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Item 9A. Controls and Procedures

2024-04-12 compared with 2023-03-28 · 568 added, 597 removed, 888 unchanged (57% of the section changed)

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Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) (the “Exchange Act”).

Based on the foregoing evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2022, our disclosure controls and procedures were not effective at the reasonable assurance level because of the material weakness discussed below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

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

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

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

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

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

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

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

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

Based on the foregoing evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2023, our disclosure controls and procedures were effective.

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in its reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Our management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

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Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023, based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 Framework).

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

Based on this evaluation, our principal executive officer and principal financial officer have concluded that our internal control over financial reporting as of December 31, 2023 was effective.

Changes in Internal Control Over Financial Reporting

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

During the fourth fiscal quarter ended December 31, 2023, we concluded that the preventative controls that we established around electronic payments (wires, EFT’s, ACH’s and credit card payments) were operating effectively and would enable proper segregation of duties, thus remediating our prior material weakness related to the electronic payment process.

Inherent Limitations of the Effectiveness of Controls

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Attestation Report of Registered Public Accounting Firm

This Annual Report does not contain an attestation report of our independent registered public accounting firm related to internal control over financial reporting because the rules for smaller reporting companies provide an exemption from the attestation requirement.

This Annual Report does not contain an attestation report of our independent registered public accounting firm related to internal control over financial reporting because the rules for smaller reporting companies with less than $100 million of revenue provide an exemption from the attestation requirement.

OTHER INFORMATION

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Chief Executive Officer and Chairman

Timothy Knowles

Director, Executive Technical Fellow and Secretary

Simon Westbrook

Chief Financial Officer

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

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

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

Since 1983, Dr.

Knowles has been working as President at ESLI.

In addition, in 2013, Dr.

Knowles co-founded KULR and has been serving as its CTO since then.

From 1977 to 1983, he was a postdoctoral research physicist at Hamburg University.

Knowles received Ph.D.

in Physics from University of California San Diego in 1977 and B.S.

in Physics from University of Southern California in 1969.

In recognition of Dr.

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

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

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

Timothy Knowles will also remain a director of the Board.

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

Westbrook founded and has since served as an officer of Aargo, Inc., a company specializing in financial consulting services to corporations in various tech-related industries.

Prior to Aargo, Inc., Mr.

Westbrook was CFO of Amber Networks, Inc., and the Chief Financial Officer of Sage, Inc.

SAGI), a Silicon Valley company specializing in flat panel displays.

Before joining Sage, Mr.

Westbrook held a number of senior financial positions at Creative Technology (NASDAQ:

CREAF), a leading PC multimedia company, and Atari Corp (AMEX:

ATC), the video game and home computer company both in the USA and overseas.

At various times, he has held positions as an advisory board member of the Silicon Valley Financial Executives Institute, and various technology start-up companies where he has assisted in strategic planning, fund raising and team development.

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

Shawn Canter was appointed as Chief Financial Officer (“CFO”) effective as of March 31, 2023.

Canter is a seasoned corporate executive and board member with over 25 years of experience leading teams in hands-on roles in both institutional and early/growth stage companies bringing solutions to complex situations.

He gained significant financial and transactional experience as an executive in mergers and acquisitions (“M&A”) at Goldman Sachs and at Bank of America’s investment banking division where he also served as Chief Operating Officer of M&A.

Canter will be responsible for financial management and driving a disciplined fiscal strategy while scaling the Company through its commercialization phase.

Canter received a bachelor’s degree in economics and a master’s degree in organizational behavior from Stanford University, as well as a JD and an MBA from the University of Michigan.

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

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

Walker continues to be engaged in the academic and

professional communities focused on battery safety.

Walker continues to be engaged in the academic and professional communities focused on battery safety.

Walker received his B.S.

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Cochran has a Bachelor of Science in Business Operations from Devry Institute of Technology.

Carpenter serves as KULR’s Vice President of Engineering.

Michael Carpenter serves as KULR’s Vice President of Engineering.

Carpenter has been employed by ESLI since December 1983, serving as Director of the PCM Heatsink Group, Quality Manager, Facility Security Officer (FSO) in the Defense Industrial Security Program from 1988 to 1995.

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Non-Executive Directors

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

Kurosaki founded IT-Farm Corporation (“IT-Farm”), a Japanese venture capital firm, in 1999.

Kurosaki has been the President of IT-Farm since the company’s inception.

Kurosaki has led early investments in notable companies such as Zoom Video Communications (Nasdaq:

ContextLogic (Nasdaq:

Treasure Data, acquired by ARM Holdings (Nasdaq:

Tubi, acquired by Fox Corporation (Nasdaq:

Red Hot Labs, acquired by Google (Nasdaq:

lvl5, acquired by DoorDash (NYSE:

Accel Technology, acquired by Marvell Technology Group (Nasdaq:

MRVL), and Extreme DA, acquired by Synopsis (Nasdaq:

Kurosaki has also served as Asia-Pacific advisory member of ARM Holdings, acquired by SoftBank Group Corporation (OTCMKTS:

Kurosaki started his business career at Intel Japan, thereafter, joining Western Digital Corporation (Nasdaq:

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

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

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

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

Kurosaki founded IT-Farm Corporation (“IT-Farm”), a Japanese venture capital firm, in 1999.

