What changed in this filing

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Item 1. Financial Statements

2023-08-16 compared with 2023-05-15 · 229 added, 143 removed, 365 unchanged (50% of the section changed)

12 unchanged sentences

Intangible assets, net

Right of use asset

Right of use asset, net

Deferred financing costs

16 unchanged sentences

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

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

none issued and outstanding at June 30, 2023 and December 31, 2022

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

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

none issued and outstanding at June 30, 2023 and December 31, 2022

Series C Preferred Stock, 400 shares designated;

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

none issued and outstanding at June 30, 2023 and December 31, 2022

Series D Preferred Stock, 650 shares designated;

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

none issued and outstanding at June 30, 2023 and December 31, 2022

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

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

118,885,728 shares issued and 118,754,566 shares outstanding at June 30, 2023;

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

Treasury stock, at cost;

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

Additional paid-in capital

Treasury stock, at cost;

131,162 shares held at June 30, 2023 and December 31, 2022

Accumulated deficit

8 unchanged sentences

For the Three Months Ended

For the Six Months Ended

Cost of revenue

6 unchanged sentences

( 5,161,772 )

( 12,258,125 )

( 9,340,461 )

Other (Expense) Income

2 unchanged sentences

Change in fair value of accrued issuable equity

Total Other (Expense) Income, net

Total Other Expense, net

( 6,334,992 )

( 5,254,685 )

( 12,937,853 )

( 9,391,240 )

Net Loss Per Share

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2023 and 2022

FOR THE THREE MONTHS ENDED MARCH 31, 2023

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023

Treasury Stock

6 unchanged sentences

Restricted stock awards granted

Unvested restricted stock awards forfeited

Unvested restricted stock awards canceled

Common stock issued for services

5 unchanged sentences

( 49,196,899 )

FOR THE THREE MONTHS ENDED MARCH 31, 2022

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

Stock-based compensation:

Amortization of restricted common stock

Amortization of stock options

( 6,334,992 )

Balance - June 30, 2023

( 55,531,891 )

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

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022

Treasury Stock

14 unchanged sentences

( 27,294,114 )

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

( 32,548,799 )

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended

For the Six Months Ended

Cash Flows From Operating Activities:

3 unchanged sentences

Amortization of debt discount

Non-cash lease expense

Non-cash rent expense

Depreciation and amortization expense

3 unchanged sentences

Accounts receivable

Prepaid expenses and other current assets

( 1,046,532 )

Inventory deposits

Prepaid expenses and other current assets

( 1,187,561 )

Security deposits

13 unchanged sentences

Cash Flows from Financing Activities:

Net proceeds from the prepaid advance liability

Issuance costs on prepaid advance liability

Proceeds from prepaid advance liability

Financing costs of prepaid advance liability

Proceeds from notes payable (1)

Payment of issuance costs

Payment of financing costs incurred in connection with the SEPA

Repurchase of common stock

Proceeds from the exercise of options

6 unchanged sentences

Cash - End of Period

(1) Face value 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 Three Months Ended

For the Six Months Ended

Supplemental Disclosures of Cash Flow Information:

Cash paid during the year for:

Cash paid during the period for:

Non-cash investing and financing activities:

Right of use asset for lease liability

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

Treasury stock issued upon the exercise of stock options

Receivable recorded for pending cash deposit of stock option exercise proceeds

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

Deposits applied to purchases of property and equipment

Additions to property and equipment included in accounts payable

Equipment deposits included in accounts payable

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

11 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 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.

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 June 30, 2023 and for the three and six months ended June 30, 2023 and 2022.

The results of operations for the three and six months ended June 30, 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.

2 unchanged sentences

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.

Going Concern and Management’s Liquidity Plans

As of June 30, 2023, the Company had cash of $ 1,320,651 and a working capital deficit of $ 4,719,810 .

For the six months ended June 30, 2023, the Company incurred a net loss of $ 12,937,853 and used cash in operations of $ 9,858,687 .

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.

The accompanying consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business.

However, since the Company’s inception we have had a history of recurring net losses from operations, recurring use of cash in operating activities and declining working capital.

Future cash requirements for our current liabilities include $ 3,939,449 for accounts payable and accrued expenses and $ 242,078 for future payments under operating leases.

