Quarterly Report (10-q)

Date : 05/14/2019 @ 9:45PM
Source : Edgar (US Regulatory)
Stock : KULR Technology Group, Inc. (KUTG)
Quote : 1.88  0.0 (0.00%) @ 1:00AM

Quarterly Report (10-q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

  

FORM 10-Q

  

(Mark One)

  

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

For the quarterly period ended: March 31, 2019

  

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 Organization)

81-1004273

(I.R.S. Employer Identification No.)

 

1999 S. Bascom Ave. Suite 700. Campbell, California

(Address of principal executive offices)

 

 

95008

(Zip Code)

Registrant’s telephone number, including area code: 408-663-5247

 

(Former name, former address and former fiscal year, if changed since last report) N/A

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol   Name of each exchange on which registered
None   N/A   N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x 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). Yes x 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 ¨ No x

 

As of May 9, 2019, there were 80,092,315 shares of Common Stock, $0.0001 par value, issued and outstanding. 

 

 

 

 

 

 

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

 

FORM 10-Q

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

 

TABLE OF CONTENTS

 

    Page
     
PART I – FINANCIAL INFORMATION
     
Item 1. Financial Statements. 1
     
  Condensed Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and December 31, 2018 1
   
  Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and 2018 2
   
  Unaudited Condensed Consolidated Statements of Changes in Stockholders' (Deficiency) Equity for the Three Months Ended March 31, 2019 and 2018 3
   
  Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 4
     
  Notes to Unaudited Condensed Consolidated Financial Statements 5
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 11
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 15
     
Item 4. Controls and Procedures. 15
     
PART II - OTHER INFORMATION
     
Item 1. Legal Proceedings. 16
     
Item 1A. Risk Factors. 16
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 16
     
Item 3. Defaults Upon Senior Securities. 16
     
Item 4. Mine Safety Disclosures. 16
     
Item 5. Other Information. 16
     
Item 6. Exhibits. 16
     
SIGNATURES 17

 

 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    March 31,     December 31,  
    2019     2018  
      (unaudited)          
Assets                
                 
Current Assets:                
Cash   $ 98,476     $ 229,896  
Accounts receivable     32,843       112,224  
Inventory     8,304       9,594  
Prepaid expenses     34,659       27,033  
Other current assets     37,815       27,569  
                 
Total Current Assets     212,097       406,316  
Property and equipment, net     41,791       44,791  
                 
Total Assets   $ 253,888     $ 451,107  
                 
Liabilities and Stockholders' Deficiency                
                 
Current Liabilities:                
Accounts payable   $ 252,058     $ 117,995  
Accrued expenses and other current liabilities     432,681       374,330  
Accrued expenses and other current liabilities - related party     68,919       83,919  
                 
Total Current Liabilities     753,658       576,244  
                 
Commitments and contingencies                
                 
Stockholders' Deficiency:                
Preferred stock, $0.0001 par value, 20,000,000 shares authorized;                
Series A Preferred Stock, 1,000,000 shares designated;                
none issued and outstanding
at March 31, 2019 and December 31, 2018
    -       -  
Series B Preferred Stock, 31,000 shares designated;                
30,858 issued and outstanding
at March 31, 2019 and December 31, 2018
    3       3  
Common stock, $0.0001 par value, 500,000,000 shares authorized;                

78,966,105 and 78,706,256 shares issued and outstanding

at March 31, 2019 and December 31, 2018, respectively

  7,897       7,871  
Additional paid-in capital     6,474,582       6,283,548  
Accumulated deficit     (6,982,252 )     (6,416,559 )
                 
Total Stockholders' Deficiency     (499,770 )     (125,137 )
                 
Total Liabilities and Stockholders' Deficiency   $ 253,888     $ 451,107  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

  1  

 

 

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

    For the Three Months Ended  
    March 31,  
    2019     2018  
          (revised)  
             
Revenue   $ 194,952     $ 228,040  
                 
Cost of revenue     61,517       149,947  
                 
Gross Profit     133,435       78,093  
                 
Operating Expenses:                
Research and development     113,192       119,684  
Selling, general and administrative     585,491       784,240  
                 
Total Operating Expenses     698,683       903,924  
                 
Loss From Operations     (565,248 )     (825,831 )
                 
Other Expense:                
Interest expense, net     (445 )     (14 )
                 
Total Other Expense     (445 )     (14 )
                 
Net Loss   $ (565,693 )   $ (825,845 )
                 
Net Loss Per Share                
- Basic and Diluted   $ (0.01 )   $ (0.01 )
                 
Weighted Average Number of                
Common Shares Outstanding                
- Basic and Diluted     78,730,818       77,219,168  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

  2  

 

 

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY

FOR THE THREE MONTHS ENDED MARCH 31, 2019

(unaudited)

