KULR Technology Group 3Q 2020 Shareholder Update Call

Stuart Smith:

This is the KULR Technology Group, Incorporated shareholder update call. Now for those unable to participate, you might want to pass this along to them, and it stated this in the press release. There will be a replay available at the KULRtechnology.com website, as well as the SmallCapVoice.com website. Excuse me. We are also making available to you a written transcript of this call.

Stuart Smith:

But before we get started, let me read the forward looking statements. These forward-looking statements can be found at the bottom of every company press release using that ticker symbol KULR.

Stuart Smith:

This call may contain certain forward-looking statements based on our current expectations, forecasts, and assumptions that involve risks and uncertainties. Forward-looking statements in this call are based on information available to the company as of today’s date. Actual results may differ materially from those stated or implied in such forward-looking statements due to risks and uncertainties associated with the company’s business, which include risk factors disclosed in the KULR form 10-K filed with the Securities Exchange Commission.

Stuart Smith:

Forward-looking statements include statements regarding the company’s beliefs, expectations, intentions, or strategies regarding the future, and can be identified by forward-looking words, such as anticipate, believe, could, estimate, expect, intend, should, and would, or similar words.

Stuart Smith:

All forecasts are provided by management in this call are based on the information available at the time, and management expects that internal projections and expectations may change over time. In addition, the forecast entirely on management’s best estimate of the company’s future financial performance given the company’s current contracts, current backlog of opportunities, and conversations with new and existing customers about KULR products and services.

Stuart Smith:

The company assumes no obligation to update the information included in this call, whether as a result of new information and future events or otherwise. With that, let me first welcome company CEO, Michael Mo. Michael, welcome to the call.

Michael Mo:

Thank you, Stuart. It’s nice to be with you all today.

Stuart Smith:

Thank you so much, Michael. And also company CFO, Simon Westbrook. Simon, welcome to the call.

Simon Westbrook:

Thank you, good day, everybody.

Stuart Smith:

All right. Excellent. Let’s now give the floor to you, Michael Mo, for your opening statements.

Michael Mo:

Great, thank you, Stuart. This is Michael Mo, CEO of KULR Technology Group. Thank you for joining us today. It’s been a very busy quarter or Q3 for KULR. We’re happy here to report to our shareholders some of our operational and financial highlights. To build long-term shareholder value, here are our strategic initiatives to achieve our goals.

Michael Mo:

We develop cutting edge technology with NASA and DOD customers. We work with government and regulatory bodies to bring awareness to KULR Technology, to be involved and to be included in the future of regulatory roadmaps. And we apply our space proven technology to mass market commercial applications, such as energy storage, EV, and battery recycling transportation. On the financial side, we work to build a stronger balance sheet for growth and to increase our shareholder equity.

Michael Mo:

So on the NASA and DOD customer engagement side, the most exciting event for Q3 was the launch of the Mars Rover, Perseverance Rover, in July. KULR’s heat sinks were part of the SHERLOC instrument on the Rover on its way to Mars. Our heat sinks keep the optics and sensors on the Rover in optimal operating conditions. They are literally the eyes and ears of the Rover looking for signs of life on Mars.

Michael Mo:

We were also awarded a dual use technology development agreement with NASA’s Marshall’s Space Flight Center to build a 3D printed battery system for men and robotic space applications. The goal is to 3D print our battery solutions on moon someday as part of the ongoing Artemis project in going to the moon.

Michael Mo:

We were awarded contract to supply NASA with fireproof storage solutions for the Microsoft Surface Pro 5 hybrid notebook computers used onboard the International Space Station. This is an extension of our partnership with NASA Johnson Space Center to provide laptop battery storage on the ISS since 2019.

Michael Mo:

We also partnered with Airbus Defense and Space for use of KULR’s passive propagation resistant PPR solutions for research into lithium ion batteries, safety and testing for in-flight applications.

Michael Mo:

On the government and regulatory side, KULR supplied the Federal Aviation Administration, FAA, with ISC technology to evaluate passenger lithium-ion battery malfunctions that can cause fire and smoke incidents aboard aircraft. ISC is the NASA battery testing technology. KULR is the exclusive licensee and commercialization partner for that since 2018. KULR also participated in the UN working group on lithium ion battery classification meetings to establish test methods and criteria by which lithium ion battery can be more effectively regulated based on the inherent hazards.

