KULR Technology Group, Inc. 10-Q

Item 1. Financial Statements KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31 2021 2020 (unaudited) Assets Current Assets: Cash $ 6,166,755 $ 8,880,140 Accounts receivable 345,299 55,492 Inventory 54,135 55,452 Prepaid expenses and other current assets 584,374 159,196 Total Current Assets 7,150,563 9,150,280 Property and equipment, net 53,086 57,857 Total Assets $ 7,203,649 $ 9,208,137 Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 178,374 $ 66,537 Accounts payable - related party 2,628 2,628 Accrued expenses and other current liabilities 414,738 395,012 Accrued issuable equity 333,146 128,380 Notes payable, net of debt discount of $20,074 and $128,198 at March 31, 2021 and December 31, 2020, respectively 1,379,926 2,321,802 Loan payable, current portion 122,299 12,936 Deferred revenue 20,000 20,000 Total Current Liabilities 2,451,111 2,947,295 Loan payable, non-current portion 32,927 142,290 Total Liabilities 2,484,038 3,089,585 Commitments and contingencies (Note 9) Stockholders' Equity: Preferred stock, $0.0001 par value, 20,000,000 shares authorized; Series A Preferred Stock, 1,000,000 shares designated; none issued and outstanding at March 31, 2021 and December 31, 2020 - - Series B Convertible Preferred Stock, 31,000 shares designated; 0 and 13,972 shares issued and outstanding and liquidation preference of $0 and $13,972 at March 31, 2021 and December 31, 2020 , respectively - 1 Series C Preferred Stock, 400 shares designated; none issued and outstanding at March 31, 2021 and December 31, 2020 - - Series D Convertible Preferred Stock, 650 shares designated, none issued and outstanding at March 31, 2021 and December 31, 2020 (see Note 10) - - Common stock, $0.0001 par value, 500,000,000 shares authorized; 92,627,200 and 89,908,600 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively 9,263 8,991 Additional paid-in capital 17,671,479 17,355,968 Accumulated deficit (12,961,131 ) (11,246,408 ) Total Stockholders' Equity 4,719,611 6,118,552 Total Liabilities and Stockholders' Equity $ 7,203,649 $ 9,208,137 1 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) For the Three Months Ended March 31, 2021 2020 Revenue $ 417,905 $ 77,500 Cost of revenue 275,268 30,043 Gross Profit 142,637 47,457 Operating Expenses: Research and development 122,983 111,713 Selling, general, and administrative 1,492,811 465,410 Total Operating Expenses 1,615,794 577,123 Loss From Operations (1,473,157 ) (529,666 ) Other Expenses Interest expense, net (865 ) (1,367 ) Amortization of debt discount (108,124 ) (19,220 ) Change in fair value of accrued issuable equity (132,577 ) - Total Other Expenses (241,566 ) (20,587 ) Net Loss $ (1,714,723 ) $ (550,253 ) Net Loss Per Share - Basic and Diluted $ (0.02 ) $ (0.01 ) Weighted Average Number of Common Shares Outstanding - Basic and Diluted 90,078,940 81,098,163 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY) (unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 2021 Series B Convertible Series C Convertible Additional Total Preferred Stock Preferred Stock Common Stock Paid-In Accumulated Stockholders' Shares Amount Shares Amount Shares Amount Capital Deficit Equity Balance - January 1, 2021 13,972 $ 1 - $ - 89,908,600 $ 8,991 $ 17,355,968 $ (11,246,408 ) $ 6,118,552 Common stock issued upon conversion of Series B Convertible Preferred Stock (13,972 ) (1 ) - - 698,600 70 (69 ) - - Stock-based compensation: Common stock issued for services - - - - 20,000 2 49,798 - 49,800 Restricted common stock issued - - - - 2,000,000 200 (200 ) - - Amortization of restricted common stock - - - - - - 126,625 - 126,625 Amortization of stock options - - - - - - 9,112 - 9,112 Amortization of market-based award - - - - - - 130,245 - 130,245 Net loss - - - - - - - (1,714,723 ) (1,714,723 ) Balance - March 31, 2021 - $ - - $ - 92,627,200 $ 9,263 $ 17,671,479 $ (12,961,131 ) $ 4,719,611 FOR THE THREE MONTHS ENDED MARCH 31, 2020 Series B Convertible Series C Convertible Additional Total Preferred Stock Preferred Stock Common Stock Paid-In Accumulated Stockholders' Shares Amount Shares Amount Shares Amount Capital Deficit Deficiency Balance - January 1, 2020 14,487 $ 1 24.01 $ - 81,071,831 $ 8,107 $ 7,591,239 $ (8,396,312 ) $ (796,965 ) Common stock issued as a commitment fee for the Standby Equity Distribution Agreement - - - - 95,847 10 63,249 - 63,259 Stock-based compensation: Amortization of stock options - - - - - - 10,528 - 10,528 Net loss - - - - - - - (550,253 ) (550,253 ) Balance - March 31, 2020 14,487 $ 1 24.01 $ - 81,167,678 $ 8,117 $ 7,665,016 $ (8,946,565 ) $ (1,273,431 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) For the Three Months Ended March 31, 2021 2020 Cash Flows From Operating Activities: Net loss $ (1,714,723 ) $ (550,253 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of debt discount 108,124 19,220 Depreciation expense 4,771 543 Bad debt expense - 335 Change in fair value of accrued issuable equity 132,577 - Stock-based compensation 387,972 12,728 Changes in operating assets and liabilities: Accounts receivable (289,807 ) (27,046 ) Inventory 1,317 (4,514 ) Prepaid expenses and other current assets (425,178 ) (39,142 ) Accounts payable 111,838 (135,283 ) Accrued expenses and other current liabilities 19,724 (6,698 ) Accrued expenses and other current liabilities - related party - - Deferred revenue - 32,000 Total Adjustments 51,338 (147,857 ) Net Cash Used In Operating Activities (1,663,385 ) (698,110 ) Cash Flows from Financing Activities: Proceeds from note payable - 1,410,000 Payment of debt issuance costs - (130,000 ) Repayments of notes payable (1,050,000 ) (50,000 ) Proceeds from line of credit, net - 8,401 Payment of financing costs - (15,000 ) Net Cash (Used In) Provided By Financing Activities (1,050,000 ) 1,223,401 Net (Decrease) Increase In Cash (2,713,385 ) 525,291 Cash - Beginning of Period 8,880,140 108,857 Cash - End of Period $ 6,166,755 $ 634,148 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 367 $ 1,367 Income taxes $ - $ - Non-cash investing and financing activities: Value of common stock issued as a commitment fee for the SEDA agreement $ - $ 63,259 Common stock issued upon conversion of Series B Convertible Preferred Stock $ 70 $ - Original issuance discount on note payable $ - $ 90,000 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION Organization and Operations KULR Technology Group, Inc., through its wholly-owned subsidiary, KULR Technology Corporation (collectively referred to as “KULR” or the “Company”), develops and commercializes high-performance thermal management technologies for electronics, batteries, and other components across a range of applications. Currently, the Company is focused on targeting both, high performance aerospace and Department of Defense (“DOD”) applications, such as satellite communications, directed energy system and hypersonic vehicle, and applying them to mass market commercial applications, such as lithium-ion battery energy storage, electrical vehicle, 5G communication, cloud computer infrastructure, consumer and industrial devices. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of March 31, 2021 and for the three months ended March 31, 2021 and 2020. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the operating results for the full year ending December 31, 2021 or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 2020 and for the year then ended, which were filed with the Securities and Exchange Commission (“SEC”) on Form 10-K on March 19, 2021. Risks and Uncertainties In March 2020, the World Health Organization declared COVID-19, a novel strain coronavirus, a pandemic. During 2020 and continuing into 2021, the global economy has been, and continues to be, affected by COVID-19. While the Company continues to see signs of economic recovery as certain governments began to gradually ease restrictions, provide economic stimulus and vaccine distribution accelerated, the rate of recovery on a global basis has been affected by resurgence of the virus or its variants in certain jurisdictions. The Company continues to monitor the impact of COVID-19 on its business and operational assumptions and estimates, and determined there were no material adverse impacts on the Company’s results of operations and financial position at March 31, 2021. The full extent of the future impact of COVID-19 on the Company’s operations and financial condition is uncertain. Accordingly, COVID-19 could have a material adverse effect on the Company’s business, results of operations, financial condition and prospects during 2021 and beyond, including the demand for its products, interruptions to supply chains, ability to maintain regular research and development and manufacturing schedules as well as the capability to meet customer demands in a timely manner. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 5 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Since the date of the Annual Report on Form 10-K for the year ended December 31, 2020, there have been no material changes to the Company’s significant accounting policies, except as disclosed in this note. Liquidity As of March 31, 2021, the Company had cash and working capital of approximately $6.2 million and $4.7 million, respectively. For the three months ended March 31, 2021, the Company incurred a net loss of approximately $1.7 million and used cash in operations of approximately $1.7 million. On May 20, 2021, the Company raised approximately $6.5 million in connection with a convertible preferred financing agreement. In connection with the closing of the financing, the Company repaid in full its aggregate notes payable obligation of $1,540,000. See Note 10 – Subsequent Events for additional details. While the Company anticipates it will continue to incur operating losses and use cash in operating activities for the foreseeable future, the Company believes that its current working capital is sufficient in comparison to its anticipated cash usage for a period of at least twelve months subsequent to the filing date of these condensed consolidated financial statements. Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consisted primarily of cash, accounts receivable, revenue and accounts payable. Cash Concentrations A significant portion of the Company’s cash is held at one major financial institution. The Company has not experienced any losses in such accounts. Cash held in US bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 at each institution. There was an uninsured balance of $5,659,918 and $8,513,010 as of March 31, 2021 and December 31, 2020, respectively. Customer and Revenue Concentrations The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows: Revenues Accounts Receivable For the Three Months Ended March 31, As of As of 2021 2020 March 31, 2021 December 31, 2020 Customer A * 23 % * * Customer B * 59 % * * Customer C 23 % * * * Customer D 14 % * 17 % * Customer E 51 % * 61 % * Customer F * * * 70 % Customer G * * * 19 % Customer H * * * 10 % Total 88 % 82 % 78 % 99 % * Less than 10% There is no assurance the Company will continue to receive significant revenues from any of these customers. Any reduction or delay in operating activity from any of the Company’s significant customers, or a delay or default in payment by any significant customer, or termination of agreements with significant customers, could materially harm the Company’s business and prospects. As a result of the Company’s significant customer concentrations, its gross profit and results from operations could fluctuate significantly due to changes in political, environmental, or economic conditions, or the loss of, reduction of business from, or less favorable terms with any of the Company’s significant customers. 6 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Vendor Concentrations During the three months ended March 31, 2021, three vendors represented more than 10% of the Company’s purchases and during the three months ended March 31, 2020, four different vendors represented more than 10% of the Company’s purchases, as follows: For the Three Months Ended March 31, 2021 2020 Vendor A * 11 % Vendor B * 13 % Vendor C * 15 % Vendor D * 23 % Vendor E 10 % * Vendor F 27 % * Vendor G 16 % * 53 % 61 % * Less than 10% Inventory Inventory is comprised of carbon fiber velvet (“CFV”) thermal interface solutions and internal short circuit batteries, which are available for sale. Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out method. The cost of inventory that is sold to third parties is included within cost of sales and the cost of inventory that is given as samples is included within operating expenses. The Company periodically reviews for slow-moving, excess or obsolete inventories. Products that are determined to be obsolete, if any, are written down to net realizable value. As of March 31, 2021 and December 31, 2020, the Company’s inventory was comprised solely of finished goods. Revenue Recognition The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. 