What changed in this filing

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Item 1. Financial Statements

2023-05-15 compared with 2022-11-14 · 215 added, 433 removed, 293 unchanged (69% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

Current Assets:

8 unchanged sentences

Right of use asset

Deferred offering costs

Deferred financing costs

Liabilities and Stockholders' Equity

4 unchanged sentences

Lease liability, current portion

Prepaid advance liability, net of discount (Note 9)

Prepaid advance liability, net of discount, current portion

Deferred revenue

1 unchanged sentence

Lease liability, 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 September 30, 2022 and December 31, 2021

none issued and outstanding at March 31, 2023 and December 31, 2022

Series B Convertible Preferred Stock, 31,000 shares designated;

none issued and outstanding at September 30, 2022 and December 31, 2021

none issued and outstanding at March 31, 2023 and December 31, 2022

Series C Preferred Stock, 400 shares designated;

none issued and outstanding at September 30, 2022 and December 31, 2021

none issued and outstanding at March 31, 2023 and December 2022

Series D Preferred Stock, 650 shares designated;

none issued and outstanding at September 30, 2022 and December 31, 2021

none issued and outstanding at March 31, 2023 and December 31, 2022

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

107,700,085 shares issued and 107,568,923 outstanding at September 30, 2022, respectively, and 104,792,072 shares issued and outstanding at December 31, 2021

Additional paid-in capital

117,959,793 shares issued and 117,828,631 shares outstanding at March 31, 2023;

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

Treasury stock, at cost;

131,162 and 0 shares held at September 30, 2022 and December 31, 2021

131,162 shares held at March 31, 2023 and December 31, 2022

Additional paid-in capital

Accumulated deficit

8 unchanged sentences

For the Three Months Ended

For the Nine Months Ended

September 30,

Cost of revenue

6 unchanged sentences

( 4,178,689 )

( 14,298,865 )

( 7,500,645 )

Other (Expense) Income

Interest expense, net

Gain on forgiveness of PPP loan and interest

Debt redemption costs

Interest expense

Amortization of debt discount

Loss on debt extinguishment

Change in fair value of accrued issuable equity

Loss on foreign currency transactions

Total Other (Expense) Income, net

1 unchanged sentence

( 4,136,555 )

( 14,977,825 )

( 7,837,798 )

Deemed dividend to Series D preferred stockholders

( 2,624,326 )

Net Loss Attributable to Common Stockholders

( 5,586,585 )

( 3,095,932 )

( 14,977,825 )

( 10,462,124 )

Net Loss Per Share

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022

FOR THE THREE MONTHS ENDED MARCH 31, 2023 and 2022

FOR THE THREE MONTHS ENDED MARCH 31, 2023

Treasury Stock

2 unchanged sentences

( 42,594,038 )

Treasury stock held upon the vesting of restricted common stock

Common stock issued upon the exercise of warrants

Common stock issued upon the exercise of options

Common stock issued for the repayment of prepaid advance liability and related interest accrual

Shares repurchased for payroll taxes and canceled

Stock-based compensation:

Restricted stock awards granted

Unvested restricted stock awards forfeited

Common stock issued for services

1 unchanged sentence

Amortization of stock options

Amortization of market-based awards

( 6,602,861 )

2 unchanged sentences

( 49,196,899 )

Treasury stock issued upon the exercise of options

Common stock issued upon the exercise of warrants

Stock-based compensation:

Common stock issued for services

Amortization of restricted common stock

Amortization of stock options

Amortization of market-based awards

( 5,254,685 )

Balance - June 30, 2022

( 32,595,104 )

Treasury stock issued upon the exercise of options

Common stock issued pursuant to the SEPA agreement:

For cash, net of issuance costs (1)

In satisfaction of notes payable

For the repayment of prepaid advances

Stock-based compensation:

Amortization of restricted common stock

Amortization of stock options

Amortization of market-based awards

( 5,586,585 )

Balance - September 30, 2022

( 38,230,508 )

(1) Represents gross proceeds of $ 250,000 less $ 2,129 for amortization of issuance costs.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021

Series B Convertible

Series D Convertible

Preferred Stock

FOR THE THREE MONTHS ENDED MARCH 31, 2022

Treasury Stock

Stockholders'

1 unchanged sentence

( 23,157,559 )

Common stock issued upon conversion of Series B Convertible Preferred Stock

Stock-based compensation:

Common stock issued for services

Restricted common stock issued

Amortization of restricted common stock

Amortization of stock options

Amortization of market-based awards

( 1,714,723 )

Balance - March 31, 2021

( 12,961,131 )

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

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

Common stock issued upon the exercise of warrants

Stock-based compensation:

Common stock issued for services

Restricted common stock issued

Amortization of restricted common stock

Amortization of stock options

Amortization of market-based awards

( 3,027,143 )

Balance - June 30, 2021

( 15,988,274 )

Treasury stock held upon the vesting of restricted common stock

Common stock issued upon the exercise of warrants

Common stock issued upon the exercise of options

Stock-based compensation:

Common stock issued for services

Restricted common stock issued

Amortization of restricted common stock

3 unchanged sentences

( 4,136,555 )

Balance - September 30, 2021

Balance - March 31, 2022

( 27,294,114 )

(1) Represents relative fair value of preferred stock issued, net of cash issuance costs of $ 365,000 .