Kurosaki has been the President of IT-Farm since the company’s inception.

Kurosaki has led early investments in notable companies such as Zoom Video Communications (Nasdaq:

ContextLogic (Nasdaq:

Treasure Data, acquired by ARM Holdings (Nasdaq:

Tubi, acquired by Fox Corporation (Nasdaq:

Red Hot Labs, acquired by Google (Nasdaq:

lvl5, acquired by DoorDash (NYSE:

Accel Technology, acquired by Marvell Technology Group (Nasdaq:

MRVL), and Extreme DA, acquired by Synopsis (Nasdaq:

Kurosaki has also served as Asia-Pacific advisory member of ARM Holdings, acquired by SoftBank Group Corporation (OTCMKTS:

Kurosaki started his business career at Intel Japan, thereafter, joining Western Digital Corporation (Nasdaq:

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

Board Composition

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Officers are elected annually by the board of directors and serve at the discretion of the board.

Our board currently consists of four directors, Michael Mo, Dr.

Timothy Knowles, Morio Kurosaki, and Joanna Massey.

Our board currently consists of three directors, Michael Mo, Morio Kurosaki, and Joanna Massey.

Kurosaki and Dr.

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

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

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

Committees of the Board of Directors

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Each of Morio Kurosaki and Dr.

Joanna Massey, is independent under the rules and regulations of the SEC and the listing standards of the NYSE American applicable to audit committee members.

Joanna Massey, is independent under the rules and regulations of the SEC and the listing

standards of the NYSE American applicable to audit committee members.

Our board of directors has determined that each of Morio Kurosaki and Dr.

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Chief Executive Officer

Keith Cochran

President and Chief Operating Officer

Chief Financial Officer

William Walker

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

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

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

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

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

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

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

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

Includes cash compensation earned from date of hire March 31, 2023 through December 31, 2023.

Also includes 1,500,000 shares of the Company’s common stock which vest in five equal increments over five years.

Includes 350,000 shares of the Company’s common stock which vest in four equal increments over four years.

Includes cash compensation earned from date of hire March 16, 2022 through December 31, 2022.

Also includes 150,000 shares of the Company’s common stock which vest in four equal increments over four years.

Employment Contracts;

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

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

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

In connection with his appointment, the Board granted Dr.

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

During the year ended December 31, 2023, the Board, at the recommendation of the Compensation Committee, approved the following compensation for each of the following officers of the Company:

● On February 2, 2023, the Board approved the appointment of Shawn Canter as the Chief Financial Officer.

In connection with his appointment, the Board authorized an annual salary of $250,000 and granted Mr.

Canter 1,500,000 shares of the company’s common stock, which shall vest in five equal annual installments.

● On July 12, 2023, the Board granted Dr.

William Walker 350,000 shares of the Company’s common stock, which shall vest in four equal annual installments.

Equity Compensation Plans

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Compensation of Directors

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

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

disqualification, or removal.

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

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.

Additionally, all independent Board members were granted 37,500 shares of common stock, which shares vested quarterly in 7,500 share installments and were fully vested as of December 31, 2023.

Compensation Recovery Policy

We have adopted a compensation recovery policy, effective as of November 29, 2023, that complies with the new SEC rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Clawback Policy”).

Subject to the terms of the Clawback Policy, the Clawback Policy requires us to recover certain cash or equity-based incentive compensation payments or awards made or granted to an executive officer in the event we are required to prepare an accounting restatement due to our material noncompliance with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.

See Exhibit 97 which includes our full Clawback Policy.

Outstanding Equity Awards at Fiscal Year-End

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Michael Mo (Chief Executive Officer)

Keith Cochran (President and Chief Operating Officer)

Shawn Canter (Chief Financial Officer)

William Walker (Chief Technology Officer)

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

The following table provides the names and addresses of each person known to us who own more than 5% of the outstanding common stock as of the date of this annual report, and by our officers and directors.

Except as otherwise indicated, all shares are owned directly.

Unless otherwise indicated, the address of each of the persons shown is c/o KULR Technology Group, Inc., 4863 Shawline Street, San Diego, CA 92111.

Each record holder of Non-convertible Series A Voting Preferred Stock shall have that number of votes (identical in every other respect to the voting rights of the holders of Common Stock entitled to vote at any regular or special meeting of the shareholders or by written consent) equal to one hundred (100) votes per share of Non-convertible Series A Voting Preferred Stock held by such record holder.

