What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-03-28 compared with 2022-03-28 · 616 added, 393 removed, 869 unchanged (54% of the section changed)

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During the year ended December 31, 2022, we did not design or maintain effective controls to ensure that there is an appropriate review and approval of electronic payments (wires, EFT’s, ACH’s and credit card payments).

We are in the process of developing a detailed plan for remediation of the material weakness, including developing and maintaining preventative controls around the electronic payment process to ensure proper segregation of duties.

As a first step we have committed to upgrading our enterprise software from QuickBooks to NetSuite which will provide more documented authorizations, options and workflow.

In addition, during 2021, we hired a Chief Operating Officer (“COO”) that will assist in providing additional segregation of duties and independent reviews our electronic payments.

The COO will provide the leadership and organizational experience necessary to ensure we have proper operational controls and procedures in place to effectively manufacture and automate on a mass scale with sound operating efficiency.

We will continue to assess the design and effectiveness of our remediation efforts in connection with our future assessments of internal control over financial reporting.

We are in the process of implementing a detailed plan for remediation of the material weakness, including developing and maintaining preventative controls around the electronic payment process to ensure proper segregation of duties.

As of December 31, 2022, we have upgraded our enterprise software from QuickBooks to NetSuite which provides more documented authorizations and workflow and have implemented a control whereby approval is obtained for credit card payments prior to the purchase being made.

Subsequent to December 31, 2022, we have upgraded our banking platform such that all electronic payments will require dual approval in order for funds to be transferred.

We will continue to devote time and attention to these remedial efforts, and we believe the above actions will be effective in remediating the material weakness described above during the first half of 2023.

However, as we continue to evaluate and take corrective actions to improve our internal controls over financial reporting, we may take additional actions to address control deficiencies or modify certain of the remediation measures described above.

Our remediation efforts will not be considered complete until the applicable controls operate for a sufficient period and our management has concluded, through testing, that these controls are operating effectively.

Notwithstanding the material weakness in internal control over financial reporting described above, our management has concluded that our consolidated financial statements included in the Annual Report on Form 10-K are fairly stated in all material respects in accordance with accounting principles generally accepted in the United States of America.

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Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022, based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 Framework).

Based on this evaluation under the 2013 Framework, our principal executive officer and principal financial officer have concluded that our internal control over financial reporting was not effective as of December 31, 2021 as a result of the material weakness described above.

Based on this evaluation, our principal executive officer and principal financial officer have concluded that our internal control over financial reporting was not effective as of December 31, 2022 as a result of the material weakness described above.

Changes in Internal Control Over Financial Reporting

Except as disclosed above, there has been no change in our internal control over financial reporting that occurred during the fourth quarter of 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over current or future financial reporting.

There has been no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over current or future financial reporting.

Inherent Limitations of the Effectiveness of Controls

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Timothy Knowles

Director, Chief Technical Officer and Secretary

Director, Executive Technical Fellow and Secretary

Simon Westbrook

Chief Financial Officer

William Walker

Chief Technical Officer

Keith Cochran

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Vice President of Engineering

Morio Kurosaki

Joanna Massey

Lead Director

Morio Kurosaki

The term of office for each director is one year, or until the next annual meeting of the stockholders.

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Mo received his Master of Science in Electrical Engineering from the University of California at Santa Barbara in 1995.

Knowles was appointed CTO and Director of the Company, has over 30 Years of Thermal Management R&D and product development experience for the most challenging space and industrial applications.

Knowles was appointed Executive Technical Fellow and Director of the Company, has over 30 Years of Thermal Management R&D and product development experience for the most challenging space and industrial applications.

He conducted research and built building products for various space and industrial customers such as NASA, Boeing, Raytheon, Jet Propulsion Lab, and others.

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in Physics from University of Southern California in 1969.

In recognition of Dr.

William Walker’s value to the Company and his appointment to the CTO position, Dr.

Timothy Knowles changed his title from Chief Technology Officer to Executive Technical Fellow.

Knowles’ change in title was not as a result of any disagreements with the Company on any matter relating to its operations, policies or practices.

Timothy Knowles will also remain a director of the Board.

Simon Westbrook was appointed Chief Financial Officer on March 15, 2018.

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Simon is a Chartered Accountant and holds a Master’s in Economics from Trinity College, Cambridge University.

William Walker was appointed Chief Technical Officer, effective November 1, 2022.

Walker who originally joined the Company in March 2022 as Director of Engineering, has significant experience in professional and research related activities focused on thermo-electrochemical testing and analysis of lithium-ion (Li-ion) battery assemblies and related thermal management products designed for space exploration applications.

Prior to joining the Company, from October 2021 to March 2022, Dr.

Walker was a Research Scientist at Underwriters Laboratories Inc.

since October of 2021.

From June 2012 to October 2021, Dr.

Walker was employed by the National Aeronautics and Space Administration (NASA) Johnson Space Center (JSC) where he focused on designing battery assemblies for human spaceflight applications capable of safely mitigating the effects of thermal runaway and preventing cell-to-cell propagation.

Walker was recognized with a NASA Trailblazer award and with the RNASA Stellar Award for early career contributions to Li-ion battery thermal analysis and calorimetry methods.

Walker continues to be engaged in the academic and

professional communities focused on battery safety.

Walker received his B.S.

in Mechanical Engineering at West Texas A&M University (WTAMU) and Ph.D.

in Materials Science and Engineering at the University of Houston (UH).

Keith Cochran was appointed President and Chief Operating Officer effective March 1, 2021.

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WDC) as one of the earliest members of WDC’s Japanese division.

Joanna Massey serves as a member of the Company’s board of directors since June 7, 2021.

Massey is an experienced C-level communications marketing executive and board director, who advises executive teams at Fortune 500 companies, startups and nonprofits.

Massey is also an author and corporate speaker.

Massey has worked for over 25 years strategizing on global brand reputation management at companies, such as Condé Nast, Lionsgate, CBS, Viacom, Discovery and Hasbro.

Massey has been the CEO of The Marketing Communications Think Tank since she founded the company in May 2021.

Massey has also been an adjunct professor at Columbia University teaching a graduate-level course in corporate communication since 2019.

From 2017 to 2019, Dr.

Massey was the head of communications at Condé Nast.

During her time at Condé Nast, Dr.

Massey was responsible for all internal and external communications.

From 2015 to 2017, Dr.

Massey was the Senior Vice President of Lionsgate, During her time at Lionsgate, Dr.

Massey handled quarterly reporting, M&A activities and crisis communications, and managed corporation communications for the company’s motion picture, television, digital properties, games, location-based entertainment, streaming video on demand, home entertainment and ancillary businesses worldwide.

Massey has been President & CEO of J.D.

Massey Associates, Inc., a portfolio company with multiple divisions that manage marketing communications, executive training and publishing, since she founded the Company in 2012.

Massey received an M.B.A from the University of Southern California and a Ph.D.

in psychology from Sofia University.

Joanna Massey serves as a member of the Company’s board of directors since June 7, 2021 and was appointed Lead Director on November 1, 2022.

Massey is a public company Board Director and former Fortune 500 C-level communications executive.

She helps companies expand market share and appeal to institutional investors by advising them on corporate governance, managing change, and navigating risk around environmental and social issues.

In her board roles for public and private companies, Dr.

Massey serves as Chair of Nominations & Governance, and she sits on the Audit, Compensation and M&A Committees.

Massey has a PhD in psychology and 30 years of experience advising Chairmen and CEOs.

She spent her operating career in the media and digital technology industries strategizing on global brand reputation management as Head of Communications at Condé Nast Entertainment and Senior Vice President of Corporate Communications at Lions Gate Entertainment (NYSE:

LGF.B) and at The Hub Network, a joint venture between Discovery, Inc.

WBD) and Hasbro, Inc.

She also held Senior Vice President positions in communications and media relations at CBS Corporation and Viacom, Inc., now Paramount Global (Nasdaq:

As a corporate communications executive, Dr.

Massey managed integration during major M&A transactions at Lionsgate, CBS, and Discovery;

corporate turnaround as Condé Nast pivoted from print to video;

and crisis communications with consumers, employees, investors, regulators, and politicians.

She is based in the United States and has international experience working with partners in Europe, the UK, China and India.

Board Composition

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Joanna Massey are “independent,” as defined under the NYSE American rules.

For purposes of the NYSE American rules, an independent director means a person other than an executive officer or employee of our company or any other individual having a relationship which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, subject to certain additional limitations.

interfere with the exercise of independent judgment in carrying out the responsibilities of a director, subject to certain additional limitations.

Committees of the Board of Directors

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Our Audit Committee has the responsibility for, among other things, (i) selecting, retaining and overseeing our independent registered public accounting firm, (ii) obtaining and reviewing a report by independent auditors that describe the accounting firm’s internal quality control, and any materials issues or relationships that may impact the auditors, (iii) reviewing and discussing with the independent auditors standards and responsibilities, strategy, scope and timing of audits, any significant risks, and results, (iv) ensuring the integrity of the Company’s financial statements, (v) reviewing and discussing with the Company’s independent auditors any other matters required to be discussed by PCAOB Auditing Standard No.

1301, (v1) reviewing, approving and overseeing any transaction between the Company and any related person and any other potential conflict of interest situations, (vii) overseeing the Company’s internal audit department, (v) reviewing, approving and overseeing related party transactions, and (viii) establishing and overseeing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by Company employees of concerns regarding questionable accounting or auditing matters.

1301, (vi) reviewing, approving and overseeing any transaction between the Company and any related person and any other potential conflict of interest situations, (vii) overseeing the Company’s internal audit department, (viii) reviewing, approving and overseeing related party transactions, and (ix) establishing and overseeing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by Company employees of concerns regarding questionable accounting or auditing matters.

Compensation Committee

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Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.

To our knowledge, during the fiscal year ended December 31, 2021, our officers, directors and greater than 10% beneficial owners have complied with all applicable filing requirements of Section 16(a).

To our knowledge, during the fiscal year ended December 31, 2022, our officers, directors and greater than 10% beneficial owners have complied with all applicable filing requirements of Section 16(a), except that a Form 4 for Timothy Ray Knowles was filed late, resulting in the late disclosure of one transaction in his spouse’s shares over which Mr.

Knowles does not have direct voting or dispositive control.

Nomination Process

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Chief Executive Officer

Timothy Knowles

Chief Technology Officer

Michael Carpenter

VP of Engineering

Keith Cochran

President and Chief Operating Officer

(1) Includes a grant date fair value of $2,579,000 attributable to an award of unvested options to purchase of up to 1,500,000 shares of the Company’s common stock at an exercise price of $2.60 per share, which will be incrementally earned based upon achieving certain market capitalization milestones up to $4 billion.

Represents the full fair value at grant date computed in accordance with the Financial Accounting Standards Codification (“FASB”) Topic 718.

The assumptions applied in determining the fair value of the award are discussed in Note 13 to our audited consolidated financial statements for the year ended December 31, 2021.

(2) Of the aggregate $137,931 earned during 2020, cash compensation paid during 2020 was $356,895, of which $218,964 was earned in prior years.

$0 remains unpaid as of December 31, 2020.

(3) Of the aggregate $70,680 earned during 2021, cash compensation paid during 2021 was $179,590, of which $108,910 was earned in prior years.

$0 remains unpaid as of December 31, 2021.

(4) Includes a grant date fair value of $2,911,420 attributable to an award of 1,500,000 unvested shares of the Company’s common stock which will be incrementally earned based upon achieving certain market capitalization milestones up to $4 billion.

Also includes a grant date fair value of $5,220,000 attributable to an award of 2,000,000 unvested shares of the Company’s common stock which will vest in four equal annual increments, with the first vest beginning in March of 2022.

Represents the full fair value at grant date computed in accordance with the Financial Accounting Standards Codification (“FASB”) Topic 718.

The assumptions applied in determining the fair value of the award are discussed in Note 13 to our audited consolidated financial statements for the year ended December 31, 2021.

William Walker

Chief Technology Officer

Includes the incremental value of an equity modification for 1,500,000 shares of the Company’s common stock previously deemed to be earned upon achieving market capitalization milestones up to $4 billion, which will now vest in four equal increments over four years.

Includes an option for the purchase of up to 1,500,000 shares of the Company’s common stock at an exercise price of $2.60 per share, to be earned based upon achieving certain market capitalization milestones up to $4 billion.