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended

September 30,

For the Three Months Ended

Cash Flows From Operating Activities:

4 unchanged sentences

Non-cash lease expense

Loss on extinguishment of note payable

Depreciation and amortization expense

Gain on forgiveness of PPP loan and interest

Change in fair value of accrued issuable equity

Non-cash interest expense

Stock-based compensation

1 unchanged sentence

Accounts receivable

( 1,208,646 )

Prepaid expenses and other current assets

( 1,347,651 )

Inventory deposits

Security deposits

Right of use asset

Accounts payable

7 unchanged sentences

Cash Flows From Investing Activities:

Equipment deposits for property and equipment

( 2,198,626 )

( 1,029,805 )

Deposits for purchase of property and equipment

Purchases of property and equipment

Acquisition of intangible assets

Net Cash Used In Investing Activities

( 2,772,568 )

( 1,386,864 )

Cash Flows from Financing Activities:

Proceeds from the SEPA

Net proceeds from the prepaid advance liability

Issuance costs on prepaid advance liability

Proceeds from note payable (2)

Note payable issuance costs

Repayments of note payable

( 1,000,000 )

( 2,450,000 )

Payment of financing costs incurred in connection with the SEPA

Payment of financing costs incurred in connection with note payable

Proceeds from the sale of Series D convertible preferred stock, common stock and warrants

Proceeds from the exercise of options

Proceeds from the exercise of warrants

Payment of financing costs

Net Cash Provided By Financing Activities

Net Increase In Cash

Net Decrease In Cash

( 3,147,529 )

( 4,730,625 )

Cash - Beginning of Period

Cash - End of Period

(1) 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.

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

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

For the Nine Months Ended

September 30,

For the Three Months Ended

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

Additions to property and equipment included in accounts payable

Beneficial conversion feature on Series D convertible preferred stock

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

Shares repurchased for payroll taxes (not paid as of period-end) and canceled

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

Shares issued in satisfaction of note payable

Shares issued in satisfaction of prepaid advance liability and accrued interest

Treasury stock issued upon the exercise of stock options

Original issue discount on prepaid advance liability

Common stock issued in satisfaction of prepaid advance liability and interest

Deposits applied to purchase of property and equipment

Additions to property and equipment included in accounts payable

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

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 ORGANIZATION, NATURE OF OPERATIONS AND RISKS AND UNCERTANTIES

NOTE 1 ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Organization and Operations

KULR Technology Group, Inc., through its wholly-owned subsidiary, KULR Technology Corporation (collectively referred to as “KULR” or the “Company”), develops and commercializes high-performance energy 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 space exploration, satellite communications, and underwater vehicles, and applying them to mass market commercial applications, such as lithium-ion battery energy storage, electric mobility, 5G communication, cloud computer infrastructure, consumer and industrial devices.

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 United States 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.

Basis of Presentation

3 unchanged sentences

GAAP for annual financial statements.

In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021.

The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the operating results for the full year ending December 31, 2022 or any other period.

In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of March 31, 2023 and for the three months ended March 31, 2023 and 2022.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the operating results for the full year ending December 31, 2023 or any other period.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 2022 and for the year then ended, which were filed with the Securities and Exchange Commission (“SEC”) on Form 10-K on March 28, 2023.

Reclassifications

Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation.

Certain prior quarter activity reported in the Condensed Consolidated Statement of Changes in Stockholders’ Equity has been reclassified in order to conform to the current quarter presentation.

These reclassifications had no effect on previously reported results of operations or loss per share.

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.

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.

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.

Accordingly, COVID-19 could have a material adverse effect on the Company’s business, results of operations, financial condition and prospects during 2022 and beyond, including the demand for its products, interruptions to supply chains, ability to maintain regular research and development and manufacturing schedules as well as the capability to meet customer demands in a timely manner.

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

The accompanying condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited financial statements included in the Form 10-K.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Since the date of the Annual Report on Form 10-K for the year ended December 31, 2022, there have been no material changes to the Company’s significant accounting policies, except as disclosed in this note.

As of March 31, 2023, the Company had cash of $ 7,186,034 and working capital of $ 414,334 .

For the three months ended March 31, 2023, the Company incurred a net loss of $ 6,602,861 and used cash in operations of $ 4,759,039 .

Subsequent to the three months ended March 31, 2023, the Company issued 493,972 shares of common stock in satisfaction of the Initial Advance liability in the amount of $ 350,000 and interest accrued through March 2023 in the amount of $ 20,479 (see Note 8, Prepaid Advance Liability).

As a result, $ 345,376 of Prepaid Advance Liability at March 31, 2023 (consisting of $ 350,000 of Initial Advance balance, plus $ 18,421 original issue discount, less $ 23,045 of unamortized debt discount), is classified as a non-current liability on the accompanying consolidated balance sheet.