Name of Beneficial Owner

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Michael Mo (2) - CEO and Chairman

Timothy Knowles (3) - Executive Technical Fellow and Secretary

Simon Westbrook (4) - CFO

Shawn Canter (3) - CFO

William Walker (4) - CTO

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All directors and executive officers as a group (7 persons)

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

Beneficial owners of more than 5%

Timothy Knowles (8) – Former Director, Executive Technical Fellow and Secretary

* Less than 1%

The percent of class is based on 172,469,307 shares outstanding and entitled to vote, as of April 9, 2024, which excludes 131,162 treasury shares and 465,000 outstanding shares that are not vested and are not entitled to vote.

Consists of 19,755,110 shares held directly by Mr.

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

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

Does not include a restricted stock award of 1,500,000 shares of the Company’s common stock that does not vest within 60 days of April 9, 2024.

Does not include a restricted stock award of 1,200,000 shares of the Company’s common stock that does not vest or settle within 60 days of April 9, 2024.

Does not include 450,000 restricted stock grants that do not vest within 60 days of April 9, 2024.

Does not include a restricted stock award of 1,000,000 shares of the Company’s common stock that does not vest within 60 days of April 9, 2024.

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

Kurosaki’s appointment as a director of the Company, 37,500 vested shares of common stock granted by the Company on November 1, 2022, 400,000 shares of common stock acquired prior to being appointed director, and 100,000 shares held by IT-Farm Corporation, a Japanese venture and capital firm, of which Mr.

Kurosaki is the founder and President.

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

Massey’s appointment as a director of the Company, 37,500 vested shares granted by the Company on November 1, 2022, and 10,000 shares of common stock acquired in open market purchases.

Consists of 14,268,027 shares held directly by Mr.

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

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

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

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

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

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

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

Kurosaki is the founder and President.

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

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

Change in Control

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PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

The following is a summary of the fees billed or expected to be billed to us by Marcum LLP, our independent registered public accounting firm for professional services rendered with respect to the fiscal years ended December 31, 2023 and 2022:

For the Fiscal Year Ended

Audit fees consist of fees billed for services rendered by our independent auditors during the years ended December 31, 2022 and 2021 for the audit and review of our financial statements.

Tax fees consist of fees billed for services rendered by our tax preparers during the years ended December 31, 2022 and 2021 in connection with the preparation and filing of our income tax returns.

Audit fees consist of fees billed for services rendered by Marcum LLP during the years ended December 31, 2023 and 2022 for the annual audit and quarterly reviews of our financial statements, as well as registration statements and comfort letters.

Tax fees consist of fees billed for services rendered by our independent auditors during the years ended December 31, 2023 and 2022 in connection with the preparation and filing of our income tax returns.

Pre-Approval Policies

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

Underwriting Agreement dated December 20, 2023 by and between KULR Technology Group, Inc.

Lafferty & Co., Inc.

(incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on September 13, 2023)

Letter Agreement dated August 16, 2023, by and among KULR Technology Group, Inc., YA II PN, LTD, and Yorkville Advisors Global, L.P.

(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 16, 2023)

Amendment Letter Agreement dated August 22, 2023, by and among KULR Technology Group, Inc., YA II PN, LTD, and Yorkville Advisors Global, L.P.

(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 22, 2023)

Amendment Letter Agreement dated August 30, 2023, by and among KULR Technology Group, Inc., YA II PN, LTD, and Yorkville Advisors Global, L.P.

(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 30, 2023)

Amendment Letter Agreement dated December 19, 2023, by and among KULR Technology Group, Inc., YA II PN, LTD, and Yorkville Advisors Global, L.P.

(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 19, 2023)

Amendment Letter Agreement dated January 9, 2024, by and among KULR Technology Group, Inc., YA II PN, LTD, and Yorkville Advisors Global, L.P.

(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 9, 2024)

Amendment Letter Agreement dated February 13, 2024, by and among KULR Technology Group, Inc., YA II PN, LTD, and Yorkville Advisors Global, L.P.

(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 13, 2024)

List of Subsidiaries (3)

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Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Clawback Policy, effective November 29, 2023

Inline XBRL Instance*

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* Filed herewith.

** Furnished herewith.

Previously filed as an exhibit to Form 8-K on June 12, 2017 and incorporated herein by this reference.

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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

March 28, 2023

April 12, 2024

KULR Technology Group, Inc.

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(Principal Executive Officer)

/s/ Simon Westbrook

Simon Westbrook

/s/ Shawn Canter

Chief Financial Officer

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Chief Executive Officer and Chairman

March 28, 2023

/s/ Timothy Knowles

Executive Technical Fellow and Director

March 28, 2023

Timothy Knowles

/s/ Simon Westbrook

April 12, 2024

/s/ Shawn Canter

Chief Financial Officer

March 28, 2023

Simon Westbrook

/s/ William Walker

Chief Technical Officer

March 28, 2023

William Walker

/s/ Keith Cochran

Keith Cochran

President and Chief Operating Officer

March 28, 2023

April 12, 2024

/s/ Joanna Massey

Joanna Massey

Lead Director

March 28, 2023

April 12, 2024

Joanna Massey

/s/ Morio Kurosaki

March 28, 2023

April 12, 2024

Morio Kurosaki

KULR TECHNOLOGY GROUP INC.

AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID:

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Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022

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

Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the Year Ended December 31, 2023

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

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We have audited the accompanying consolidated balance sheets of KULR Technology Group, Inc.

and Subsidiary (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders’ equity (deficiency) and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

(the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As more fully described in Note 2, the Company has a working capital deficit, has incurred losses from operations, and needs to raise additional funds to meet its obligations and sustain its operations.

These conditions raise substantial doubt about the Company's ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 2.

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

Basis for Opinion

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Critical Audit Matter

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

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

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

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

Description of Matter No.

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

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

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

How We Addressed Matter No.

1 in Our Audit

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

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

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

Description of Matter No.

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

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

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

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

How We Addressed Matter No.

2 in Our Audit

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

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

We determined that there are no critical audit matters.

/s/ Marcum LLP

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Los Angeles, CA

March 28, 2023

April 12, 2024

KULR TECHNOLOGY GROUP, INC.

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Intangible assets, net

Right of use asset

Deferred financing costs

Liabilities and Stockholders’ Equity

Right of use asset, net

Deferred financing costs, net

Liabilities and Stockholders’ (Deficit) Equity

Current Liabilities:

6 unchanged sentences

Total Current Liabilities

Notes payable, non-current portion

Lease liability, non-current portion

3 unchanged sentences

Commitments and contingencies (Note 16)

Stockholders' Equity

Stockholders ’ (Deficit) Equity

Preferred stock, $ 0.0001 par value, 20,000,000 shares authorized

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134,031,669 and 133,900,507 shares issued and outstanding at December 31, 2023, respectively;

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

Treasury stock, at cost;

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

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

Additional paid-in capital

Treasury stock, at cost;

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

Accumulated deficit

1 unchanged sentence

( 42,594,038 )

Total Stockholders' Equity

Total Liabilities and Stockholders' Equity

Total Stockholders ’ (Deficit) Equity

( 2,182,696 )

Total Liabilities and Stockholders ’ (Deficit) Equity

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

14 unchanged sentences

Gain on forgiveness of PPP loan and interest

Debt redemption costs

Amortization of debt discount

1 unchanged sentence

Change in fair value of accrued issuable equity

Loss on foreign currency transactions

Total Other Expense, net

2 unchanged sentences

( 23,693,556 )

Deemed dividend to Series D preferred stockholders

( 19,436,479 )

Net Loss Attributable to Common Stockholders

( 19,436,479 )

( 14,535,477 )

Net Loss Per Share - Basic and Diluted

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AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEAR ENDED DECEMBER 31, 2023

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Stockholders ’

Equity (Deficit)

Balance - January 1, 2023

( 42,594,038 )

Treasury stock held upon the vesting of restricted common stock

Treasury stock issued upon the exercise of options

Common stock issued upon the exercise of options

Common stock issued upon the exercise of warrants

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

For cash, net of issuance costs (1)

In satisfaction of notes payable

For the repayment of prepaid advance liability

Common stock issued for the repayment of prepaid advance liability and related interest accrual pursuant to Investor Notices

Common stock issued for the repayment of prepaid advance liability and related interest accrual pursuant to Advance Notices (1)

Shares repurchased for payroll taxes and canceled

Common stock issued pursuant to the equity financing for cash, net of issuance costs (2)

Stock-based compensation:

Restricted stock awards

Restricted stock awards granted

Unvested restricted stock awards canceled

Common stock issued for services

Amortization of restricted stock units

Amortization of restricted common stock

Amortization of stock options

Amortization of market-based award

( 23,693,556 )

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( 66,287,594 )

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

( 2,182,696 )

(1) Represents gross proceeds of $ 166,337 less $ 1,211 amortization of deferred financing costs.

(2) Represents gross proceeds of $ 3,910,000 less issuance costs of $ 846,030 .

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

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FOR THE YEAR ENDED DECEMBER 31, 2022

Series B Convertible

Series D Convertible

Preferred Stock

Treasury Stock

2 unchanged sentences

( 23,157,559 )

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

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

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

Common stock issued upon the exercise of warrants

Treasury stock held upon the vesting of restricted common stock

Treasury stock issued upon the exercise of options

Common stock issued upon the exercise of options

Common stock issued as partial consideration for intangible asset

Common stock issued upon the exercise of warrants

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

For cash, net of issuance costs (1)

In satisfaction of notes payable

For the repayment of prepaid advance liability (2)

Stock-based compensation:

Restricted stock awards

Common stock issued for services

Restricted common stock issued

Restricted common stock cancelled

Amortization of restricted common stock

Amortization of restricted stock units

Amortization of stock options

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( 42,594,038 )

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

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

Represents gross proceeds of $ 6,693,976 less $ 253,133 for amortization of debt discount.