7 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The following five steps are applied to achieve that core principle: · Step 1: Identify the contract with the customer; · Step 2: Identify the performance obligations in the contract; · Step 3: Determine the transaction price; · Step 4: Allocate the transaction price to the performance obligations in the contract; and · Step 5: Recognize revenue when the company satisfies a performance obligation. The Company recognizes revenue primarily from the following different types of contracts: · Product sales – Revenue is recognized at the point in time the customer obtains control of the goods and the Company satisfies its performance obligation, which is generally at the time it ships the product to the customer. · Contract services – Revenue is recognized at the point in time that the Company satisfies its performance obligation under the contract, which is generally at the time the services are fulfilled and/or accepted by the customer. The following table summarizes the Company’s revenue recognized during the three months ended March 31, 2021 and 2020: For the Three Months Ended March 31, 2021 2020 Product sales $ 178,249 $ 28,000 Contract services 239,656 49,500 Total revenue $ 417,905 $ 77,500 As of March 31, 2021 and December 31, 2020, the Company had $20,000 and $20,000 of deferred revenue, respectively, from contracts with customers. The contract liabilities represent payments received from customers for which the Company had not yet satisfied its performance obligation under the contract., or the customers have not officially accepted the goods or services provided under the contract. During the three months ended March 31, 2021 and 2020, there was no revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods. As of March 31, 2021 and December 2020, the Company recorded $63,612 and $31,212, respectively, of deferred labor costs, which is included in prepaid expenses and other current assets in the Company’s condensed consolidated balance sheets. Deferred labor costs represent costs to fulfill the Company's contract service revenue. The Company will recognize the deferred labor costs as cost of revenues at the point in time that the Company satisfies its performance obligation under the respective contract, which is generally at the time the services are fulfilled and/or accepted by the customer. Shipping and Handling Costs Amounts billed to a customer in a sales transaction related to shipping and handling are recorded as revenue. Costs incurred for shipping and handling are included as cost of sales on the accompanying condensed consolidated statements of operations. 8 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Net Loss Per Common Share Basic net loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common and dilutive common-equivalent shares outstanding during each period. Dilutive common-equivalent shares consist of shares of non-vested restricted stock, if not anti-dilutive. The following shares were excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive: For the Three Months Ended March 31, 2021 2020 Series B Convertible Preferred Stock - 724,350 Series C Convertible Preferred Stock - 240,100 Unvested Restricted Stock 2,000,000 - Market-based equity award 1,500,000 - Options 470,000 395,000 Warrants 6,787,911 210,025 Total 10,757,911 1,569,475 Reclassifications Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported consolidated net loss. Recently Adopted Accounting Pronouncements In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted ASU 2019-12 effective January 1, 2021 and its adoption did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures. 9 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 3 PREPAID EXPENSES AND OTHER CURRENT ASSETS As of March 31, 2021 and December 31, 2020, prepaid expenses and other current assets consisted of the following: March 31, 2021 December 31, 2020 Deferred labor costs $ 63,612 $ 31,212 Deferred inventory costs 385,363 - Filing 9,889 9,944 Insurance 16,035 10,429 Marketing 46,353 56,853 Other 23,263 31,426 Professional 31,129 10,603 Security deposit 8,729 8,729 Total prepaid expenses $ 584,374 $ 159,196 NOTE 4 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES As of March 31, 2021 and December 31, 2020, accrued expenses and other current liabilities consisted of the following: March 31, 2021 December 31, 2020 Payroll and vacation $ 108,940 $ 279,054 Legal and professional fees 209,000 81,902 Other 96,798 34,056 Total accrued expenses and other current liabilities $ 414,738 $ 395,012 NOTE 5 ACCRUED ISSUABLE EQUITY A summary of the accrued issuable equity activity during the three months ended March 31, 2021 is presented below. There was no accrued issuable equity during the three months ended March 31, 2020. Balance, January 1, 2021 $ 128,380 Additions 121,990 Reclassifications to equity (49,800 ) Mark-to market 132,576 Balance, March 31, 2021 $ 333,146 During the three months ended March 31, 2021, the Company entered into certain contractual arrangements for services in exchange for a fixed number of shares of common stock of the Company, having an aggregate grant date value of $121,989. The Company settled certain of its accrued issuable equity obligations through the issuance of an aggregate of 20,000 shares with an aggregate fair value of $49,800. During the three months ended March 31, 2021, the Company recorded $132,577 of losses related to the change in fair value of accrued issuable equity. 10 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 6 NOTES PAYABLE A summary of notes payable activity during the three months ended March 31, 2021 and 2020, is presented below: Notes Debt Payable Discount Total Balance, January 1, 2021 $ 2,450,000 $ (128,198 ) $ 2,321,802 Repayments in cash (1,050,000 ) - (1,050,000 ) Amortization of debt discount - 108,124 108,124 Outstanding, March 31, 2021 $ 1,400,000 $ (20,074 ) $ 1,379,926 During the year ended December 31, 2020, the Company entered into note purchase agreements in the original aggregate principal amount of $4,000,000 (“Principal Amount”) for cash proceeds of $3,710,000. The Notes included an original issue discount of $290,000, which represents the difference between the principal and proceeds received. The original issue discount, along with the $340,000 advisory fees were recorded as a debt discount which are being amortized over the term of the respective Notes using the effective interest rate method. The Notes bears no coupon interest (original issue discount only). The Company repaid principal $1,550,000 during the year ended December 31, 2020 and repaid additional principal in the amount of $1,050,000 during the three months ended March 31, 2021. Of the $1,400,000 principal balance remaining at March 31, 2021, $525,000 matures on May 31, 2021 and $875,000 matures on June 30, 2021. During the three months ended March 31, 2021 and 2020, the Company recorded amortization of debt discount in the amount of $108,124 and $19,220, respectively. Subsequent to March 31, 2021, the Company repaid principal on the Notes in the aggregate amount of $350,000. NOTE 7 RELATED PARTY TRANSACTIONS Accounts Payable – Related Party Accounts payable – related party consists of a liability of $2,628 and $2,628, as of March 31, 2021 and December 31, 2020, respectively, to Energy Science Laboratories, Inc. (“ESLI”), a company controlled by the Company’s Chief Technology Officer (“CTO”), in connection with consulting services provided to the Company associated with the development of the Company’s CFV thermal management solutions in prior periods. 