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 there is substantial doubt about the Company’s ability to continue as a going concern 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.

Accordingly, management’s plans alleviate the substantial doubt about the Company’s ability to continue as a going concern.

KULR TECHNOLOGY GROUP, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Since the date of the Annual Report on Form 10-K for the year ended December 31, 2021, there have been no material changes to the Company’s significant accounting policies, except as disclosed in this note.

On May 13, 2022, the Company entered into a Standby Equity Purchase Agreement, which gives the Company the right, but not the obligation, to sell up to $ 50,000,000 of its shares of common stock to the same investor 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 period ended September 30, 2022, the Company received aggregate gross proceeds of $ 15,400,000 under the SEPA and the Supplemental SEPA.

The Company is not permitted to initiate additional sales of its common stock under the SEPA until the Prepaid Advance liability ($ 15,539,474 at September 30, 2022) is settled.

During October 2022, the Company issued 5,153,664 shares of common stock, at purchase prices per share ranging from $ 0.99 to $ 1.84 , in satisfaction of the initial Prepaid Advance liability in the aggregate amount of $ 5,750,000 .

As of November 14, 2022, the remaining balance on the initial Prepaid Advance liability is $ 9,000,000 .

See Note 9 – Prepaid Advance Liability and Note 11 – Stockholders’ Equity for additional information.

As of September 30, 2022, the Company had cash of $ 16,168,863 and working capital of $ 2,077,848 .

During the nine months ended September 30, 2022, the Company incurred a net loss of $ 14,977,825 and used cash in operations of $ 13,366,007 .

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, combined with the cash availability pursuant to the Standby Equity Purchase Agreement, is sufficient in comparison to its anticipated cash usage for a period of at least twelve months after the filing date of these financial statements.

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, combined with the cash availability pursuant to the Standby Equity Purchase Agreement described in Note 8, will be sufficient to meet our working capital and capital expenditure requirements for a period of at least twelve months after the filing date of these condensed consolidated financial statements.

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 unaudited condensed consolidated financial statements include, but are not limited to, fair value calculations for prepaid advance liability, 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 unaudited condensed consolidated 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.

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

It is possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.

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.

Differences between the cost of treasury stock and the re-issuance proceeds are charged to additional paid-in capital.

Gains on the reissuance of treasury stock are credited to additional paid in capital.

Losses resulting from the reissuance of treasury stock are debited to additional paid-in capital to the extent previous net gains from such reissuances are included in additional paid-in capital;

any losses in excess of that amount are then charged to retained earnings.

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.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Balances that potentially subject the Company to significant concentrations of credit risk consisted primarily of cash, accounts receivable, revenue and accounts payable.

Cash Concentrations

2 unchanged sentences

Cash held in US bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 at each institution.

There were uninsured balances of $ 15,668,863 and $ 14,363,301 as of September 30, 2022 and December 31, 2021, respectively.

There were uninsured balances of $ 6,686,034 and $ 9,709,169 as of March 31, 2023 and 2022, respectively.

Customer and Revenue Concentrations

2 unchanged sentences

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30, 2022

March 31, 2023

December 31, 2022

2 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.

Vendor Concentrations

Vendor concentrations are as follows for the three and nine months ended September 30, 2022 and 2021, respectively:

For the Three Months Ended

For the Nine Months Ended

September 30,

Less than 10%

As a result of the Company’s significant customer concentrations, its gross profit and results of 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.

KULR TECHNOLOGY GROUP, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Vendor Concentrations

Vendor purchase concentrations are as follows for the three months ended March 31, 2023 and 2022, respectively:

For the Three Months Ended

Less than 10%

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.

Cost is determined by the first-in, first-out method.

Cost is determined using the standard costing method, which approximates cost determined on a first-in, first-out basis.

The cost of inventory that is sold to third parties is included within cost of sales and the cost of inventory that is given as samples is included within operating expenses.

1 unchanged sentence

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

Inventory at September 30, 2022 and December 31, 2021 was consisted of the following:

September 30,

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

Certain raw materials are held off-site with our contract manufacturers.

Inventory at March 31, 2023 and December 31, 2022 was comprised of the following:

Raw materials

10 unchanged sentences

Determine the transaction price;

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Allocate the transaction price to the performance obligations in the contract;

3 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

For the Three Months Ended

For the Nine Months Ended

September 30,

Product sales

1 unchanged sentence

Total revenue

As of September 30, 2022 and December 31, 2021, respectively, the Company had $ 20,000 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 three and nine months ended September 30, 2022, the Company recognized $ 0 and $ 112,303 , respectively, that was included in deferred revenue in a previous period.

During the three and nine months ended September 30, 2021, there was no revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods.

As of September 30, 2022 and December 31, 2021, the Company had $ 8,535 and $ 84,324 , respectively, of deferred labor costs, which is included in prepaid expenses and other current assets in the Company’s unaudited condensed consolidated balance sheets.

The Company expects to satisfy the remaining performance obligations related to its deferred revenue balance within the next twelve months.

During the three months ended March 31, 2023 and 2022, there was no revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods.

