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:SeptemberJune 30, 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
KULR TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware (State or Other Jurisdiction of Incorporation or | 81-1004273 (I.R.S. Employer Identification No.) |
1999 S. Bascom Ave. Suite 700. Campbell, (Address of principal executive offices) |
95008 (Zip Code) |
Registrant’s telephone number, including area code:408-663-5247
KT High-Tech Marketing, Inc., 14440 Big Basin Way #12, Saratoga, California 95070
(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 every Interactive Data File required to be submitted 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 such files). Yesx No¨
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 | x | 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 November 9, 2018,August 12, 2019, there were 78,021,81980,975,655 shares of common stock,Common Stock, $0.0001 par value, issued and outstanding.
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
(FORMERLY KT HIGH-TECH MARKETING, INC.)
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBERJUNE 30, 20182019
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
(FORMERLY KT HIGH-TECH MARKETING, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | June 30, | December 31, | |||||||||||||
2018 | 2017 | 2019 | 2018 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Assets | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash | $ | 174,350 | $ | 895,761 | $ | 144,314 | $ | 229,896 | ||||||||
Accounts receivable | 155,440 | 151,802 | 62,475 | 112,224 | ||||||||||||
Inventory | 13,767 | 13,767 | 8,304 | 9,594 | ||||||||||||
Prepaid expenses | 82,733 | 106,466 | 41,410 | 27,033 | ||||||||||||
Other current assets | 11,089 | 8,727 | 17,016 | 27,569 | ||||||||||||
Deferred expenses | 92,516 | - | ||||||||||||||
Total Current Assets | 437,379 | 1,176,523 | 366,035 | 406,316 | ||||||||||||
Property and equipment, net | 47,145 | 43,493 | 38,758 | 44,791 | ||||||||||||
Deferred offering costs | 15,000 | - | ||||||||||||||
Total Assets | $ | 484,524 | $ | 1,220,016 | $ | 419,793 | $ | 451,107 | ||||||||
Liabilities and Stockholders' (Deficiency) Equity | ||||||||||||||||
Liabilities and Stockholders' Deficiency | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable | $ | 184,598 | $ | 117,995 | ||||||||||||
Accrued expenses and other current liabilities | $ | 491,269 | $ | 197,713 | 546,569 | 374,330 | ||||||||||
Accrued expenses and other current liabilities - related parties | 203,917 | 282,597 | ||||||||||||||
Deferred revenue | 51,158 | - | ||||||||||||||
Accrued expenses and other current liabilities - related party | 58,919 | 83,919 | ||||||||||||||
Total Current Liabilities | 746,344 | 480,310 | 790,086 | 576,244 | ||||||||||||
Commitments and contingencies | ||||||||||||||||
Commitments and contingencies (See Note 9) | ||||||||||||||||
Stockholders' (Deficiency) Equity: | ||||||||||||||||
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 September 30, 2018 and December 31, 2017 | - | - | ||||||||||||||
Common stock, $0.0001 par value, 100,000,000 shares authorized; | ||||||||||||||||
78,021,819 and 77,440,000 shares issued and outstanding | ||||||||||||||||
at September 30, 2018 and December 31, 2017, respectively | 7,802 | 7,744 | ||||||||||||||
none issued and outstanding | ||||||||||||||||
at June 30, 2019 and December 31, 2018 | - | - | ||||||||||||||
Series B Preferred Stock, 31,000 shares designated; | ||||||||||||||||
30,858 issued and outstanding | ||||||||||||||||
at June 30, 2019 and December 31, 2018 | 3 | 3 | ||||||||||||||
Common stock, $0.0001 par value, 500,000,000 shares authorized; | ||||||||||||||||
80,092,315 and 78,706,256 shares issued and outstanding | ||||||||||||||||
at June 30, 2019 and December 31, 2018, respectively | 8,009 | 7,871 | ||||||||||||||
Additional paid-in capital | 5,750,416 | 5,090,282 | 7,225,363 | 6,283,548 | ||||||||||||
Accumulated deficit | (6,020,038 | ) | (4,358,320 | ) | (7,603,668 | ) | (6,416,559 | ) | ||||||||
Total Stockholders' (Deficiency) Equity | (261,820 | ) | 739,706 | |||||||||||||
Total Stockholders' Deficiency | (370,293 | ) | (125,137 | ) | ||||||||||||
Total Liabilities and Stockholders' (Deficiency) Equity | $ | 484,524 | $ | 1,220,016 | ||||||||||||
Total Liabilities and Stockholders' Deficiency | $ | 419,793 | $ | 451,107 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
1 |
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
(FORMERLY KT HIGH-TECH MARKETING, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)(unaudited)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenue | $ | 482,798 | $ | 15,106 | $ | 881,929 | $ | 26,006 | ||||||||
Cost of revenue | 75,384 | 52,384 | 258,801 | 108,579 | ||||||||||||
Gross Profit (Loss) | 407,414 | (37,278 | ) | 623,128 | (82,573 | ) | ||||||||||
Operating Expenses: | ||||||||||||||||
Research and development | 161,194 | 157,876 | 399,884 | 207,504 | ||||||||||||
Research and development - related parties | - | 38,767 | - | 439,824 | ||||||||||||
Selling, general and administrative | 461,377 | 605,473 | 1,908,635 | 1,019,835 | ||||||||||||
Total Operating Expenses | 622,571 | 802,116 | 2,308,519 | 1,667,163 | ||||||||||||
Loss From Operations | (215,157 | ) | (839,394 | ) | (1,685,391 | ) | (1,749,736 | ) | ||||||||
Other Income (Expense): | ||||||||||||||||
Interest (expense) income, net | (269 | ) | 142 | (502 | ) | (8,114 | ) | |||||||||
Change in fair value of accrued issuable equity | 24,175 | - | 24,175 | - | ||||||||||||
Total Other Income (Expense) | 23,906 | 142 | 23,673 | (8,114 | ) | |||||||||||
Net Loss | $ | (191,251 | ) | $ | (839,252 | ) | $ | (1,661,718 | ) | $ | (1,757,850 | ) | ||||
Net Loss Per Share | ||||||||||||||||
- Basic and Diluted | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.03 | ) | ||||
Weighted Average Number of | ||||||||||||||||
Common Shares Outstanding | ||||||||||||||||
- Basic and Diluted | 77,785,191 | 76,843,759 | 77,513,560 | 59,570,769 |
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenue | $ | 56,310 | $ | 171,091 | $ | 251,262 | $ | 399,131 | ||||||||
Cost of revenue | 28,550 | 33,470 | 90,067 | 183,417 | ||||||||||||
Gross Profit | 27,760 | 137,621 | 161,195 | 215,714 | ||||||||||||
Operating Expenses: | ||||||||||||||||
Research and development | 114,547 | 119,006 | 227,739 | 238,690 | ||||||||||||
Selling, general and administrative | 534,262 | 663,018 | 1,119,753 | 1,447,258 | ||||||||||||
Total Operating Expenses | 648,809 | 782,024 | 1,347,492 | 1,685,948 | ||||||||||||
Loss From Operations | (621,049 | ) | (644,403 | ) | (1,186,297 | ) | (1,470,234 | ) | ||||||||
Other Expense: | ||||||||||||||||
Interest expense, net | (367 | ) | (219 | ) | (812 | ) | (233 | ) | ||||||||
Total Other Expense | (367 | ) | (219 | ) | (812 | ) | (233 | ) | ||||||||
Net Loss | $ | (621,416 | ) | $ | (644,622 | ) | $ | (1,187,109 | ) | $ | (1,470,467 | ) | ||||
Net Loss Per Share | ||||||||||||||||
- Basic and Diluted | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | ||||
Weighted Average Number of Common Shares Outstanding | ||||||||||||||||
- Basic and Diluted | 79,918,048 | 77,385,972 | 79,365,031 | 77,303,030 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2 |
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
(FORMERLY KT HIGH-TECH MARKETING, INC.)
