ion battery safety.reference.
12 |
Results of Operations
Three Months Ended March 31, 20182019 Compared With Three Months Ended March 31, 20172018
The closing of the Share Exchange Agreement with KULR on June 19, 2017 was accounted for as a reverse recapitalization under the provisions of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 805-40. The condensed consolidated statements of operations herein reflect the historical results of KULR prior to the completion of the reverse recapitalization since it was determined to be the accounting acquirer, and do not include the historical results of operations for KT High-Tech prior to the completion of the reverse recapitalization.
Revenues
RevenuesOur revenues consisted of the following types:
For the Three Months Ended | ||||||||
March 31, | ||||||||
2019 | 2018 | |||||||
Product sales | $ | 169,440 | $ | 118,352 | ||||
Contract services | 25,512 | 109,688 | ||||||
Total revenue | $ | 194,952 | $ | 228,040 |
For the three months ended March 31, 2019 and 2018, we generated $194,952 and $228,040 of revenues, a decrease of $33,088, or 15%. The decrease was primarily due to a decrease in service contract completions during the first quarter of 2019.
Our revenues during the three months ended March 31, 2019 consisted of sales of our component product, CFV thermal management solution, ISC battery cell product as well as certain research and development contract services.
For Our revenues during the three months ended March 31, 2018 and 2017, we generated $228,040 and $0 of revenues, an increase of $228,040. The increase was primarily due to new contracts entered into during 2018. Our revenues consisted of the following types:
For the Three Months Ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
(unaudited) | (unaudited) | |||||||
Product sales | $ | 118,352 | $ | - | ||||
Contract services | 109,688 | - | ||||||
Total revenue | $ | 228,040 | $ | - |
Cost of Revenues
Cost of revenues consists of the costsales of our CFV thermal management solution and PCM heat sinks as well as labor and othercertain research and development contract services.
Our revenue for the three months ended March 31, 2019 and 2018 was generated from 10 and 4 different customers, respectively.
Cost of Revenues
Cost of revenues consists of the cost of our products as well as labor expenses directly related to product sales or research contract services.
Generally, we earn greater margins on revenue from products compared to revenue from services, so product mix plays an important part in our reported average margins for any period. Also, we are introducing new products at an early stage in our development cycle and the margins earned can vary significantly between period, customers and products due to the learning process, customer negotiating strengths, and product mix.
Our customers and prospective customers are large organizations with multiple levels of management, controls/procedures, and contract evaluation/authorization. Furthermore, our solutions are new and do not necessarily fit into pre-existing patterns of purchase commitment. Accordingly, the business activity cycle between expression of initial customer interest to shipping, acceptance and billing can be lengthy, unpredictable and lumpy, which can influence the timing, consistency and reporting of sales growth.
13 |
For the three months ended March 31, 2019 and 2018, cost of revenues was $49,346. There$61,517 and $149,947, respectively. The decrease was no costprimarily due to lower sales of revenueshigher margin products.
We generated a gross profit of $133,435 for the three months ended March 31, 2017.2019 as compared to a gross profit of $78,093 for the three months ended March 31, 2018, representing an improvement in gross profit of $55,342, or 71%. The gross margin percentage was 68% and 34% for the three months ended March 31, 2019 and 2018, respectively. The increase wasduring the 2019 period resulted primarily duefrom a more favorable product mix being sold as compared to increased labor costs.the previous period.
Research and Development
Research and development (“R&D”) includes expenses incurred in connection with the R&D of our CFV thermal management solution. R&D expenses are expensed as they are incurred, until such time as management reasonably determines that a commercially viable product is feasible. At this time, future R&D costs will be capitalized until the resulting product is launched, at which time capitalized R&D expenses will be amortized in cost of sales over the expected life of the product or products.incurred.
For the three months ended March 31, 2018,2019, R&D expenses increaseddecreased by $106,504$6,492 to $119,684$113,192 from $13,180$119,684 for the three months ended March 31, 2017.2018. The increasedecrease is primarily attributable to an increasea decrease in salaries and other benefits due to an increase in headcount.the purchase of R&D consumable supplies.
We expect that our R&D expenses will continue to increase.increase as we expand our future operations.
Research and Development – Related Parties
R&D – related parties include expenses associated with the development of our CFV thermal management solutions provided by Energy Science Laboratories, Inc. (“ESLI”), a R&D company owned by our Chief Technology Officer (“CTO”), as well as services provided by our CTO. R&D – related parties expenses are expensed as they are incurred.