11 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 8 STOCKHOLDERS' EQUITY (DEFICIENCY) Common Stock Issued upon Conversion of Series B Preferred Stock During the three months ended March 31, 2021, the Company issued an aggregate of 698,600 shares of common stock upon the conversion of 13,972 shares of Series B Preferred stock, after which there remained no further Series B Preferred Stock outstanding. Stock-Based Compensation During the three months ended March 31, 2021 and 2020, the Company recognized stock-based compensation expense of $387,972 and $12,728, respectively, related to common stock and restricted common stock, warrants and stock options, of which $7,405 and $8,112, respectively, is included in research and development expenses and $250,322 and $4,616, respectively, is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. The following table presents information related to stock-based compensation expense for the three months ended March 31, 2021 and 2020: For the Three Months Ended March 31, 2021 2020 Common stock issued for services $ 49,800 $ 2,200 Amortization of restricted common stock 126,625 - Amortization of market-based award 130,245 - Stock options 9,112 10,528 Accrued issuable equity (common stock) 72,190 - Total $ 387,972 $ 12,728 (1) See Note 5 – Accrued Issuable Equity, for additional details. Common Stock Issued for Services On February 26, 2021, the Company issued 20,000 shares of immediately vested common stock with an aggregate grant date value of $49,800 for consulting services provided during January and February 2021. Restricted Common Stock During the three months ended March 31, 2021, the Company recorded stock-based compensation of $17,875 in connection with the amortization of restricted stock issued pursuant to consulting agreements during the fourth quarter of 2020. On March 1, 2021, the Company issued 2,000,000 shares of its common stock (the “COO Shares”) with an aggregate grant date value of $5,220,000 in connection with the appointment of the Company’s Chief Operating Officer (see Note 9 – Commitments and Contingencies). The shares vest in four equal annual installments beginning on March 1, 2022. During March 2021, the Company recorded stock-based compensation of $108,750 related to the amortization of the grant date value of the COO Shares. 12 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) As of March 31, 2021, there is $5,178,744 of unrecognized stock-based compensation related to restricted stock awards which will be amortized over the remaining vesting period of 3.89 years. Stock Options On January 1, 2020, the Company granted five-year options to purchase a total of 10,000 shares of common stock at an exercise price of $0.66 per share to an employee pursuant to the 2018 Plan. One-fourth of the options will vest on the first-year anniversary of the grant date and the remaining options vest monthly over three years. The options had an aggregate grant date value of $3,609 which is recognized over the vesting period. On March 12, 2021, in connection with the hire of its Senior Director of Product Development, the Company granted a five-year option to purchase 100,000 shares of common stock to its Senior Director of Product Development. pursuant to the 2018 Plan. The option is exercisable at an exercise price of $2.44 per share. One-fourth of the options will vest on the first-year anniversary of the grant date and the remaining options vest monthly over three years. The options had an aggregate grant date value of $57,819 which is recognized over the vesting period. The Company has computed the fair value of stock options granted using the Black-Scholes option pricing model. In applying the Black-Scholes option pricing model, the Company used the following assumptions: For the Three Months Ended March 31, 2021 2020 Risk free interest rate 0.85 % 1.58 % Expected term (years) 2.50 2.50 Expected volatility 93.00 % 93.00 % Expected dividends 0.00 % 0.00 % Option forfeitures are accounted for at the time of occurrence. The expected term used is the estimated period of time that options granted are expected to be outstanding. The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” employee option grants. The Company does not yet have a trading history to support its historical volatility calculations. Accordingly, the Company is utilizing an expected volatility figure based on a review of the historical volatility of comparable entities over a period of time equivalent to the expected life of the instrument being valued. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued. The weighted average grant date fair value per share of options granted during the three months ended March 31, 2021 and 2020 was $0.58 and $0.36, respectively. 13 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) A summary of options activity during the three months ended March 31, 2021 is presented below: Weighted Weighted Average Average Number of Exercise Remaining Intrinsic Options Price Term (Yrs) Value Outstanding, January 1, 2021 370,000 $ 0.66 Granted 100,000 2.44 Exercised - - Expired - - Forfeited - - Outstanding, March 31, 2021 470,000 $ 1.04 2.3 $ 677,400 Exercisable, March, 2021 268,607 $ 0.66 2.8 $ 488,865 The following table presents information related to stock options as of March 31, 2021: Options Outstanding Options Exercisable Weighted Outstanding Average Exercisable Exercise Number of Remaining Life Number of Price Options In Years Options $ 0.66 370,000 2.8 268,607 $ 2.44 100,000 - - 470,000 2.8 268,607 Market-Based Award On March 1, 2021, in connection with the appointment of the Company’s COO (see Note 9 – Commitments and Contingencies), the COO is eligible to receive of up to 1,500,000 shares of the Company’s common stock which will be earned