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY) EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018(unaudited)
(Unaudited)
Total | ||||||||||||||||||||
Additional | Stockholders' | |||||||||||||||||||
Common Stock | Paid-In | Accumulated | Equity | |||||||||||||||||
Shares | Amount | Capital | Deficit | (Deficiency) | ||||||||||||||||
Balance - December 31, 2017 | 77,440,000 | $ | 7,744 | $ | 5,090,282 | $ | (4,358,320 | ) | $ | 739,706 | ||||||||||
Stock-based compensation | - | - | 307,792 | - | 307,792 | |||||||||||||||
Common stock issued for cash, net of issuance costs [1] | 581,819 | 58 | 352,342 | - | 352,400 | |||||||||||||||
Net loss | - | - | - | (1,661,718 | ) | (1,661,718 | ) | |||||||||||||
Balance - September 30, 2018 | 78,021,819 | $ | 7,802 | $ | 5,750,416 | $ | (6,020,038 | ) | $ | (261,820 | ) |
FOR THE SIX MONTHS ENDED JUNE 30, 2019 | ||||||||||||||||||||||||||||
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 | ) | ||||||||||||||
Stock-based compensation | - | - | - | - | 7,593 | - | 7,593 | |||||||||||||||||||||
Common stock issued for cash | - | - | 1,126,210 | 112 | 743,188 | - | 743,300 | |||||||||||||||||||||
- | ||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (621,416 | ) | (621,416 | ) | |||||||||||||||||||
Balance - June 30, 2019 | 30,858 | $ | 3 | 80,092,315 | $ | 8,009 | $ | 7,225,363 | $ | (7,603,668 | ) | $ | (370,293 | ) |
[1] Includes gross proceeds
FOR THE SIX MONTHS ENDED JUNE 30, 2018 | ||||||||||||||||||||
Total | ||||||||||||||||||||
Additional | Stockholders' | |||||||||||||||||||
Common Stock | Paid-In | Accumulated | Equity | |||||||||||||||||
Shares | Amount | Capital | Deficit | (Deficiency) | ||||||||||||||||
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 | ||||||||||
Stock-based compensation | - | - | 124,835 | - | 124,835 | |||||||||||||||
Net loss | - | - | - | (644,622 | ) | (644,622 | ) | |||||||||||||
Balance - June 30, 2018 | 77,440,000 | $ | 7,744 | $ | 5,398,074 | $ | (5,828,787 | ) | $ | (422,969 | ) |
The accompanying notes are an integral part of $384,000, less issuance costs of $31,600 ($25,000 of cash and $6,600 of non-cash).these condensed consolidated financial statements.
3 |
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Months Ended | ||||||||
June 30, | ||||||||
2019 | 2018 | |||||||
Cash Flows From Operating Activities: | ||||||||
Net loss | $ | (1,187,109 | ) | $ | (1,470,467 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation expense | 6,033 | 8,524 | ||||||
Write-down of inventory | 90 | - | ||||||
Stock-based compensation | 93,111 | 307,792 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 49,749 | 32,862 | ||||||
Inventory | 1,200 | - | ||||||
Prepaid expenses | (14,377 | ) | 64,801 | |||||
Other current assets | 10,553 | - | ||||||
Deferred expenses | (92,516 | ) | - | |||||
Accounts payable | 66,603 | 169,291 | ||||||
Accrued expenses and other current liabilities | 122,781 | 37,946 | ||||||
Accrued expenses and other current liabilities - related party | (25,000 | ) | (92,038 | ) | ||||
Deferred revenue | - | 161,909 | ||||||
Total Adjustments | 218,227 | 691,087 | ||||||
Net Cash Used In Operating Activities | (968,882 | ) | (779,380 | ) | ||||
Cash Flows From Investing Activities: | ||||||||
Purchases of property and equipment | - | (8,350 | ) | |||||
Net Cash Used In Investing Activities | - | (8,350 | ) | |||||
Cash Flows From Financing Activities: | ||||||||
Proceeds from sale of common stock | 898,300 | - | ||||||
Payment of deferred offering costs | (15,000 | ) | - | |||||
Net Cash Provided By Financing Activities | 883,300 | - | ||||||
Net Decrease In Cash | (85,582 | ) | (787,730 | ) | ||||
Cash - Beginning of Period | 229,896 | 895,761 | ||||||
Cash - End of Period | $ | 144,314 | $ | 108,031 | ||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 446 | $ | 294 | ||||
Income taxes | $ | - | $ | 2,400 | ||||
Non-cash investing and financing activities: | ||||||||
Accrual of deferred offering costs | $ | - | $ | 30,000 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
(FORMERLY KT HIGH-TECH MARKETING, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30, | ||||||||
2018 | 2017 | |||||||
Cash Flows From Operating Activities: | ||||||||
Net loss | $ | (1,661,718 | ) | $ | (1,757,850 | ) | ||
Adjustments to reconcile net loss to net cash | ||||||||
used in operating activities: | ||||||||
Depreciation expense | 11,824 | 3,374 | ||||||
Change in fair value of accrued issuable equity | (24,175 | ) | - | |||||
Stock-based compensation | 402,656 | 411,181 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (3,638 | ) | (19,106 | ) | ||||
Other current receivable | - | 30,000 | ||||||
Other current receivable - related parties | - | 2,000 | ||||||
Interest receivable - related party | - | 2,152 | ||||||
Inventory | - | (15,151 | ) | |||||
Prepaid expenses | 23,733 | (115,945 | ) | |||||
Other current assets | (2,362 | ) | 861,377 | |||||
Accrued expenses and other current liabilities | 216,267 | 189,083 | ||||||
Accrued expenses and other current liabilities - related parties | (78,680 | ) | 145,300 | |||||
Deferred revenue | 51,158 | - | ||||||
Total Adjustments | 596,783 | 1,494,265 | ||||||
Net Cash Used In Operating Activities | (1,064,935 | ) | (263,585 | ) | ||||
Cash Flows From Investing Activities: | ||||||||
Proceeds from loan from related party | - | 85,000 | ||||||
Cash acquired in reverse recapitalization | - | 1,859,261 | ||||||
Purchases of property and equipment | (15,476 | ) | (36,271 | ) | ||||
Net Cash (Used In) Provided By Investing Activities | (15,476 | ) | 1,907,990 | |||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from sale of common stock [1] | 359,000 | - | ||||||
Net Cash Provided By Financing Activities | 359,000 | - | ||||||
Net (Decrease) Increase In Cash | (721,411 | ) | 1,644,405 | |||||
Cash - Beginning of Period | 895,761 | 9,087 | ||||||