Further, pursuant to an agreement with Yorkville executed on August 16, 2023, $ 3,150,000 owed in connection with the Company’s prepaid advance liability must be paid by August 25, 2023, and three additional payments, each in the amount of $ 1,383,333 , are to be paid on the last day of each of October 2023, November 2023 , and December 2023 .

The Company has also committed to spend $ 807,515 related to capital expenditures for automation equipment, $ 500,000 in connection with an asset purchase agreement, and $ 441,192 for research and development.

These factors raise substantial doubt about the Company’s ability to meet its obligations as they become due within the twelve months from the date these condensed consolidated financial statements are issued.

KULR TECHNOLOGY GROUP, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED 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.

Management’s plans to mitigate the factors which raise substantial doubt include (i) revenue growth, (ii) reducing operating expenses through careful cost management, (iii) raising additional funds through future financings, and (iv) negotiating an extension and/or conversion to equity of the Company’s prepaid advance liability (see Note 14 – Subsequent Events).

The Company’s ability to continue as a going concern is dependent upon its ability to successfully execute the aforementioned initiatives.

As of the date of the issuance of these financial statements, the Company has no additional commitments to obtain additional funding through future financings and there is no assurance that the Company will be able to successfully negotiate an extension of the prepaid advance liability repayments or its conversion to equity, or that the Company will be able to obtain additional funds on commercially acceptable terms, if at all.

There is also no assurance that the amount of funds the Company might raise will enable the Company to complete its development initiatives or attain profitable operations.

The aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of liabilities that may be necessary should we be unable to continue as a going concern.

Use of Estimates

10 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 $ 6,686,034 and $ 9,709,169 as of March 31, 2023 and 2022, respectively.

There were uninsured balances of $ 820,651 and $ 12,491,732 as of June 30, 2023 and 2022, respectively.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Customer and Revenue Concentrations

2 unchanged sentences

For the Three Months Ended

March 31, 2023

December 31, 2022

For the Six Months Ended

Less than 10%

2 unchanged sentences

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.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Vendor Concentrations

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

Vendor purchase concentrations are as follows for the three and six months ended June 30, 2023 and 2022, respectively:

For the Three Months Ended

For the Six Months Ended

Less than 10%

The Company capitalizes inventory costs associated with products when future commercialization is considered probable, and a future economic benefit is expected to be realized.

These costs consist of finished goods, raw materials, manufacturing-related costs, transportation and freight, and other indirect overhead costs.

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

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

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

The Company periodically reviews for slow-moving, excess or obsolete inventories.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Company periodically reviews for slow-moving, excess or obsolete inventories.

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

1 unchanged sentence

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:

Inventory at June 30, 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;

1 unchanged sentence

The Company recognizes revenue primarily from the following different types of contracts:

● Product sales – Revenue is recognized at the point in time the customer obtains control of the goods and the Company satisfies its performance obligation, which is generally at the time it ships the product to the customer.

● Product sales – Revenue is primarily recognized at the point in time the customer obtains control of the goods and the Company satisfies its performance obligation, which is generally at the time it ships the product to the customer.

However, for internally developed, customized products with no alternative use where the Company has an enforceable right to payment for performance completed to date, revenue is recognized over time as the Company satisfies its performance obligations.

● 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 condensed consolidated statements of operations:

For the Three Months Ended

For the Six Months Ended

Product sales

2 unchanged sentences

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.

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.

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.

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

During the three and six months ended June 30, 2023 and 2022, there was no revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods.

As of June 30, 2023 and December 31, 2022, the Company had $ 41,261 and $ 34,402 of deferred labor and other costs, respectively, which is included in prepaid expenses and other current assets in the Company’s unaudited condensed consolidated balance sheets.

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

The Company will recognize the deferred labor and other costs as cost of revenues at the point in time that the Company recognizes the related revenue, which is generally at the time the services are provided and/or the product/service is accepted by the customer.