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

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Non-cash lease expense

Loss on debt extinguishment

Depreciation and amortization expense

Non-cash interest expense

Gain on forgiveness of PPP loan and interest

Change in fair value of accrued issuable equity

Non-cash interest expense

Stock-based compensation

Bad debt expense

Loss on extinguishment of note payable

Provision for credit losses

Inventory write down

Changes in operating assets and liabilities:

2 unchanged sentences

( 1,770,724 )

Inventory deposits

Prepaid expenses and other current assets

( 1,324,836 )

Inventory deposits

Security deposits

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( 1,421,432 )

( 2,153,950 )

Purchases of property and equipment

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Cash Flows from Financing Activities:

Proceeds from note payable (1)

Net proceeds from the SEPA

Net proceeds from the prepaid advance liability (2)

Proceeds from equity financing

Issuance costs on equity financing

Proceeds from the SEPA

Proceeds from prepaid advance liability

Issuance costs on prepaid advance liability

Payment of financing costs incurred in connection with the SEPA

Notes payable issuance costs

Payment of financing costs

Repayments of notes payable

Repayments of prepaid advance liability

( 1,575,000 )

Proceeds from notes payable (1)

Issuance costs on notes payable

Repayments of note payable

( 1,000,000 )

Proceeds from the exercise of options

Payment of financing costs incurred in connection with the SEPA

Repurchase of common stock

Proceeds from the exercise of stock options

Proceeds from the exercise of warrants

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

Net Cash Provided By Financing Activities

Net (Decrease) Increase In Cash

Net Decrease In Cash

( 9,138,799 )

( 4,529,738 )

Cash - Beginning of Year

Cash - End of Year

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

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

(1) Face value of $ 5,000,000 , less $ 250,000 original issue discount for 2022.

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

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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

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

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

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

Common stock issued in satisfaction of accrued issuable equity

Prepaid advance for repayment of note payable

Original issue discount on prepaid advance liability

Common stock issued in satisfaction of note payable

Common stock issued in satisfaction of prepaid advance liability and interest

Deposits applied to purchase of property and equipment

Common stock issued for the repayment of prepaid advance liability and related interest accrual pursuant to Investor Notices

Common stock issued for the repayment of prepaid advance liability and related interest accrual pursuant to Advance Notices

Prepaid advance for repayment of note payable

Shares issued in satisfaction of note payable

Deposits applied to purchases of property and equipment

Additions to property and equipment included in accounts payable

Common stock issued in satisfaction of accrued issuable equity

Accrual of equity financing issuance costs

Deferred financing costs charged to additional paid-in capital

Common shares issued as partial consideration for intangible asset

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

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Risks and Uncertainties

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

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 2023 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 short and long-term worldwide implications of Russia’s invasion of Ukraine are difficult to predict at this time.

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

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

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

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

were each swept into receivership.

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

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

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

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

The Company operates in a dynamic and highly competitive industry and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operations, or cash flows:

ability to obtain future financing;

advances and trends in new technologies and industry standards;

regulatory approval and market acceptance of the Company’s products;

development of sales channels;

certain strategic relationships;

litigation or claims against the Company based on intellectual property, patent, product, regulatory, or other factors;

and the Company’s ability to attract and retain employees necessary to support its growth.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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All significant intercompany transactions have been eliminated in the consolidation.

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

Going Concern and Management’s Liquidity Plans

As of December 31, 2023, the Company had cash of $ 1,194,764 and working capital deficit of $ 2,994,753 .

During the year ended December 31, 2023, the Company incurred a net loss in the amount of $ 23,693,556 and used cash in operations of $ 11,965,387 .

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

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 these financial statements are issued.

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 working capital deficits.

Future cash requirements for our current liabilities include $ 6,232,888 for accounts payable and accrued expenses, $ 1,609,200 for merchant cash advances (see Note 18 – Subsequent Events – Merchant Cash Advance Agreement), $ 1,323,963 for capital expenditures and $ 102,186 for future payments under operating leases.

Future cash requirements for long-term liabilities include $ 250,000 for promissory notes.

See Note 14 – Notes Payable for additional information.

The non-current Prepaid Advance Liability balance (see Note 11 – Prepaid Advance Liability) of $ 5,892,056 was paid in full subsequent to December 31, 2023 from proceeds raised from the Company’s subsequent equity issuances.

On December 20, 2023, the Company received a notice of noncompliance from NYSE Regulation (“NYSE”) stating it is not in compliance with Section 1003(a)(iii) in the NYSE American Company Guide (the “Company Guide”) since the Company reported stockholders’ equity of $ 1,200,172 at September 30, 2023, and losses from continuing operations and/or net losses in its five most recent

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

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

(“Yorkville”) during the commitment period.