(This award was modified during 2022, see Note 1 above).

Includes the incremental value of an equity modification for 1,500,000 shares of the Company’s common stock previously deemed to be earned upon achieving market capitalization milestones up to $4 billion which will now vest in four equal increments over four years.

Includes 1,500,000 shares of the Company’s common stock to be earned based upon achieving certain market capitalization milestones up to $4 billion.

(This award was modified during 2022, see Note 3 above).

Also, includes 2,000,000 shares of the Company’s common stock which vests in four equal increments over four years, beginning in March of 2022.

Includes 150,000 shares of the Company’s common stock which vests in four equal increments over four years.

Employment Contracts;

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We have not entered into employment agreements with our officers and directors and our Board of Directors has the sole discretion to pay salaries and incentive bonuses, including merit-based cash and equity bonuses.

On June 9, 2021, the Board, at the recommendation of the Compensation Committee, approved the following compensation for each of the following officers of the Company:

● Michael Carpenter shall receive an annual salary of $160,000 for his services rendered as Vice President of Engineering of the Company;

● Michael Mo shall receive (1) an annual salary of $285,000 for his services rendered as Chief Executive Officer of the Company, and (2) a five-year, non-qualified stock option grant to purchase up to 1,500,000 shares of the Company’s common stock at a purchase price equal to $2.60 per share, which options shall vest in increments upon the Company’s achievement of various market capitalization milestones.

Any bonuses granted in the future will relate to meeting certain performance criteria that are directly related to areas within the named executive’s responsibilities with the Company.

As we continue to grow, more defined bonus programs may be established to attract and retain our employees at all levels.

On November 1, 2022, the Board, at the recommendation of the Compensation Committee, approved the following compensation for each of the following officers of the Company:

William Walker shall receive an annual salary of $210,000.

In connection with his appointment, the Board granted Dr.

Walker 100,000 shares of the Company’s common stock, which shall vest in four equal annual installments.

Equity Compensation Plans

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Compensation of Directors

On June 7, 2021, our Board of Directors approved the following compensation for Morio Kurosaki and Dr.

Joanna Massey, the independent directors of the Board.

Each independent director shall receive (1) $10,000 cash compensation per quarter, beginning on June 7, 2021;

(2) 20,000 shares of the Company’s restricted common stock, which shares shall vest equally in 5,000 share increments per quarter, with the first quarterly vest due to be achieved on September 7, 2021, subject to the respective director’s continued services to the Company;

(3) $5,000 per year ($10,000 for respective chairpersons), beginning on June 7, 2021, for each directors’ positions on each of the Compensation Committee and Nominating and Corporate Governance Committee of the Board;

(4) $8,000 per year ($17,000 for the chairperson), beginning on June 7, 2021, for each directors’ position on the Audit Committee of the Board;

and (5) customary per diems and/or expense reimbursements for attending meetings of the Board.

director whom they have replaced, successors are duly elected and qualified, or the earlier of such director’s death, resignation, disqualification, or removal.

Furthermore, the Lead Director will receive annual cash compensation equal to $150,000 upon their appointment and the non-Lead Independent Director (“non-Lead Director”) will receive annual cash compensation equal to $95,000.

Additionally, all independent Board members will be granted 37,500 shares of common stock of which shares shall vest quarterly in 7,500 share installments with the first installment vesting December 31, 2022.

Outstanding Equity Awards at Fiscal Year-End

The following table discloses information regarding outstanding equity awards granted or accrued as of December 31, 2022, for our named executive officers.

Outstanding Equity Awards

Number of Shares or Units of

Market Value of Units of

Stock that have not vested

Michael Mo (Chief Executive Officer)

Keith Cochran (President and Chief Operating Officer)

William Walker (Chief Technology Officer)

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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Michael Mo (2) - CEO and Chairman

Timothy Knowles (3) - CTO and Director

Timothy Knowles (3) - Executive Technical Fellow and Secretary

Simon Westbrook (4) - CFO

William Walker (5) - CTO

Keith Cochran (6) – President and COO

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All directors and executive officers as a group (8 persons)

* Less than 1%

(1) The percent of class is based on 104,864,715 shares of common stock issued and outstanding as of March 28, 2022 but does not include 1,925,000 shares that are not vested and cannot be voted.

(2) Consists of:

19,251,539 shares held directly by Mr.

The percent of class is based on 114,040,804 shares (of which 120,000 shares have not been issued), which excludes, as of December 31, 2022, 2,121,162 shares that do not vest within 60 days of March 28, 2023.

Consists of 19,251,539 shares held directly by Mr.

Mo and 1,400,000 shares held jointly by Mr.

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Mo has no control over the dispositive or voting power over the shares and his sons no longer live in the same household as Mr.

Does not include an option for the purchase of up to 1,500,000 shares of the Company’s common stock that do not vest within 60 days.

Does not include a restricted stock award of 1,500,000 shares of the Company’s common stock that does not vest within 60 days.

Consists of 15,600,000 shares held directly by Mr.

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Knowles has no control over the dispositive or voting power over the shares and his daughter no longer lives in the same household as Mr.

(4) Does not include 72,000 shares which have been earned but not issued.

Consists of 120,000 shares that have been earned but not yet issued.

Does not include 150,000 restricted stock grants that do not vest within 60 days.

Does not include a restricted stock award of 1,000,000 shares of the Company’s common stock that does not vest within 60 days.

Consists of 20,000 vested shares of common stock granted by the Company, on June 7, 2021, the effective date of Mr.

Kurosaki’s appointment as a director of the Company (excluding 5,000 shares that do not vest within 60 days), 400,000 shares of common stock previously acquired, and 100,000 shares held by IT-Farm Corporation, a Japanese venture and capital firm, of which Mr.

Kurosaki’s appointment as a director of the Company, 22,500 vested shares of common stock granted by the Company on November 1, 2022 (but excluding 15,000 shares that do no vest within 60 days), 400,000 shares of common stock acquired prior to being appointed

director, and 100,000 shares held by IT-Farm Corporation, a Japanese venture and capital firm, of which Mr.

Kurosaki is the founder and President.

Consists of 20,000 vested shares of common stock granted by the Company, on June 7, 2021, the effective date of Dr.

Massey’s appointment as a director of the Company (excluding 5,000 shares that do not vest within 60 days).

Massey’s appointment as a director of the Company, 22,500 vested shares granted by the Company on November 1, 2022 (but excludes 15,000 shares that do not vest within 60 days), and 10,000 shares of common stock acquired in open market purchases.

Change in Control

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PRINCIPAL ACCOUNTING FEES AND SERVICES

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following is a summary of the fees billed or expected to be billed to us for professional services rendered with respect to the fiscal years ended December 31, 2022 and 2021:

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Pre-Approval Policies

Our Board of Directors, who acts as our audit committee, has adopted a policy governing the pre-approval by the Board of Directors of all services, audit and non-audit, to be provided to our Company by our independent auditors.

Under the policy, the Board of Directors has pre-approved the provision by our independent auditors of specific audit, audit related, tax and other non-audit services as being consistent with auditor independence.

Requests or applications to provide services that require the specific pre-approval of the board of directors must be submitted to the Board of Directors by the independent auditors, and the independent auditors must advise the board of directors as to whether, in the independent auditor’s view, the request or application is consistent with the SEC’s rules on auditor independence.

The Board of Directors has considered the nature and amount of the fees billed by Marcum and believes that the provision of the services for activities unrelated to the audit is compatible with maintaining the independence of Marcum.

Our Audit Committee, has adopted a policy governing the pre-approval by the Board of Directors of all services, audit and non-audit, to be provided to our Company by our independent auditors.

Under the policy, the Audit Committee has pre-approved the provision by our independent auditors of specific audit, audit related, tax and other non-audit services as being consistent with auditor independence.

Requests or applications to provide services that require the specific pre-approval of the board of directors must be submitted to the Audit Committee by the independent auditors, and the independent auditors must advise the Audit Committee as to whether, in the independent auditor’s view, the request or application is consistent with the SEC’s rules on auditor independence.

The Audit Committee has considered the nature and amount of the fees billed by Marcum and believes that the provision of the services for activities unrelated to the audit is compatible with maintaining the independence of Marcum.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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Form of Warrant (20)

Standby Equity Purchase Agreement, dated May 13, 2022, by and between KULR Technology Group, Inc.

and YA II PN, Ltd.

Note Purchase Agreement, dated May 13, 2022, by and between KULR Technology Group, Inc.

and YA II PN, Ltd.

Promissory Note, dated May 13, 2022 (21)

Amendment, dated June 3, 2022, to the Standby Equity Purchase Agreement by and between KULR Technology Group, Inc.

and YA II PN, Ltd.

Supplemental Agreement dated as of September 23, 2022 to the Standby Equity Purchase Agreement dated as of May 16, 2022 between KULR Technology Group, Inc.

and YA II PN, LTD.

Asset Purchase Agreement, effective as of October 6, 2022, by and among KULR Technology Group, Inc., Vibetech International, LLC, and Norman Serrano (24)

List of Subsidiaries (3)

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Previously filed as an exhibit to Form 8-K on May 20, 2021 and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on May 16, 2022 and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on June 3, 2022 and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on September 23, 2022 and incorporated herein by this reference.

Previously filed as an exhibit to Form 8-K on October 6, 2022 and incorporated herein by this reference.

FORM 10-K SUMMARY

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/s/ Timothy Knowles

Chief Technical Officer and Director

Executive Technical Fellow and Director

March 28, 2023

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Simon Westbrook

/s/ William Walker

Chief Technical Officer

March 28, 2023

William Walker

/s/ Keith Cochran

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Joanna Massey

Lead Director

March 28, 2023

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Morio Kurosaki

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID:

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Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Changes in Stockholders’ Equity (Deficiency) for the Years Ended December 31, 2021 and 2020

Consolidated Statement of Changes in Stockholders’ Equity for the Year Ended December 31, 2022

Consolidated Statement of Changes in Stockholders’ Equity for the Year Ended December 31, 2021

Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021

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Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

Description of the Matter

As described in Note 13 to the consolidated financial statements, during the year ended December 31, 2021, the Company entered into a Securities Purchase Agreement 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 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 “Offering”).

The Company also agreed to pay the investor a commitment fee of 1,300,000 shares of common stock at the closing of the Offering.

In addition, during the year ended December 31, 2021, the Company issued 1,500,000 shares of restricted common stock and 1,500,000 options to purchase common stock to officers of the Company.

Both grants will vest based on the achievement of certain market capitalization milestones by the Company.

We identified the valuation of the Series D convertible preferred stock and the market-based share based compensation awards to be a critical audit matter as the valuations of such instruments are complex and can require judgement on the part of management.

How We Addressed the Matter in Our Audit

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audits matter below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Description of Matter No.

As disclosed in Note 3 to the December 31, 2022 consolidated financial statements, on October 5, 2022 the Company entered into an agreement to purchase all of the assets, including intellectual property, of Vibetech International, LLC (“Vibetech”) for consideration of $3,500,000, of which, $2,000,000 will be paid in cash, and $1,500,000 is to be paid in common stock.

The Company also entered into an employment agreement with the owner of Vibetech for which significant amounts of the consideration paid are contingent and subject to claw back provisions tied to such employment.

We identified the Company’s accounting for the acquisition to be a critical audit matter as such accounting can be complex and require judgement on the part of management.

How We Addressed Matter No.

1 in Our Audit

Our audit procedures to address this critical audit matter included the following:

(i) we evaluated the terms and conditions of the preferred stock as outlined in the preferred stock certificate of designation, (ii) we evaluated the terms and conditions of each of the market-based awards granted to the officers, and (iii) with the assistance of our internal valuation specialists, we tested the models and inputs used by management to estimate the fair value of the preferred stock and market-based awards through a combination of reperforming the Company’s model and performing an independent model using a Monte Carlo simulation.

(i) we examined the contractual purchase agreements between the Company and Vibetech, (ii) we evaluated the various assets acquired to ensure management’s accounting analysis was complete, (iii) we evaluated the terms and conditions of the employment agreement between the Company and the former owner of Vibetech, including the contingent consideration arrangement in which the payments are automatically forfeited if employment terminates, and (iv) we evaluated the Company’s conclusions that a single asset (the intellectual property) constituted the majority of the purchase price and should not be accounted for as a business combination.