Michael Mo:

KULR joined the Outdoor Power Equipment Industry group, also known as OPEI, which represents the $30 billion industry where they’re moving rapidly to lithium ion battery as a power source. As part of our effort to better engage with the government regulatory bodies at DOD, we signed two partners, Dave Harden of Outpost and HazMat Safety Consulting group as our consultants. Dave Harden was previously the Chief Strategic Prioritization Officer for the Air Force at the Pentagon and the COO for AFWERX, the Air Force’s technology accelerator program. HazMat Safety Consulting has over 60 years of combined experience in the DOD, FAA, and the PHMSA working on battery safety regulations and compliances.

Michael Mo:

On the commercial application side, KULR entered into a partnership agreement with the Leading Global Electronics component and battery manufacturer, which is a leading supplier of key electronic components in smartphones, such as the Apple iPhone, to build internal short circuit battery testing technology. And for KULR, to license PPR technology to the partner in a commercial phase. We signed the agreement with Volta Energy Products to provide our PPR technology for implementation in their stationary storage products that’s part of the module for a grid energy storage application.

Michael Mo:

We also partnered with Silicon Valley-based Drako Motors to use our carbon fiber FTI cooling technology for the Drako GTE, which is a new ultra-high-end electric super car. That’s 1200 horsepower with a top speed of 206 miles per hour. We’re literally deploying the thermal technology on the Mars Rover 2020 to the fastest EV on the planet.

Michael Mo:

And here are some of the product development in IP development efforts in Q3. We launched a PPR design, a battery design solutions, for space applications, which include both trigger in production cells from KULR. This was the foundational technology building block to work with NASA Marshall Space Center on a 3D printed battery platform. We also developed a 2.1 kilowatt hour battery shipping solution for battery recycling applications.

Michael Mo:

Transportation is an important part of battery recycling, and safety in the transportation is not only important, but also highly regulated. So we have applied for a special permit with PHMSA on our solution. This will be the highest energy capacity solution in the market once and when we receive the special permit. During Q3, we were awarded two patents, one for our TRS technology for battery safety and one for the high performance interface material for applications like 5G-

Michael Mo:

Performance interface material for applications like 5G, Cal computing infrastructure in addition to space applications. From the operational perspective, I’m very proud of the team to execute all of these activities in Q3 2020 in the midst of a pandemic. I believe that we’re building solid technology foundation and customer partner base for future growth.

Michael Mo:

As we discussed in our 10-Q, it’s important for our shareholders to know that quarter’s business model continues to evolve from being a component supplier, to providing more design and testing services to our customers. And the next stage of evolution is to provide total systems solutions to address market needs. To scale up as a system provider more quickly and efficiently in markets such as direct energy, hypersonic vehicle thermal management, energy storage, and battery recycling. KULR will actively seek partners for joint venture, technology licensing, and other strategic business objectives.

Michael Mo:

No issue here. Also for future business objectives.

Michael Mo:

The goal is to leverage KULR’s thermal design expertise, and portfolio of IPs to create marketing products, which KULR would take to market directly to capture more value for shareholders.

Michael Mo:

Next bit, before I move on to Simon Westbrook, our CFO. He will go over more some of the financial highlights on the quarter. I’d like to report some statistics on how we have increased the liquidity and shareholder base hold KULR stock in the market. In Q1 of 2020, our average daily trading volume was 676 shares. The portal trading value is about 52,000 US dollars. In Q2 2020, our average daily trading volume increased to about 33,000 shares. About a 15000% increase. And the total trading value for the quarter was four point… was approximately $4.2 million. In Q3 of 2020, our average daily trading volume is increased to approximately 105,000 shares. Up about 200% from Q2. And the trading value for the quarter was approximately $9.3 million. Up about 125% from Q2.

Michael Mo:

Last time we checked, we have grown our shareholder base to well over 2000 shareholders. We certainly appreciate every single one of you, shareholders for your hard earned dollar and trust in quarter. We also understand that comes with the liquidity is certain volatility in our stock as well. However, we believe that we need to continue to do our job, execute on a business, and increase market awareness. Ultimately, liquidity will drive long-term shareholder value together with execution.

Michael Mo:

Next is Simon Westbrook, our CFO, to go over the Q3 financial highlights. Simon, please.

