KULR Technology Group, Inc. — 2019 Form 10-K Summary
Business context and reporting period
This is KULR Technology Group, Inc.’s annual report for the fiscal year ended December 31, 2019, filed May 14, 2020. The company develops carbon-fiber-based thermal management products and services, with a focus on battery safety and thermal control for aerospace and defense, electric mobility, energy storage, cloud computing, and 5G applications. Its offerings include thermal-runaway shields and battery bags, thermal interface materials, heat sinks, and internal-short-circuit battery-testing devices.
The filing was delayed under SEC COVID-19 relief. KULR cited pandemic-related disruption to facility access and management’s attention. Financial results are audited under U.S. GAAP; the auditor issued an unqualified opinion but included a going-concern explanatory paragraph.
Financial results and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $830,398 | $1,274,028 |
| Gross profit / margin | $603,893 / 73% | $937,374 / 74% |
| Research and development | $502,225 | $508,144 |
| Selling, general and administrative | $2,080,941 | $2,510,818 |
| Operating loss | $(1,979,273) | $(2,081,588) |
| Net loss | $(1,979,753) | $(2,058,239) |
| Net cash used in operating activities | $(1,188,339) | $(1,359,114) |
Revenue fell 35%, primarily because contracts ended during 2018; product sales were $735,431 and contract services were $94,967. Gross margin was broadly stable. Net loss improved slightly, while operating expenses declined, mainly from lower stock compensation, salaries, and professional fees.
At December 31, 2019, cash was $108,857, current assets were $209,250, and current liabilities were $1,033,731, producing a working-capital deficit of $824,481. Total assets were $236,766 and stockholders’ deficiency was $796,965. The company reported no investing cash outflow in 2019; financing provided $1,067,300, principally from common-stock sales and Series C preferred-stock financing. No material off-balance-sheet arrangements were reported.
The company had no reported debt at year-end in the balance sheet. Subsequent to year-end, it obtained a $1.5 million promissory note for a purchase price discounted by 6%, repayable in monthly installments and due no later than May 31, 2021, and received a $155,226 PPP loan. It also established an equity distribution agreement permitting up to $8 million in share sales, subject to conditions and pricing at 80% of the lowest applicable five-day VWAP; $10,000 was drawn by April 2020, and the filing reports a further share issuance for $16,000 in May.
Material changes versus the prior comparable period
- Revenue decreased $443,630, or 35%, and gross profit decreased $333,481, while gross margin slipped one percentage point.
- Operating expenses decreased $435,796, or about 14%, led by lower SG&A; R&D was nearly flat.
- Operating cash use improved by $170,775, but year-end cash fell by $121,039 to $108,857.
- Customer count rose from 13 to 27, but three customers still represented 69% of 2019 product revenue. One customer accounted for 43% of total revenue.
- Common shares outstanding increased from 78.7 million at year-end 2018 to 81.1 million at year-end 2019. The company raised $898,300 from common-stock sales during 2019 and issued Series C preferred stock and warrants.
Outlook, risks, contingencies, and unusual items
Management provided no quantified revenue, earnings, or cash-flow guidance. It expects continuing operating cash outflows and anticipates needing significant product revenue and/or additional financing. Management and the auditor both stated that substantial doubt exists about KULR’s ability to continue as a going concern within one year after issuance of the financial statements.
- Commercialization and execution: KULR has a limited operating history, has not demonstrated sales sufficient to cover fixed costs, and describes long customer sales cycles—typically one to five years. Manufacturing is at small or pilot scale, and scaling may be difficult or uneconomic.
- Funding and dilution: Continued operations depend on additional capital. Equity-line proceeds are conditional and may dilute shareholders; the note and financing arrangements also carry repayment, fees, and conversion or issuance-related risks.
- Concentration and operations: A small customer base accounts for a substantial share of revenue, and four vendors represented 60% of accounts payable-related vendor concentration. Loss or delay of a significant customer or supplier could materially affect results.
- COVID-19: The company could not estimate the pandemic’s effect on demand, supply chains, R&D, manufacturing, cash flows, or financial condition. KULR was exploring hypochlorous-acid decontamination products, but commercialization was uncertain and independent lab results were not yet available.
- Subsequent commercial development: In April 2020, KULR announced a license and supply agreement with Americase for its battery-bag products. The filing provides no associated revenue or order value.
- Other risks and contingencies: Competition, intellectual-property protection, technology changes, regulation, hazardous-material handling, stock-price volatility, thin OTCQB trading, and potential future share issuance are identified risks. No current legal or administrative proceedings were reported. Sales-tax exposure could arise if customer tax-exempt status cannot be substantiated.
- Governance and controls: Management reported disclosure controls and internal control over financial reporting effective at December 31, 2019, and noted remediation of a prior material weakness. The company had no independent directors or audit committee, and no auditor attestation on internal controls was required for this smaller reporting company.
Important facts for investors to verify
- Track subsequent revenue, gross margins, customer orders, and whether development projects convert to scaled commercial sales.
- Confirm cash runway, current liabilities, unpaid executive compensation, and the timing and terms of note repayments and any further borrowing.
- Review actual use and availability of the equity distribution facility, including discounts, issuance costs, share dilution, and any restrictions or conditions.
- Assess customer and vendor concentration, collection of receivables, and the sustainability of customer relationships.
- Verify PPP loan forgiveness or repayment status and the eventual results of the decontamination-solution testing and commercialization effort.
- Review preferred-stock and warrant terms and potential dilution. The filing says Series A shares were authorized but not issued as of filing, while describing the CEO’s proposed 1,000,000-share authorization with 100 votes per share.