We also engaged the assistance of our firm’s internal valuation specialists in our overall testing procedures.

Description of Matter No.

As disclosed in Note 2 to the December 31, 2022 consolidated financial statements, the Company is required to evaluate its liquidity and ability to continue as a going concern for a period within one year after the date that the financial statements are issued.

As disclosed, the Company concluded that matters existed that could indicate substantial doubt about its ability to continue as a going concern was probable as a result of its current working capital levels, history of operating and net losses, and cash used in operating and investing activities in 2022.

The Company also disclosed its plans to alleviate the indicators that substantial doubt exists.

We identified the Company’s evaluation of its liquidity and financial conditions to be a critical audit matter as such evaluation required significant estimates and judgment on the part of management.

How We Addressed Matter No.

2 in Our Audit

Our audit procedures to address this critical audit matter included the following:

(i) we evaluated the Company’s future cash flow projections, which included examining future sources of revenue, comparing future cash outflows to historical amounts, and performing independent analytical procedures over the Company’s future cash flow projections, (ii) we reviewed and evaluated the Company’s plans for dealing with adverse conditions and events if liquidity was to become constrained in the future, (iii) we evaluated relevant transactions that transpired subsequent to December 31, 2022 that had an impact on the liquidity analysis, including recent capital raises and conversions of the prepaid advance liability, and (iv) we evaluated the Company’s contractual arrangement with the financial institution identified in Note 2, which included independently communicating with such financial institution regarding the arrangement and their ability and intent to continue to support the Company.

/s/ Marcum LLP

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Accounts receivable

Inventory deposits

Prepaid expenses and other current assets

1 unchanged sentence

Property and equipment, net

Vendor deposits

Equipment deposits

Security deposits

1 unchanged sentence

Right of use asset

Deferred financing costs

Liabilities and Stockholders’ Equity

2 unchanged sentences

Accrued expenses and other current liabilities

Notes payable, net of debt discount of $ 0 and $ 128,198 at December 31, 2021 and 2020, respectively

Accrued issuable equity

Lease liability, current portion

Loan payable, current portion

Prepaid advance liability, net of discount, current portion

Deferred revenue

1 unchanged sentence

Lease liability, non-current portion

Loan payable, non-current portion

Prepaid advance liability, net of discount, non-current portion

Accrued interest, non-current

Total Liabilities

3 unchanged sentences

Series A Preferred Stock, 1,000,000 shares designated;

none issued and outstanding at December 31, 2021 and 2020, respectively

none issued and outstanding at December 31, 2022 and 2021

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 December 31, 2021 and 2020, respectively

none issued and outstanding at December 31, 2022 and 2021

Series C Preferred Stock, 400 shares designated;

none issued and outstanding at December 31, 2021 and 2020, respectively

none issued and outstanding at December 31, 2022 and 2021

Series D Preferred Stock, 650 shares designated;

none issued and outstanding at December 31, 2021 and 2020, respectively

none issued and outstanding at December 31, 2022 and 2021

Common stock, $ 0.0001 par value, 500,000,000 shares authorized;

104,792,072 and 89,908,600 shares issued and outstanding at December 31, 2021 and 2020, respectively

113,202,749 and 113,071,587 shares issued and outstanding at December 31, 2022, respectively;

104,792,072 shares issued and outstanding at December 31, 2021

Treasury stock, at cost;

131,162 and 0 shares held at December 31, 2022 and December 31, 2021, respectively

Additional paid-in capital

17 unchanged sentences

( 11,513,415 )

Other Expense

Interest expense, net

Other (Expense) Income

Interest expense

Gain on forgiveness of PPP loan and interest

Debt redemption costs

Amortization of debt discount

Loss on debt extinguishment

Change in fair value of accrued issuable equity

3 unchanged sentences

( 19,436,479 )

Deemed dividend to Series C preferred stockholders

( 11,911,151 )

Deemed dividend to Series D preferred stockholders

8 unchanged sentences

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIENCY) EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

Series B Convertible

Series C Convertible

Series D Convertible

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2022

Treasury Stock

Stockholders'

Preferred Stock

Balance - January 1, 2022

( 23,157,559 )

Common stock and warrants issued for cash, net of issuance costs [1]

Common stock issued for the commitment fee pursuant to the SEDA agreement

Common stock issued pursuant to the SEDA agreement:

Treasury stock held upon the vesting of restricted common stock

Treasury stock issued upon the exercise of options

Common stock issued upon the exercise of options

Common stock issued upon the exercise of warrants

Common stock issued pursuant to the SEPA and Supplemental SEPA agreements:

For cash, net of issuance costs (1)

In satisfaction of notes payable

Common stock issued upon conversion of Series B Convertible Preferred Stock

Common stock issued upon conversion of Series C Convertible Preferred Stock

For the repayment of prepaid advance liability

Stock-based compensation:

Restricted stock awards

Common stock issued for services

Amortization of restricted stock units

Amortization of stock options

Amortization of market-based award

( 19,436,479 )

2 unchanged sentences

( 42,594,038 )

Common stock issued upon conversion of Series B Convertible Preferred Stock

(1) Represents gross proceeds of $ 250,000 less $ 982 for amortization of deferred issuance costs.

The accompanying notes are an integral part of these consolidated financial statements.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2021

Series B Convertible

Series D Convertible

Preferred Stock

Treasury Stock

Stockholders'

Balance - January 1, 2021

( 11,246,408 )

Common stock issued upon the conversion of Series B Convertible Preferred Stock

Issuance of Series D Convertible Preferred Stock, common stock and warrants for cash (1)

14 unchanged sentences

( 23,157,559 )

[1] Includes gross proceeds of $ 8,000,001 , less issuance costs of $ 730,152 ( $ 705,300 of cash and $ 24,852 of non-cash).

[2] Amount represents gross proceeds of $ 1,501,696 less $ 78,259 issuance costs.

Represents $ 6,500,000 of relative fair value of preferred stock issued, net of cash issuance costs of $ 365,000 .

2 unchanged sentences

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOW

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended

6 unchanged sentences

Depreciation and amortization expense

Bad debt expense

Non-cash interest expense

Gain on forgiveness of PPP loan and interest

Change in fair value of accrued issuable equity

Stock-based compensation

Bad debt expense

Loss on extinguishment of note payable

Changes in operating assets and liabilities:

Accounts receivable

( 1,420,818 )

( 1,770,724 )

Prepaid expenses and other current assets

( 1,324,836 )

Inventory deposits

Security deposits

8 unchanged sentences

Cash Flows From Investing Activities:

Vendor deposits for the purchase of property and equipment

Deposits for purchase of property and equipment

( 1,421,432 )

( 2,153,950 )

Purchases of property and equipment

Purchase of intangible asset

( 2,682,970 )

Acquisition of intangible assets

Net Cash Used In Investing Activities

( 4,647,974 )

( 2,737,235 )

Cash Flows from Financing Activities:

Proceeds from Paycheck Protection Program loan

Proceeds from notes payable

Proceeds from note payable (1)

Net proceeds from the SEPA

Net proceeds from the prepaid advance liability (2)

Issuance costs on prepaid advance liability

Payment of financing costs incurred in connection with the SEPA

Notes payable issuance costs

Payment of financing costs

1 unchanged sentence

( 1,000,000 )

Payment of debt issuance costs

( 2,450,000 )

Proceeds from the exercise of options

Proceeds from the exercise of warrants

Proceeds from sale of common stock and warrants

Payment of offering costs in connection with sale of common stock and warrants

Proceeds from sale of common stock issued pursuant to the SEDA agreement [1]

Proceeds from sale of Series D Convertible Preferred Stock, common stock and warrants

Net Cash Provided By Financing Activities

Net Increase In Cash

Cash - Beginning of Period

Cash - End of Period

[1] Includes gross proceeds of $ 2,292,696 less $ 791,000 withheld by the investor to pay down a portion of the notes payable held by the same investor.

Net (Decrease) Increase In Cash

( 4,529,738 )

Cash - Beginning of Year

Cash - End of Year

(1) Note payable face value of $ 5,000,000 , less $ 250,000 original issue discount.

(2) Consists of principal of $ 15,000,000 on prepaid advance liability, less $ 3,850,000 and $ 566,932 withheld to repay note payable and related interest and premiums, respectively, owed to same investor, and, $ 10,000 withheld for issuance costs.

The accompanying notes are an integral part of these consolidated financial statements.

4 unchanged sentences

Supplemental Disclosures of Cash Flow Information:

Cash paid during the period for:

Cash paid during the year for:

Non-cash investing and financing activities:

Right of use asset for lease liability

Original issuance discount on notes payable

Disposal of fully depreciated property and equipment

Common stock issued for repayment of notes payable

Additions to property and equipment included in accounts payable

Beneficial conversion feature on Series D convertible preferred stock

Common stock issued as a commitment fee for the SEDA agreement

Common stock issued upon the conversion of Series B Convertible Preferred Stock

Common stock issued upon the conversion of Series C Convertible Preferred Stock

Common stock issued upon the conversion of Series D convertible preferred stock

Common stock held in treasury upon the vesting of restricted common stock

Common stock issued upon the conversion of Series B convertible preferred stock

Common stock issued in satisfaction of accrued issuable equity

Prepaid advance for repayment of note payable

Original issue discount on prepaid advance liability

Common stock issued in satisfaction of note payable

Common stock issued in satisfaction of prepaid advance liability and interest

Deposits applied to purchase of property and equipment

Deferred financing costs charged to additional paid in capital

Common shares issued as partial consideration for intangible asset

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

ORGANIZATION, NATURE OF OPERATIONS AND RISKS AND UNCERTANTIES

NOTE 1 - ORGANIZATION, NATURE OF OPERATIONS AND RISKS AND UNCERTANTIES

Organization and Operations

4 unchanged sentences

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 systems and hypersonic vehicles, and applying them to mass market commercial applications, such as lithium-ion battery energy storage, electric vehicles, 5G communication, cloud computer infrastructure, consumer and industrial devices.

Currently, the Company is focused on targeting both high performance aerospace and Department of Defense (“DOD”) applications, such as space exploration, satellite communications, and underwater vehicles, and applying them to mass market commercial applications, such as lithium-ion battery energy storage, electric vehicles, 5G communication, cloud computer infrastructure, consumer and industrial devices.

Risks and Uncertainties

In March 2020, the World Health Organization declared COVID-19, a novel strain coronavirus, a pandemic.

During 2020 and continuing into 2022, the global economy has been, and continues to be, affected by COVID-19.

Continuing into 2022, 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 begin to gradually ease restrictions, provide economic stimulus and accelerate vaccine distribution, 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 has determined there were no material adverse impacts on the Company’s results of operations and financial position at December 31, 2021.

For example, in response to an outbreak of infection in Shanghai, beginning in March 2022, governmental authorities in China implemented a lockdown order in that city, significantly slowing economic and business activity in that region and adversely affecting our ability to import product material required to fulfill some customer commitments.

We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities and may take additional actions based on their recommendations and requirements or as we otherwise see fit to protect the health and safety of our employees, customers, partners and suppliers.

The full extent of the future impact of COVID-19 on the Company’s operations and financial condition is uncertain.

1 unchanged sentence

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The short and long-term worldwide implications of Russia’s invasion of Ukraine are difficult to predict at this time.

The imposition of sanctions on Russia by the United States or other countries and possible counter sanctions by Russia, and the resulting economic impacts on oil prices and other materials and goods, could affect the price of materials used in the manufacture of our product candidates.

If the price of materials used in the manufacturing of our product candidates increase, that would adversely affect our business and the results of our operations.

On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver.

Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp.

were each swept into receivership.

A statement by the Department of the Treasury, the Federal Reserve and the FDIC stated that all depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts.

The standard deposit insurance amount is up to $250,000 per depositor, per insured bank, for each account ownership category.

Although we do not have any funds deposited with the aforementioned banks that failed, we regularly maintain cash balances with other financial institutions in excess of the FDIC insurance limit.

A failure of a depository institution to return deposits could impact access to our invested cash or cash equivalents and could adversely impact our operating liquidity and financial performance.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

2 unchanged sentences

All significant intercompany transactions have been eliminated in the consolidation.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.