Cash - End of Period | $ | 174,350 | $ | 1,653,492 |
[1] Includes gross proceeds of $384,000, less withheld issuance costs of $25,000.
The accompanying notes are an integral part of these condensed consolidated financial statements.
4 |
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
(FORMERLY KT HIGH-TECH MARKETING, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
For the Nine Months Ended | ||||||||
September 30, | ||||||||
2018 | 2017 | |||||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 646 | $ | - | ||||
Income taxes | $ | 2,400 | $ | 1,600 | ||||
Non-cash investing and financing activities: | ||||||||
Common stock equity offering issuance costs | $ | 6,600 | $ | - |
The accompanying notes are an integral part of these condensed consolidated financial statements.
KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY
(FORMERLY KT HIGH-TECH MARKETING, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 Business Organization, Nature of Operations and Basis of Presentation
Note 1 | Business Organization, Nature of Operations and Basis of Presentation |
Organization and Operations
Effective August 30, 2018, KT High-Tech Marketing, Inc. changed its name to KULR Technology Group, Inc. KULR Technology Group, Inc. ("KUTG"), through its wholly-owned subsidiary, KULR Technology Corporation (“KTC”) (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 KTC’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. KTC owns proprietary carbon fiber based (Carbon Fiber Velvet or “CFV”) thermalstorage; and 5G communication technologies. KULR provides 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. KTC’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 SeptemberJune 30, 20182019 and for the three and ninesix months then ended. The results of operations for the three and ninesix months ended SeptemberJune 30, 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.
Note 2 Going Concern and Management’s Plans
Note 2 | Going Concern and Management’s Plans |
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 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.
The Company is currently funding its operations on a month-to-month basis.basis by means of 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.
5 |
Note 3 | Summary of Significant Accounting Policies |
Note 3 SummarySince the date of Significant Accounting Policies
The Company’s significant accounting policies are disclosed in Note 2 – Summary 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.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. A significant portion of the Company’s cash is held at one major financial institution. The Company maintains cash with major financial institutions.has not experienced any losses in such accounts. Cash held in U.S.US bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 at each institution. There was an aggregatewere no uninsured cash balancebalances as of $611,450 atJune 30, 2019 and December 31, 2017. There was no uninsured balance as of September 30, 2018.
Customer concentrations are as follows:
Revenues | Accounts Receivable | |||||||||||||||||||||||
For the Three Months Ended | For the Nine Months Ended | As of | As of | |||||||||||||||||||||
September 30, | September 30, | September 30, 2018 | December 31, 2017 | |||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||
Customer A | * | * | 17 | % | * | * | 15 | % | ||||||||||||||||
Customer B | * | * | 12 | % | * | * | * | |||||||||||||||||
Customer C | 92 | % | * | 64 | % | * | 92 | % | 43 | % | ||||||||||||||
Customer D | * | * | * | 42 | % | * | 16 | % | ||||||||||||||||
Customer E | * | 76 | % | * | 44 | % | * | * | ||||||||||||||||
Customer F | * | 24 | % | * | 14 | % | * | * | ||||||||||||||||
Total | 92 | % | 100 | % | 93 | % | 100 | % | 92 | % | 74 | % |
Revenues | Accounts Receivable | ||||||||||||||||||||
For the Three Months Ended | For the Six Months Ended | As of | As of | ||||||||||||||||||
June 30, | June 30, | June 30, 2019 | December 31, 2018 | ||||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
Customer A | * | 21 | % | * | 37 | % | * | * | |||||||||||||
Customer B | * | * | * | 27 | % | * | * | ||||||||||||||
Customer C | * | 70 | % | * | 30 | % | * | 63 | % | ||||||||||||
Customer D | 17 | % | * | * | * | 16 | % | 37 | % | ||||||||||||
Customer E | 64 | % | * | 14 | % | * | 68 | % | * | ||||||||||||
Customer F | 18 | % | * | * | * | 16 | % | * | |||||||||||||
Customer G | * | * | 47 | % | * | * | * | ||||||||||||||
Total | 99 | % | 91 | % | 61 | % | 94 | % | 100 | % | 100 | % |
* Less than 10%
Deferred Offering Costs
Deferred offering costs, which primarily consist of direct, incremental professional fees incurred in connection with a debt or equity financing, are capitalized as non-current assets on the balance sheet. Once the financing closes,There is no assurance the Company reclassifies such costs as either discountswill continue to notes payablereceive significant revenues from any of these customers. A reductions or asdelay in operating activity from any of the Company’s significant customers, or a delay or default in payment by any significant customer, or termination of agreements with significant customers, could materially harm the Company’s business and prospects. Because of the Company’s significant customer concentrations, its gross profit and operating income could fluctuate significantly due to changes in political, environmental, or economic conditions, or the loss of, reduction of proceeds receivedbusiness from, equity transactions so that such costs are recorded as a reductionor less favorable terms with any of additional paid-in capital. If the completion of a contemplated financing was deemed to be no longer probable, the related deferred offering costs would be charged to general and administrative expense in the condensed consolidated financial statements.Company’s significant customers.