For the three months ended March 31, 2018, R&D – related parties decreased by $131,115 to $0 from $131,115 for the three months ended March 31, 2017. The decrease is due to reduction in R&D services provided by ESLI during the current period.
11
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of salaries, payroll taxes and other benefits, legal and professional fees, stock-based compensation, marketing, travel, rent and office expenses.
For the three months ended March 31, 2018,2019, selling, general and administrative expenses increaseddecreased by $724,096$198,749 to $805,840$585,491 from $81,744$784,240 for the three months ended March 31, 2017.2018. The increasedecrease is primarily due to increaseddecreased non-cash stock-based compensation expense of approximately $135,000 due to certain awards becoming fully vested in the second quarter of 2018, decreased salaries and other benefits of approximately $221,000$35,000 from the hiringallocation of new employees in the third quarteremployers payroll taxes to cost of 2017, non-cash stock-based compensation expense of approximately $183,000 as well as increasedgoods sold and R&D, decreased professional fees of approximately $125,000 related$34,000, decreased travel expenses of approximately $20,000, partially offset by an increase in rent expense of approximately $25,000 due to beingentering into a public company.new lease agreement.
Other Expense
For the three months ended March 31, 2018,2019, other expense decreasedincreased by $1,571$431 to $14$445 from $1,585$14 for the three months ended March 31, 2017.2018. The decreaseincrease in other expense is primarily due to interest expense related to a KT High-Tech promissory notes purchased by KULR in 2017. Since the KT High-Tech and KULR reverse recapitalization in June 2017, allincreased interest expense related to the promissory note has been eliminated in consolidation.financing of the D&O insurance policy acquired during the fourth quarter of 2018.
Liquidity and Capital Resources
For the three months ended March 31, 20182019 and 2017,2018, cash used in operating activities was $470,370$286,420 and $158,913,$470,370, respectively. Our cash used in operations for the three months ended March 31, 20182019 was primarily attributable to our net loss of $747,244,$565,693, adjusted for non-cash expenses in the aggregate amount of $188,578,$51,030, partially offset by $88,296$228,243 of net cash provided by changes in the levels of operating assets and liabilities. Our cash used in operations for the three months ended March 31, 20172018 was primarily attributable to our net loss of $227,824$825,845, adjusted for non-cash expenses in the aggregate amount of $12,164,$188,578, partially offset by $56,747$166,897 of net cash provided by changes in the levels of operating assets and liabilities.
For the three months ended March 31, 2018 and 2017,There were no cash provided by investing activities was $0 and $200,000, respectively. Our cash provided byflows from investing activities for the three months ended March 31, 2017 was related to a promissory note in2019 and 2018.
For the principal amount of $300,000, of which, $200,000 had been received as ofthree months ended March 31, 2017.
There were no2019 and 2018, cash flows fromprovided by financing activities was $155,000 and $0, respectively. Our cash provided by financing activities for the three months ended March 31, 2018 and 2017.2019 was due to the net proceeds of our common stock offering.
As of March 31, 2018,We have not yet achieved profitability and expect to continue to incur cash outflows from operations. It is expected that our research and development and general and administrative expenses will continue to increase and, as a result, we had cash, workingwill eventually need to generate significant product revenues and/or raise additional capital and an accumulated deficit of $425,391, $137,547 and $5,105,564, respectively. During the three months ended March 31, 2018 and 2017, we incurred net losses of $747,244 and $227,824, respectively.to fund our operations. These conditions raiseindicate that there is substantial doubt about our ability to continue as a going concern within one year after the date these financial statements are issued.statement issuance date.
14 |
Based upon our forecast for continued operating losses, we expect that the cash we
We are currently have available will fundfunding our operations into the fourth quarter of 2018 while we continue to apply efforts to raise additional capital. Thereafter, we will require external funding to sustain operations and to follow through on the execution ofa month-to-month basis. Although our business plan. Although management believes that we have access to capital resources, there are currently no commitments in place for new financing at this time and there is no assurance that we will be able to obtain funds on commercially acceptable terms, if at all. If we are unable to obtain adequate funds on reasonable terms, we may be required to significantly curtail or discontinue operations or obtain funds by entering into financing agreements on unattractive terms. Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures.