Net Loss Per Common Share

1 unchanged sentence

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 Six Months Ended

Net loss attributable to common stockholders

1 unchanged sentence

( 5,254,685 )

( 12,937,853 )

( 9,391,240 )

Denominator (weighted average quantities):

Common stock issued

Common shares issued

Treasury shares purchased

2 unchanged sentences

( 2,019,011 )

( 2,708,655 )

( 2,187,514 )

Accrued issuable equity

2 unchanged sentences

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

Unvested issued restricted stock awards

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Prepaid advance (1)

Unvested restricted stock awards

Unvested market-based equity awards

Restricted stock units

(1) Shares issuable estimated using the floor price of $ 0.75 per share pursuant to the supplemental agreement to the SEPA (see Note 9 – Prepaid Advance Liability).

Recently Adopted Accounting Pronouncements

6 unchanged sentences

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 ASSET ACQUISITION

On May 4, 2023 (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, primarily intellectual property, of the Seller (the “Acquired Assets”) for consideration of $ 75,000 (the “Total Consideration”), which was paid in cash on May 11, 2023.

In addition, the seller has been employed by the Company.

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

The Asset 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 determined that the transaction should be accounted for as an asset acquisition because substantially all of the fair value of the Acquired Assets is concentrated in a single asset.

The total cost of the intellectual property acquired of $ 75,000 is included in intangible assets on the accompanying condensed consolidated balance sheet and is being amortized over its estimated useful life of 5 years .

NOTE 4 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 March 31, 2023 and December 31,2022, the Company had outstanding inventory deposits of $ 264,384 and $ 285,260 , respectively.

As of June 30, 2023 and December 31,2022, the Company had outstanding inventory deposits of $ 44,728 and $ 285,260 , respectively.

KULR TECHNOLOGY GROUP, INC.

2 unchanged sentences

NOTE 5 PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

As of June 30, 2023 and December 31, 2022, prepaid expenses and other current assets consisted of the following:

Marketing and sponsorships

2 unchanged sentences

Conferences and seminars

Deferred labor costs

Deferred expenses

Professional fees

2 unchanged sentences

Total prepaid expenses and other current assets

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.

Prepaid marketing and sponsorships shown in the table above, as of June 30, 2023, includes $ 658,333 of prepaid marketing expenses pursuant to certain sponsorship agreements which will be amortized over the respective service periods of the agreements.

NOTE 6 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 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.

As of June 30, 2023 and December 31,2022, the Company had outstanding deposits of $ 1,537,656 and $ 3,514,937 , respectively, in connection with these agreements.

The decrease is due to equipment being transferred to property and equipment upon completion by third party contractors.

NOTE 7 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

As of June 30, 2023 and December 31, 2022, accrued expenses and other current liabilities consisted of the following:

Professional fees

11 unchanged sentences

NOTE 8 ACCRUED ISSUABLE EQUITY

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

A summary of the accrued issuable equity activity during the six months ended June 30, 2023 is presented below:

For the Six Months Ended

June 30, 2023

Beginning Balance

Grant date value of share obligations

Mark-to market

Ending Balance

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.

During the six months ended June 30, 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 $ 203,980 .

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.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company recorded gains in the aggregate amount of $ 74,079 and $ 138,187 during the three and six months ended June 30, 2023, respectively, and recorded gains in the aggregate amount of $ 52,680 and $ 95,720 during the three and six months ended June 30, 2022, respectively, related to changes in the 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 June 30, 2023 was $ 293,749 , based on Level 1 inputs, which consist of quoted prices for the Company’s common stock in active markets.

NOTE 9 PREPAID ADVANCE LIABILITY

7 unchanged sentences

Original issue discount on prepaid advance

Repayments in cash

Repayments in shares of common stock

1 unchanged sentence

( 4,032,657 )

Amortization of original issue discount

Amortization of debt discount

Outstanding, March 31, 2023

Outstanding, June 30, 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.

5 unchanged sentences

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.

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.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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).

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 six months ended June 30, 2023, the Company issued 4,078,971 shares of common stock, at purchase prices per share ranging from $ 0.57 to $ 1.20 , pursuant to Investor Notices submitted by Yorkville for aggregate proceeds of $ 4,466,626 .

The proceeds were applied against the principal and interest due for the Initial Advance in the aggregate amounts of $ 4,032,656 and $ 433,970 , respectively.

As of June 30, 2023, the gross principal balance on the Prepaid Advance liability is $ 7,546,237 , which consists of Initial Advance and Second Advance of $ 5,440,974 and $ 2,105,263 , respectively, including the original issue discount of $ 290,974 and $ 105,263 , respectively.