Revenue Recognition
On January 1, 2018, theThe Company adopted ASCrecognizes 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. |
6 |
Note 3 | Summary of Significant Accounting Policies – Continued |
The Company recognizes revenue primarily from the following different types of contracts:
· | Product sales – Revenue is recognized at the point the customer obtains |
· | Contract services – Revenue is recognized at the point in time that the Company satisfies its performance obligation under the contract, which is generally at the time it delivers a report to the customer. |
The following table summarizes our revenue recognized in our condensed consolidated statements of operations:
For the Three Months Ended | For the Nine Months Ended | For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||
Product sales | $ | 482,798 | $ | 15,106 | $ | 735,941 | $ | 26,006 | $ | 52,310 | $ | 134,791 | $ | 221,750 | $ | 253,143 | ||||||||||||||||
Contract services | - | - | 145,988 | - | 4,000 | 36,300 | 29,512 | 145,988 | ||||||||||||||||||||||||
Total revenue | $ | 482,798 | $ | 15,106 | $ | 881,929 | $ | 26,006 | $ | 56,310 | $ | 171,091 | $ | 251,262 | $ | 399,131 |
As of SeptemberJune 30, 2019 and December 31, 2018, the Company had $0 and $51,158did not have any contract assets andor contract liabilities respectively, 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. As of December 31, 2017, the Company did not have any contract assets or contract liabilities from contracts with customers. During the three and ninesix months ended SeptemberJune 30, 2019 and 2018, and 2017, $0 ofthere was no revenue was recognized from performance obligations satisfied (or partially satisfied) in previous periods.
Reclassifications
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. The following weighted average shares were excluded from basic weighted average common stock outstanding:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Non-vested restricted stock | - | 596,241 | 90,812 | 782,051 | ||||||||||||
Total | - | 596,241 | 90,812 | 782,051 |
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.
The following shares were excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:
For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||
September 30, | June 30, | June 30, | ||||||||||||||||||||||
2018 | 2017 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
Non-vested restricted stock | - | 500,000 | - | 54,028 | - | 136,970 | ||||||||||||||||||
Series B Convertible Preferred Stock | 1,542,900 | - | 1,542,900 | - | ||||||||||||||||||||
Options | 300,000 | - | 300,000 | - | ||||||||||||||||||||
Total | - | 500,000 | 1,842,900 | 54,028 | 1,842,900 | 136,970 |
Recently Issued 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. right-of-use asset.
The Company adopted ASU 2017-09 effective January 1, 2018evaluated their operating leases and its adoption didelected to apply the short-term lease measurement and recognition exemption in which the right of use assets and lease liabilities are not have a material impact on the Company’s condensed consolidated financial statements.recognized for short-term leases.
In June 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-07, “Compensation — Stock Compensation (Topic 718),” (“ASU 2018-07”). ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for nonemployee share-based payments. Currently, the accounting requirements for nonemployee and employee share-based payment transactions are significantly different. ASU 2018-07 expands the scope of Topic 718, Compensation — Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. This ASU supersedes Subtopic 505-50, Equity — Equity-Based Payments to Nonemployees. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within that fiscal year. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company early adopted ASU 2018-07 effective April 1, 2018. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.
Note 4 | Deferred Expenses |
In July
Deferred expenses consist of labor and materials that are attributable to customer contracts that the Company has not completed itsperformance obligation under the contractand, as a result, has not recognized revenue. As of June 30, 2019, deferred expenses were $92,516, which consisted of labor and materials, totaling $43,843 and $48,673, respectively. As of December 31, 2018, the FASB issued ASU No. 2018-09, “Codification Improvements” (“ASU 2018-09”). These amendments provide clarifications and corrections to certain ASC subtopics including the following: Income Statement - Reporting Comprehensive Income – Overall (Topic 220-10), Debt - Modifications and Extinguishments (Topic 470-50), Distinguishing Liabilities from Equity – Overall (Topic 480-10), Compensation - Stock Compensation - Income Taxes (Topic 718-740), Business Combinations - Income Taxes (Topic 805-740), Derivatives and Hedging – Overall (Topic 815-10), and Fair Value Measurement – Overall (Topic 820-10). The majority of the amendments in ASU 2018-09 will be effective in annual periods beginning after December 15, 2018. The Company is currently evaluating the impact this guidance will have on its condensed consolidated financial statements.there were no deferred expenses.
In July 2018, the FASB issued Accounting Standards Update No. 2018-10, “Codification Improvements to Topic 842, Leases,” (“ASU 2018-10”). The amendments in ASU 2018-10 are to address stakeholders’ questions about how to apply certain aspects of the new guidance in ASC 842. The clarifications address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. The amendments in ASC Topic 842 are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently in the process of evaluating its lease assets and lease liabilities to be recorded as of January 1, 2019. The Company continues to evaluate other provisions of the updated guidance and expects to complete its analysis by December 31, 2018.
In July 2018, the FASB issued Accounting Standards Update No. 2018-11, “Leases (Topic 842): Targeted Improvements,” (“ASU 2018-11”). The amendments in ASU 2018-11 related to transition relief on comparative reporting at adoption affect all entities with lease contracts that choose the additional transition method and separating components of a contract affect only lessors whose lease contracts qualify for the practical expedient. The amendments in ASC Topic 842 are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently in the process of evaluating its lease assets and lease liabilities to be recorded as of January 1, 2019. The Company continues to evaluate other provisions of the updated guidance and expects to complete its analysis by December 31, 2018.
In August 2018, the FASB issued Accounting Standards Update No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in ASU 2018-13 modify the disclosure requirements on fair value measurements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact this guidance will have on its condensed consolidated financial statements.