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

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

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

see Note 12 – Notes Payable).

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

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

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

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

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

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

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

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

fiscal years.

On February 12, 2024, the Company received a second notice letter from NYSE stating it is not in compliance with Section 1003 (f)(v) of the Company guide since the Company’s securities were trading at an average of less than $ 0.20 per share for 30 days.

The factors above 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.

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 11 – Prepaid Advance Liability).

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

Subsequent to December 31, 2023, the Company issued 40,276,430 shares of common stock, at purchase prices per share ranging from $ 0.13 to $ 0.41 , pursuant to Advance Notices submitted by the Company to Yorkville for aggregate proceeds of $ 8,326,457 .

Of the gross proceeds, $ 2,610,650 was retained by the Company to help fund operations.

The remaining proceeds were applied against the remaining principal and accrued interest owed in connection with the Prepaid Advance Liability.

See Note 11 – Prepaid Advance Liability and Note 15 – Stockholders’ (Deficit) Equity for additional information.

During the first quarter of 2024, the Company entered into two agreements whereby the Company received $ 1,007,100 of cash (net of underwriting fees of $ 72,900 ) with the obligation to repay a total of $ 1,609,200 over a total of thirty-two weekly payments.

See Note 18 – Subsequent Events – Merchant Cash Advance Agreement for additional details.

On January 9, 2024, the Company announced that it had completed a reduction of its total workforce of approximately 15 % in an effort to allocate its resources to key business priorities to focus on improving the profitability of commercial customer engagements.

On April 2, 2024, the Company received cash proceeds of $ 440,000 related to a Promissory Note comprised of an initial principal amount of $ 500,000 and discount of $ 60,000 .

The Promissory Note carries an annual interest rate of 0 % and increases to 15 % in the event of default, and shall be repaid in cash representing all outstanding principal and accrued and unpaid interest due on October 2, 2024, as defined by the terms of the agreement.

See Note 18 – Subsequent Events – Promissory Notes for additional information.

On April 9, 2024, the Company received cash proceeds of $ 200,000 related to a Promissory Note which matures on the first anniversary of its issuance and carries an annual interest rate of 16 %.

In the event the promissory note is prepaid within 9 months of its issuance, the holder is entitled to the repayment of principal and cash payment of interest equal to 12 % of the prepayment amount.

See Note 18 – Subsequent Events – Promissory Notes for additional information.

As of the date of the issuance of these consolidated financial statements, the Company has no additional commitments to obtain additional funding through future debt or equity financings, 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 indicate that management’s plans do not alleviate the 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 consolidated financial statements do not include any adjustments relating to the recoverability of assets and the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern.

KULR TECHNOLOGY GROUP, INC.

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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.

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

Treasury Stock

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

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

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

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

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

Concentrations of Credit Risk

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

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

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

Cash Concentrations

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The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:

Account Receivables

Accounts Receivable

For the Years Ended

As of December 31,

* Less than 10%

There is no assurance the Company will continue to receive significant revenues from any of these customers.

There is no assurance the Company will continue to receive significant revenue from any of these customers.

Any reduction or delay in operating activity from any of the Company’s significant customers, or a delay or default in payment by any significant customer, or termination of agreements with significant customers, could materially harm the Company’s business and prospects.

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

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.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 years ended December 31, 2022 and 2021:

The Company had vendors whose purchases of inventory individually represented 10% or more of the Company’s total purchases of inventory, as follows:

For the Years Ended

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Accounts Receivable

Accounts receivable are carried at their contractual amounts, less an estimate for uncollectible amounts.

As of December 31, 2022 and 2021, no allowances for uncollectible amounts were determined to be necessary.

Management estimates the allowance for bad debts based on existing economic conditions, the financial conditions of the customers, and the amount and age of past due accounts.

Accounts receivable are carried at their contractual amounts, less an estimate for credit losses.

As of December 31, 2023 and 2022, no allowances for credit losses were determined to be necessary.

Management estimates the allowance for credit losses based on existing economic conditions, the financial conditions of the customers, and the amount and age of past due accounts.

Receivables are considered past due if full payment is not received by the contractual due date.

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

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.

Safe cases provide a safe and cost-effective solution to commercially store and transport lithium batteries and mitigate the impacts of cell-to-cell thermal runway propagation.

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

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

During the year ended December 31, 2023, certain inventory was written down to its net realizable value by taking a charge to cost of revenue of $ 293,941 .

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

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

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

As of December 31, 2023 and 2022, inventory deposits were $ 27,500 and $ 285,260 , respectively.

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

Raw materials are held off-site with certain suppliers.

Finished goods inventory is held on-site at the San Diego, California and Webster, Texas locations.