During the year ended December 31, 2021, the Company raised gross proceeds of $ 6,500,000 in connection with the sale of preferred stock, common stock and warrants, and raised proceeds of $ 11,841,070 in connection with the exercise of options and warrants to purchase common stock.

During the year ended December 31, 2021, the Company repaid outstanding notes payable in the amount of $ 2,450,000 and paid financing costs in the amount of $ 365,000 .

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.

During the year ended December 31, 2022, the Company incurred a net loss in the amount of $ 19,436,479 and used cash in operations of $ 17,354,125 .

As of December 31, 2022, the Company had cash of $ 10,333,563 and working capital of $ 6,055,477 .

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 financial statements.

During the year ended December 31, 2022, the Company generated net cash from financing activities of $ 17,472,361 , mainly from proceeds received from Prepaid Advances, the issuance of a note payable, shares of common stock, and from the exercise of options and warrants to purchase common stock.

The Company’s primary source of liquidity has historically been cash generated from equity and debt offerings.

Under ASC Subtopic 205-40, Presentation of Financial Statements—Going Concern (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet future financial obligations as they become due within one year after the date that the financial statements are issued.

The above conditions are indicators that substantial doubt about the Company’s ability to continue as a going concern could exist as the Company has a history of recurring net losses, recurring use of cash in operations and declining working capital.

Despite these conditions, the Company has a successful track record of raising capital as needed and continues to have a positive, ongoing relationship with a financial institution that has provided access to capital and will continue to support KULR.

On May 13, 2022, the Company entered into a Standby Equity Purchase Agreement (the “SEPA”), which gives the Company the right, but not the obligation, to sell up to $ 50,000,000 of its shares of common stock to YA II PN, Ltd.

(“Yorkville”) during the commitment period.

Further, on September 23, 2022, the Company entered into the Supplemental SEPA, pursuant to which the Company may request advances (“Prepaid Advances”) up to an aggregate of $ 50,000,000 from Yorkville.

Yorkville has the right to receive shares, and may select the timing and delivery of such shares, in an amount up to the balance of the Prepaid Advance in order to pay down the Prepaid Advance liability.

During the year ended December 31, 2022, the Company received aggregate gross proceeds of $ 4,750,000 from a Promissory Note payable and received gross proceeds of $ 400,000 and $ 15,000,000 under the SEPA and the Supplemental SEPA, respectively (of which $ 150,000 and $ 3,850,000 , respectively, was used to repay the Promissory Note;

see Note 12 – Notes Payable).

The Company is not permitted to initiate additional sales of its common stock under the SEPA until the Prepaid Advance liability ($ 8,852,290 at December 31, 2022) is settled.

Subsequent to December 31, 2022, the Company issued 3,153,036 shares of common stock, at purchase price per share ranging from $ 0.90 to $ 1.20 , in satisfaction of the Prepaid Advance Liability in the amount of $ 3,579,932 .

See Note 10 – Prepaid Advance Liability and Note 15 – Stockholders’ Equity for additional information.

While no assurance can be provided that the Company will be successful in raising additional capital from Yorkville, as they are not obligated to advance funds to the Company so long as there is an outstanding Prepaid Advance, Yorkville has represented that in most scenarios, with mutual consent, they will continue to provide financial support as evidenced by the funds provided during March 2023.

On March 10, 2023, the Company and Yorkville closed on a second Prepaid Advance in the amount of $ 2,000,000 .

Upon satisfaction of the Prepaid Advance liability, the Company will utilize its ability to draw down on the remaining $ 33,000,000 available under the SEPA.

Based on the above, the Company believes it has sufficient liquidity and access to future capital to continue as a going concern for a period of at least twelve months from the date the financial statements have been issued and that its above plans alleviate any potential substantial doubt about the entity’s ability to continue as a going concern.

As of March 24, 2023, the Company’s cash balance was approximately $ 7.3 million.

KULR TECHNOLOGY GROUP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

Use of Estimates

1 unchanged sentence

GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial statements.

The Company’s significant estimates used in these financial statements include, but are not limited to, fair value calculations for equity securities, stock-based compensation and the valuation allowance related to the Company’s deferred tax assets.

The Company’s significant estimates used in these financial statements include, but are not limited to, fair value calculations for intangible assets, equity securities, stock-based compensation and the valuation allowance related to the Company’s deferred tax assets.

Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions.

1 unchanged sentence

See Note 2 – Summary of Significant Accounting Policies, Stock-Based Compensation for additional discussion of the use of estimates in estimating the fair value of the Company’s common stock.

Treasury Stock

The Company records repurchases of its own common stock at cost.

Repurchased common stock is presented as a reduction of equity in the consolidated balance sheets.

Subsequent reissuances of treasury stock are accounted for on a weighted average cost basis.

Gains resulting from differences between the cost of treasury stock and the re-issuance proceeds are credited to additional paid in capital.

Losses resulting from differences between the cost of treasury stock and the re-issuance proceeds are debited to additional paid-in capital.

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.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consisted primarily of cash and accounts receivable.

The Company’s concentrations of credit risk also includes concentrations from key customers and vendors.

Cash Concentrations

11 unchanged sentences

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.

As a result of the Company’s significant customer concentrations, its gross profit and results from operations could fluctuate significantly due to changes

KULR TECHNOLOGY GROUP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

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.

Vendor Concentrations

8 unchanged sentences

Past due accounts are generally written off against the allowance for bad debts only after all collection attempts have been exhausted.

Inventory is comprised of carbon fiber velvet (“CFV”) thermal interface solutions and internal short circuit batteries, which are available for sale.

Inventory is comprised of carbon fiber velvet (“CFV”) thermal interface solutions and internal short circuit batteries, which are available for sale, as well as raw materials and work in process related primarily to the manufacture of safe cases.

Inventories are stated at the lower of cost or net realizable value.

3 unchanged sentences

Products that are determined to be obsolete, if any, are written down to net realizable value.

As of December 31, 2021, and 2020, the Company’s inventory was comprised solely of finished goods.

On occasion, the Company pays for inventory prior to receiving the goods.

These payments are recorded as inventory deposits until the goods are received and these costs are included in the current asset section of the balance sheet.

As of December 31, 2022 and 2021, inventory deposits were $ 285,260 and $ 309,688 , respectively.

Finished goods inventory is held on-site at the San Diego, California location.

Raw materials are held off-site with certain suppliers.

Inventory at December 31, 2022 and 2021 consisted of the following:

Raw materials

Work-in-process

Finished goods

Total inventory

Property and Equipment

4 unchanged sentences

The Company capitalizes cost attributable to the betterment of property and equipment when such betterment extends the useful life of the assets.

The Company reviews for the impairment of long-lived assets annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

An impairment loss would be recognized when undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying value.

Intangible assets are stated at fair value as of the date acquired, less accumulated amortization.

Amortization is calculated based on the estimated useful lives of the assets, which were determined to be 20 years , using the straight-line method or another method that more fairly represents the utilization of the assets.

Vendor deposits toward the purchase of property and equipment are reflected as equipment deposits on the accompanying balance sheets.

KULR TECHNOLOGY GROUP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

The Company reviews for the impairment of long-lived assets annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

An impairment loss would be recognized when undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying value.

Intangible assets are stated at fair value as of the date acquired, less accumulated amortization.

Amortization is calculated based on the estimated useful lives of the assets, using the straight-line method or another method that more fairly represents the utilization of the assets, as follows:

Estimated Useful Life

Intellectual property

The Company periodically evaluates the remaining useful lives of our intangible assets to determine whether events or circumstances warrant a revision to the remaining periods of amortization.

14 unchanged sentences

The Company’s preferred shares are classified as stockholders’ equity because they are not subject to mandatory redemption, which would result in liability classified instruments measured at fair value, and because they are not conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) which would result in temporary equity classified instruments.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Convertible Instruments

6 unchanged sentences

If the instrument is determined not to be a derivative liability, the Company then evaluates for the existence of a beneficial conversion feature by comparing the market price of the Company’s common stock as of the commitment date to the effective conversion price of the instrument.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

Accrued Issuable Equity

1 unchanged sentence

Accrued issuable equity is recorded and carried at fair value with changes in its fair value recognized in the Company’s consolidated statements of operations.

Once the underlying shares of common stock are issued, the accrued issuable equity is reclassified as of the share issuance date at the then current fair market value of the common stock.

Offering Costs

Offering costs, which primarily consist of direct, incremental professional fees incurred in connection with a debt or equity financing, are capitalized as deferred offering costs (a non-current asset) on the balance sheet.

Once the underlying shares of common stock are issued, the accrued issuable equity is reclassified to equity as of the share issuance date at the then current fair market value of the common stock.

Deferred Financing Costs

Deferred financing costs, which primarily consist of direct, incremental professional fees incurred in connection with a debt or equity financing, are capitalized as deferred financing costs (a non-current asset) on the balance sheet.

Once the financing closes, the Company reclassifies such costs as either discounts to notes payable or as a reduction of proceeds received from equity transactions so that such costs are recorded as a reduction of additional paid-in capital.

13 unchanged sentences

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.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the Company’s revenue recognized in its consolidated statements of operations:

3 unchanged sentences

Total revenue

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

As of December 31, 2022 and 2021, the Company had $ 23,000 and $ 132,303 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 year ended December 31, 2021, the Company did no t recognize any revenues that were included in deferred revenue in a previous period.

During the year ended 2020, the Company recognized $ 15,000 of revenues that were included in deferred revenue in previous periods.

Deferred Labor Costs

As of December 31, 2022 and 2021, the Company had $ 34,402 and $ 84,324 , respectively, of deferred labor costs, which is included in prepaid expenses and other current assets in the Company’s consolidated balance sheets.

Deferred labor costs represent costs to fulfill the Company’s contract service revenue.

Deferred labor costs represent costs incurred 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.

2 unchanged sentences

Costs incurred for shipping and handling are included as cost of revenues on the accompanying consolidated statements of operations.

As of December 31, 2021, the Company reclassed $ 18,887 of shipping and handling costs from selling, general and administrative expense to cost of revenue for the year ended December 31, 2020.

Research and Development

8 unchanged sentences

The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period.

Upon the exercise of an award, the Company issues new shares of common stock out of its authorized shares.

During the period from January 1, 2020 through June 17, 2020, it was determined that the Company’s common stock had a fair value of $ 0.66 per share, which was based on a number of factors, such as the examination of the sales of common stock for cash and the convertible preferred stock for cash etc.

For the period from June 18, 2020 through December 31, 2021, the Company estimated the fair value of the awards granted in this period based on the market value of its freely tradable common stock as reported on the OTCQB market.

The Company determined the freely tradable common stock price became a reliable and accurate representation of its fair market value during this period as a result of increased share volume and dollar trading volume.

Upon the exercise of an award, the Company generally issues new shares of common stock out of its authorized shares, but may issue treasury stock, when available.

Net Loss Per Common Share

4 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

The following table presents the computation of basic and diluted net loss per common share:

For the Twelve Months Ended

( 19,436,479 )

( 11,911,151 )

Deemed dividend to Series D preferred stockholders

( 2,624,326 )

Net loss attributable to common stockholders

( 19,436,479 )

( 14,535,477 )

Denominator (weighted average quantities):

Common shares issued

Treasury shares purchased

Unvested restricted shares

( 2,005,109 )

( 2,037,897 )

Accrued issuable equity

Denominator for basic and diluted net loss per share

Basic and diluted net loss per common share

The following shares were excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:

Series B Convertible Preferred Stock

Unvested restricted stock

Unvested market -based equity awards

The table above does not include shares to be issued in satisfaction of the remaining prepaid advance liability (see Note 10 – Prepaid Advance Liability).

Operating Leases

7 unchanged sentences

The Company utilizes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements as of December 31, 2022 and 2021.

7 unchanged sentences

Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements, except as disclosed.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13 “Financial Instruments - Credit Losses (Topic 326)” and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2020-02 (collectively Topic 326).

Topic 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.

This replaces the existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates.

The Company will be required to adopt the provisions of this ASU on January 1, 2023, with early adoption permitted for certain amendments.

Topic 326 must be adopted by applying a cumulative effect adjustment to retained earnings.

The Company does not expect the adoption of this standard to have a material effect on its consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

3 unchanged sentences

The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (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 consolidated financial statements and related disclosures.