As of March 31, 2023 and December 31, 2022, the Company had $ 34,402 of deferred labor costs, which is included in prepaid expenses and other current assets in the Company’s unaudited condensed consolidated balance sheets.

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

3 unchanged sentences

Diluted net loss per common share is computed by dividing net loss by the weighted average number of common and dilutive common-equivalent shares outstanding during each period.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

For the Three Months Ended

For the Nine Months Ended

September 30,

Net income (loss)

( 5,586,585 )

( 3,095,932 )

( 14,977,825 )

( 7,837,798 )

Deemed dividend to Series D preferred stockholders

( 2,624,326 )

Net loss attributable to common stockholders

1 unchanged sentence

( 4,136,555 )

( 14,977,825 )

( 10,462,124 )

Denominator (weighted average quantities):

Common shares issued

Less:Treasury shares purchased

Less:Unvested restricted shares

( 1,948,370 )

( 2,530,217 )

Common stock issued

Treasury shares purchased

Unvested restricted shares

( 2,170,717 )

( 2,357,889 )

Add:Accrued issuable equity

Accrued issuable equity

Denominator for basic and diluted net loss per share

Basic and diluted net loss per common share

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30,

Unvested restricted stock

Unvested issued restricted stock awards

Unvested market-based equity awards

Restricted stock units

Recently Adopted Accounting Pronouncements

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

In May 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):

Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.

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.

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

Early adoption is permitted, including adoption in an interim period.

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

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13 – Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

This update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected.

The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

Since June 2016, the FASB issued clarifying updates to the new standard including changing the effective date for smaller reporting companies.

The guidance is effective for the Company for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted.

The Company adopted this ASU on January 1, 2023, using the modified retrospective approach and it did not have a material impact on its condensed consolidated financial statements.

NOTE 3 INVENTORY DEPOSITS

Inventory deposits consists of amounts paid in advance to vendors to secure future deliveries of specific finished goods and raw materials which will be received and sold in future periods.

As of September 30, 2022 and December 31,2021, the Company had outstanding inventory deposits of $ 1,031,150 and $ 309,688 , respectively.

As of March 31, 2023 and December 31,2022, the Company had outstanding inventory deposits of $ 264,384 and $ 285,260 , respectively.

KULR TECHNOLOGY GROUP, INC.

2 unchanged sentences

NOTE 4 PREPAID EXPENSES AND OTHER CURRENT ASSETS

As of September 30, 2022 and December 31, 2021, prepaid expenses and other current assets consisted of the following:

September 30,

Vendor receivables

Professional fees

Subscriptions

As of March 31, 2023 and December 31, 2022, prepaid expenses and other current assets consisted of the following:

Marketing and sponsorships

Compensation costs

Dues and subscriptions

Conferences and seminars

Deferred labor costs

Professional fees

Vendor receivables

Research and development

Total prepaid expenses and other current assets

Prepaid marketing costs primarily consist of two sponsorship agreements with a marketing partner whereby the Company is required to make upfront payments.

These agreements expire in December 2022 and December 2023.

As of September 30, 2022, total prepayments made towards such contracts were $ 2,150,000 , of which $ 575,000 remains unamortized and is included in prepaid marketing costs.

See Note 12 – Commitments and Contingencies for additional information.

Prepaid marketing and sponsorships shown in the table above includes $ 531,250 of prepaid marketing expenses pursuant to certain sponsorship agreements which will be amortized over the respective service periods of the agreements.

NOTE 5 EQUIPMENT 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 September 30, 2022 and December 31,2021, the Company had outstanding deposits of $ 4,465,937 and $ 2,153,950 , respectively, in connection with these agreements.

As of March 31, 2023 and December 31,2022, the Company had outstanding deposits of $ 1,238,486 and $ 3,514,937 , respectively, in connection with these agreements.

NOTE 6 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

As of September 30, 2022 and December 31, 2021, accrued expenses and other current liabilities consisted of the following:

September 30,

Legal and professional fees

As of March 31, 2023 and December 31, 2022, accrued expenses and other current liabilities consisted of the following:

Professional fees

Payroll and vacation

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Board compensation

Accrued cost of sales

Marketing and advertising fees

Subscriptions

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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NOTE 7 ACCRUED ISSUABLE EQUITY

A summary of the accrued issuable equity activity during the nine months ended September 30, 2022 is presented below:

For the Nine Months Ended

September 30, 2022

A summary of the accrued issuable equity activity during the three months ended March 31, 2023 is presented below:

For the Three Months Ended

March 31, 2023

Beginning balance

Cancelled accrued issuable equity obligations

Grant date value of share obligations

Mark-to-market

Ending balance

During the nine months ended September 30, 2022, 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 three months ended March 31, 2023, the Company entered into certain contractual arrangements for 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 $ 107,630 .

During the nine months ended September 30, 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 nine months ended September 30, 2022, the Company recorded an aggregate of $ 123,121 of gains related to the reduction in fair value of accrued issuable equity (see Note 11 – Stockholders’ Equity, Stock-Based Compensation for additional details).

The fair value of the accrued but unissued shares as of September 30, 2022 was $ 138,240 .