based upon achieving certain market capitalization milestones up to $4 billion. The grant date value of this award of $2,911,420 was determined using a Monte Carlo valuation model for market-based vesting awards, and will be amortized over each of the tranches’ prospective derived service period. The following assumptions were used: Risk free interest rate 0.71% Expected volatility 98.9% Expected dividend yield 0.00% Weighted average derived service period 2.20 years Fair value of common stock on date of grant $2.61 14 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 9 COMMITMENTS AND CONTINGENCIES Operating Lease Effective December 22, 2020, the Company entered into a lease addendum to extend the term of its original lease, for space located in San Diego, California used for research and development activities, from December 31, 2020 to June 30, 2021. Monthly rental payments under the renewed lease total $5,127, which is comprised of $4,572 of base rent plus $555 of association fees. During the three months ended March 31, 2021 and 2020, operating lease expense was $15,402 and $10,016, respectively. As of March 31, 2021, the Company does not have any financing leases. Appointment of President and Chief Operating Officer On January 4, 2021, the Company entered into a consulting agreement with a new Executive Vice President. The consultant provided management and business development services to the Company. In consideration for services provided in January and February 2021, the Company compensated the consultant with $10,000 per month and 10,000 shares of its common stock per month. Effective March 1, 2021, the Company appointed the consultant as President and Chief Operating Officer (“COO”) of the Company, to hold office until the earlier of the expiration of the term of office, a successor is duly elected and qualified, or the earlier of such officer’s death, resignation, disqualification, or removal. In connection with his appointment to COO, the COO received an aggregate of 2,000,000 shares of common stock, which shares will vest in four equal annual installments beginning on March 1, 2022. Additionally, the COO is eligible for incentive-based share grants totaling up to 1,500,000 shares of the Company’s common stock, which will be earned based on achieving certain market capitalization milestones up to $4 billion (see Note 8 – Stockholders Equity (Deficiency). Director Compensation On February 2, 2021, the Board of the Company appointed three new directors on the Board, to hold office until the earlier of the expiration of the term of office of the director whom they have replaced, a successor is duly elected and qualified, or the earlier of such director’s death, resignation, disqualification, or removal. The three directors appointment is contingent upon the Company’s common stock being approved for uplisting to a national exchange. Furthermore, once appointed, each director will receive quarterly cash compensation equal to $10,000 and each director will be granted 20,000 shares of common stock, which shares shall vest quarterly in 5,000 share installments with the first installment vesting immediately upon their appointment. 15 KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 10 SUBSEQUENT EVENTS Technology Development and Sponsorship Agreement On March 31, 2021, the Company entered into a multi-year technology development and sponsorship agreement, pursuant to which the Company has committed to spend an aggregate of $1,650,000 in three installments which are due April 1, 2021, January 1, 2022, and January 1, 2023. Operating Lease On April 5, 2021, the Company entered into an agreement to lease office space for a thirty-six-month period, commencing June 1, 2021. Monthly rental payments under the new lease total $23,787, which are comprised of $18,518 of base rent plus $5,269 for common area costs. Common Stock On April 6, 2021, the Company issued 20,000 shares of immediately vested common stock with an aggregate grant date value of $51,000 for legal services. The shares were issued pursuant to the Company’s 2018 Incentive Plan. During April 2021, the Company issued an aggregate of 300,000 shares of common stock upon the exercise of outstanding warrants pursuant to which the Company received an aggregate of $375,000 of gross proceeds. Securities Purchase Agreement On May 19, 2021, the Company entered into a Securities Purchase Agreement (“SPA”) with an investor, pursuant to which the Company agreed to issue to the investor an aggregate of 650 shares of Series D convertible preferred stock (the “Series D Preferred”) pursuant to a new designation of preferred stock, and one-year warrants to purchase 2,600,000 shares of common stock (the “Warrants”) at a price of $2.50 per share, for aggregate gross proceeds of $6,500,000 (the “Offering”). The Company will also pay the investor a commitment fee of 1,300,000 shares of common stock at the closing of the Offering. The closing of the Offering occurred on May 20, 2021. In connection with the closing of the financing, the Company repaid in full its aggregate notes payable obligation of $1,540,000. The Series D Preferred will have a fixed conversion price of $2.05, will be convertible into an aggregate of 3,170,732 shares of common stock and will have the right to vote on an as-converted basis. Holders of the Series D Preferred shall be entitled to receive cumulative dividends annually at an annual rate equal to ten percent (10%). Dividends shall be payable in cash or, at the option of the holder of the Series D Preferred, converted into shares of common stock as provided in the certificate of designation for the Series D Preferred. Provided that the shares of common stock issuable upon conversion of the Series D Preferred is registered pursuant to an effective registration statement, the Company shall have the option, but not the obligation, to redeem, in cash, all or part of the Series D Preferred. As a condition to entering into the SPA, the investor agreed that, commencing on the closing date and until the earliest of (i) listing of the Company’s common stock on a national exchange or (ii) June 4, 2021, the Series D Preferred and the Warrants will be subject to a standard lock-up provision. 16 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of the results of operations and financial condition of KULR Technology Group, Inc. (the “Company”) as of March 31, 2021 and for the three months ended March 31, 2021 and 2020 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 2020 and for the year then ended, which are included in the Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 19, 2021. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us”, “we”, “our” and similar terms refer to the Company. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Actual results could differ materially because of the factors discussed in “Risk Factors” elsewhere in this Quarterly Report, in our other reports filed with the SEC, and other factors that we may not know. Overview KULR Technology Group, Inc., through our wholly-owned subsidiary KULR Technology Corporation, develops and commercializes high-performance thermal management technologies for batteries, electronics, and other components across an array of battery-powered applications. For aerospace and DOD applications, our solutions target high performance applications in direct energy, hypersonic vehicles and satellite communications. For commercial applications, our main focus is a total solution to battery safety by which we aim to mitigate the effects of thermal runaway propagation. This total battery safety solution can be used for electric vehicles, energy storage, battery recycling transportation, cloud computing and 5G communication devices. Our proprietary core technology is a carbon fiber material that provides what we believe to be superior thermal conductivity and heat dissipation for an ultra-lightweight and pliable material. By leveraging our proprietary cooling solutions that have been developed through longstanding partnerships with NASA, the Jet Propulsion Lab and others, our products and services make commercial battery powered products safer and electronics systems cooler and lighter. KULR’s business model continues to evolve from being a component supplier, to providing more design and testing services to our customers. The next step of evolution is to provide total system solutions to address market needs. In order to scale up as a systems provider more quickly and efficiently in (i) the Li-ion battery energy storage and recycling markets, (ii) battery cell design and safety testing, and (iii) advanced thermal management systems, such as hypersonic vehicles, KULR will actively seek partners for joint venture, technology licensing and other strategic partnership models. The goal is to leverage the Company’s thermal design technology expertise to create market leading products, which KULR will take to market directly to capture more value for KULR shareholders. 17 Recent Developments COVID-19 In March 2020, the World Health Organization declared COVID-19, a novel strain coronavirus, a pandemic. During 2020 and continuing into 2021, the global economy has been, and continues to be, affected by COVID-19. While the Company continues to see signs of economic recovery as certain governments began to gradually ease restrictions, provide economic stimulus and vaccine distribution accelerated, the rate of recovery on a global basis has been affected by resurgence of the virus or its variants in certain jurisdictions. The Company continues to monitor the impact of COVID-19 on its business and operational assumptions and estimates, and determined there were no material adverse impacts on the Company’s results of operations and financial position at March 31, 2021. The full extent of the future impact of COVID-19 on the Company’s operations and financial condition is uncertain. Accordingly, COVID-19 could have a material adverse effect on the Company’s business, results of operations, financial condition and prospects during 2021 and beyond, including the demand for its products, interruptions to supply chains, ability to maintain regular research and development and manufacturing schedules as well as the capability to meet customer demands in a timely manner. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Appointment of Keith Cochran On March 8, 2021, our Board of Directors (the “Board”) appointed Keith Cochran as President and Chief Operating Officer of the Company, to hold office until the earlier of the expiration of the term of office, a successor is duly elected and qualified, or the earlier of such officer’s death, resignation, disqualification, or removal. As compensation for his services as President and Chief Operating Officer of the Company, Mr. Cochran will receive: (1) a salary of $250,000 per annum and commensurate benefits; (2) 2,000,000 restricted shares of the Company’s common stock, which shares shall vest, so long as Mr. Cochran remains employed by the Company, in four (4) equal yearly installments, with the first installment amount to vest on March 1, 2022 and annually thereafter; and (3) eligibility, also subject to Mr. Cochran’s continued employment with the Company, for incentive based grants of up to 1,500,000 shares, which shall be earned upon the Company achieving certain market capitalization milestones. Technology Development and Sponsorship Agreement On March 31, 2021, the Company entered into a multi-year technology development and sponsorship agreement where the Company has committed to spend an aggregate of $1,650,000 payable in three installments, which are due April 1, 2021, January 1, 2022, and January 1, 2023. Operating Lease On April 5, 2021, the Company entered into an agreement to lease office space for a thirty-six-month period, commencing June 1, 2021. Monthly rental payments under the new lease total $23,787, which are comprised of $18,518 of base rent plus $5,269 for common area costs. Conversion of Series B Preferred Stock In March 2021, KULR issued an aggregate of 698,600 shares of our common stock upon conversion of 13,972 shares of our Series B Preferred Stock, after which there remained no further Series B Preferred Stock outstanding. Securities Purchase Agreement On May 19, 2021, the Company entered into a SPA with an investor, pursuant to which the Company agreed to issue to the investor an aggregate of 650 shares of Series D Preferred pursuant to a new designation of preferred stock, and one-year warrants to purchase 2,600,000 shares of common stock at a price of $2.50 per share, for aggregate gross proceeds of $6,500,000. The Company will also pay the investor a commitment fee of 1,300,000 shares of common stock at the closing of the Offering. The Series D Preferred will have a fixed conversion price of $2.05, will be convertible into an aggregate of 3,170,732 shares of common stock and will have the right to vote on an as-converted basis. The closing of the Offering occurred on May 20, 2021. In connection with the closing of the financing, the Company repaid in full its aggregate notes payable obligation of $1,540,000. 