In October 2020, the FASB issued ASU 2020-10 “Codification Improvements”, which improves consistency by amending the Codification to include all disclosure guidance in the appropriate disclosure sections and clarifies application of various provisions in the Codification by amending and adding new headings, cross referencing to other guidance, and refining or correcting terminology.

The guidance is effective for the Company beginning in the first quarter of fiscal year 2022 with early adoption permitted.

The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

The Company adopted ASU 2020-10 effective January 1, 2022 and its adoption did not have a material impact on its condensed consolidated financial statements.

On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

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This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange.

This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

This standard is effective

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Issuers should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard.

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If an issuer elects to early adopt the new standard in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period.

The Company does not expect this new standard to have a material impact on its financial statements.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (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 consolidated financial statements and related disclosures.

PREPAID EXPENSES AND OTHER CURRENT ASSETS

The Company adopted ASU 2021-04 effective January 1, 2022 and its adoption did not have a material impact on its condensed consolidated financial statements.

NOTE 3 – ASSET PURCHASE

On October 6, 2022 (the “Asset Purchase Date”), KULR Technology Group, Inc.

(the “Company”) entered into an agreement (the “Asset Purchase Agreement”) with a seller (the “Seller”), pursuant to which the Company purchased all of the assets, including intellectual property, of the Seller (the “Acquired Assets”) for consideration of $ 3,500,000 (the “Total Consideration”), of which, $ 2,000,000 (the “Cash Consideration”) will be paid in cash, and the Company will issue shares of common stock with an aggregate fair value of $ 1,500,000 , valued as of the Asset Purchase Date (the “Equity Consideration”).

The Asset Purchase Agreement includes customary representations, warranties and covenants of the Company and the Seller.

The Purchase Agreement also contains post-closing indemnification provisions pursuant to which the parties have agreed to indemnify each other against losses resulting from certain events, including breaches of representations and warranties, covenants and certain other matters.

The Company paid $ 1,000,000 of the Cash Consideration on October 6, 2022.

The remaining Cash Consideration will be paid in two equal installments of $ 500,000 on each of April 5, 2023 and October 5, 2023 .

In addition to total consideration, the seller has been employed by the Company and will receive an annual salary of $ 216,000 .

If the Seller terminates his employment with the Company less than four years after the Asset Purchase Date for reasons other than severe health problems or other extenuating circumstances that would render the Seller unable to perform his employment obligations, the Seller is required to pay back to the Company a pro rata portion of the Cash Consideration (the “Clawback”), based upon the length of the Seller’s employment as percentage of the four year employment requirement.

A partial year is considered a full year for purposes of calculating the Clawback amount.

The Company will issue the Equity Consideration in four equal installments of 279,852 common shares, valued as of the Asset Purchase Date at $ 1.34 per share, on the following dates:

(i) October 5, 2023, (ii) October 5, 2024, (iii) October 5, 2025, and (iv) October 5, 2026, provided that the Seller has not terminated his employment with the Company as of the date of payment.

All of the Equity Consideration is contingent upon the continued employment of the Seller;

further, 75 % of the Cash Consideration is subject to Clawback, based on the term of the Seller’s employment by the Company.

As such, an aggregate of $ 3,000,000 of the Total Consideration is accounted for as compensation, which will be recognized on a pro rata basis over the employment term requirement.

The remaining $ 500,000 of Total Consideration is accounted for as consideration for the Acquired Assets.

Management determined that the remaining $ 500,000 of consideration attributable to fair value of the Acquired Assets was concentrated into a single identifiable asset, namely, intellectual property.

As a result, this transaction was accounted for as an asset acquisition.

The Company incurred legal costs in connection with the execution of the Asset Purchase Agreement, in the aggregate amount of $ 43,572 .

The total cost of the intellectual property acquired of $ 543,572 is included in intangible assets on the accompanying consolidated balance sheet and is being amortized over its estimated useful life of 5 years (see Note 6 – Intangible Assets for additional details).

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

As of December 31, 2022 and 2021, prepaid expenses and other current assets consisted of the following:

As of December 31,

Inventory deposits

Vendor receivables

Deferred labor costs

Professional fees

Research and development

Dues and subscriptions

Compensation costs

Marketing and sponsorships

Total prepaid expenses

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

PROPERTY AND EQUIPMENT

NOTE 5 - PROPERTY AND EQUIPMENT

As of December 31, 2022 and 2021, property and equipment consisted of the following:

Estimated Useful Life

Computer equipment

Leasehold improvements

Lesser of the useful life of the asset or remaining term of the lease

Construction in progress (1)

Machinery & equipment

Leasehold improvements

Lesser of the useful life of the asset or remaining life of the lease

Computer equipment

Research and development equipment

Furniture and fixtures

accumulated deprecation

accumulated depreciation

Property and equipment, net

Depreciation expense amounted to $ 66,667 and $ 15,746 for the years ended December 31, 2021 and 2020, respectively, which is included in selling, general and administrative and research and development expenses in the consolidated statements of operations.

INTANGIBLE ASSETS

(1) Consists primarily of $ 1,198,733 for the construction of an automation facility and $ 184,484 for the construction of the mezzanine.

Depreciation expense amounted to $ 219,643 and $ 66,667 , respectively, for the years ended December 31, 2022 and 2021, respectively, which is included in selling, general and administrative and research and development expenses in the consolidated statements of operations.

NOTE 6 - INTANGIBLE ASSETS

The Company’s intangible assets consist of the following:

Intellectual property

accumulated amortization

Intangible assets, net

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In December 2021, the Company acquired a patent for consideration of $ 218,000 .

This long-lived intangible asset has a useful life of approximately 20 years , which is being amortized on a straight-line basis and tested for impairment on an annual basis.

As of December 31, 2021, the Company had no impairments of intangibles and recognized amortization expense related to the intangible of $ 1,048 .

VENDOR DEPOSITS

The Company entered into agreements with third party contractors for facility improvements, the design and build of a battery packaging and inspection automation system, and automated robotic tending system.

As of December 31, 2021, the Company had outstanding deposits of $ 2,153,950 in connection with these agreements.

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

This long-lived intangible asset has a useful life of approximately 17.3 years and is being amortized on a straight-line basis and tested for impairment on an annual basis.

On October 5, 2022 the Company acquired intellectual property with an aggregate cost of $ 543,572 (see Note 3 - Asset Purchase).

This long-lived intangible asset has a useful life of 5 years and is being amortized on a straight-line basis and tested for impairment on an annual basis.

During the years ended December 31, 2022 and 2021, the Company recognized amortization expense related to intangible assets of $ 39,756 and $ 1,048 , respectively.

As of December 31, 2022, the Company had no impairments of its intangible assets.

The weighted average remaining amortization period of the Company’s intangible assets is 8.0 years.

Future amortization of intangible asset is as follows:

For the Years Ended December 31, 2022

NOTE 7 - EQUIPMENT DEPOSITS

The Company entered into agreements with third party contractors for the design and build of a battery packaging and inspection automation system, and automated robotic tending system.

As of December 31, 2022 and 2021, the Company had outstanding deposits of $ 3,514,937 and $ 2,153,950 , respectively, in connection with these agreements.

NOTE 8 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

As of December 31, 2022 and 2021, accrued expenses and other current liabilities consisted of the following:

As of December 31,

Legal and professional fees

Professional fees

Payroll and vacation

Research and development

Subscriptions

Accrued cost of sales

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Total accrued expenses and other current liabilities

Accrued interest, non-current

Total accrued expenses and other current liabilities

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

Related Party Transactions

Accrued expenses and other current liabilities include $ 0 and $ 2,628 as of December 31, 2021 and 2020, respectively, payable 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.

On September 30, 2021, ESLI agreed to forgive $ 2,628 of previously billed consulting fees.

As a result, the Company accounted for the forgiveness by reducing accrued expenses and other current liabilities by $ 2,628 and recording a corresponding credit to research and development expense.

As of December 31, 2021, the Company reclassed $ 2,628 of accounts payable-related party liabilities to accrued expenses and other current liabilities for the year ended December 31, 2020.

ACCRUED ISSUABLE EQUITY

NOTE 9 - ACCRUED ISSUABLE EQUITY

A summary of the accrued issuable equity activity during the year ended December 31, 2022, is presented below:

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Beginning balance

Reclassifications to equity upon issuance

Grant date value of share obligations

Cancellation of accrued issuable equity

Shares issued in satisfaction of accrued issuable equity

Mark-to-market

Ending balance

Accrued Issuable Equity for Services

During the years ended December 31, 2021 and 2020, the Company entered into certain contractual arrangements for services in exchange for a fixed number of shares of common stock of the Company.

During the years ended December 31, 2022 and 2021, the Company entered into certain contractual arrangements for consulting services in exchange for a fixed number of shares of common stock of the Company.

On the respective dates the contracts were entered into, the estimated fair value of the shares to be issued was an aggregate of $ 176,270 and $ 245,720 , respectively.

During the years ended December 31, 2021 and 2020, the Company settled certain of its accrued issuable equity obligations through the issuance of an aggregate of 100,000 of its shares with an aggregate fair value of $ 209,200 and $ 79,511 , respectively, remeasured as of the date of settlement.

During the years ended December 31, 2021 and 2020, the Company recorded an aggregate of $ 125,821 and $ 2,594 , respectively, of losses related to the change in fair value of accrued issuable equity (see Note 13 – Stockholders’ Equity, Stock-Based Compensation for additional details).

On October 5, 2022, the Company entered into an Asset Purchase Agreement (See Note 3, Asset Purchase), pursuant to which the Company agreed to issue 279,851 shares of common stock on each of the four anniversaries following the Asset Purchase Date, provided that the Seller has not terminated his employment with the Company as of the date of payment.

Since all of the Equity Consideration is contingent upon the employment of the Seller, the grant date value of the accrued issuable shares will be accounted for as compensation expense, and will be recognized on a pro rata basis over the four-year employment requirement.

As of December 31, 2022, the Company has accrued for the issuance of 69,963 shares of common stock, with an aggregate grant date value of $ 93,750 .

During the year ended December 31, 2021, the Company settled certain of its accrued issuable equity obligations through the issuance of an aggregate of 100,000 of its shares with an aggregate fair value of $ 209,200 , remeasured as of the date of settlement.

During the year ended December 31, 2022, the Company cancelled certain of its accrued issuable equity obligations of an aggregate of 33,333 of its shares, respectively, with an aggregate fair value of $ 92,000 , respectively, due to a reduction in investor relation services.

During the years ended December 31, 2022 and 2021, the Company recorded gains (losses) in the aggregate amount of $ 147,035 and ($ 125,821 ), respectively, related to the change in fair value of accrued issuable equity (see Note 13 – Stockholders’ Equity, Stock-Based Compensation for additional details).

The fair value of the accrued but unissued shares as of December 31, 2022 and 2021 was $ 227,956 and $ 290,721 , respectively.

NOTE 10 – PREPAID ADVANCE LIABILITY

The Company’s prepaid advance liability consists of the following:

Original Issue

Prepaid Advance

Debt Discount

Current portion

Non-current portion

Total prepaid advance liability

On September 23, 2022, the Company entered into a Supplemental Agreement (the “Supplemental Agreement”) to its Standby Equity Purchase Agreement (the “SEPA”) with Yorkville.

Under the Supplemental Agreement, the Company may from time-to-time request advances of up to $ 15,000,000 (each, a “Prepaid Advance”) from Yorkville with a limitation on the aggregate amount of such advances of $ 50,000,000 .

At any time that there is a balance outstanding under a Prepaid Advance, the Company is not permitted to deliver Advance Notices (as defined in Note 11, Stockholders’ Equity) under the SEPA.

Each Prepaid Advance matures 12 months after the date of the closing of such advance (the “Prepaid Advance Date”), and accrues interest at 10 % per annum, subject to an increase to 15 % per annum upon events of default as defined.

Any Prepaid Advance balance that remains outstanding at maturity must be repaid in cash.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pursuant to the terms of the Supplemental Agreement, Yorkville has the right to receive shares to pay down Prepaid Advances, and may select the timing and delivery of such shares (via an “Investor Notice”), in an amount up to the balance of the Prepaid Advance at a price equal to the lower of (a) 135 % of the volume weighted average price (“VWAP”) of the Company’s common stock on the day immediately prior the closing of the Prepaid Advance, or (b) 95 % of the lowest VWAP during the three days immediately prior to the Investor Notice.