Note 4 Prepaid Expenses
As of September 30, 2018 and December 31, 2017, prepaid expenses consisted of the following:
September 30, 2018 | December 31, 2017 | |||||||
(unaudited) | ||||||||
Business development services | $ | - | $ | 40,000 | ||||
Research and development services | 27,616 | 25,000 | ||||||
Professional fees | 16,991 | 10,000 | ||||||
Filing fees | 12,500 | - | ||||||
Insurance | 9,750 | - | ||||||
Other | 15,876 | 31,466 | ||||||
Total prepaid expenses | $ | 82,733 | $ | 106,466 |
Note 5 Accrued Expenses and Other Current Liabilities
Note 5 | Accrued Expenses and Other Current Liabilities |
As of SeptemberJune 30, 20182019 and December 31, 2017,2018, accrued expenses and other current liabilities consisted of the following:
September 30, 2018 | December 31, 2017 | June 30, | December 31, | |||||||||||||
(unaudited) | 2019 | 2018 | ||||||||||||||
Accrued legal and professional fees | $ | 100,379 | $ | 71,241 | ||||||||||||
Accrued payroll and vacation | 80,776 | 69,425 | ||||||||||||||
(unaudited) | ||||||||||||||||
Payroll and vacation | $ | 388,894 | $ | 252,043 | ||||||||||||
Legal and professional fees | 29,745 | 47,502 | ||||||||||||||
Travel expenses | 55,226 | 48,248 | ||||||||||||||
Payroll and income tax payable | 107,601 | 14,223 | 10,792 | 12,678 | ||||||||||||
Accrued research and development expenses | 41,819 | 14,611 | ||||||||||||||
Research and development expenses | - | 2,850 | ||||||||||||||
Credit card payable | 6,266 | 110 | 4,475 | 4,586 | ||||||||||||
Accrued issuable equity | 77,289 | 1,104 | 49,459 | 3,960 | ||||||||||||
Rent | 176 | 176 | ||||||||||||||
Other | 77,139 | 26,999 | 7,802 | 2,287 | ||||||||||||
Total accrued expenses and other current liabilities | $ | 491,269 | $ | 197,713 | $ | 546,569 | $ | 374,330 |
The Company has agreed to issue an aggregate of 117,10443,895 shares of common stock and warrants to purchase 75,000 shares of common stock for legal and consulting fees. See Note 7 – Stockholders’ Equity – Stock-Based Compensation for details of related expense recognized. As of SeptemberJune 30, 2018,2019, the sharesstock and warrants had not been issued and, as a result, $77,289$49,459 of accrued issuable equity isat fair value was included within accrued expenses and other current liabilities.
Note 6 Related Party Transactions
Note 6 | Related Party Transactions |
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities – related parties consist of: (i)of a liability of $142,269$58,919 and $254,344$83,919 as of SeptemberJune 30, 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 $61,647 and $28,253 as of September 30, 2018 and December 31, 2017, respectively, to the Company’s Chief Executive Officer (“CEO”) in connection with Company-related travel and entertainment expenses incurred by the CEO.solutions.
Note 7 | Stockholders' Deficiency |
Consulting Agreements
During the three and nine months ended September 30, 2017, the Company recorded aggregate expense of $0 and $65,000 (of which, $32,500 and $32,500 was included within research and development expenses and selling, general and administrative expenses, respectively), respectively, related to consulting agreements with its CEO and CTO, which were terminated in connection with the closing of the Share Exchange Agreement on June 19, 2017.
During the three and nine months ended September 30, 2017, the Company recorded research and development expense of $38,767 and $407,324, respectively, related to consulting services provided to the Company by ESLI associated with the development of the Company’s CFV thermal management solutions. There were no such costs recorded in the three and nine months ended September 30, 2018. ESLI is controlled by the Company’s CTO.
Note 7 Stockholders' Equity
Private Placement of Common Stock
During the threesix months ended SeptemberJune 30, 2018,2019, the Company sold an aggregate of 581,8191,361,059 shares of common stock at $0.66 per share to accredited investors for aggregate gross and netcash proceeds of $384,000 and $352,400, respectively. Of the $31,600 of issuance costs, $25,000 were cash costs and $6,600 were non-cash costs.$898,300.
Stock-Based Compensation
During the three and ninesix months ended SeptemberJune 30, 2019, the Company recognized stock-based compensation expense of $45,171 and $93,111 (which includes the issuance of 25,000 shares of immediately-vested common stock for legal fees of $36,060), respectively, and during the three and six months ended June 30, 2018, the Company recognized stock-based compensation expense of $94,864 $124,835 and $402,656, respectively, and during the three and nine months ended September 30, 2017, the Company recognized stock-based compensation expense of $187,023 and $411,181,$307,792, respectively, related to restricted common stock, awardsstock options and warrants, which isare included within general and administrative expenses on the condensed consolidated statements of operations.As of SeptemberJune 30, 2018,2019, there was no$137,003of unrecognized stock-based compensation expense.expense that will be recognized over the weighted average remaining vesting period of 2.5 years.
8 |
Note 7 | Stockholders' Deficiency – Continued |
Securities Purchase Agreement
Equity Incentive PlanOn 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.
On August 15Pursuant to the Purchase Agreement, the Company agreed to pay the Sellers, against delivery of all Ownership and November 5, 2018,Claims, the Board of Directorsfollowing aggregate acquisition price: (i) $1,700,000 cash consideration (the “Cash Consideration”); and a majority(ii) one hundred (100) shares of the Company’s shareholders, respectively, approvedSeries C Convertible Preferred Stock (“Series C Preferred”), which class of Series C Preferred is to be designated prior to the 2018 KULR Technology Group Equity Incentive Plan (the “2018 Plan”). Under the 2018 Plan, 15,000,000 shares of common stockclosing of the Company are authorized for issuance. The 2018 Plan provides forAcquisition. It is contemplated that the issuanceSeries C Preferred will have, among others, the following rights, preferences and limitation: (i) a stated value of incentive stock options, non-statutory stock options, rights$10,000 per share; (ii) no right to purchase common stock, stock appreciation rights, restricted stock and restricted stock unitsreceive dividends; (iii) the right to employees, directors and consultants of the Company and its affiliates. The 2018 Plan requires the exercise price of stock options to be not less than the fair valueconvert 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.
See Note 10 - Subsequent Events for details associated with the termination of the Purchase Agreement.