Simon Westbrook:

Thanks Michael. Good afternoon, everybody. I’d like to start off talking about our balance sheet. It’s been a tough year with the COVID epidemic and we have continued to prepare and plan for the uncertainty that lies ahead, regardless of whether it finishes soon or continues. We focused our efforts on improving the balance sheet largely in the area of cash, which of course is our major asset at the present time.

Simon Westbrook:

During the quarter ended September the 30th, we continue to draw on our standby equity distribution agreements and increased our cash balances from $109,000 at the beginning of the year in December 2019, to over $2.8 million December the 30th this year. We still have additional borrowing capacity of 5.8 million under the agreement if required. And this will be available to fund future increases in working capital, development expenditures, and cover potential operational losses in the interim period. We believe that we’re well positioned as far as our cash resources are concerned, regardless of what happens in the coming quarters.

Simon Westbrook:

During the process of building up our cash reserves, we’ve also impacted our stockholder equity. During the quarter ended September 30th, we sold $845,000 worth of our common stock to pay off notes payable generated under the SEDA, and to fund our increase in cash balance, resulting in an increase in stock holders’ equity of over $417,000 during the September quarter. This has improved our so-called equity balance from a deficit of 796,000 at the start of the year, to a deficit of 565,000 at the current quarter end.

Simon Westbrook:

From the revenue perspective, the quarter was down to $137,000 in revenue compared to 527,000 in the corresponding quarter of the prior year. This reduction was a function of the general interruption in supply chains, but us and our business partners, and to the fact that we’ve benefited from a single major contract with the Department of Defense last year, worth 355,000 which was delivered in that prior period quarter.

Simon Westbrook:

As far as our bottom line operating results are concerned, our net operating loss for the current quarter was just over $1 million. 1,012,000. Compared to a loss of 268,000 for the corresponding quarter of the prior year. Our operating results were impacted by a reduction in sales, a reduction in gross margins from 79% to 55%, as a result of the relatively fixed component of a cost of sales and wages, and increases in our SGNA expenses and stock based compensation. That concludes my financial comments.

Stuart Smith:

All right, Michael, I think that means let’s jump now into the question and answer section for this call. And I do, once again, want to thank everyone for sending in their questions and getting them in, in a timely manner so that we can get them onto this call today. Michael, are you ready for the first question?

Michael Mo:

Yes, please, Stuart.

Stuart Smith:

All right. The company just voted in favor of a reverse split of all issued and outstanding common stock at a ratio no greater than 1 for 8. Can you elaborate on the reason for this corporate action?

Michael Mo:

Yeah. Yeah. This is something that we filed yesterday. The majority shareholders approved the proposal to authorize the board to effectuate a reverse split of our outstanding shares. The current intention of the board is described in our information statement is to coordinate the timing of the ratio of the split to be in sync with the up list to a USC senior national stock exchange, such as the NASDAQ capital market or the NYCE market.

Michael Mo:

This thing has always been part of our roadmap to increase shareholder value. Now, the timing is ripe for a number of reasons. One is that we have laid the foundation this quarter by building up shareholder equity, increased the liquidity in our stock and build a strong balance sheet. This has allowed us to explore different channels of access to capital. Another factor is that the markets anticipate an increased focus on the whole clean energy and de-carbonization efforts in 2021 with the new incoming administration. As we expect to further our growth in the battery recycling energy storage and EV market in 2021 being on a senior exchange

Michael Mo:

Being on a senior exchange can potentially increase our exposure to more institutional investors and a broader investor base in general. That’s why we did it.

Stuart Smith:

Well, very good. Let’s move on to the next question. It appears the level of activity and highlights during Q3 increased substantially from previous quarters, but your revenue decreased significantly quarter over quarter, especially in contract services. What is the reason for this?

Michael Mo:

Yeah, so Simon talked about that a little bit in our operating results earlier, but two factors really contribute to both the year over year and quarter over quarter revenue decline. The decrease in revenue for year over year comparisons was mainly due to a large view e-contract that we fulfilled in the Q3 of 2019, that’s worth about $350,000. The customer has since pushed the next shipment of the product into 2021. As a matter of fact, looking out for a multi-year roadmap for that product.