NOTE 8 LEASES

The Company leases office space in San Diego, California.

During the three and nine months ended September 30, 2022, operating lease expense was $ 57,522 and $ 188,854 , respectively.

During the three and nine months ended September 30, 2021, operating lease expense was $ 89,305 and $ 144,765 , respectively.

As of September 30, 2022, the Company did not have any financing leases.

Maturities of lease liabilities as of September 30, 2022 were as follows:

Maturity Date

October 1 through December 31, 2022

Total lease payments

Imputed interest

Present value of lease liabilities

current portion

Lease liabilities, non-current portion

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

Supplemental cash flow information related to the lease was as follows:

For the Nine Months Ended

September 30, 2022

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating lease

During the three months ended March 31, 2023 and 2022, the Company recorded gains (losses) in the aggregate amount of $ 64,108 and $ 43,040 , respectively, related to changes in the fair value of accrued issuable equity (see Note 12 – Stockholders’ Equity, Stock-Based Compensation for additional details).

The fair value of the accrued but unissued shares as of March 31, 2023 was $ 271,478 .

KULR TECHNOLOGY GROUP, INC.

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NOTE 8 PREPAID ADVANCE LIABILITY

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

Gross Amount of

Prepaid Advance

net of discount

Balance, December 31, 2022

Proceeds from prepaid advance

Original issue discount on prepaid advance

Repayments in cash

Repayments in shares of common stock

( 3,250,000 )

( 3,421,038 )

Amortization of original issue discount

Amortization of debt discount

Outstanding, March 31, 2023

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

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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 11 th 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 $ 15,000,000 , which consisted of $ 15,000,000 of gross cash proceeds (the “Initial Advance”), plus an original issue discount of $ 789,474 .

The original issue discount was recorded as a debt discount to be amortized ratably over the term of the Initial Advance.

Of the $ 15,000,000 Initial Advance amount, $ 3,850,000 was used to repay amounts due under a Note Purchase Agreement with Yorkville (see Note 10, Notes and Loans Payable).

On September 29, 2022, the Company issued 221,605 shares of common stock as a partial repayment of the Initial Advance principal amount of $ 250,000 and interest in the amount of $ 24,658 .

See Note 13, Subsequent Events for details related to shares issued in satisfaction of the Initial Advance subsequent to September 30, 2022.

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

The Company recorded additional prepaid advance liability in the amount of $ 2,105,263 , which consisted of $ 2,000,000 cash proceeds received, plus an original issue discount of $ 105,263 .

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.

During the three months ended March 31, 2023, 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 $ 3,750,968 .

The proceeds were applied against the principal and interest due for Initial Advance in the aggregate amounts of $ 3,250,000 and $ 500,968 , respectively.

As of March 31, 2023, the remaining principal balance on the Initial Advance and Second Advance is $ 5,750,000 and $ 2,000,000 , respectively.

During the three months ended March 31, 2023, the Company recorded interest expense in the amount of $ 159,931 and recorded amortization of debt discount in the amount of $ 246,320 in connection with the Prepaid Advance liability.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A summary of the Prepaid Advance liability during the nine months ended September 30, 2022 is presented below:

Gross Amount of

Prepaid Advance

Liability, net of

Balance, January 1, 2022

Proceeds from prepaid advance

Original issue discount

Repayments in cash

Repayments in shares of common stock

Amortization of debt discount

Outstanding, September 30, 2022

NOTE 10 NOTES AND LOANS PAYABLE

Note Purchase Agreement

On May 13, 2022, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with YAII PN, Ltd., a Cayman Island exempt limited partnership, pursuant to which the Investor 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 , a structuring fee of $ 10,000 , and legal fees of $ 7,200 , which represents the difference between the principal and proceeds received.

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 September 23, 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 9 - Prepaid Advance Liability).

During the three and nine months ended September 30, 2022, the Company recorded interest expense related to the Promissory note in the amounts of $ 608,027 and $ 650,493 , respectively, which included $ 123,027 and $ 165,493 , respectively, of stated interest, a 10 % payment premium in the amount of $ 385,000 and a late payment premium in the amount of $ 100,000 .

A summary of notes payable activity during the nine months ended September 30, 2022 is presented below:

Balance, January 1, 2022

Proceeds from promissory note

Debt discount

Repayments in cash

( 4,850,000 )

Repayments in shares of common stock

Amortization of debt discount

Loss on debt extinguishment

Outstanding, September 30, 2022

Subsequent to the three months ended March 31, 2023, the Company issued 493,972 shares of common stock in satisfaction of the Initial Advance liability in the amount of $ 350,000 and interest accrued through the date of issuance in the amount of $ 20,479 (see Note 13, Subsequent Events).

NOTE 9 LEASES

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 %.

The Company also leases office space in San Diego, California pursuant to an operating lease which expires May 31, 2024.

As of March 31, 2023, the Company does not have any financing leases.

During the three months ended March 31, 2023 and 2022, operating lease expense was $ 65,873 and $ 74,080 , respectively.