Note 8 | 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 datebalance sheet and all costs were recognized as selling, general and administrative expenses on the condensed consolidated statements of grant.operations. For the three and six months ended June 30, 2019, operating lease expense was $40,103 and $80,488, respectively. For the three and six months ended June 30, 2018, operating lease expense was $31,505 and $46,666, respectively. As of June 30, 2019, the Company does not have any financing leases.
Note 8 Commitments and Contingencies
Note 9 | 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, and (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. AsFor the three and six months ended June 30, 2019, the Company recorded royalties of the date$690 that were included within cost of filing, there had beenrevenues. There were no sales of the licensed products during 2018, such that no royalties had been earned. were earned during the three and six months ended June 30, 2018.
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”).
On July 5, 2019, the Company entered into a Rescission and Termination Agreement (the “Termination Agreement”) with the Sellers (each Seller, individually, and the Company, a “Party” or collectively, the “Parties”) holding 100% of the ownership interest in TECHTOM to terminate the Purchase Agreement.
Pursuant to the Termination Agreement, each of the Parties mutually agreed (i) to rescind and terminate the Purchase Agreement, relieving each Party of their respective duties and obligations arising under the Purchase Agreement; and (ii) to a general release of all other respective Parties from all claims arising out of the Purchase Agreement or the Termination Agreement. Each Party is responsible for all costs and expenses incurred by such Party in connection with the Purchase Agreement or the Termination Agreement.
9 |
Note 9 Subsequent Events
Note 10 | Subsequent Events |
Shareholder ConsentCommon Stock
On November 5, 2018,July 8, 2019, the Company receivedissued 25,000 shares of common stock at $0.66 per share in connection with services provided.
On July 9, 2019, the Company issued an aggregate of 39,790 shares of common stock at $0.66 per share in connection with services provided.
Registration Statement
On July 11, 2019, the Company filed a written consentshelf registration statement on Form S-3 with the United States Securities and Exchange Commission (“SEC”). The shelf registration was declared effective by the SEC, on August 1, 2019. The registration statement will allow the Company to issue, from time to time at prices and on terms to be determined at or prior to the time of the stockholders representing 78.4% of the issued and outstanding securities of the Company entitled to vote on matters of the stockholders to take the following actions: (i) to amend the Company’s certificate of incorporation with the Delaware Secretary of State increasing the number of authorizedoffering, shares of the Company’sits common stock, from 100,000,000 shares to 500,000,000 shares; (ii) to approve, ratify and adopt the Company’s 2018 Equity Incentive Plan, pursuant to which the Company may awardof our preferred stock or warrants, either individually or in units, with a total value of up to 15,000,000$50,000,000.
Series B Convertible Preferred Stock
Subsequent to June 30, 2019, holders of Series B Convertible Preferred Stock converted an aggregate of 16,371 shares of the Company’s common stock to employees, nonemployee officers and directors and consultants for the purposeSeries B Convertible Preferred Stock into an aggregate of among other things, motivating such persons to put forth their maximum efforts for the Company’s growth, profitability and success; and (iii) to approve and authorize, as a measure to protect the progress of the Company by vesting voting control of the Company in its Chief Executive Officer, Michael Mo, the issuance of 1,000,000818,550 shares of the Company’s Series A Voting Preferred Stock to Mr. Mo.common stock.
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 KULR Technology Group, Inc. ("KUTG")KULR" and, including its wholly-owned subsidiary, KULR Technology Corporation (“KTC”KULR”) (collectively referred to as “KULR” or, the “Company”) as of SeptemberJune 30, 20182019 and for the three and ninesix months ended SeptemberJune 30, 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 Report, in our other reports filed with the SEC, and other factors that we may not know.
Overview
The Company owns
KULR 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 Velvet or “CFV”)material, with roots in aerospace and defense, that provides what we believe to be superior thermal managementconductivity and heat dissipation in an ultra-lightweight and pliable material. By leveraging our proprietary cooling solutions that ithave been developed through longstanding partnerships with NASA, the Jet Propulsion Lab and others, our products and services make E-Mobility battery powered products safer and more stable.
Our management believes are more effective at conducting, dissipatingthat the E-Mobility industry has created and storing heat generatedwill 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 scooter, or call an electronic system’s internal components (i.e. semiconductor, integrated circuits “chips”) than traditional materials,app-based car service instead of owning a vehicle; and leverage the Cloud to perform tasks traditionally done in 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 ability to control unwanted heat generation in lithium 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, suchconsumer products and IoT. We have found that as mobile devices, cloud computing, virtual reality platforms, satellites, internet of things, drones, and connected cars.
Three key vectors have driven advancements in semiconductors and electronics systems – performance, power, and size. These vectors, however, often counteract one another. As 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 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 additionthe case of acquisitions, we seek to thermalacquire 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 electronic systems, KULR hasscale, 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 in partnership with National Aeronauticsan acquisition discipline based on a set of financial, market and Space Administration (“NASA”) Johnson Space Center (“NASA JSC”), a highly effective, lightweightmanagement 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 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 propagationthose of the acquired business, while exploiting the technical and managerial synergies from occurring in neighboring Li-B cells by acting 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.integration.
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 will eventually need to generate significant product revenues to achieve profitability. These conditions indicate that there is substantial doubt about our ability to continue as a going concern within one year after the financial statement issuance date. Historically, we have been able to raise funds to support our business operations, although there can be no assurance that we will be successful in raising additional funds in the future.
Recent Developments
In May 2018, we were assigned a trading symbol, “KUTG”, for quotation onTermination of the OTC Markets. In August 2018, we were up-listed to the OTCQB.
During the three months ended September 30, 2018, we sold an aggregate of 581,819 shares of common stock at $0.66 per share to accredited investors for aggregate gross and net proceeds of $384,000 and $352,400, respectively.Securities Purchase Agreement
On August 15, 2018,July 5, 2019, the BoardCompany entered into a Rescission and Termination Agreement (the “Termination Agreement”) with the stockholders (the “Sellers”) (each Seller, individually, and the Company, a “Party” or collectively, the “Parties”) holding 100% of Directors approved the 2018 KULR Technology Group Equity Incentive Plan (the “2018 Plan”)ownership interest in TECHTOM Co., subjectLtd. (“TECHTOM”) to approval from a majority of our shareholders. Underterminate the 2018 Plan, 15,000,000 shares of common stock are authorized for issuance. The 2018 Plan provides for the issuance of incentive stock options, non-statutory stock options, rights to purchase common stock, stock appreciation rights, restricted stock and restricted stock units to employees, directors and consultants ofSecurities Purchase Agreement between the Company and its affiliates.the Sellers, dated April 2, 2019 (the “Purchase Agreement”). The 2018 Plan requiresCompany originally entered into the exercise pricePurchase Agreement to, among other things, purchase all the ownership interests of stock options to be not less thanTECHTOM from the fair value of our common stockSellers, as previously disclosed in the Company’s Form 8-K filed on the date of grant.April 3, 2019.