18 Common Stock On April 6, 2021, we issued 20,000 shares of immediately vested common stock with a grant date value of approximately $51,000 for legal services. On April 19, 2021, in connection with the appointment of a new Vice President of Operations (the “VPO”) the Board of Directors granted 80,000 restricted shares of our common stock to the VPO. The shares vest in four equal yearly installments on each anniversary of the grant date. During April, we issued an aggregate of 300,000 shares of common stock in connection with exercises of outstanding warrant pursuant to which we received an aggregate of $375,000 of gross proceeds. Results of Operations Three Months Ended March 31, 2021 Compared With the Three Months Ended March 31, 2020 Revenues Our revenues consisted of the following during the three months ended March 31, 2021 and 2020: For the Three Months Ended March 31, 2021 2020 Product sales $ 178,249 $ 28,000 Contract services 239,656 49,500 Total revenue $ 417,905 $ 77,500 For the three months ended March 31, 2021 and 2020, we generated $417,905 and $77,550 of revenues, respectively, representing an increase of $340,405, or 439%. Revenue from product sales during the three months ended March 31, 2021 increased by 537% compared to the three months ended March 31, 2020, mainly due to four large contracts received during the three months ended March 31, 2021. Product sales during these periods included sales of our component product, carbon fiber velvet (“CFV”) thermal management solution, ISC battery cells and devices, patented TRS technology, and thermal fiber thermal interface (“FTI”) materials. Our service revenues, which include certain research and development contracts and onsite engineering services, have not been hampered by restrictions arising from working under COVID-19 shelter-in-place regulations. Our customers and prospective customers are large organizations with multiple levels of management, controls/procedures, and contract evaluation/authorization. Furthermore, our solutions are new and do not necessarily fit into pre-existing patterns of purchase commitment. Accordingly, the business activity cycle between expression of initial customer interest to shipping, acceptance and billing can be lengthy, unpredictable, and lumpy, which can influence the timing, consistency and reporting of sales growth. Cost of Revenues Cost of revenues consists of the cost of our products as well as labor expenses directly related to product sales or research contract services. Generally, we earn greater margins on revenue from products compared to revenue from services, so product mix plays an important role in our reported average margins for any period. Also, we are introducing new products at an early stage in our development cycle and the margins earned can vary significantly between period, customers and products, due to the learning process, customer negotiating strengths, and product mix. 19 For the three months ended March 31, 2021 and 2020, cost of revenues was $275,268 and $30,043, respectively, an increase of $245,225 or 816%. The increase was primarily due to higher product sales and service revenues earned during the three months ended March 31, 2021. The gross margin percentage was 34% and 61% for the three months ended March 31, 2021 and 2020, respectively. The decrease in margins during the first quarter of 2021 is primarily the result of a low 15% margin earned on a single large contract during the first quarter of 2021. Research and Development Research and development expenses (“R&D”) include expenses incurred in connection with the R&D of our CFV thermal management solution. R&D expenses are expensed as they are incurred. For the three months ended March 31, 2021 and 2020, R&D expenses were $122,983 and $111,713, respectively, representing an increase of $11,270 or 10%. The increase is primarily due to new energy storage development services provided during the period, partially offset by a reduction in R&D salaries and other salary related costs, such as payroll taxes and other benefits, due to salary reductions implemented at the end of the first quarter of 2020 as a result of COVID-19. We expect that our R&D expenses will increase as we expand our future operations. Selling, General and Administrative Selling, general and administrative expenses consist primarily of travel, salaries, payroll taxes and other benefits, and rent expense. For the three months ended March 31, 2021 and 2020, selling, general and administrative expenses were $1,492,811 and $465,410, respectively, an increase of $1,027,401 or 221%. The increase is primarily attributable to an increase of approximately $486,000 of marketing and advertising expense, an increase of approximately $376,000 of stock-based compensation resulting primarily from the issuance of restricted stock upon the appointment of the Company’s Chief Operating Officer (“COO”) and stock granted to consultants during the period, as well as an increase of approximately $87,000 in labor costs as the result of four new hires, including the appointment of the COO. Other Expenses For the three months ended March 31, 2021 and 2020, other expenses were $241,566 and $20,587, respectively, representing an increase of $220,979. The increase in other expense is primarily due to amortization of debt discount of $108,124 related to the issuance of notes payable and $132,577 of change in fair value of accrued issuable equity during the three months ended March 31, 2021. Liquidity and Capital Resources As of March 31, 2021 and December 31, 2020, we had cash balances of $6,166,755 and $8,880,140, respectively, and working capital of $4,699,452 and $6,060,695, respectively. For the three months ended March 31, 2021 and 2020, cash used in operating activities was $1,663,385 and $698,110, respectively. Our cash used in operations for the three months ended March 31, 2021 was primarily attributable to our net loss of $1,714,723, adjusted for non-cash expenses in the aggregate amount of $633,444, and $582,106 of net cash used to fund changes in the levels of operating assets and liabilities. Our cash used in operations for the three months ended March 31, 2020 was primarily attributable to our net loss of $550,253, adjusted for non-cash expenses in the aggregate amount of $32,826, and $180,683 of net cash used to fund changes in the levels of operating assets and liabilities. There were no cash flows from investing activities for the three months ended March 31, 2021 and 2020. 