Maturities of lease liabilities as of March 31, 2023 were as follows:

Maturity Date

Total lease payments

Imputed interest

Present value of lease liabilities

current portion

Lease liabilities, non-current portion

Supplemental cash flow information related to the leases was as follows:

For the Three Months Ended

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows for operating lease

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

Operating lease

NOTE 10 RELATED PARTY TRANSACTIONS

The Company entered into an eight-month consulting agreement with the father of the Company’s Chief Technology Officer (the “Related Consultant”), to perform due diligence support for a potential research and development facility in Texas.

The Company agreed to compensate the Related Consultant at a rate of $ 30 /hour for services performed.

Total expense recognized for services provided by the Related Consultant was $ 10,455 during the three months ended March 31, 2023.

No related party expense was recognized during the three months ended March 31, 2022.

As of March 31, 2023 and December 31, 2022, the Company did no t have material accounts payable outstanding with related parties.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Paycheck Protection Program Loan

On April 27, 2020, the Company received approximately $ 155,000 of cash proceeds pursuant to an unsecured 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 2020, the Company is eligible to apply for and receive forgiveness for all or a portion of their respective PPP Loans.

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 initial term of the loan was two years and was extended to five years with a maturity date of April 27, 2025.

The Company applied for forgiveness of the PPP loan, which was approved by the Small Business Administration, and the PPP loan was fully forgiven effective July 18, 2022.

The Company has recorded this as a gain on forgiveness of the PPP loan and interest of approximately $ 155,226 and $ 3,449 , respectively, as other income in the condensed consolidated statement of operations.

NOTE 11 COMMITMENTS AND CONTINGENCIES

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 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 was capitalized as an intangible asset and will be amortized over its useful life, (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 .

Appointment of Vice President, Sales

On January 16, 2023, the Company appointed a Vice President of Sales (the “VP of Sales”), upon which the Company issued 298,507 shares of restricted common stock with a grant date fair value of $ 400,000 , which vest in four equal annual installments beginning January 16, 2024.

The grant date fair value will be amortized ratably over the vesting period.

In addition, the Company committed to a one-year guaranteed commission of $ 200,000 , payable in four quarterly installments as well as a severance package of $ 250,000 and one-year of family health insurance if the VP of Sales is terminated without cause (as defined) within one year of hire.

Appointment of Chief Financial Officer

On March 31, 2023, the Company appointed an individual to serve as Chief Financial Officer (the “CFO”) of the Company, upon which the Company issued 1,500,000 shares of restricted stock with an aggregate grant date fair value of $ 1,380,000 , which vest in five equal annual installments beginning March 31, 2024.

NOTE 12 STOCKHOLDERS’ EQUITY

Standby Equity Purchase Agreement

Standby Equity Purchase Agreement (“SEPA”) and Supplemental SEPA

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

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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.

As of September 30, 2022, the Company issued Advance Notices to receive $ 350,000 in exchange for 255,240 shares of common stock pursuant to the SEPA.

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.

See Note 8 – Prepaid Advance Liability, for details related to a supplemental agreement to the SEPA.

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.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During April 2022, the Company issued an aggregate of 2,346,525 shares of common stock upon the exercise of warrants pursuant to which the Company received an aggregate of $ 2,933,156 of gross proceeds.

In connection with an inducement offer from the Company, the Company issued new warrants to purchase an aggregate of 2,346,525 shares of common stock at an exercise price of $ 1.00 per share (the “New Warrants”).

The New Warrants expire on December 31, 2025.

The value of the New Warrants provided to the exercising warrant holders was deemed to be an offering cost associated with an equity financing to raise capital, pursuant to ASU 2021-04.

Because the New Warrants were determined to be classified as equity, the credit to additional paid-in capital associated with the issuance of the New Warrants is offset by the debit to additional paid-in capital related to the offering cost.

The warrants had a grant date value of $ 3,657,763 , calculated using the Black Scholes pricing model with the following assumptions used:

risk free rate – 2.88 %, expected term – 3.69 , expected volatility – 100 %, expected dividends – 0 %.

During July 2022, the Company issued an aggregate of 160,782 shares of common stock pursuant to an Advance Notice issued under the SEPA for an aggregate of $ 250,000 of gross proceeds.

During August 2022, the Company issued an aggregate of 94,458 shares of common stock as a partial payment of principal balance due on the Promissory note in the amount of $ 150,000 .

On September 29, 2022, the Company issued 221,605 shares of common stock as a partial repayment of the Initial Advance principal amount of $ 250,000 and interest in the amount of $ 24,658 .

During the three and nine months ended September 30, 2022, the Company issued an aggregate of 0 and 12,000 shares of immediately vested common stock with a grant date value of $ 0 and $ 53,421 , respectively, for legal services.

During the three and nine months ended September 30, 2022, the Company issued an aggregate of 30,542 and 66,042 shares, respectively, of common stock upon the exercise of stock options, of which 30,542 and 63,542 shares, respectively, were issued from treasury stock.

Treasury Stock

The 2018 KULR Technology Group Equity Incentive Plan (the “Plan”) allows for the grant of non-vested stock options, RSUs and RSAs to the Company’s employees pursuant to the terms of the Plan.