Pursuant to the Termination Agreement, each of the Parties mutually agreed (i) to rescind and terminate the Purchase Agreement, relieving each Party of their respective duties and obligations arising under the Purchase Agreement; and (ii) to a general release of all other respective Parties from all claims arising out of the Purchase Agreement or the Termination Agreement. Each Party is responsible for all costs and expenses incurred by such Party in connection with the Purchase Agreement or the Termination Agreement.
Change of Ticker Symbol
Effective on July 11, 2019, the Company changed its trading symbol from “KUTG” to “KULR.”
12 |
Results of Operations
Three and NineSix Months Ended SeptemberJune 30, 20182019 Compared With Three and NineSix Months Ended SeptemberJune 30, 20172018
The closing of the share exchange agreement with KTC 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 KTC 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 KUTG prior to the completion of the reverse recapitalization.
Revenues
Our revenues consisted of the following types:following:
For the Three Months Ended | For the Nine Months Ended | For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||
Product sales | $ | 482,798 | $ | 15,106 | $ | 735,941 | $ | 26,006 | $ | 52,310 | $ | 134,791 | $ | 221,750 | $ | 253,143 | ||||||||||||||||
Contract services | - | - | 145,988 | - | 4,000 | 36,300 | 29,512 | 145,988 | ||||||||||||||||||||||||
Total revenue | $ | 482,798 | $ | 15,106 | $ | 881,929 | $ | 26,006 | $ | 56,310 | $ | 171,091 | $ | 251,262 | $ | 399,131 |
For the three months ended SeptemberJune 30, 20182019 and 2017,2018, we generated $482,798$56,310 and $15,106$171,091 of revenues, an increasea decrease of $467,692. $114,781, or 67%. The decrease was primarily due to a decrease in the volume of product sales, as well as the decrease in service contract completions during the second quarter of 2019.
Our revenues during the three months ended SeptemberJune 30, 2019 primarily consisted of sales of our component product, CFV thermal management solution, ISC battery cell products, as well as certain research and development contract and onsite engineering services. Our revenues during the three months ended June 30, 2018 consisted of sales of our component product, CFV thermal management solution. solution as well as certain research and development contract services.
Our revenues duringrevenue for the three months ended SeptemberJune 30, 2017 consisted of sales of our Phase Change Material (“PCM”) heat sink. The increase2019 and 2018 was primarily due to an increase in the volume of product sales to one existing customer.generated from 4 and 6 different customers, respectively.
For the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, we generated $881,929$251,262 and $26,006$399,131 of revenues, an increasea decrease of $855,923. $147,869, or 37%. The decrease was primarily due to a decrease in service contract completions during the 2019 period.
Our revenues during the ninesix months ended SeptemberJune 30, 2019 consisted of our component product, CFV thermal management solution, ISC battery cell products as well as certain research and development contract and onsite engineering services Our revenues during the six months ended June 30, 2018 consisted of sales of our component product, CFV thermal management solution, sales of an Original Equipment Manufacturer (“OEM”) product as well as certain research and development contract services.
Our revenues duringrevenue for the ninesix months ended SeptemberJune 30, 2017 consisted of sales of our PCM heat sink. The increase in revenue2019 and 2018 was due to new contracts entered into during 2018.generated from 13 and 10 different customers, respectively.
Cost of Revenues and Gross Margins
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 anin the early stage instages of 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.
CostFor the three months ended June 30, 2019 and 2018, cost of revenue increased by $23,000,revenues was $28,550 and $33,470, respectively, a decrease of $4,920, or 44%, from $52,38415%. The decrease was primarily due to lower sales of higher margin products. The gross margin percentage was 49% and 80% for the three months ended SeptemberJune 30, 20172019 and 2018, respectively. The decrease in margins during the 2019 period was primarily due to $75,384 fora reduction in sales of higher margin products as compared to the three2018 period.
13 |
For the six months ended SeptemberJune 30, 2018.2019 and 2018, cost of revenues was $90,067 and $183,417, respectively, a decrease of $93,350, or 51%. The increasedecrease was primarily due to increased volume of contracts in the 2018 period, which requiredrequested additional labor and materials. We generated aThe gross profit of $407,414margin percentage was 64% and 54% for the threesix months ended SeptemberJune 30, ,20182019 and 2018, respectively. The increase during the 2019 period resulted primarily from a more favorable product mix being sold as compared to a gross loss of $32,278 for the three months ended September 30, 2017, representing an improvement in gross profit of $444,692, primarily resulting from the increase in product revenue due to new contracts entered into during 2018.
Cost of revenue increased by $150,222, or 138%, from $108,579 for the nine months ended September 30, 2017 to $258,801 for the nine months ended September 30, 2018. The increase was primarily due to increased volume of contracts in the 2018 period, which required additional labor and materials. We generated a gross profit of $623,128 for the nine months ended September 30 ,2018 as compared to a gross loss of $82,573 for the nine months ended September 30, 2017, representing an improvement in gross profit of $705,701, primarily resulting from the increase in product revenue due to new contracts entered into during 2018.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.
For the three months ended SeptemberJune 30, 2018,2019, R&D expenses increaseddecreased by $3,318,$4,459, or 2%4%, to $161,194$114,547 from $157,876$119,006 for the three months ended SeptemberJune 30, 2017.2018. The increasedecrease is primarily attributable to an increase in salaries and other benefits due to an increase in headcount.expenses associated with R&D supplies.
For the ninesix months ended SeptemberJune 30, 2018,2019, R&D expenses increaseddecreased by $192,380,$10,951, or 93%5%, to $399,884$227,739 from $207,504$238,690 for the ninesix months ended SeptemberJune 30, 2017.2018. The increasedecrease is primarily attributable to an increase in salaries and other benefits due to an increase in headcount.expenses associated with R&D supplies.