Michael Mo:

Another factor is a result of supply chain delays in sourcing the delivery material due to COVID-19 and we’re starting to catch up on that in Q3 right now. For the service revenue question, we only recognize our service contract revenue once we complete it and also meet the customers’ acceptance. So for Q3, we did not have any service contract that meet that revenue recognition requirements. So therefore you saw a drop in service revenue. There was a lot of design activity. There’s a lot of engagement with customers, and those are not revenue, not reflected in Q3, but we expect and anticipate that those activities will pay for future growth.

Stuart Smith:

All right. Very good. Can we get an update on your work with Dave Harden? Has he been able to assist since he’s been brought on board?

Michael Mo:

Yeah. So Dave, in outpost, they have just extensive experience in the DOD infrastructure. So we’ve been working together on a number of DOD programs and objectives, including hypersonic thermal management systems, direct energy, weapons systems in energy storage. So his experience is to do the product marketing side, the product positioning side, and also help us navigate the DOD infrastructure. I know that we did the podcast with Dave maybe a couple months ago. It’s really just practicing crossing the Valley of Death as we speak.

Stuart Smith:

Very good. Let’s talk then about a big validation for KULR. Here’s the question. I know it’s a big validation for KULR to work with the UN on lithium battery classification, but there’s also an opportunity to grow international sales. That’s the question. So is this, by working with the UN, an opportunity to grow international sales through this work with the UN?

Michael Mo:

Yeah. Working with regulatory bodies like UN with FAA, DOT, PHMSA, it’s all part of our business development and marketing effort. The objective is to make our solutions in the battery testing, such as ISC, and also our TRS battery shipping solution known to these regulatory bodies so that they can consider them and to be part of the future of the regulatory roadmap. So as we enter into the battery recycling, the transportation industry, this activity will be more and more important. We do expect them to generate both domestic and international sales in 2021.

Stuart Smith:

All right. Is KULR working on any new patents? Are there existing patents? Are the existing patents for the company creating new revenue streams yet?

Michael Mo:

That’s a good question. We’re always trying to develop new technology. When the new technology is unique enough then we can try to file for a pen, which typically it takes about two to three years for it to be approved. Our pens in TRS technology is now generating revenue in our PPR design and design contracts, both on the service revenue as well as product sales revenue. Also, our license pen from that on the ISC technology is actually generating increasing amount of revenue. That’s also part of the inroads into regulation and also get us in the door with larger customers with these technologies.

Stuart Smith:

All right. Here’s a question about Volta Energy products. Have you begun your work with Volta Energy products yet?

Michael Mo:

Yes. We begin working with Volta. Yes, we have. We have designed and tested our PPI design with the customers product configuration. Now the customer is going through their own internal design. I’m sorry, the internal testing, and also certification work, I believe as for their deployment in early 2021. So not a UL, the fire department certification for the geography of their deployment.

Stuart Smith:

All right, very good. What are some of the current efforts to bring in more sales revenue?

Michael Mo:

Yeah, well, that’s kind of what we work on, we try to work on every day. So on the government side, we’ll focus on the FTI for DOD and aerospace customers, the hypersonic system development, direct energy applications with our capital and thermal management. Both of these are high priority projects for the government, for the national security and represent multi-billion dollar opportunities. So on the government side and DOD side, that’s what the focus is.

Michael Mo:

On the commercial market side, ISC testing, that’s getting a lot more traction. PPR design for battery cells, battery transportation. And then also we believe our 2.1 kilowatt, our transportation solution for battery recycling, hopefully it will be a significant cost driver in 2021 once we get the special permit from PHMSA.

Stuart Smith:

All right, very good. Is revenue being recognized from the licensing agreement with Americase?

Michael Mo:

Yeah, we typically don’t like to comment on individual customer work and revenue breakdowns individually and specifically. What we can say is that some customers may find their COVID-19 situation looking more challenging than the other ones. So we would need to continue to work with the customer on the timing of the product rollout.

Stuart Smith:

Okay. Let’s talk about Airbus. Has worked with Airbus commenced yet?

Michael Mo:

Yes, it has. So we have shipped the samples to Airbus. As you know, Airbus is obviously one of the largest aerospace companies in the world. Our partnership with them has started. And then I think that their also going through their COVID-19 kind of locked down and work from home experience in France. That the office that we partner with. And their product roadmap is actually quite long term, I think all the way extend to 10 plus years. In short, the work and the sample has been shifted.