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

Inventory at December 31, 2023 and 2022 consisted of the following:

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Maintenance and repairs are charged to operations as incurred.

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

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

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

The Company reviews property and equipment assets for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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

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

As of December 31, 2023 and December 2022, the Company determined there was no impairment of property and equipment.

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

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

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Intellectual property

Technology license

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

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An impairment loss, the recorded amount of which would be based on the fair value of the intangible asset at the measurement date, would be recorded in the period in which the impairment determination was made.

As of December 31, 2023 and December 31, 2022, the Company determined there was no impairment of intangible assets.

Fair Value of Financial Instruments

The Company measures the fair value of financial assets and liabilities based on the guidance of Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

The Company measures the fair value of financial assets and liabilities based on the guidance of Accounting Standards Codification (“ASC”) 820, “Fair Value Measurement” (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

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Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

The carrying amounts of the Company’s financial instruments, such as cash, accounts receivable, accrued expenses and other current liabilities, notes payable and loans payable approximate fair values due to the short-term nature of these instruments.

Preferred Stock

The Company applies the accounting standards for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock.

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

The carrying amounts of the Company’s financial instruments, such as cash, accounts receivable, accrued expenses and other current liabilities, notes payable and Prepaid Advance Liability approximate fair values due to the short-term nature of these instruments.

Treasury Stock

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

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

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

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

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

KULR TECHNOLOGY GROUP, INC.

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Convertible Instruments

The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with Topic 815 of the FASB ASC.

The accounting treatment of derivative financial instruments requires that the Company record embedded conversion options and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date.

Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date.

The Company reassesses the classification of its derivative instruments at each balance sheet date.

If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

Embedded conversion options and any related freestanding instruments are recorded as a discount to the host instrument.

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

The Company evaluates embedded conversion features within convertible debt to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings.

If an embedded derivative is bifurcated from share-settled convertible debt, the Company records the debt component at cost less a debt discount equal to the bifurcated derivative’s fair value.

If the conversion feature is not required to be accounted for separately as an embedded derivative, the convertible debt instrument is accounted for wholly as debt.

The Company amortizes the debt discount over the life of the debt instrument as additional non-cash interest expense utilizing the effective interest method.

Debt issuance and offering costs are recorded as debt discount, reducing the carrying value of the debt instrument, and are amortized as interest expense over the term of the convertible debt instrument using the effective interest method.

Accrued Issuable Equity

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

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

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

Deferred Financing Costs

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

Direct, incremental fees incurred in connection with a debt or equity financing, are capitalized as deferred financing costs (a non-current asset) on the balance sheet.

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

If the completion of a contemplated financing was deemed to be no longer probable, the related deferred offering costs would be charged to general and administrative expense in the consolidated financial statements.

If the completion of a contemplated financing was deemed to be no longer probable, the related deferred financing costs would be charged to general and administrative expense in the consolidated financial statements.

Revenue Recognition

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

Contract services – Revenue is recognized at the point in time that the Company satisfies its performance obligation under the contract, which is generally at the time the services are fulfilled and/or accepted by the customer.

● Contract services – Revenue is recognized pursuant to the terms of each individual contract when the Company satisfies the respective performance obligations, which could be recognized at a point in time or over the term of the contract.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Contract services revenue that is recognized over time, may be recognized using the input method, based on labor hours expended, or using the output method based on milestones achieved, depending on the contract.

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

For the Years Ended

Revenues Recognized at a Point in Time:

Product sales

Contract services

Total revenue

Revenues Recognized Over Time:

Contract services

Total Revenues

Deferred Revenue

As of December 31, 2023 and 2022, the Company had $ 551,021 and $ 23,000 of deferred revenue, respectively, from contracts with customers.

The contract liabilities represent payments received from customers for which the Company had not yet satisfied its performance obligation under the contract, or the customers have not officially accepted the goods or services provided under the contract.

The contract liabilities included in deferred revenue 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 and recognize the revenue related to its deferred revenue balance within the next twelve months.

During the year ended December 31, 2023, $ 3,000 was recognized for performance obligations satisfied in previous periods.

During the year ended December 31, 2022, there was no revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods.

Deferred Labor Costs

As of December 31, 2023 and 2022, the Company had $ 41,625 and $ 34,402 , respectively, of deferred labor costs, which is included in prepaid expenses and other current assets in the Company’s consolidated balance sheets.

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

The Company will recognize the deferred labor costs as cost of revenues at the point in time that the Company satisfies its performance obligation under the respective contract, which is generally at the time the services are fulfilled and/or accepted by the customer.

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

The Company will recognize the deferred labor costs as cost of revenue at the point in time that the Company satisfies its performance obligation under the respective contract, which is generally at the time the services are fulfilled and/or accepted by the customer.

Shipping and Handling Costs

Amounts billed to a customer in a sales transaction related to shipping and handling are recorded as revenue.

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

Shipping and handling fees billed to a customer in a sales transaction related are recorded as revenue.

