KULR Technology Group, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This is an annual report; it does not provide standalone fourth-quarter results. The 2017 comparison reflects KULR Technology Corporation’s historical results before the June 2017 reverse recapitalization.
Business context
KULR develops and commercializes carbon-fiber thermal-management products and services for batteries, electronics and related applications. Its stated target markets include electric mobility, cloud and AI computing, 5G/IoT, energy storage and aerospace. Products include battery thermal-runaway shields, thermal-interface materials, phase-change heat sinks and, under an exclusive NREL license, internal-short-circuit testing devices.
Financial performance and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $1,274,028 | $235,584 |
| Product sales | $1,096,040 | $215,271 |
| Contract services | $177,988 | $20,313 |
| Gross profit / gross margin | $937,374 / approximately 73.6% | $78,975 / approximately 33.5% |
| Operating expenses | $3,018,962 | $2,492,521 |
| Operating loss | $(2,081,588) | $(2,413,546) |
| Net loss | $(2,058,239) | $(2,424,510) |
| Cash used in operations | $(1,359,114) | $(1,005,759) |
| Cash at year-end | $229,896 | $895,761 |
Revenue increased 441%, attributed to new contracts; management also cited a more favorable product mix for the higher gross margin. SG&A rose 48% to $2,510,818, while R&D expense was $508,144. The filing separately says total R&D, including related-party costs, declined by about $293,000 as development shifted in-house; related-party R&D expense was zero in 2018 versus $439,824 in 2017.
At December 31, 2018, current assets were $406,316 and current liabilities were $576,244, a working-capital deficit of $169,928. Total assets were $451,107 and stockholders’ equity was a deficiency of $125,137. The balance sheet presents no interest-bearing debt balance; current liabilities include accounts payable and accrued expenses. The company raised $679,000 net from common-stock sales and $30,858 from Series B preferred stock during 2018.
The company had an accumulated deficit of $6,416,559. The auditor’s report includes a going-concern explanatory paragraph. Management said operations were being funded month to month and that no new financing commitments were in place.
Material changes and unusual items
- Revenue grew substantially from a small base, but two customers represented 79% of 2018 revenue; one customer alone represented 66%.
- Operating cash use increased from $1,005,759 to $1,359,114, while cash fell by $665,865 during 2018.
- In November 2018, the company issued 30,858 Series B preferred shares for $30,858. The shares were valued at $1,018,314, producing a reported $987,456 deemed dividend. Each share becomes convertible into 50 common shares after 181 days; the shares have liquidation priority over common stock and no voting or dividend rights.
- The company increased authorized common shares from 100 million to 500 million and adopted a 15 million-share equity incentive plan. At December 31, 2018, 300,000 options were outstanding.
- Shareholders authorized 1 million Series A preferred shares for CEO Michael Mo, carrying 100 votes per share. The filing states these shares had not been issued as of the filing date.
- Common-stock financing in 2018 generated $714,000 gross proceeds; reported net proceeds were $672,400 after $41,600 of issuance costs. Subsequent to year-end, the company reported issuing 234,849 restricted shares for $155,000 cash and 25,000 shares for legal services.
Outlook, risks and contingencies
The company provided no quantified revenue, earnings or cash-flow guidance. Management expects continued operating losses and cash outflows, with R&D and SG&A expected to increase; it plans to pursue internal growth and acquisitions. Commercialization, customer qualification and scaling remain uncertain: the filing describes a typical sales cycle of one to five years and limited higher-volume manufacturing capacity.
- Going-concern uncertainty and dependence on future financing; failure to obtain capital could require curtailed or discontinued operations or financing on unattractive terms.
- Customer concentration, lengthy design-in and sales cycles, reliance on partners’ product launches, and unproven commercial-scale adoption.
- Competition from larger, better-funded companies; technology change, product-performance and manufacturing-scale risks, and intellectual-property enforcement or infringement exposure.
- Management reported disclosure controls and internal control over financial reporting effective at a reasonable assurance level as of year-end, and said a previously identified material weakness had been remediated. The auditor did not provide an internal-control attestation.
- The company reported no current legal or administrative proceedings. It disclosed potential sales-tax exposure if customer exemption status cannot be substantiated, and NREL license payments and royalties of 1.5%–3.75% of net sales, subject to stated minimums and commercialization milestones.
Investor verification priorities
- Confirm post-year-end cash, financing availability and the company’s ability to meet obligations given the going-concern warning and year-end cash balance.
- Verify revenue quality, customer concentration, repeat orders and whether customer development projects reach commercial production.
- Review gross-margin sustainability, production capacity and cash requirements as sales scale.
- Assess potential dilution and voting-control effects from the 500 million authorized common shares, Series B conversion rights, equity plan and authorized but unissued Series A supervoting shares.
- Reconcile reported related-party balances and transactions, including amounts owed to ESLI, which is controlled by the CTO, and assess governance oversight.