 

    Series B Convertible                 Additional           Total  
    Preferred Stock     Common Stock     Paid-In     Accumulated     Stockholders'  
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficiency  
                                           
Balance - January 1, 2019     30,858     $ 3       78,706,256     $ 7,871     $ 6,283,548     $ (6,416,559 )   $ (125,137 )
                                                         
Stock-based compensation     -       -       25,000       3       36,057       -       36,060  
                                                         
Common stock issued for cash     -       -       234,849       23       154,977       -       155,000  
                                                         
Net loss     -       -       -       -       -       (565,693 )     (565,693 )
                                                         
Balance - March 31, 2019     30,858     $ 3       78,966,105     $ 7,897     $ 6,474,582     $ (6,982,252 )   $ (499,770 )

 

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2018

(unaudited)

(revised)

 

                Additional           Total  
    Common Stock     Paid-In     Accumulated     Stockholders'  
    Shares     Amount     Capital     Deficit     Equity  
                               
Balance - January 1, 2018     77,440,000     $ 7,744     $ 5,090,282     $ (4,358,320 )   $ 739,706  
                                         
Stock-based compensation     -       -       182,957       -       182,957  
                                         
Net loss     -       -       -       (825,845 )     (825,845 )
                                         
Balance - March 31, 2018     77,440,000     $ 7,744     $ 5,273,239     $ (5,184,165 )   $ 96,818  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

  3  

 

 

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

    For the Three Months Ended  
    March 31,  
    2019     2018  
          (revised)  
Cash Flows From Operating Activities:                
Net loss   $ (565,693 )   $ (825,845 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation expense     3,000       5,621  
Write-down of inventory     90       -  
Stock-based compensation     47,940       182,957  
Changes in operating assets and liabilities:                
Accounts receivable     79,381       (33,225 )
Inventory     1,200       17,957  
Prepaid expenses     (7,626 )     51,286  
Other current assets     (10,246 )     -  
Accounts payable     134,063       137,407  
Accrued expenses and other current liabilities     46,471       31,662  
Accrued expenses and other current liabilities - related party     (15,000 )     (38,190 )
                 
Total Adjustments     279,273       355,475  
                 
Net Cash Used In Operating Activities     (286,420 )     (470,370 )
                 
Cash Flows from Financing Activities:                
Proceeds from sale of common stock     155,000       -  
                 
Net Cash Provided By Financing Activities     155,000       -  
                 
Net Decrease In Cash     (131,420 )     (470,370 )
                 
Cash - Beginning of Period     229,896       895,761  
                 
Cash - End of Period   $ 98,476     $ 425,391  
                 
Supplemental Disclosures of Cash Flow Information:                
Cash paid during the period for:                
Interest   $ 446     $ 65  
Income taxes   $ -     $ 2,400  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

  4  

 

 

KULR TECHONOLOGY GROUP, INC. & SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(UNAUDITED)

 

Note 1    Business Organization, Nature of Operations and Basis of Presentation

 

Organization and Operations

 

KULR Technology Group, Inc., through its wholly-owned subsidiary, KULR Technology Corporation (collectively referred to as “KULR” or the “Company”), develops and commercializes high-performance thermal management technologies for electronics, batteries, and other components across a range of applications. Currently, the Company 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; and 5G communication technologies. KULR provides heat management solutions to enhance the performance and safety of battery packs used in electric vehicles, communication devices aerospace and defense.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the condensed consolidated financial statements of the Company as of March 31, 2019 and for the three months then ended. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operating results for the full year ending December 31, 2019 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, 2018 and for the year then ended, which were filed with the Securities and Exchange Commission (“SEC”) on Form 10-K on March 29, 2019.

 

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 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.

 

Note 3    Summary of Significant Accounting Policies

 

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.

 

  5  

 

 

Note 3    Summary of Significant Accounting Policies – Continued

 

Concentrations of Credit Risk

 

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.

 

Customer concentrations are as follows:

 

    Revenues     Accounts Receivable  
    For the Three Months Ended     As of     As of  
    March 31,     March 31, 2019     December 31, 2018  
    2019     2018              
                         
Customer A     61 %     *       *       63 %
Customer B     17 %     *       72 %     *  
Customer C     *       48 %     *       *  
Customer D     *       *       *       37 %
Customer E     *       47 %     *       *  
Customer F     *       *       16 %     *  
Total     78 %     95 %     88 %     100 %

 

* Less than 10%

 

Revenue Recognition

 

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 following five steps are applied to achieve that core principle:

 

  · Step 1:  Identify the contract with the customer;

  · Step 2:  Identify the performance obligations in the contract;

  · Step 3:  Determine the transaction price;

  · Step 4:  Allocate the transaction price to the performance obligations in the contract; and

  · Step 5:  Recognize revenue when the company satisfies a performance obligation.