Stuart Smith:

KULR technology group is clearly an authority on battery safety and works with several well-known entities and government agencies. Do you think that work will result, excuse me, in increased demand for KULRs technology?

Michael Mo:

Yeah, I think we’ve seen a steady increase in the ISC technology for trigger cells from both government DOD and commercial customers. So our product strategy is to-

Michael Mo:

So our product strategy is to provide a suite of products to address the battery safety issue from testing, transportation, to application, second life, end of life. So we also believe that the increasing safety regulations and the new government in an industry push into this renewable energy market is definitely going to be a catalyst for KULRs products.

Stuart Smith:

All right, next question. Which one, or which of your products will you be able to capitalize on growth in the electric vehicle market, and could you provide specifics on its application? So which of your products will be able to capitalize on growth in electric vehicle market?

Michael Mo:

Yeah. Great, great question. So I think that there’s three pieces to this. An ISC, I mean, we keep on. It’s maybe sound like a broken record, but we keep on going back to testing design for the battery pack and also shipping. So, on the ISC side, on the testing side, it’s the ISC. That’s the best way to test for battery safety, which we think is the lower hanging fruits for customer engagement for ED customers. PPR design, which use our TRS to keep battery safe in the both active and passive cooling systems, this is a much longer design cycle and testing cycle for the customer. It actually requires more investment from both the customer and KULR to be engaged in these developments. So PPR is a bigger investment, but that you will pay off in longer term. TRS, in terms of the storage and transportation solution container, that’s for battery recycling and transportation. This is good for second life in end of life applications for batteries, which we expect to have a really good growth in the coming years.

Stuart Smith:

All right, next question. In Q2 2020 KULRs earnings, the company had filed 10 submissions and proposals for winning government related contracts. Can you provide an update on these proposals?

Michael Mo:

Yeah, sure. We’ve received awards on two of the submissions, one for the capital work that we work on the direct energy weapons for the Air Force. The other one is the 3D printed battery application for NASA Marshall Space Center, as we talked about. We were not awarded on a few of them, don’t know exactly the number, but a few of them it’s getting more and more competitive. And we’re still waiting on result on a couple more. Our understanding is that the government contract process are becoming ever more competitive to get in because of this COVID environment. And the decision process is being extended as well, given the increasing volume of the application, the competitive nature, and COVID environment has slowed down the government decision process.

Stuart Smith:

All right. Last year KULR reported product development engagements with a tier one power tool and medical device manufacturer. What is the status of these engagements?

Michael Mo:

Yeah, and actually this is also due to COVID-19, as you can expect. Some of our customers have suspended or halted some of their longer term development and reevaluated their roadmap. So some of these engagements have stopped or halted. And then we continue to work with the customer to see when to reengage and when to prioritize some of the product development pipelines.

Stuart Smith:

All right. Here’s the last question for you, Michael. What separates KULRs thermal management materials in PPR solutions from its competitors’ products?

Michael Mo:

Well, this is going to be a long, long answer, but I think that in short, our positioning for our solution is a suite of tools for PPR design from trigger cell, which is ISC testing, to passive cooling with TRS that integrate with active cooling, as well as all the way to second life, end of life transportation and storage applications. So it’s very lightweight, high performance and cost effective. We believe that in the marketplace that there are very few solutions out there that are space proven, have the kind of performance and effectiveness of our suite of tools. So this is our competitive positioning for the product, and we continue to work with customers that value these key features of our product.

Stuart Smith:

Well, as I mentioned, Michael, that is the final question. So once again, I’ll turn the call back over to you for closing statements.

Michael Mo:

Well, Stuart, thank you very much, and everybody who joined the call today. We are very proud of the team’s accomplishment in Q3 2020. We’ll continue to execute our strategy of developing cutting edge technology for NASA and DOD customers, engage with government regulatory bodies and deploy our technology for commercial applications. Our goal was to build long-term shareholder value by executing our business, build strong balance sheet and increase shareholder value. We hope that by the next update call, sometime in early 2021, after we report our 10K, KULR hopefully will be on the US senior stock exchange and we will be on a new platform for growth. So thank you very much for your time.

Stuart Smith:

Well, listeners, that concludes the KULR technology group shareholder update call. As I said, at the outset of this call, a replay will be available both at smallcapvoice.com as well as kulrtechnology.com. Thank you for joining us today.