The Company may prepay amounts owed for a Prepaid Advance in cash, provided that the Company gives Yorkville 10 days ’ notice of its intent to repay in cash (the “Prepayment Notice”) and provided that the daily VWAP of the Company’s common stock on the date of Prepayment Notice is not less than $ 0.75 .

The prepayment amount will be delivered on the 11th trading day after the Prepayment Notice, such that Yorkville has 10 days to deliver an Investor Notice with respect to the outstanding Prepaid Advance.

The prepayment amount will be equal to the amount of Prepaid Advance to be repaid, plus all accrued and unpaid interest owed on the Prepaid Advance, as well as a payment premium equal to 5 % of the principal amount being repaid.

Upon the occurrence of certain triggering events, as defined, the Company may be required to make monthly repayments of amounts outstanding under a Prepaid Advance, with each monthly repayment to be in an amount equal to the sum of (x) $ 3.0 million, (y) 5 % (the “Payment Premium”) in respect of such amount, and (z) all outstanding accrued and unpaid interest in respect of such Prepaid Advance as of each payment date.

On September 23, 2022, the Company recorded an initial Prepaid Advance liability in the amount of $ 15,789,474 , which consisted of $ 15,000,000 of gross cash proceeds (the “Initial Advance”), plus an original issue discount of $ 789,474 .

Of the $ 15,000,000 Initial Advance amount, $ 3,850,000 was used to repay amounts due under a Note Purchase Agreement with Yorkville.

The Company incurred $ 85,000 of legal and professional fees in connection with its entry into the Supplemental Agreement.

The original issue discount and legal and professional fees incurred were recorded as a debt discount, which will be amortized ratably over the term of the Initial Advance.

As of December 31, 2022, the Company has issued 5,375,269 shares of common stock as partial repayment of the Initial Advance principal in the amount of $ 6,000,000 and premium and interest in the amount of $ 315,843 and $ 125,000 , respectively.

The balance of Prepaid Advance Liability as of December 31, 2022 is $ 8,852,290 , which consists of the remaining Initial Advance balance of $ 9,000,000 , plus $ 473,631 original issue discount on the remaining Initial Advance balance, net of unamortized debt discount of $ 621,341 .

During the year ended December 31, 2022, the Company recorded interest expense in the amount of $ 282,054 and recorded amortization of debt discount in the amount of $ 253,133 in connection with the Prepaid Advance liability.

Subsequent to December 31, 2022, the Company issued 3,153,036 shares of common stock in satisfaction of the Initial Advance liability in the amount of $ 3,250,000 and interest accrued through March 2023 in the amount of $ 329,932 (see Note 17, Subsequent Events).

As a result, $ 3,196,678 of Prepaid Advance Liability at December 31, 2022 (consisting of $ 3,250,000 of Initial Advance balance, plus $ 171,052 original issue discount, less $ 224,374 of unamortized debt discount) as well as $ 157,054 of accrued interest payable as of December 31, 2022, are classified as a non-current liability on the accompanying consolidated balance sheet.

NOTE 11 – LEASES

The Company leases office space in San Diego, California.

5 unchanged sentences

The initial lease term is three years and there is an option to renew for an additional five years .

Management does not expect to exercise

Management does not expect to exercise its option to renew.

Monthly rental payments under the new lease begin at $ 23,787 , which is comprised of $ 18,518 of base rent plus

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

its option to renew.

Monthly rental payments under the new lease begin at $ 23,787 , which is comprised of $ 18,518 of base rent plus $ 5,268 of common area maintenance fees, with annual escalation of 3.5 %.

$ 5,268 of common area maintenance fees, with annual escalation of 3.5 %.

The Company paid a security deposit of $ 50,213 in connection with the new lease agreement.

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Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating lease

Operating cash flows for operating lease

Right-of-use asset obtained in exchange for lease obligations

Operating lease

NOTES PAYABLE

A summary of the notes payable activity during the years ended December 31, 2021 and 2020, is presented below:

Balance, January 1, 2020

Repayments in cash

Repayments from proceeds of SEDA

Amortization of debt discount

NOTE 12 – NOTES PAYABLE

During the year ended December 31, 2021, the Company repaid principal on notes payable (the 2021 Notes Payable) to Yorkville in the aggregate amount of $ 2,450,000 , such that the balance on the notes payable was $ 0 at December 31, 2021.

The Company paid debt redemption costs in the aggregate amount of $ 140,000 , which were recognized as expense during the year ended December 31, 2021 (see Note 15 – Stockholders’ Equity for additional details).

The Company recorded amortization expense related to the debt discount on the 2021 Notes Payable of $ 128,198 during the year ended December 31, 2021.

On May 13, 2022, the Company entered into a note purchase agreement with Yorkville, pursuant to which Yorkville purchased a full recourse promissory note with an initial principal amount equal to $ 5,000,000 (the “Promissory Note”) for net cash proceeds of $ 4,750,000 .

The Promissory Note included an original issue discount of $ 250,000 , which represents the difference between the principal amount of the Promissory Notes and the proceeds received.

The Company also incurred a structuring fee of $ 10,000 , and legal fees of $ 7,200 in connection with the Promissory Note.

The original issue discount, along with structuring fees were recorded as a debt discount to be amortized over the term of the Note using the effective interest rate method.

The Promissory Note carries an interest rate of 10 % per annum.

As of December 31, 2022, the Company had fully repaid the principal and interest due in the amounts of $ 5,000,000 and $ 165,493 , respectively, of which $ 3,850,000 and $ 0 , respectively, were paid from the proceeds of the Initial Advance (see Note 10 - Prepaid Advance Liability).

During the year ended December 31, 2022, the Company recorded (i) interest expense related to the Promissory Note in the amount $ 650,493 , which included $ 165,493 of stated interest, a 10 % payment premium in the amount of $ 385,000 and a late payment premium in the amount of $ 100,000 , (ii) amortization of debt discount in the amount of $ 258,692 , and (iii) a gain on the extinguishment of debt in the amount of $ 8,508 , which represented the unamortized portion of debt discount on the date that the debt was extinguished.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes activity related to the Promissory Note during the year ended December 31, 2022.

Balance, January 1, 2022

Proceeds from promissory note

Debt discount

Repayments in cash

1 unchanged sentence

( 4,850,000 )

Repayments in shares of common stock

Amortization of debt discount

Loss on debt extinguishment

Outstanding, December 31, 2022

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

During the year ended December 31, 2020, the Company entered into note purchase agreements with the YAII PN, Ltd., a Cayman Island exempt limited partnership (the “Investor”), pursuant to which the Investor purchased full recourse promissory notes (the “Notes”) 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 were amortized over the term of the respective Notes using the effective interest rate method.

During the year ended December 31, 2020, the Company repaid principal on the Notes in the aggregate amount of $ 1,550,000 and during the year ended December 31, 2021, the Company repaid principal on the Notes in the aggregate amount of $ 2,450,000 , such that the balance on the Notes is $ 0 at December 31, 2021.

The Company paid debt redemption costs in the aggregate amount of $ 140,000 , which were recognized as expense during the year ended December 31, 2021.

See Note 13 – Stockholders’ Equity (Deficiency) for additional details.

The Company recorded amortization expense related to the debt discount of $ 128,198 and $ 501,802 during the years ended December 31, 2021 and 2020, respectively.

NOTE 13 – LOAN PAYABLE

On April 27, 2020, the Company received $ 155,226 of cash proceeds pursuant to an unsecured loan (the “PPP” Loan) provided in connection with the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act and applicable regulations (“CARES Act”).

Under the terms of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2021, the Company is eligible to apply for and receive forgiveness for all or a portion of the PPP Loan.

Such forgiveness will be determined, subject to limitations, based on the use of the loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs (as defined under the PPP) and mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”) incurred during the 24 weeks subsequent to funding, and on the maintenance of employee and compensation levels, as defined, following the funding of the PPP Loan.

The Company used the proceeds of the PPP Loan for Qualifying Expenses.

However, no assurance is provided that KULR will be able to obtain forgiveness of the PPP Loan in whole or in part.

Any amounts not forgiven incur interest at 1.0 % per annum and monthly repayments of principal and interest are deferred to the earlier of (i) when the Small Business Administration remits the forgiven amount to the lender or notifies the lender that no forgiveness is allowed or (ii) October 31, 2021.

While the Company’s PPP Loan currently has a two-year maturity, the amended law will permit the Company to request a five-year maturity, subject to the approval of the counterparty.

The PPP Loan, along with interest accrued in the amount of $ 3,449 was forgiven on July 18, 2022, and the Company recorded a gain on the forgiveness of the loan in the aggregate amount of $ 158,675 , which is reflected in other income on the accompanying statements of operations.

The Company recorded interest expense of $ 825 and $ 1,701 during the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2021, the Company’s accrued interest related to the PPP Loan was $ 2,624 .

NOTE 14 - INCOME TAXES

The income tax provision for the years ended December 31, 2022 and 2021 consists of the following:

1 unchanged sentence

( 3,967,600 )

( 2,359,473 )

State and local:

( 1,133,600 )

( 5,101,200 )

( 3,355,568 )

Change in valuation allowance

Income tax provision

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

3 unchanged sentences

Permanent differences

Incremental research and development tax credits

Other and prior year true-ups

1 unchanged sentence

Effective income tax rate

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has determined that a valuation allowance for the entire net deferred tax asset is required.

3 unchanged sentences

For the Years Ended

Deferred Tax Assets:

Deferred Tax Assets (Liabilities):

Net operating loss carryforwards

Research and development credit carryforwards

Capitalized research and development costs

Stock-based compensation

Property and equipment

Debt Discount

Accruals and other

Gross deferred tax assets

6 unchanged sentences

At December 31, 2022, approximately $ 3.4 million of federal net operating losses will expire from 2033 to 2037 , and approximately $ 30.3 million will have no expiration.

At December 31, 2021 and 2020, the Company had state net operating loss carry forwards of approximately $ 18.1 million and $ 9.5 million, respectively, which will begin to expire in 2024.

At December 31, 2022 and 2021, the Company had state net operating loss carry forwards of approximately $ 33.6 and $ 18.1 million, respectively, which will begin to expire in 2024.

The net operating loss carryovers may be subject to annual limitations under Internal Revenue Code Section 382, and similar state provisions, should there be a greater than 50% ownership change as determined under the applicable income tax regulations.

3 unchanged sentences

No tax audits were commenced or were in process during the years ended December 31, 2022 and 2021.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

STOCKHOLDERS’ EQUITY (DEFICIENCY)

NOTE 15 - STOCKHOLDERS’ EQUITY

Authorized Capital

6 unchanged sentences

Under the 2018 Plan, 15,000,000 shares of common stock of the Company are authorized for issuance.

The 2018 Plan provides for the issuance of incentive stock options, non-statutory stock options, rights to purchase common stock, stock appreciation rights, restricted stock and restricted stock units to employees, directors and consultants of the Company and its affiliates.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

its affiliates.

The 2018 Plan requires the exercise price of stock options to be not less than the fair value of the Company’s common stock on the date of grant.

As of December 31, 2022, there were 10,174,005 shares available for issuance under the 2018 Plan.

Standby Equity Distribution Agreement

On February 27, 2020, KULR Technology Group, Inc.

entered into a Standby Equity Distribution Agreement (“SEDA”) with an investor (the “Investor”), pursuant to which the Company may, at its discretion, sell to the Investor up to $ 8,000,000 of shares of the Company’s common stock (the “Offering”), par value $ 0.0001 per share (the “Common Stock”).

For each share of Common Stock purchased under the SEDA (the “Shares”), the Investor will pay the Company 80 % of the lowest daily volume weighted average price of the Common Stock on the OTC Markets OTCQB or other principal market on which the Common Stock is traded for the five days immediately following the date the Company delivers notice requiring the Investor to purchase the Shares under the SEDA.

The commitment period under the SEDA commenced on February 27, 2020 (the “Effective Date”) and expires on the earliest to occur of (i) first day of the month following the twenty-four months after the Effective Date, (ii) the date on which the Investor has purchased an aggregate amount of $ 8,000,000 of Shares under the SEDA, or (iii) the date the SEDA is earlier terminated.

As of December 31, 2021 and 2020, the Company was prohibited from issuing shares pursuant to the SEDA as a result of it being a Variable Rate Transaction pursuant to the Public Offering Purchase Agreement, described below.