Our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate our continuation as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values. The unaudited condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.
Critical Accounting Policies
There are no material changes from the critical accounting policies set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K which was filed with the SEC on April 17, 2018. Please refer to that document for disclosures regarding the critical accounting policies related to our business.
Off BalanceOff-Balance Sheet Arrangements
There are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on financial conditions, changes in financial conditions, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Critical Accounting Policies
For a description of our critical accounting policies, see Note 3 – Summary of Significant Accounting Policies in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is a smaller reporting company, as defined by Rule 229.10(f)(1), and is not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer,, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report,, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.Act. Based on this evaluation, ourour management, with the participation of our principal executive officer and principal financial officer,, concluded that, as of the end of the period covered inby this report, our disclosure controls and procedures were effective to provideat the reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our principal executive officer, as appropriate, to allow timely decisions regarding required disclosure.level.
Changes in Internal Control over Financial Reporting
Effective January 1, 2018,2019, we adopted Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers”842, “Leases” (“ASC 842”). The new revenue standard will requireASC 842 requires management to make significant judgments and estimates. As a result, we implemented changes to our internal controls related to revenue recognitionlease evaluation for the quarterthree months ended March 31, 2018.2019. These changes include updated accounting policies affected by ASC 606,842 as well as redesigned internal controls over financial reporting related to ASC 606,842 implementation. Additionally, management has expanded data gathering procedures to comply with the additional disclosure requirements, and ongoing contract review requirements.
There has been no change in our internal control over financial reporting that occurred during the first quarter of 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except as noted above.
15 |
PART II.II – OTHER INFORMATION
None.
There have been no material changes to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K which was filed with the SEC on April 17, 2018.March 29, 2019.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.During the three months ended March 31, 2019, we sold an aggregate of 234,849 shares of common stock at $0.66 per share to certain accredited investors in aggregate gross proceeds of $155,000, which proceeds will be used for general corporate expenses and other research and development expenses. The issuances of securities were made pursuant to the exemption from registration under Section 4(a)(2), Regulation S and Rule 506 of Regulation D under the Securities Act for transactions not involving a public offering and transactions with “accredited investors” as defined under the Securities Act.
On April 12, 2019, we sold an aggregate of 717,120 shares of common stock at $0.66 per share to accredited investors for aggregate gross proceeds of $473,300. The issuances of securities were made pursuant to the exemption from registration under Section 4(a)(2), Regulation S and Rule 506 of Regulation D under the Securities Act for transactions not involving a public offering and transactions with “accredited investors” as defined under the Securities Act.
On April 30, 2019, the Company conducted a final closing of a private placement offering of its common stock at $0.66 per share. In connection with the final closing, the Company received gross proceeds of $270,000, for which it issued 409,090 shares of common stock to accredited investors. The aggregate proceeds received by the Company in connection with the offering was an aggregate of $1,612,300, against which the Company issued an aggregate of 2,442,879 shares of common stock. In connection with this offering, the Company and the accredited investors entered into a Subscription Agreement, as supplemented, which Subscription Agreement is filed as Exhibit 10.1 hereto and incorporated herein by reference. The offering was conducted and the issuance of securities were made pursuant to the exemption from registration under Section 4(a)(2), Regulation S and Rule 506 of Regulation D under the Securities Act for transactions not involving a public offering and transactions with “accredited investors” as defined under the Securities Act.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety DisclosuresDisclosures.
Not applicable.
None.
10.1 | Subscription Agreement, as supplemented, for Common Stock Offering |
31.1 | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* |
31.2 | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* |
32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** |
101.INS | XBRL Instance* |
101.SCH | XBRL Taxonomy Extension Schema* |
101.CAL | XBRL Taxonomy Extension Calculation* |
101.DEF | XBRL Taxonomy Extension Definition* |
101.LAB | XBRL Taxonomy Extension Labels* |
101.PRE | XBRL Taxonomy Extension Presentation* |
*Filed herewith
**Furnished herewith
16 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report to be signed on its behalf by the undersigned hereunto duly authorized.
May | By | /s/Michael Mo |
Michael Mo Chief Executive Officer and Chairman (Principal Executive Officer) |
May | By | /s/Simon Westbrook |
Simon Westbrook Chief Financial Officer (Principal Financial and Accounting Officer) |
15
17 |