20 For the three months ended March 31, 2021 and 2020, cash (used in) provided by financing activities was ($1,050,000) and $1,223,401, respectively. Cash used in financing activities during the three months ended March 31, 2021 represents principal payments on notes payable. The cash provided by financing activities during the three months ended March 31, 2020 primarily represents $1,410,000 of net proceeds from the issuance of a note payable, offset by the payment of $130,000 of debt issuance costs and repayment of notes payable of $50,000. In March 2020, the World Health Organization declared COVID-19, a novel strain coronavirus, a pandemic. During 2020 and continuing into 2021, the global economy has been, and continues to be, affected by COVID-19. While the Company continues to see signs of economic recovery as certain governments began to gradually ease restrictions, provide economic stimulus and vaccine distribution accelerated, the rate of recovery on a global basis has been affected by resurgence of the virus or its variants in certain jurisdictions. The Company continues to monitor the impact of COVID-19 on its business and operational assumptions and estimates, and determined there were no material adverse impacts on the Company’s results of operations and financial position at March 31, 2021. The full extent of the future impact of COVID-19 on the Company’s operations and financial condition is uncertain. Accordingly, COVID-19 could have a material adverse effect on the Company’s business, results of operations, financial condition and prospects during 2021 and beyond, including the demand for its products, interruptions to supply chains, ability to maintain regular R&D and manufacturing schedules as well as the capability to meet customer demands in a timely manner. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. During the year ended December 31, 2020, we entered into note purchase agreements in the original aggregate principal amount of $4,000,000 for cash proceeds of $3,710,000. Principal in the amount of $1,550,000 was repaid during the year ended December 31, 2020 and principal in the amount of $1,050,000 was repaid during the three months ended March 31, 2021. Of the $1,400,000 principal balance remaining at March 31, 2021, $525,000 matures on May 31, 2021 and $875,000 matures on June 30, 2021. In April 2020, the Company received a loan of $155,226 under the government Small Business Administration (“SBA”) sponsored Payroll Protection Program (“PPP”) to support continuing employment during the COVID-19 pandemic. The PPP Loan (“Note”) and accrued interest may be forgiven as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities and maintains its payroll levels. The amount of forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. If the PPP Loan is not forgiven, the Company will begin repaying this loan beginning in November 2021. Any unforgiven balance must be repaid in full by its maturity date, February 28, 2022. Effective February 27, 2020, the Company entered into a twenty-four month Standby Equity Distribution Agreement (“SEDA”) with YAII, pursuant to which the Company may, at its discretion, sell to up to an aggregate of $8,000,000 (subject to YAII’s approval for amounts over $100,000) of shares of the Company’s common stock at a price equal to Company 80% of the lowest daily volume weighted average price for the five days immediately following the date the Company delivers notice requiring YAII to purchase the shares under the SEDA. For each advance, the Company shall have delivered all shares relating to all prior advances, and, unless waived by YAII, at least 5 trading days shall have elapsed from the immediately preceding advance date. Through March 31, 2021 , the Company issued an aggregate of 1,841,548 shares of common stock at prices between $0.73 - $1.65 per share for aggregate proceeds of $2,214,437 in connection with advance notices submitted to YAII under the SEDA, of which $791,000 of the proceeds were applied directly against the principal due under the Notes. Pursuant to a registered public offering on December 31, 2020, the Company may not issue shares involving variable rate transactions (including shares issuable pursuant to the SEDA), so long as warrants issued in connection with the registered public offering remain outstanding. On May 19, 2021, the Company entered into a SPA with an investor, pursuant to which the Company agreed to issue to the investor an aggregate of 650 shares of Series D Preferred pursuant to a new designation of preferred stock, and one-year warrants to purchase 2,600,000 shares of common stock at a price of $2.50 per share, for aggregate gross proceeds of $6,500,000. The Company will also pay the investor a commitment fee of 1,300,000 shares of common stock at the closing of the Offering. The Series D Preferred will have a fixed conversion price of $2.05, will be convertible into an aggregate of 3,170,732 shares of common stock and will have the right to vote on an as-converted basis. The closing of the Offering occurred on May 20, 2021. In connection with the closing of the financing, the Company repaid in full its aggregate notes payable obligation of $1,540,000. 21 We have not yet achieved profitability and expect to continue to incur cash outflows from operations. It is expected that our research and development and general and administrative expenses will continue to increase and, as a result, we will eventually need to generate significant revenues and/or raise additional capital to fund our operations. Although our management believes that we have access to capital resources through various sources, there is no assurance that we will be able to obtain funds on commercially acceptable terms, if at all. Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures. While we believe that we will continue to incur operating losses and use cash in operating activities for the foreseeable future, we believe that our current working capital is sufficient in comparison to our anticipated cash usage for a period of at least the next twelve months subsequent to the filing date of these condensed consolidated financial statements. Off-Balance Sheet Arrangements There are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on financial conditions, changes in financial conditions, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders. Critical Accounting Policies For a description of our critical accounting policies, see Note 2 – Summary of Significant Accounting Policies in Part 1, Item 1 of this Quarterly Report on Form 10-Q. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is a smaller reporting company, as defined by Rule 229.10(f)(1), and is not required to provide the information required by this Item.