Effective March 1, 2022, the SEDA expired, and shares are no longer issuable under the agreement.

The Company paid cash of $ 15,000 and issued 95,847 shares of Common Stock to the Investor as consideration for entering into the SEDA.

The shares of common stock issued to the Investor had an issuance date fair value of $ 63,259 .

The aggregate consideration of $ 78,259 was recorded as deferred offering costs and additional paid in capital on the consolidated balance sheet.

During the year ended December 31, 2020 the Company issued an aggregate of 1,841,548 shares of common stock, at prices between $ 0.72 - $ 1.65 per share, for aggregate proceeds of $ 2,214,437 , in connection with notices submitted to the Investor under the SEDA, of which $ 791,000 of the proceeds, were applied directly against the Notes.

As of December 31, 2020, the Company had approximately $ 5,707,305 available in connection with the SEDA, however, as a result of warrants issued during 2020 in an unrelated transaction which were outstanding, the Company could not issue shares in connection with Variable Rate Transactions pursuant to the Public Offering Purchase Agreement, described below.

Standby Equity Purchase Agreement

On May 13, 2022, the Company entered into the SEPA with Yorkville.

Pursuant to the SEPA, the Company has the right, but not the obligation, to sell to Yorkville up to an aggregate of $ 50,000,000 of its shares of common stock, par value $ 0.0001 per share, at the Company’s request any time during the commitment period commencing on May 13, 2022 and terminating on the first day of the month following the 24-month anniversary of the SEPA.

Each sale (an “Advance”) that the Company requests under the SEPA (via an “Advance Notice”) may be for a number of shares of common stock with an aggregate value of up to $ 5,000,000 .

Shares are sold under the SEPA at 98.0 % of the average of the VWAPs during each of the three consecutive trading days commencing on the trading day following the Company’s submission of an Advance Notice to Yorkville.

Advances are subject to certain limitations, including that Yorkville will not purchase any shares that would result in it owning more than 4.99% of the Company’s outstanding common stock at the time of an Advance, or more than the amount of shares registered under the registration statement in effect at the time of the Advance.

Further, the aggregate amount of shares purchased under the SEPA (as defined) cannot exceed 19.9% of the Company’s outstanding common stock as of the date of the SEPA.

Through December 31, 2022, the Company issued Advance Notices to for the issuance of 255,240 shares of common stock valued at $ 399,018 pursuant to the SEPA, of which 94,458 shares valued at issuance at $ 150,000 , were issued in satisfaction of Notes Payable to Yorkville.

On September 23, 2022, the Company entered into the Supplemental Agreement to the SEPA and received a Prepaid Advance in the amount of $ 15,000,000 pursuant to the Supplemental Agreement (see Note 10 – Prepaid Advance Liability).

At any time that there is a balance outstanding under a Prepaid Advance, the Company is not permitted to deliver Advance Notices under the SEPA.

Series A Preferred Stock

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Each record holder of Series A Preferred Stock is entitled to one-hundred votes per share of Series A Preferred Stock held by such holder.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

The Series A Preferred Stock is not convertible into any series or class of stock of the Company.

9 unchanged sentences

It was determined that the embedded conversion option is clearly and closely related to the equity host, therefore it is not bifurcated and not accounted for as a derivative.

During the year ended December 31, 2020, a holder of 515 shares of Series B Convertible Preferred Stock elected to convert their shares into 25,758 shares of common stock.

During the year ended December 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 no Series B Convertible Preferred Stock remained outstanding.

There are no Series B Convertible shares available to issue at December 31, 2022.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Series C Convertible Preferred Stock

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The Company may elect to redeem all or part of each share of Series C Convertible Preferred Stock for the Stated Value.

During the year ended December 31, 2020, certain holders of 5.11 shares of Series C Convertible Preferred stock elected to convert their shares into an aggregate of 56,777 shares of common stock.

During the year ended December 31, 2020, a Qualified Offering occurred and 18.90 shares of Series C Convertible Preferred Stock were mandatorily converted into an aggregate of 177,885 shares of common stock of the Company and warrants for the purchase of an aggregate of 177,855 shares of common stock of the Company.

The warrants are immediately exercisable and may be exercised at any time until December 31, 2025, at an exercise price of $ 1.25 per share.

As a result of the Series C Preferred Stock having an effective conversion price that was lower than the market price on the commitment date, the Company immediately recognized a beneficial conversion feature of $ 1,691 as a deemed dividend, which increased the net loss attributable to common stockholders.

Additionally, since the Company had an accumulated deficit, the impact was equity neutral to its additional paid-in capital.

There are no Series C Convertible shares outstanding at December 31, 2021 or 2020.

There are no Series C Convertible shares outstanding or available to issue at December 31, 2022.

Series D Convertible Preferred Stock

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In connection with the closing of the financing, the Company repaid in full its aggregate remaining notes payable obligation of $ 1,400,000 .

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

The Series D Preferred have a fixed conversion price of $ 2.05 , are convertible into an aggregate of 3,170,730 shares of common stock and have the right to vote on an as-converted basis.

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On June 17, 2021, all of the outstanding shares of Series D Preferred were converted into 3,170,730 shares of common stock, after which no Series D Convertible Preferred Stock remained outstanding.

During the year ended December 31, 2021, the Company issued an aggregate of 176,000 shares of immediately vested common stock with a grant date value of $ 394,909 for legal and consulting services, of which, 6,000 shares with a grant date value of $ 18,000 has been applied to the total cost of the intangible asset acquired during the year ended December 31, 2021.

Public Offering

On December 29, 2020, the Company entered into a securities purchase agreement (the “Public Offering Purchase Agreement”) with investors for the purchase and sale of an aggregate of 6,400,001 shares of the Company’s common stock (the “Shares”) and warrants to purchase an aggregate of up to 6,400,001 shares of common stock (“Warrants”), in a registered direct offering at a combined purchase price of $ 1.25 per Share and Warrant, for aggregate gross proceeds to the Company of $ 8,000,001 .

The Warrants are immediately exercisable and may be exercised at any time until December 31, 2025, at an exercise price of $ 1.25 per share.

The Warrants were determined to be classified within stockholders’ equity at their fair value.

The Company intends to use the net proceeds from this offering for working capital and general corporate purposes, as well as for capital expenditures.

This registered direct offering closed on December 31, 2020.

Additionally, pursuant to the Public Offering Purchase Agreement, the Company is prohibited from effecting or entering into an agreement to effect any issuance by the Company of common stock involving a variable rate transaction (“Variable Rate Transaction”) until such time as no Purchaser holds any of the Warrants.

Pursuant to a co-placement agency agreement (the “Placement Agreement”) dated December 29, 2020 by and among the Company, Lake Street Capital Markets, LLC (“Lake Street”) and Maxim Group LLC (“Maxim”) (together with Lake Street, the “Co-Placement Agents”), the Company retained Lake Street and Maxim to act as the Company’s co-placement agents in connection with the registered direct offering.

Pursuant to the Placement Agreement, the Company agreed to pay the co-placement agents a cash fee of 7.0 % ($560,000) of the gross proceeds the Company receives under the Purchase Agreement.

The total offering expenses incurred by the Company, other than the placement agent fees, were $ 170,152 , which included the co-placement agents’ reimbursable expenses, legal, financial advisory fees, accounting, printing costs, listing fees, and various other expenses associated with registering and issuing the shares.

As of December 31, 2020, of the offering costs described above, an aggregate of $ 24,852 of offering costs remained unpaid and are included in accrued expenses and other current liabilities on the accompanying consolidated balance sheet.

There are no Series D Convertible shares available at December 31, 2022.

During the year ended December 31, 2021, the Company issued an aggregate of 170,000 shares of immediately vested common stock with a grant date value of $ 376,909 for legal and consulting services and issued 6,000 shares with a grant date value of $ 18,000 related to the acquisition of an intangible asset during the year ended December 31, 2021.

During the year ended December 31, 2021, KULR issued an aggregate of 184,784 shares of common stock upon the exercise of options.

During the year ended December 31, 2021, KULR issued an aggregate of 6,793,358 shares of our common stock upon the exercise of warrants.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

During the year ended December 31, 2022, the Company issued an aggregate of 51,000 shares of immediately vested common stock with a grant date value of $ 109,850 for legal and consulting services.

During the year ended December 31, 2022, the Company issued an aggregate of 2,416,668 shares of common stock upon the exercise of warrants pursuant to which the Company received an aggregate of $ 3,020,835 of gross proceeds.

Treasury Stock

Pursuant to the exercise of options, the Company transferred 63,542 shares that were held in treasury for an aggregate of $ 48,382 gross proceeds.

As of December 31, 2022, the Company has 131,162 shares held in treasury valued at their cost of $ 296,222 .

During the year ended December 31, 2022, the company withheld 194,704 shares valued at $ 439,728 for employee income tax withholding obligations in connection with the vesting of restricted common stock during the period.

A summary of warrants activity during the year ended December 31, 2022 is presented below:

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Remaining Life

Stock-Based Compensation

During the years ended December 31, 2022 and 2021, the Company recognized stock-based compensation expense of $ 4,175,014 and $ 4,200,091 , respectively, related to restricted common stock, warrants and stock options, of which $ 4,136,494 and $ 4,171,241 , respectively are included within selling, general and administrative expenses, and $ 38,520 and $ 28,850 , respectively are included within research and development expenses on the consolidated statements of operations.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents information related to stock-based compensation for the years ended December 31, 2022 and 2021:

For the Years Ended

Common stock issued for services

Accrued issuable equity (common stock)

Amortization of stock options

Amortization of market-based awards

Amortization of restricted stock units

Stock Options

A summary of options activity (excluding market-based option awards) during the year ended December 31, 2022 is presented below:

Outstanding, January 1, 2022

Outstanding, December 31, 2022

Exercisable, December 31, 2022

The following table presents information related to stock options (excluding market-based option awards) as of December 31, 2022:

Options Outstanding

Options Exercisable

Remaining Life

$ 1.28 - $ 1.50

$ 1.55 - $ 1.99

$ 2.05 - $ 2.44

For the years ended December 31, 2022 and 2021, the weighted average grant date fair value per share of options was $ 1.23 and $ 0.80 , respectively.

The Company has computed the fair value of stock options granted using the Black-Scholes option pricing model.

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1.18 % - 4.54

0.20 % - 0.85

Expected term (years)

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Expected dividends

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Option forfeitures are accounted for at the time of occurrence.

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Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.

For the years ended December 31, 2021 and 2020, the weighted average grant date fair value per share of options was $ 0.80 and $ 0.36 , respectively.

As of December 31, 2022, there was $ 442,199 of unrecognized stock-based compensation expense related to the above stock options, which will be recognized over the weighted average remaining vesting period of 3.1 years.

Market-Based Awards and Exchange for Restricted Stock Units

On March 1, 2021, in connection with the appointment of the Company’s Chief Operating Officer (the “COO”), the COO became eligible to receive of up to 1,500,000 shares of the Company’s common stock which would be earned based upon achieving certain market capitalization milestones up to $ 4 billion (the “Market-based RSU Award”).

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 was amortizable over each of the tranches’ prospective derived service period.

On June 10, 2021, the Chief Executive Officer (the “CEO”) received an option for the purchase of up to 1,500,000 shares of the Company’s common stock at an exercise price of $ 2.60 per share (the “Market-based Option Award”, and together with the Market-based RSU Award, the “Market-based Awards”), which would be earned based upon achieving certain market capitalization milestones up to $ 4 billion.

The grant date value of this award of $ 2,579,000 was determined using a Monte Carlo valuation model for market-based vesting awards, and was amortizable over each of the tranches’ prospective derived service period.

On November 1, 2022 (the “Modification Date”), the Board approved the termination of the Market-Based Awards and approved the grant of 1,500,000 restricted stock units (the “RSUs”) with a grant date fair value of $ 3,075,000 , to each of the COO and CEO (the “Grantees”).

The grant date value was determined using the stock price per share immediately preceding the Board approval of the grant.

The RSUs will vest in four equal installments over the course of four years in accordance with the following schedule:

Restricted Stock

Units That Vest

November 1, 2023

November 1, 2024

November 1, 2025

November 1, 2026

The exchange of RSUs for the Market-based Awards was accounted for as a modification of stock awards;

as such, the amortizable value of the RSUs was determined to be $ 4,226,175 , which represents the unrecognized grant-date fair value of the Market-based awards of $ 1,446,175 , plus $ 2,780,000 representing the incremental fair value of the RSUs over the fair value of the Market Based Awards at the modification date.