During the three and six months ended June 30, 2023, the Company recorded interest expense in the amount of $ 197,110 and $ 357,041 , respectively, and recorded amortization of debt discount in the amount of $ 214,554 and $ 460,874 , respectively, in connection with the Prepaid Advance liability.

See Note 14 – Subsequent Events, Repayment Agreement for additional information related to the prepaid advance liability.

NOTE 10 LEASES

4 unchanged sentences

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

As of June 30, 2023, the Company does not have any financing leases.

During the three and six months ended June 30, 2023, operating lease expense was $ 65,873 and $ 131,746 , respectively.

During the three and six months ended June 30, 2022, operating lease expense was $ 57,849 and $ 131,930 , respectively.

Maturities of lease liabilities as of June 30, 2023 were as follows:

For the period from July 1, 2023 through December 31, 2023

Total future minimum lease payments

amount representing imputed interest

Present value of lease liabilities

1 unchanged sentence

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.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

For the Six Months Ended

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows used in operating activities

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

Operating leases

Weighted Average Remaining Lease Term (Years)

Operating leases

Weighted Average Discount Rate

Operating leases

NOTE 11 RELATED PARTY TRANSACTIONS

Effective August 26, 2022, the Company entered into an eight-month consulting agreement with the father of the Company’s Chief Technology Officer (the “Related Consultant”), which shall automatically renew for an additional four months unless otherwise terminated.

During the three and six months ended June 30, 2023, expense recognized for services provided by the Related Consultant was $ 16,755 and $ 27,210 , respectively are included within selling, general and administrative expenses on the unaudited condensed consolidated statements of operations.

No related party expense was recognized during the six months ended June 30, 2022.

As of June 30, 2023 and December 31, 2022, the Company did no t have material accounts payable outstanding with related parties.

NOTE 12 COMMITMENTS AND CONTINGENCIES

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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 .

(i) a cash payment of $ 60,000 payable upon the execution of this agreement (which was capitalized as an intangible asset and will be amortized over its useful life), and (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.

On January 16, 2023, the Company appointed a Vice President of Sales (the “VP of Sales”), and issued the VP of Sales 298,507 shares of restricted common stock.

The restricted common stock had a grant date fair value of $ 400,000 , and vests in four equal annual installments beginning January 16, 2024 based solely on continued service.

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

1 unchanged sentence

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.

On March 31, 2023, the Company appointed an individual to serve as Chief Financial Officer (the “CFO”) of the Company, and issued the CFO 1,500,000 shares of restricted stock.

The restricted common stock had an aggregate grant date fair value of $ 1,380,000 , and vests in five equal annual installments beginning March 31, 2024 based solely on continued service.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 STOCKHOLDERS’ EQUITY

6 unchanged sentences

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.

There were no issuances under the SEPA during the three and six months ended June 30, 2023.

See Note 9 – Prepaid Advance Liability, for details related to a supplemental agreement to the SEPA.

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.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the six months ended June 30, 2023, the Company issued an aggregate of 5,500 shares of immediately vested common stock with a grant date value of $ 6,820 for legal services.

Stock Options

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

In applying the Black-Scholes option pricing model, the Company used the following assumptions:

In applying the Black-Scholes option pricing model, the Company used the following range of weighted average assumptions:

For The Three Months Ended

For The Six Months Ended

Risk free interest rate

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2.28 % - 2.94 %

3.92 % - 4.52 %

1.18 % - 2.94 %

Expected term (years)

Expected volatility

105 % - 107 %

Expected dividends

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:

For the three and six months ended June 30, 2023, the weighted average grant date fair value per share of options was $ 0.48 and $ 0.74 , respectively, compared to $ 2.97 and $ 1.47 , respectively, for the three and six months ended June 30, 2022.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A summary of options activity during the six months ended June 30, 2023 is presented below:

Outstanding, January 1, 2023

Outstanding, March 31, 2023

Exercisable, March 31, 2023

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

Outstanding, June 30, 2023

Exercisable, June 30, 2023

The following table presents information related to stock options as of June 30, 2023:

Options Outstanding

Options Exercisable

Remaining Life

Remaining Term

$0.66 - $0.99

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$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.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2023, there was $ 476,124 of unrecognized stock-based compensation expense related to the above stock options, which will be recognized over the weighted average remaining vesting period of 3.0 years.