 

The Company recognizes revenue primarily from the following different types of contracts:

 

· Product sales – Revenue is recognized at the point the customer obtains control of the goods and the Company satisfies its performance obligation, which is generally at the time it ships the product to the customer.
· 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.

 

  6  

 

 

Note 3    Summary of Significant Accounting Policies – Continued

 

Revenue Recognition – Continued

 

The following table summarizes our revenue recognized in our condensed consolidated statements of operations:

 

  For the Three Months Ended  
    March 31,  
    2019     2018  
             
Product sales   $ 169,440     $ 118,352  
Contract services     25,512       109,688  
Total revenue   $ 194,952     $ 228,040  

 

 

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.

 

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. 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  
    March 31,  
    2019     2018  
             
Non-vested restricted stock     -       125,000  
Series B Convertible Preferred Stock     1,542,900       -  
Options     300,000       -  
Total     1,842,900       125,000  

 

Operating Leases

 

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.

 

  7  

 

 

Note 4    Accrued Expenses and Other Current Liabilities

 

As of March 31, 2019 and December 31, 2018, accrued expenses and other current liabilities consisted of the following:

 

    March 31,     December 31,  
    2019     2018  
    (unaudited)        
Accrued payroll and vacation   $ 313,575     $ 252,043  
Accrued legal and professional fees     36,280       47,502  
Accrued travel expenses     51,660       48,248  
Payroll and income tax payable     10,212       12,678  
Accrued research and development expenses     -       2,850  
Credit card payable     4,938       4,586  
Accrued issuable equity     15,840       3,960  
Accrued rent     176       176  
Other     -       2,287  
Total accrued expenses and other current liabilities   $ 432,681     $ 374,330  

 

The Company has agreed to issue an aggregate of 25,000 shares of common stock for legal and consulting fees. See Note 6 – Stockholders’ Deficiency – Stock-Based Compensation for details of related expense recognized. As of March 31, 2019, the shares had not been issued and, as a result, $15,840 of accrued issuable equity at fair value is included within accrued expenses and other current liabilities.

 

Note 5    Related Party Transactions

 

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.

 

Note 6    Stockholders' Deficiency

 

Common Stock

 

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.

 

Stock-Based Compensation

 

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.

 

Note 7    Leases

 

The Company has two operating leases for real estate which have remaining terms that are less than one year. The Company elected not to recognize short-term leases on the balance sheet and all costs were recognized as selling, general and administrative expenses on the condensed consolidated statements of operations. For the three months ended March 31, 2019 and 2018, operating lease expense was $40,385 and $15,161, respectively. As of March 31, 2019, the Company does not have any financing leases.

 

  8  

 

 

Note 8     Commitments and Contingencies

 

Patent License Agreement

 

On March 21, 2018, the Company entered into an agreement with the National Renewable Energy Laboratory (“NREL”) granting the Company an exclusive license to commercialize its patented Internal Short Circuit technology. The agreement shall be effective for as long as the licensed patents are enforceable, subject to certain early termination provisions specified in the agreement. In consideration, the Company agreed to pay to NREL the following: (i) a cash payment of $12,000 payable over one year, (ii) royalties ranging from 1.5% to 3.75% on the net sales price of the licensed products, as defined in the agreement, with minimum annual royalty payments ranging from $0 to $7,500. In addition, the Company shall use commercially reasonable efforts to bring the licensed products to market through a commercialization program that requires that certain milestones be met, as specified in the agreement. As of the date of filing, there had been no sales of the licensed products, such that no royalties had been earned. 

 

Note 9    Subsequent Events

 

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.

  

  9  

 

 

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.

 

  10  

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis of the results of operations and financial condition of 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.

 

  11  

 

 

Our management’s growth strategy has put particular focus on targeting E-Mobility applications for its core technology. We believe we are well-positioned to provide a broad range of E-mobility solutions, and intend to expand our business through internal growth and acquisition. In the case of acquisitions, we seek to acquire businesses in related markets that are synergistic to our existing operations, technologies, and management experience. This focus will highlight markets in which we can: (1) integrate our existing technology into the acquiree’s product offerings or simultaneously offer our products and services through the acquiree’s customer base and channels; (2) gain a leading market position and provide vertically integrated services where we can secure economies of scale, premium market positioning, and operational synergies; and/or (3) establish a leading position in selected markets and channels of the acquiree through a joint broad-based, hi-tech, E-Mobility branding campaign. We have developed an acquisition discipline based on a set of financial, market and management criteria to evaluate opportunities. If we were to successfully close an acquisition, we would seek to integrate it while minimizing disruption to our existing operations and those of the acquired business, while exploiting the technical and managerial synergies from integration.