Under the provision of the Plan, unless otherwise elected, participants fulfill their related income tax withholding obligation by having shares withheld at the time of vesting.

The shares withheld are then transferred to the Company’s treasury stock at cost.

During the nine months ended September 30, 2022, the Company withheld 194,704 shares valued at $ 439,728 in connection with the vesting of restricted common stock awards during the period.

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 September 30, 2022, the Company has 131,162 shares held in treasury valued at their cost of $ 296,222 .

During the three months ended March 31, 2023 and 2022, the Company issued an aggregate of 5,500 and 6,000 shares of immediately vested common stock with a grant date value of $ 6,820 and $ 13,859 , respectively, for legal and consulting services.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A summary of warrants activity during the nine months ended September 30, 2022 is presented below:

Outstanding, January 1, 2022

( 2,416,668 )

Outstanding, September 30, 2022

Exercisable, September 30, 2022

A summary of outstanding and exercisable warrants as of September 30, 2022 is presented below:

Warrants Outstanding

Warrants Exercisable

Remaining Life

Stock Options

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For The Three Months Ended

For The Nine Months Ended

September 30,

Risk free interest rate

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1.18 % - 2.28 %

1.18 % - 4.21 %

0.20 % - 0.85 %

Expected term (years)

Expected volatility

106 % - 116 %

Expected dividends

For the three and nine months ended September 30, 2022, the weighted average grant date fair value per share of options was $ 1.08 and $ 1.31 , respectively.

For the three and nine months ended September 30, 2021, the stock options had a weighted average grant date value of $ 1.55 and $ 0.80 per option share, respectively.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A summary of options activity (excluding Market-Based Awards) during the nine months ended September 30, 2022 is presented below:

For the three months ended March 31, 2023 and 2022, the weighted average grant date fair value per share of options was $ 0.67 and $ 3.23 , respectively.

A summary of options activity during the three months ended March 31, 2023 is presented below:

Outstanding, January 1, 2023

Outstanding, September 30, 2022

Exercisable, September 30, 2022

The following table presents information related to stock options (excluding market-based option awards) as of September 30, 2022:

Outstanding, March 31, 2023

Exercisable, March 31, 2023

The following table presents information related to stock options as of March 31, 2023:

Options Outstanding

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Remaining Life

As of September 30, 2022, there was $ 335,308 of unrecognized stock-based compensation expense related to the above stock options, which will be recognized over the weighted average remaining vesting period of 3.2 years.

$0.66 - $0.99

$1.21 - $1.50

$1.55 - $1.99

$2.05 - $2.44

As of March 31, 2023, there was $ 505,926 of unrecognized stock-based compensation expense related to the above stock options, which will be recognized over the weighted average remaining vesting period of 3.2 years.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Restricted Common Stock

The following table presents information related to restricted common stock (excluding Market-Based Awards) as of September 30, 2022:

Restricted Stock Awards

The following table presents information related to restricted stock awards as of March 31, 2023:

Weighted Average

Shares of Restricted

Non-vested balance, January 1, 2022

Non-vested shares, September 30, 2022

As of September 30, 2022, there was $ 3,963,192 of unrecognized stock-based compensation expense related to restricted stock that will be recognized over the weighted average remaining vesting period of 2.53 years.

Market-Based Awards

The following table presents information related to market-based awards, that vest upon achieving specified KULR market capitalizations, outstanding as of September 30, 2022:

Non-vested RSAs, January 1, 2023

Non-vested RSAs, March 31, 2023

As previously reported, as compensation for his services as President and Chief Operating Officer, Keith Cochran was granted 2,000,000 shares of our common stock, subject to four (4) equal annual vesting installments, the first installment of which vested on March 1, 2023.

On March 31, 2023, and effective as of March 1, 2023, the Company withheld and cancelled 175,000 shares of its common stock to satisfy an aggregate of $ 229,249 of payroll tax withholdings and remittance obligations in connection with the net settlement of 325,000 shares.

The withholding and cancellation of the 175,000 shares represented a retirement of shares at a price per share equal to $ 1.31 , the closing price per share of our common stock on the trading day prior to the March 1, 2023, the effective date of the share cancellation.

As of March 31, 2023, there was $ 5,052,687 of unrecognized stock-based compensation expense related to restricted stock awards that will be recognized over the weighted average remaining vesting period of 3.0 years.

Restricted Stock Units

Stock options

The grant date value for the market-based awards is being amortized over the derived service periods of the awards.

As of September 30, 2022, there was $ 1,605,407 of unrecognized stock-based compensation expense related to market-based awards which will be amortized over the remaining weighted average vesting period of 1.18 years.

As of September 30, 2022, none of the market-based awards have vested.

See Note 13 – Subsequent Events, Stock-Based Compensation Restructuring regarding cancellation of the market-based awards.

The following table presents information related to restricted stock units (“RSUs”) as of March 31, 2023:

Non-vested RSUs, January 1, 2023

Non-vested RSUs, March 31, 2023

As of March 31, 2023, there was $ 3,780,078 of unrecognized stock-based compensation expense related to restricted stock units that will be recognized over the weighted average remaining vesting period of 3.6 years.

Stock-Based Compensation

The following table presents information related to stock-based compensation for the three and nine months ended September 30, 2022 and 2021:

For The Three Months Ended

For The Nine Months Ended

September 30,

Common stock for services

Amortization of restricted common stock

Amortization of market-based awards

Stock options

Accrued issuable equity (common stock)

During the three months ended March 31, 2023 and 2022, the Company recognized stock-based compensation expense of $ 920,155 and $ 1,242,922 , respectively, related to restricted common stock, warrants and stock options, of which $ 903,995 and $ 1,234,814 , respectively are included within selling, general and administrative expenses, and $ 16,160 and $ 8,108 , respectively are included within research and development expenses on the unaudited condensed consolidated statements of operations.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $ 922,311 and $ 3,208,778 , respectively, related to restricted common stock, market-based awards and stock options, of which $ 916,708 and $ 3,185,373 , respectively are included within selling, general and administrative expenses, and $ 5,603 and $ 23,405 , respectively are included within research and development expenses in the unaudited condensed consolidated statements of operations.

During the three and nine months ended September 30, 2021, the Company recognized stock-based compensation expense of $ 1,292,096 and $ 2,765,959 , respectively, related to restricted common stock, market-based awards and stock options, of which $ 1,292,096 and $ 2,750,769 , respectively are included within selling, general and administrative expenses, and $ 0 and $ 15,190 , respectively are included within research and development expenses on the unaudited condensed consolidated statements of operations.

NOTE 12 COMMITMENTS AND CONTINGENCIES

Sponsorship Agreement

On June 15, 2022, the Company amended the Second Sponsorship Agreement (see Note 4 - Prepaid Expenses and Other Current Assets) 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, which are due in July 2022, January 2023, and April 2023.

On July 8, 2022, the Company paid $ 500,000 which was recorded as a prepaid expense (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.

The total remaining commitment amount to be paid for sponsorship agreements is $ 950,000 .

The following table presents information related to stock-based compensation for the three months ended March 31, 2023 and 2022:

For the Three Months Ended

Common stock issued for services

Accrued issuable equity (common stock)

Amortization of stock options

Amortization of market-based awards

Amortization of restricted stock awards and units

NOTE 13 SUBSEQUENT EVENTS

Supplemental Agreement to the SEPA

Subsequent to the three months ended March 31, 2023, the Company issued 493,972 shares of common stock in partial satisfaction of the Initial Advance liability in the amount of $ 350,000 and interest accrued through March 2023 in the amount of $ 20,479 (see Note 8, Prepaid Advance Liability).

Purchase Agreement

On October 5, 2022, KULR Technology Group, Inc.

(the “Company”) entered into an agreement (the “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 , of which, $ 2,000,000 (the “Cash Consideration”) will be paid in cash and the Company will issue shares of common stock worth $ 1,500,000 (the “Equity Consideration”).

The Company will issue the Equity Consideration in four equal installments on the following dates:

(i) October 5, 2023, (ii) October 5, 2024, (iii) October 5, 2025, and (iv) October 5, 2026.

The Company will pay the Cash Consideration as follows:

$ 1,000,000 on October 6, 2022, $ 500,000 on April 5, 2023, and $ 500,000 on October 5, 2023.

On May 4, 2023, the Company entered into an agreement (the “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 $ 75,000 .

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

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The Company is evaluating whether this agreement meets the criteria of a business combination in accordance with the applicable accounting guidance.

Supplemental Agreement to the SEPA

During October 2022, the Company issued 5,153,664 shares of common stock, at purchase prices per share ranging from $ 0.99 to $ 1.84 , pursuant to Investor Notices submitted by Yorkville for aggregate proceeds of $ 5,850,000 .

The proceeds were applied against the principal and interest due for the initial Prepaid Advance liability in the in the aggregate amounts of $ 5,750,000 and $ 100,000 , respectively.

As of November 14, 2022, the remaining balance on the initial Prepaid Advance liability is $ 9,000,000 .

See Note 9 - Prepaid Advance Liability for additional information.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stock-Based Compensation Restructuring

On November 1, 2022, the Company terminated the market-based restricted stock unit grant of 1,500,000 shares to vest upon certain market-cap milestones to the Chief Operating Officer (the “COO”) and granted an award of restricted stock units whereby the COO became eligible to receive up to 1,500,000 shares of the Company’s stock which will vest in four equal annual installments beginning on November 1, 2023.

On November 1, 2022, the Company terminated the market-based option grant for the purchase of up to 1,500,000 shares to vest upon certain market-cap milestones to the Chief Executive Officer (the “CEO”) and granted an award of restricted stock units whereby the CEO became eligible to receive up to 1,500,000 shares of the Company’s stock which will vest in four equal annual installments beginning on November 1, 2023.

Appointment of Chief Technology Officer

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.

Director Compensation

Effective November 1, 2022, the Board of the Company appointed a Lead Independent Director (“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 .

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.

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-Q

Item 1. Financial Statements