KULR Technology Group, Inc. annual report, FY2016

Business context and reporting period

This is KT High-Tech Marketing, Inc.’s Form 10-K for the fiscal year ended December 31, 2016, filed March 29, 2017. The filing does not identify the registrant as KULR Technology Group, Inc.; it identifies the company as KT High-Tech Marketing, Inc. (formerly Grant Hill Acquisition Corporation). The cover checks the company as a shell company, and the filing also describes it as a blank-check, development-stage company.

The company reported no revenue or sales. It planned to market and distribute IoT, mobile, and energy-storage products in the United States and Greater China, but had no definitive distribution agreements. Its proposed KULR transaction was only under a non-binding letter of intent; the company proposed to acquire KULR in exchange for shares that would give KULR shareholders a majority stake.

Financial results and liquidity

The comparable period is December 11–31, 2015, from inception, rather than a full prior-year period. The filing reports operating expenses up $30,958 (762%), principally because 2016 covered a full year; the comparison is therefore limited. Gross margin is not meaningful because there was no revenue.

At December 31, 2016, total assets were $268,215, including $29,000 of prepaid expenses and a $26,034 related-party receivable. Total liabilities were $237,494: $13,494 of accrued professional fees and $224,000 of investor subscription deposits, which were recorded as other liabilities because shares had not yet been issued. Working capital was $254,721; stockholders’ equity was $30,721. The filing reports no interest-bearing debt. Cash from financing activities was $244,380, comprising $20,380 from stock sales and $224,000 in subscription deposits. No cash was paid for interest or income taxes.

Changes, financing, and unusual items

• After year-end, the company issued 1,822,000 shares for $1.822 million. It separately reports aggregate sales of 2,066,000 shares for $2.066 million between November 2016 and March 2017; the filing does not clearly reconcile the timing and composition of these totals.
• Management said existing cash, including stock-sale proceeds, was expected to fund current operations for at least 12 months from the filing date, but also said additional capital would be needed to execute its sales and marketing plans and that new financing was not committed.
• The company issued 40,000 shares valued at $40,000 for legal services; as the services had not been provided at year-end, $20,000 was recorded as prepaid expenses and $20,000 as a related-party receivable. Stockholders also paid $9,107 of company expenses, recorded as contributed capital.
• The E3 distribution arrangement and proposed KULR acquisition remained subject to non-binding letters of intent and definitive agreements. The CEO was also KULR’s co-founder and CEO.

Outlook, risks, and governance

There is no quantified revenue or earnings guidance. Management’s plans depend on securing suppliers, partners, financing, and customer acceptance. The company had conducted no sales and marketing, had no employees other than its officer (who agreed to assist without pay), and had no intellectual-property protection. It warned that it might never generate sufficient revenue or become profitable, and that competition, pricing pressure, regulation, partner execution, and limited capital could impair its plans.

Management concluded internal control over financial reporting was not effective as of December 31, 2016; disclosure controls were described as effective. The auditor issued an unqualified opinion on the financial statements but did not attest to internal-control effectiveness. The company had one director, no independent directors or board committees, and the CEO owned 75.45% of outstanding shares as of March 28, 2017. There was no public trading market. No material litigation or off-balance-sheet arrangements were reported.

Important facts to verify

• Confirm the issuer’s identity: this filing is for KT High-Tech Marketing, Inc., not KULR Technology Group, Inc.
• Verify the status and final terms, if any, of the KULR and E3 proposals, including related-party conflicts and any resulting dilution.
• Reconcile the reported $2.066 million aggregate share sales with the $1.822 million received after year-end and the shares issued.
• Assess cash runway and financing needs against the absence of revenue, limited staffing, and management’s stated need for additional capital.
• Review the $26,034 related-party receivable, prepaid legal services, and remediation of ineffective financial-reporting controls.