 

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.

  

  12  

 

 

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.

 

  13  

 

 

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.

 

  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 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.

 

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 by this report, our disclosure controls and procedures were effective at the reasonable assurance level.

 

Changes in Internal Control over Financial Reporting

 

Effective January 1, 2019, we adopted Accounting Standards Codification (“ASC”) 842, “Leases” (“ASC 842”). ASC 842 requires management to make significant judgments and estimates. As a result, we implemented changes to our internal controls related to lease evaluation for the three months ended March 31, 2019. These changes include updated accounting policies affected by ASC 842 as well as redesigned internal controls over financial reporting related to ASC 842 implementation. Additionally, management has expanded data gathering procedures to comply with the additional disclosure requirements.

 

There has been no change in our internal control over financial reporting that occurred during the first quarter of 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except as noted above.

 

  15  

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

None.

  

Item 1A. Risk Factors.

 

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 March 29, 2019.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the three months ended March 31, 2019, we sold an aggregate of 234,849 shares of common stock at $0.66 per share to certain accredited investors in aggregate gross proceeds of $155,000, which proceeds will be used for general corporate expenses and other research and development expenses. The issuances of securities were made pursuant to the exemption from registration under Section 4(a)(2), Regulation S and Rule 506 of Regulation D under the Securities Act for transactions not involving a public offering and transactions with “accredited investors” as defined under the Securities Act.

 

On April 12, 2019, we sold an aggregate of 717,120 shares of common stock at $0.66 per share to accredited investors for aggregate gross proceeds of $473,300. The issuances of securities were made pursuant to the exemption from registration under Section 4(a)(2), Regulation S and Rule 506 of Regulation D under the Securities Act for transactions not involving a public offering and transactions with “accredited investors” as defined under the Securities Act.

 

On April 30, 2019, the Company conducted a final closing of a private placement offering of its common stock at $0.66 per share. In connection with the final closing, the Company received gross proceeds of $270,000, for which it issued 409,090 shares of common stock to accredited investors. The aggregate proceeds received by the Company in connection with the offering was an aggregate of $1,612,300, against which the Company issued an aggregate of 2,442,879 shares of common stock. In connection with this offering, the Company and the accredited investors entered into a Subscription Agreement, as supplemented, which Subscription Agreement is filed as Exhibit 10.1 hereto and incorporated herein by reference. The offering was conducted and the issuance of securities were made pursuant to the exemption from registration under Section 4(a)(2), Regulation S and Rule 506 of Regulation D under the Securities Act for transactions not involving a public offering and transactions with “accredited investors” as defined under the Securities Act.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.  

 

10.1 Subscription Agreement, as supplemented, for Common Stock Offering
   
31.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
   
31.2 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
   
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
   
101.INS  XBRL Instance*
   
101.SCH  XBRL Taxonomy Extension Schema*
   
101.CAL  XBRL Taxonomy Extension Calculation*
   
101.DEF  XBRL Taxonomy Extension Definition*
   
101.LAB  XBRL Taxonomy Extension Labels*
   
101.PRE  XBRL Taxonomy Extension Presentation*

 

*Filed herewith

**Furnished herewith

 

  16  

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report to be signed on its behalf by the undersigned hereunto duly authorized.

  

May 14, 2019 By /s/ Michael Mo
   

Michael Mo

Chief Executive Officer and Chairman

(Principal Executive Officer)

 

May 14, 2019 By /s/ Simon Westbrook
   

Simon Westbrook

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

  17  

KULR Technology Group, Inc. (USOTC:KUTG)
Historical Stock Chart

1 Year : From Jul 2018 to Jul 2019

Click Here for more KULR Technology Group, Inc. Charts.

KULR Technology Group, Inc. (USOTC:KUTG)
Intraday Stock Chart

Today : Tuesday 23 July 2019

Click Here for more KULR Technology Group, Inc. Charts.

Latest KUTG Messages

{{bbMessage.M_Alias}} {{bbMessage.MSG_Date}} {{bbMessage.HowLongAgo}} {{bbMessage.MSG_ID}} {{bbMessage.MSG_Subject}}

Loading Messages....


No posts yet, be the first! No {{symbol}} Message Board. Create One! See More Posts on {{symbol}} Message Board See More Message Board Posts


Your Recent History
LSE
GKP
Gulf Keyst..
LSE
QPP
Quindell
FTSE
UKX
FTSE 100
LSE
IOF
Iofina
FX
GBPUSD
UK Sterlin..
Stocks you've viewed will appear in this box, letting you easily return to quotes you've seen previously.

Register now to create your own custom streaming stock watchlist.


NYSE, AMEX, and ASX quotes are delayed by at least 20 minutes.
All other quotes are delayed by at least 15 minutes unless otherwise stated.