Restricted Stock Awards

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

The following table presents information related to restricted stock awards as of June 30, 2023:

Weighted Average

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.

Non-vested RSAs, June 30, 2023

On March 31, 2021, the Company granted 2,000,000 restricted shares of common stock to the Company’s President and Chief Operating Officer.

The restricted shares vest in four (4) equal annual installments, the first installment of which vested on March 1, 2023.

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

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

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

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

As of June 30, 2023, there was $ 8,009,225 of unrecognized stock-based compensation expense related to restricted stock awards that will be recognized over the weighted average remaining vesting period of 2.91 years.

Restricted Stock Units

The following table presents information related to restricted stock units (“RSUs”) as of June 30, 2023:

Shares of Restricted

Weighted Average

Non-vested RSUs, January 1, 2023

Non-vested RSUs, June 30, 2023

As of June 30, 2023, there was $ 3,510,072 of unrecognized stock-based compensation expense related to restricted stock units that will be recognized over the weighted average remaining vesting period of 3.3 years.

Stock-Based Compensation

During the three and six months ended June 30, 2023, the Company recognized stock-based compensation expense of $ 964,201 and $ 1,884,356 , respectively, related to restricted common stock, warrants and stock options, of which $ 927,375 and $ 1,831,370 , respectively are included within selling, general and administrative expenses, and $ 36,826 and $ 52,986 , respectively are included within research and development expenses on the unaudited condensed consolidated statements of operations.

During the three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of $ 1,043,545 and $ 2,286,467 , respectively, related to restricted common stock, warrants and stock options, of which $ 1,033,851 and $ 2,268,665 , respectively are included within selling, general and administrative expenses, and $ 9,694 and $ 17,802 , respectively are included within research and development expenses in the unaudited condensed consolidated statements of operations.

The following table presents information related to stock-based compensation for the three and six months ended June 30, 2023 and 2022:

For The Three Months Ended

Common stock issued for services

For The Six Months Ended

Common stock for services

Accrued issuable equity (common stock)

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NOTE 14 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 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.

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

Restricted Stock Award

On July 12, 2023, the Company granted an award for 350,000 shares of restricted common stock with an aggregate grant date value of $ 266,000 , which shall vest in four equal annual installments beginning July 12, 2024.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Director Resignation

As disclosed in a Form 8-K filed with the SEC on August 7, 2023, on August 4, 2023, Dr.

Timothy Knowles resigned from the Board of Directors of the Company, as well as his role as Executive Technical Fellow.

Knowles’ resignation is a result of his decision to retire.

Repayment Agreement

On August 16, 2023 the Company entered into an agreement with Yorkville (the “Repayment Agreement”), pursuant to which, if the Company closes a financing in excess of $ 15,000,000 , 105 % of the outstanding principal amount of the prepaid advance liability (see Note 9 – Prepaid Advance Liability) and all accrued related interest will be paid to Yorkville, and the SEPA and the Supplemental Agreement will be automatically terminated.

If the prepaid advance liability has not been paid in full by the payment dates cited below, then:

on or before the earlier of August 25, 2023 or the date of the closing of any financing by the Company, the Company will pay to Yorkville a sum equal to (i) principal in the amount $ 3,000,000 , (ii) a payment premium in the amount of $ 150,000 , and (iii) all accrued interest outstanding on such payment (the “August Repayment”).

On the last day of each of October 2023, November 2023 and December 2023 , the Company will pay to Yorkville a cash sum equal to (i) principal in the amount of $ 1,383,333 ;

(ii) a payment premium equal to 5 % of each principal payment, and (iii) all accrued interest outstanding on such payment (each amount, a “Repayment”).

Provided that each Repayment is timely received, Yorkville agrees not to submit Investor Notices to the Company.

If the August Repayment is not received on a timely basis, Yorkville may submit Investor Notices to the Company pursuant to the terms of the Supplemental Agreement.

If the August Repayment is submitted on a timely basis, but subsequent Repayments are not received on a timely basis, Yorkville may submit Investor Notices for an aggregate amount up to the missed payment(s) amount.

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