The following assumptions were used in applying the Monte Carlo valuation model to the Company’s market-based awards on each of the measurement dates described above.

Risk free interest rate

Expected volatility

Expected dividend yield

Expected term

KULR TECHNOLOGY GROUP, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

A summary of options activity during the year ended December 31, 2021 is presented below:

Outstanding, January 1, 2021

Outstanding, December 31, 2021

Exercisable, December 31, 2021

The following table presents information related to stock options (excluding market-based option awards) as of December 31, 2021:

Options Outstanding

Options Exercisable

Remaining Life

As of December 31, 2021, there was $ 152,948 of unrecognized stock-based compensation expense related to the above stock options, which will be recognized over the weighted average remaining vesting period of 2.7 years.

Restricted Common Stock

The following table presents information related to restricted common stock (excluding Market-Based Awards) as of December 31, 2021:

The following table presents information related to restricted stock awards and restricted stock units (excluding Market-Based RSU Awards) as of December 31, 2022:

Weighted Average

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Non-vested shares, December 31, 2022

During the year ended December 31, 2021, KULR issued as incentive shares to its employees, an aggregate of 2,677,744 shares of our restricted common stock, of which, 117,744 shares were subsequently cancelled.

As of December 31, 2022, there was $ 7,813,665 of unrecognized stock-based compensation expense related to restricted stock that will be recognized over the weighted average remaining vesting period of 3.1 years.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

Market-Based Awards

The following table presents information related to market-based awards as of December 31, 2021:

Restricted Stock Units

Stock Options

On March 1, 2021, in connection with the appointment of the Company’s Chief Operating Officer (the “COO”), the COO became 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.

On June 10, 2021, the Chief Executive Officer (the “CEO”) received an option for the purchase of up to 1,500,000 shares of the Company’s common stock at an exercise price of $ 2.60 per share, which will be earned based upon achieving certain market capitalization milestones up to $ 4 billion.

The grant date value of this award of $ 2,579,000 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.

As of December 31, 2021, no shares of the market-based awards have vested.

Shares shall vest for each award in the following increments upon the Company’s market capitalization reaching the respective amounts as follows:

● $ 500 million market capitalization:

250,000 shares

● $ 1 billion market capitalization:

250,000 shares

● $ 1.5 billion market capitalization:

250,000 shares

● $ 2 billion market capitalization:

250,000 shares

● $ 3 billion market capitalization:

250,000 shares

● $ 4 billion market capitalization:

250,000 shares

The following assumptions were used in applying the Monte Carlo valuation model to the Company’s market-based awards described above.

Risk free interest rate

Expected volatility

Expected dividend yield

Expected term

Fair value of common stock on date of grant

As of December 31, 2021, there was $ 3,378,576 of unrecognized stock-based compensation expense related to market-based awards which will be amortized over the remaining weighted average vesting period of 1.69 years.

Stock-Based Compensation

During the years ended December 31, 2021 and 2020, the Company recognized stock-based compensation expense of $ 4,200,091 and $ 343,854 , respectively, related to restricted common stock, warrants and stock options, of which $ 4,171,241 and $ 312,922 , respectively are included within selling, general and administrative expenses, and $ 28,850 and $ 30,932 , respectively are included within research and development expenses on the consolidated statements of operations.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

The following table presents information related to stock-based compensation for the years ended December 31, 2021 and 2020:

For the Years Ended

Common stock for services

Amortization of restricted common stock

Amortization of market-based awards

Stock options

Accrued issuable equity (common stock)

COMMITMENTS AND CONTINGENCIES

NOTE 16 - COMMITMENTS AND CONTINGENCIES

Patent License Agreement

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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 $ 900,000 in sponsorship fees, payable in three installments, of which $ 250,000 was paid on April 1, 2021, $ 300,000 is payable on January 1, 2022, and $ 350,000 is payable on January 1, 2023.

The April 1, 2021 payment of $ 250,000 was recorded as a prepaid expense and is being amortized over the performance period.

During the year ended December 31, 2021, $ 250,000 of sponsorship fees expense was recognized related to the agreement.

In addition, the Company has committed to paying an aggregate of $ 750,000 related to technology development fees, which is to be paid in three equal installments.

As of December 31, 2021, the co-development technologies had not been agreed to and no portion of the technology fees has been paid.

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 $ 900,000 in sponsorship fees, payable in three installments, of which $ 250,000 was paid on April 1, 2021, $ 300,000 was paid on January 31, 2022, and $ 350,000 is due during the first quarter of 2023.

Payments under this agreement are initially recorded as a prepaid expense and are then amortized over the performance period.

During the years ended December 31, 2022 and 2021, $ 300,000 and $ 250,000 , respectively, of sponsorship fees expense were recognized related to this agreement.

In addition, the Company has committed to paying an aggregate of $ 750,000 related to technology co-development fees, which is to be paid in three equal installments.

As of December 31, 2022, the co-development technologies had not been agreed to and no portion of the technology co-development fees has been paid.

On December 16, 2021, the Company entered into a one-year sponsorship agreement (the “Second Sponsorship Agreement”) which provides the Company with the right to display its name and logo during certain events during the period from January 1, 2022 through December 31, 2022.

During the year ended December 31, 2022, the Company recorded $ 1,350,000 of sponsorship fees expense related to this agreement.

On June 15, 2022, the Company amended the Second Sponsorship Agreement to extend the term through December 31, 2023.

The agreement provides the Company with the right to publicize and highlight the sponsorship and display its name and logo during certain events and use digital marketing and social media platforms throughout the 2023 calendar year.

The Company has committed to pay an aggregate of $ 1,450,000 in sponsorship fees in three installments, of which $ 500,000 was paid in July 2022, $ 475,000 was paid in

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 2023, and $ 475,000 is payable in April 2023.

As of December 31, 2022, $ 500,000 is included in prepaid expenses (see Note 4 - Prepaid Expenses and Other Current Assets) and will be amortized over the performance period of January 1, 2023 to December 31, 2023 using the straight-line method.

Research and Development Agreements

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Pursuant to the terms of the agreement, the Company has committed to spend an aggregate amount of $ 580,375 , payable in eight quarterly installments of $ 72,547 .

During the year ended December 31, 2021, $ 217,641 of expense was recognized related to this agreement.

During the years ended December 31, 2022 and 2021, $ 290,188 and $ 217,641 , respectively, of research and development expense was recognized related to this agreement.

On August 18, 2021, the Company entered into a multi-year research and development agreement for a solid-state rechargeable battery, pursuant to which the Company has committed to spend an aggregate amount of $ 592,196 in eight quarterly payments of $ 74,025 .

During the year ended December 31, 2021, $ 123,375 of expense was recognized related to the agreement.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

During the years ended December 31, 2022 and 2021, $ 296,100 and $ 123,375 , respectively, of research and development expense was recognized related to this agreement.

Consulting Agreement

1 unchanged sentence

Pursuant to the consulting agreement, the shares are subject to the Company’s claw back, based upon the satisfaction of meeting general performance parameters.

As of December 31, 2021 and 2020, it was probable the contractor would satisfy the performance parameters and, as a result, the grant date fair value of the common stock is being recognized as stock-based compensation expense ratably over the vesting period.

See Note 13 – Stockholders’ Equity (Deficiency) for additional details.

On October 1, 2021, the Company entered into a three-month consulting agreement with a contractor to provide corporate advisory and financial relations services in exchange for 30,000 shares of restricted common stock and a minimum of $ 60,000 .

Following the initial term, this contract shall be automatically renewed for a six month period, pursuant to which the Company will be obligated to pay a minimum of $ 120,000 and issue an additional 100,000 shares of restricted common stock as compensation.

As of December 31, 2022, the grant date fair value of the common stock was recognized as stock-based compensation expense ratably over the vesting period.

During the years ended December 31, 2022 and 2021, $ 25,545 and $ 46,455 of expense was recognized as stock-based compensation under this agreement.

See Note 15 – Stockholders’ Equity for additional details.

Election of Directors and Appointment of Certain Officers

On June 10, 2021, the Board of Directors of the Company appointed three new independent directors to 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.

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 approval for uplisting to a national exchange.

On March 3, 2021, the Company entered into a consulting agreement with Keith Cochran to act in the capacity of 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 Keith Cochran 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.

The COO will receive annual cash compensation and received an aggregate of 2,000,000 shares of its 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 certain market capitalization achievement up to $ 4 billion.

Sponsorship Agreement

On December 16, 2021, the Company entered into a one-year sponsorship agreement which provides the Company with the right to display its name and logo during certain events during the period from January 1, 2022 through December 31, 2022.

The Company paid an aggregate amount of $ 1,350,000 in sponsorship fees related to this agreement during the first quarter of 2022, which have been recorded as prepaid expenses and will be amortized over the performance period.

SUBSEQUENT EVENTS

During March 2022, the Company issued an aggregate of 70,143 shares of common stock upon the exercise of warrants pursuant to which the Company received an aggregate of $ 87,679 of gross proceeds.

On November 1, 2022, the Board of the Company appointed a Lead Independent Director (“Lead Director”) and a non-Lead Independent Director (“non-Lead Director”) of the Board, to hold office until the earlier of the expiration of the term of office of the director whom they have replaced, successors are duly elected and qualified, or the earlier of such director’s death, resignation, disqualification, or removal.

Furthermore, the Lead Director will receive annual cash compensation equal to $ 150,000 upon their appointment and the non-Lead Independent Director (“non-Lead Director”) will receive annual cash compensation equal to $ 95,000 .

On March 16, 2022, the Company hired an individual to serve as the Director of Engineering.

Effective November 1, 2022, the Company appointed this individual as Chief Technology Officer (the “CTO”) of the Company, upon which the Company issued 100,000 shares of restricted common stock with an aggregate grant date value of $ 205,000 , which shall vest in four equal annual installments beginning November 1, 2023.

NOTE 17 - SUBSEQUENT EVENTS

Prepaid Advance Liability

Subsequent to December 31, 2022, the Company issued 3,153,036 shares of common stock, at purchase prices per share ranging from $ 0.90 to $ 1.20 , pursuant to Investor Notices submitted by Yorkville for aggregate proceeds of $ 3,579,932 .

The proceeds were applied against the principal and interest due for Initial Advance in the aggregate amounts of $ 3,250,000 and $ 329,932 , respectively.

As of March 28, 2023, the remaining balance on the Initial Advance is $ 5,750,000 .

See Note 10 – Prepaid Advance Liability for additional information.

On March 10, 2023, the Company and Yorkville agreed and closed on a second Prepaid Advance for $ 2,000,000 (the “Second Advance”).

Interest accrues on the outstanding balance of each Prepaid Advance at an annual rate of 10 %, subject to an increase to 15 % upon events of default as defined.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operating Lease

On January 18, 2023, the Company entered into a new lease agreement for office space in Webster, Texas.

The initial lease term is twelve months and thirteen days .

Monthly rental payments under the new lease are $ 5,047 , which is comprised of $ 4,245 of base rent plus $ 802 of common area maintenance fees.

The Company determined that the value of the lease liability and the related right-of-use asset at inception was $ 51,154 , using an estimated incremental borrowing rate of 5 %.

Patent License Agreement

During February 2023, the Company entered into a licensing agreement whereby the Company obtained an exclusive license to commercialize its patented Format Fractional Thermal Runaway Calorimeter.

The agreement is effective for as long as the licensed patents are enforceable, subject to certain early termination provisions specified in the agreement.

In consideration, the Company agreed to pay the following:

(i) a cash payment of $ 60,000 payable upon the execution of this agreement, (ii) royalties of 5.5 % on the net sales price of royalty-based products, and services for each accounting period, as defined in the agreement, with minimum annual royalty payments of $ 20,000 for each accounting period.

In addition, the Company shall establish:

(a) that a market for the licensed invention has been created, and to the extent practicable, that a market has been created in the United States;

(b) that it is being utilized;

(c) that its benefits are, to the extent permitted by law or Government regulations, available to the public on reasonable terms;

and (d) that market demand, at least in the United States, shall be reasonably met.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures