KULR Technology Group, Inc. (filed as KT High-Tech Marketing, Inc.) — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. The company develops and commercializes carbon-fiber thermal-management technologies, including thermal protection for lithium-ion batteries. Financial statements reflect KULR as the accounting acquirer following the June 2017 reverse recapitalization.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $228,040 | $0 |
| Cost of revenue | $49,346 | $0 |
| Gross profit / margin | $178,694 / 78.4% | Not applicable |
| Operating expenses | $925,524 | $226,039 |
| Operating loss | $(746,830) | $(226,039) |
| Net loss | $(747,244) | $(227,824) |
| Net loss per share | $(0.01) | $(0.00) |
| Cash used in operations | $(470,370) | $(158,913) |
Q1 2018 revenue comprised $118,352 in product sales and $109,688 in contract services. The company reported no revenue in Q1 2017. Revenue was primarily from new contracts. The reported gross margin was 78.4%; operating loss was about 3.3 times revenue.
At March 31, 2018, cash was $425,391, down from $895,761 at December 31, 2017. Current assets were $698,092 and current liabilities $560,545, giving working capital of $137,547 and a current ratio of about 1.25. Total assets were $735,964; stockholders’ equity was $175,419. The balance sheet lists no separate interest-bearing debt balance; it includes $244,407 of accrued current liabilities due to related parties.
Material changes and developments
- Operating expenses rose $699,485 year over year. SG&A increased $724,096 to $805,840, reflecting higher staffing costs, about $183,000 of stock-based compensation, and about $125,000 in additional public-company professional fees.
- R&D expense increased to $119,684 from $13,180, largely due to higher salaries and benefits. Related-party R&D expense fell to zero from $131,115.
- Stock-based compensation was $182,957, compared with $12,011 in Q1 2017. Weighted-average shares outstanding rose to 77.2 million from 49.0 million.
- The company entered a milestone-based product development agreement with a major automotive manufacturer in January for a thermal-runaway-shield solution for electric-vehicle battery packs. It reported that milestones were advancing but cautioned there was no guarantee of vehicle integration.
- In March, the company obtained an exclusive NREL license to commercialize patented Internal Short Circuit technology. Terms include $12,000 payable over one year, royalties of 1.5%–3.75% on licensed-product net sales, and minimum annual royalties of up to $7,500. No licensed-product sales or royalties had been recorded by filing date.
Outlook, risks, and other considerations
- Management disclosed substantial doubt about the company’s ability to continue as a going concern. It expected available cash to fund operations into Q4 2018 while it pursued additional capital; no new financing commitments were in place. Additional funding would be needed thereafter, and failure to obtain it could require curtailing or discontinuing operations or accepting unattractive financing terms.
- Customer concentration is significant: Customers A and B generated 48% and 47% of Q1 revenue, respectively. At quarter-end, Customers A, B, and C accounted for 26%, 58%, and 10% of accounts receivable.
- Cash used in operations increased year over year; there were no operating-period financing cash flows in either quarter. Q1 2018 cash decreased by $470,370.
- The company adopted ASC 606 on January 1, 2018 using the modified retrospective method; adoption had no material financial-statement impact. Management reported effective disclosure controls and changes to revenue-recognition controls in connection with adoption.
- No legal proceedings or material risk-factor changes were reported in this filing. The filing states there were no subsequent events requiring disclosure.
Important facts for investors to verify
- Whether the company secured sufficient financing after its stated cash runway into Q4 2018, and how this affected the going-concern assessment.
- Whether automotive development milestones led to commercial adoption, and the timing and economics of any resulting revenue.
- Whether new customers and contracts reduced the substantial customer and receivables concentration.
- The sustainability and cash-conversion profile of reported revenue, including collections of quarter-end receivables and continued operating cash burn.
- The nature and settlement timing of related-party accrued liabilities, and the ongoing level of stock-based compensation and public-company costs.