We expect that our R&D expenses will continue to 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 September 30, 2018, R&D – related parties decreased by $38,767, or 100%, to $0 from $38,767 for the three months ended September 30, 2017. The decrease is due to a reduction in R&D services provided by ESLI during the current period, which resulted from the Company hiring its own research and development staff in 2017.
For the nine months ended September 30, 2018, R&D – related parties decreased by $439,824, or 100%, to $0 from $439,824 for the nine months ended September 30, 2017. The decrease is due to a reduction in R&D services provided by ESLI during the current period, which resulted from the Company hiring its own research and development staff in 2017.
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 SeptemberJune 30, 2018,2019, selling, general and administrative expenses decreased by $144,096,$128,756, or 24%19%, to $461,377$534,262 from $605,473$663,018 for the three months ended SeptemberJune 30, 2017.2018. The decrease is primarily due to decreased non-cash stock-based compensation expense of $186,771 due to awards becoming fully vested in the second quarter of 2018, partially offset by increased salaries and other benefits of approximately $74,000 and professional fees of approximately $55,000$50,000 resulting from entering into newthe termination of multiple consulting agreements.
For the nine months ended September 30, 2018, selling, general and administrative expenses increased by $888,800, or 87%, to $1,908,635 from $1,019,835 for the nine months ended September 30, 2017. The increase is primarily due to increased salaries and other benefits of approximately $233,000 from the hiring of new employees in the third quarter of 2017, increased professional fees of approximately $501,000 resulting from entering into new consulting agreements, increased travel expenses of approximately $78,000 and increased rent expense of approximately $72,000 due to entering into a new lease agreement, partially offset by decreased non-cash stock-based compensation expense of approximately $103,000 due to awards becoming fully vested in the second quarter$80,000, payroll and benefit expense of 2018.
Other Income (Expense)approximately $31,000, partially offset by increased travel expense of approximately $26,000.
For the threesix months ended SeptemberJune 30, 2018, other income increased2019, selling, general and administrative expenses decreased by $23,764$327,505, or 23%, to $23,906$1,119,753 from $142$1,447,258 for the threesix months ended SeptemberJune 30, 2017.2018. The increasedecrease is primarily due to a gainreduction in the change in fair valuepayroll and benefit expenses of accrued issuable equity$66,000, professional fees of $24,175, which is related to a decrease in the fair valueapproximately $75,000, non-cash stock-based compensation expense of our common stock.
For the nine months ended September 30, 2018, other income (expense)approximately $215,000, partially offset by increased by $31,787 to $23,673 from $(8,114) for the nine months ended September 30, 2017. The increase is primarily due to a gain in the change in fair valuerent expense of accrued issuable equity of $24,175, which is related to a decrease in the fair value of our common stock.approximately $34,000.
Liquidity and Capital Resources
For the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, cash used in operating activities was $1,064,935$968,882 and $263,585,$779,380, respectively. Our cash used in operations for the ninesix months ended SeptemberJune 30, 20182019 was primarily attributable to our net loss of $1,661,718,$1,187,109, adjusted for non-cash expenses in the aggregate amount of $390,305,$99,234, partially offset by $206,478$118,993 of net cash provided by changes in the levels of operating assets and liabilities.Our cash provided byused in operations for the ninesix months ended SeptemberJune 30, 20172018 was primarily attributable to our net loss of $1,757,850,$1,470,467, adjusted for net non-cash expenseexpenses in the aggregate amount of $414,555,$316,316, partially offset by $1,079,710$374,771 of net cash provided by changes in the levels of operating assets and liabilities.
For the ninesix months ended SeptemberJune 30, 2019 and 2018, and 2017, cash (used in) provided byused in investing activities was $(15,476)$0 and $1,907,990,$8,350, respectively. Cash used in investing activities during the ninesix months ended SeptemberJune 30, 2018 was due to purchases of equipment. Cash provided by investing activities during the nine months ended September 30, 2017 resulted from $1,859,261 of cash acquired in connection with the share exchange as well as $85,000 of proceeds received from the collection of our note receivable from our CEO, partially offset by $36,271 of purchases of property and equipment.
For the ninesix months ended SeptemberJune 30, 20182019, and 2017,2018, cash provided by financing activities was $359,000$883,300 and $0, respectively. Cash provided by financing activities during the ninesix months ended SeptemberJune 30, 2018 was due to the2019 consisted of approximately $898,000 proceeds from sale of common stock, in our private placement.partially offset by the payment of $15,000 of deferred offering costs.
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 will eventually need to generate significant product revenues and/or raise additional capital to fund our operations. These conditions indicate that there is substantial doubt about our ability to continue as a going concern within one year after the financial statement issuance date.
14 |
We are currently funding our operations on a month-to-month basis. Although our 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.
Off 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.
Recently Adopted Accounting Pronouncements
For a description of recently adopted accounting pronouncements, including adoption dates and estimated effects, if any, on our condensed consolidated financial statements, 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. Based on this evaluation, our 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 not 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.
The following material weakness in our internal control over financial reporting were identified as of September 30, 2018 in the normal course:
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard AS 2201, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
We intend to address the weakness identified above by increasing the internal controls over the (a) vendor management process and (b) purchase to pay process.
Notwithstanding the assessment that our disclosure controls and procedures and our internal controls over financial reporting were not effective and that there is a material weakness as identified herein, we believe that our condensed consolidated financial statements contained in this Quarterly Report fairly present our financial position, results of operations and cash flows for the periods covered thereby in all material respects.level.
Changes in Internal Control over Financial Reporting
Except as disclosed above,There has been no change in our internal control over financial reporting did not changethat occurred during the three months ended September 30, 2018.second quarter of 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except as noted above.
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.
During the three months ended September 30, 2018, we sold an aggregate of 581,819 shares of common stock at $0.66 per share to certain accredited investors in aggregate gross and net proceeds of $384,000 and $352,400, respectively, 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) 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. None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
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
(1) Previously filed as an exhibit to Form 8-K on January 7, 2019 and incorporated herein by this reference
(2) Previously filed as an exhibit to Form 8-K on April 3, 2019 and incorporated herein by this reference
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.
By | /s/Michael Mo | |
Michael Mo | ||
Chief Executive Officer and Chairman (Principal Executive Officer) |
By | /s/Simon Westbrook | |
Simon Westbrook Chief Financial Officer (Principal Financial and Accounting Officer) | ||