KULR Technology Group, Inc. — 2017 First-Quarter Filing Summary
Important identity note: The supplied Form 10-Q is filed by KT High-Tech Marketing, Inc., not KULR Technology Group, Inc. It reports the quarter ended March 31, 2017, and discusses a proposed acquisition of KULR Technology Corporation. The summary below reflects the filing as provided.
Business context and reporting period
The unaudited report covers the three months ended March 31, 2017, with comparative results for the three months ended March 31, 2016. KT High-Tech described itself as a developmental-stage, blank-check company seeking a business combination, while also outlining plans to market and distribute technology products in IoT, mobile, and energy-storage markets. It had no revenue in either quarter.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 or comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $154,660 | $1,400 |
| Operating loss | $154,660 | $1,400 |
| Interest income | $2,163 | $0 |
| Net loss | $152,497 | $1,400 |
| Basic and diluted loss per share | $0.01 | $0.00 |
| Cash at quarter end | $2,068,924 | $213,181 at December 31, 2016 |
| Working capital at quarter end | $2,362,224 | $254,721 at December 31, 2016 |
Operating expenses comprised $69,650 of legal and professional fees, $39,040 of marketing and promotion, $29,279 of travel, $14,686 of rent, and $2,005 of office and other expenses. Gross margin is not meaningful because the company reported no revenue or cost of revenue.
Net cash used in operating activities was $204,257; cash used in investing activities was $200,000, reflecting a loan to KULR; and financing provided $2,260,000 from common-stock sales. Cash increased by $1,855,743 during the quarter. At March 31, total liabilities were $9,984, consisting of accrued liabilities; the balance sheet reported no debt. Total assets were $2,372,208.
Material changes and transactions
- Operating expenses and net loss rose substantially from the prior-year quarter, when expenses were $1,400 and net loss was $1,400; revenue remained zero.
- During the quarter, the company sold 2,260,000 common shares for $2.26 million and issued 224,000 shares against investor deposits received in 2016.
- The company loaned KULR Technology Corporation $200,000 by quarter end. The related 8% promissory note has a stated principal amount of $300,000, with the remaining $100,000 advanced on April 25, 2017; principal and accrued interest are due March 31, 2018.
- After quarter end, the company sold 320,000 shares for $320,000. The filing also reports aggregate sales of 2,824,000 shares for $2.824 million between November 2016 and April 2017.
Outlook, risks, and notable disclosures
- Management said available cash was expected to fund current operations for at least 12 months from the filing date, but additional capital would be needed to execute its sales and marketing strategy. No new financing commitment was secured; failure to obtain financing could require curtailing initiatives and reducing costs.
- The company had not achieved profitability, expected operating expenses to increase, and cautioned it might never become profitable.
- A non-binding letter of intent contemplated acquiring KULR in exchange for shares that would give KULR shareholders a majority interest in the company. The target closing date was extended to May 31, 2017. No definitive agreement had been signed, and completion was uncertain.
- The company’s CEO, director, and controlling shareholder, Michael Mo, was also KULR’s co-founder and CEO. The filing identifies the KULR loan and related-party receivables; it states the company was not KULR’s primary beneficiary. The relationship and proposed transaction present related-party considerations.
- Management concluded disclosure controls and procedures were ineffective because certain transactions were inadequately recorded and communicated. It reported no material change in internal control over financial reporting during the quarter.
- The filing reported no legal proceedings or material off-balance-sheet arrangements. It contains forward-looking-statement cautions and no quantified operating guidance.
Key facts for investors to verify
- Confirm the registrant and security being analyzed: the filing identifies KT High-Tech Marketing, Inc., not KULR Technology Group, Inc.
- Check the status and final terms, if any, of the proposed KULR acquisition and the May 31, 2017 target date.
- Review the KULR note balance, post-quarter advance, repayment and interest status, and related-party disclosures.
- Verify subsequent share issuances, proceeds, and the company’s resulting capitalization.
- Assess the lack of revenue, ongoing cash needs, and management’s stated expectation that additional capital may be required.
- Review remediation of the disclosed ineffective disclosure controls.