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 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.
Since the date of the Annual Report on Form
10-K for the year ended December 31, 2018, there have been no material changes to the Company’s significant accounting policies,
except as disclosed in this note.
The Company maintains cash with major financial institutions. Cash
held in U.S. bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000
at each institution. There were no uninsured cash balances as of March 31, 2019 and December 31, 2018.
The Company recognizes
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, 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 recognizes
revenue primarily from the following different types of contracts:
As of March 31, 2019 and December 31, 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, $0 of revenue was recognized from performance obligations satisfied (or partially
satisfied) in previous periods.
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. 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:
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 Company 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 the remaining 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 the remaining
balance of any 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 straight-line
basis, variable lease payments not included in the lease liability, and any impairment of the right-of-use asset.
The 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.
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.
Accrued expenses and other current liabilities
– related parties consist of a liability of $68,919 and $83,919 as of March 31, 2019 and December 31, 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 in prior periods.
During the three months ended March 31, 2019,
the Company 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.
During the three months ended March 31, 2019
and 2018, the Company recognized stock-based compensation expense of $47,940 (which includes the issuance of 25,000 shares of immediately-vested
common stock for legal fees) and $182,957, respectively, related to restricted common stock and stock options which are included
within general and administrative expenses on the condensed consolidated statements of operations. As of March 31, 2019, there
was $83,095 of unrecognized stock-based compensation expense that will be recognized over the weighted average remaining vesting
period of 2.75 years.
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.
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
Common 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, 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 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.
Note 10 Revision of Financial Statements for the Quarter Ended
March 31, 2018
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 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.
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. (the “Company”) as
of March 31, 2019 and for the three months ended March 31, 2019 and 2018 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, 2018 and for the year then ended, which are included in the Form 10-K filed with the Securities and Exchange Commission
(“SEC”) on 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
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 material, 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 scooter, or call an app-based car service
instead of owning a vehicle; and leverage the Cloud to perform tasks traditionally done in person, such as shopping for lunch,
clothes, electronics and other 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 handle 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 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 range of consumer products and IoT. We have found that
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, 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. After strenuous testing, we believe we have developed heat management solutions that significantly improve upon traditional
heat storage and dissipation solutions and that improve upon their rigidity and durability. We 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 reduce manufacturing complexity and provide a lighter weight solution than traditional
thermal management materials and, we believe, can meet the heat management demands of components and batteries being designed into
the newest mobile technologies and applications.
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.
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, we will be successful in raising additional funds in the
future.
Recent Developments
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 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, 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 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.
Results of Operations
Three Months Ended March 31, 2019 Compared
With Three Months Ended March 31, 2018
Revenues
Our 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. Our revenues during the three months ended March 31, 2018
consisted of sales of our CFV thermal management solution and PCM heat sinks as well as certain 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.
For the three months ended
March 31, 2019 and 2018, cost of revenues was $61,517 and $149,947, respectively. The decrease was primarily due to lower sales
of higher margin products.
We generated a gross profit
of $133,435 for the three months ended March 31, 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 during the 2019 period resulted primarily from a more favorable
product mix being sold as compared to 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.
For the three months ended
March 31, 2019, R&D expenses decreased by $6,492 to $113,192 from $119,684 for the three months ended March 31, 2018. The decrease
is attributable to a decrease in the purchase of R&D consumable supplies.
We expect that our R&D
expenses will increase as we expand our future operations.
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, 2019, selling, general and administrative expenses decreased by $198,749 to $585,491 from $784,240 for the three months
ended March 31, 2018. The decrease is primarily due to decreased 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
$35,000 from the allocation of employers payroll taxes to cost of goods sold and R&D, decreased professional fees of approximately
$34,000, decreased travel expenses of approximately $20,000, partially offset by an increase in rent expense of approximately
$25,000 due to entering into a new lease agreement.
Other Expense
For the three months ended
March 31, 2019, other expense increased by $431 to $445 from $14 for the three months ended March 31, 2018. The increase in other
expense is primarily due to increased interest expense related to the 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, 2019 and 2018, cash used in operating activities was $286,420 and $470,370, respectively. Our cash used in operations
for the three months ended March 31, 2019 was primarily attributable to our net loss of $565,693, adjusted for non-cash expenses
in the aggregate amount of $51,030, partially offset by $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, 2018 was primarily attributable to our net loss
of $825,845, adjusted for non-cash expenses in the aggregate amount of $188,578, partially offset by $166,897 of net cash provided
by changes in the levels of operating assets and liabilities.
There were no cash flows
from investing activities for the three months ended March 31, 2019 and 2018.
For the three months ended
March 31, 2019 and 2018, cash provided by financing activities was $155,000 and $0, respectively. Our cash provided by financing
activities for the three months ended March 31, 2019 was due to the net proceeds of our common stock offering.
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.
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 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.