The Company has adopted a policy of accounting for shipping and handling activities as a fulfillment cost rather than a performance obligation.

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

Research and Development

Research and development include expenses incurred in connection with the research and development of our CFV thermal management solution, high-areal-capacity battery electrodes, 3D engineering for a rechargeable battery and non-cash stock-based compensation expenses.

Research and development expenses are charged to operations as incurred.

Research and development include compensation and other expenses incurred in connection with the research and development of our CFV thermal management solution, high-areal-capacity battery electrodes, 3D engineering for a rechargeable battery, including non-cash stock-based compensation expenses.

Research and development expenses are recognized as incurred.

Advertising Costs

Advertising costs are expensed in the period incurred.

Advertising costs charged to operations for the years ended December 31, 2022 and 2021 were $ 874,398 and $ 145,025 , respectively, and are included in selling, general and administrative in the consolidated statements of operations.

Advertising costs charged to operations for the years ended December 31, 2023 and 2022 were $ 1,801,144 and $ 874,398 , respectively, and are included in selling, general and administrative expenses in the consolidated statements of operations.

Stock-Based Compensation

The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award since the fair value of the award is more readily determinable than the value of the services.

The fair value of the award is measured on the grant date.

The fair value of the award is measured on

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the grant date.

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

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Basic net loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period.

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

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

For the Twelve Months Ended

( 19,436,479 )

( 11,911,151 )

Deemed dividend to Series D preferred stockholders

( 2,624,326 )

For the Years Ended

Net loss attributable to common stockholders

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

Unvested restricted stock

Unvested market -based equity awards

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

Prepaid advance (1)

Unvested restricted stock awards

Restricted stock units

Shares to be issued if the Company defaults on any of its cash payment obligations.

The shares are estimated using the effective floor price at the end of each period (see Note 11 – Prepaid Advance Liability).

Operating Leases

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Operating lease expense consists of a single lease cost calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis, variable lease payments not included in the lease liability, and any impairment of the right-of-use asset.

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns.

Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns.

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

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements as of December 31, 2023 and 2022.

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Subsequent Events

The Company has evaluated subsequent events through the date which the consolidated financial statements were issued.

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

The Company has evaluated subsequent events through the date on which the consolidated financial statements were issued.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No.

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

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

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

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

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

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

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

ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity.

ASU 2020-06 requires entities to provide expanded disclosures about the terms and features of convertible instruments and amends certain guidance in ASC 260, Earnings per Share, relating to the computation of earnings per share for convertible instruments and contracts in an entity’s own equity.

The guidance becomes effective for the Company on January 1, 2024, with early adoption permitted.

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

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

The Company adopted ASU 2019-12 effective January 1, 2021 and its adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

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

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

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

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

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

In November 2023, the Financial Accounting Standards Board (the “FASB”) FASB issued ASU 2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.” These amendments require a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually.

Public entities with a single reporting segment are required to provide both the new disclosures and all of the existing disclosures required under ASC 280.

The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

Since this new ASU addresses only disclosures, the Company does not expect the adoption of this ASU to have any material effects on its financial condition, results of operations or cash flows.

The Company is currently evaluating any new disclosures that may be required upon adoption of ASU 2023-07.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

The amendments in this update address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information.

This update also includes certain other amendments to improve the effectiveness of income tax disclosures.

The amendments in ASU 2023 – 09 are effective for the Company on December 15, 2024, with early adoption permitted.

Since this new ASU addresses only disclosures, the Company does not expect the adoption to have any material effects on its financial condition, results of operation or cash flows.

The Company is currently evaluating any new disclosures that may be required upon adoption of ASU 2023–09.

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity;

Own Equity (“ASU 2020-06”), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements.

Among other changes, the new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium.

As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt.

The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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.

NOTE 3 – ASSET PURCHASE

Company’s current accounting treatment under the current guidance.

The guidance is effective for the Company in financial statements issued for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year.

Management does not expect the adoption of this pronouncement will have a material effect on the Company’s financial statements.

Recently Adopted Accounting Pronouncements

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 consolidated financial statements.

NOTE 3 – ASSET ACQUISITION

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

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

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

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

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

The Company paid the Cash Consideration of $ 1,000,000 on October 6, 2022, $ 500,000 on April 5, 2023 and $ 500,000 on October 5, 2023.

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

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

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

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

During the years ended December 31, 2023 and 2022, the Company recognized compensation expense of $ 500,000 and $ 125,000 , respectively, which are included within the research and development expenses in the consolidated statements of operations.

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On May 4, 2023, 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 total cost of the intellectual property acquired of $ 75,000 is included in intangible assets on the accompanying consolidated balance sheet and is being amortized over its estimated useful life of 5 years.

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.

NOTE 4 – INVENTORY DEPOSITS

Inventory deposits consist 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 December 31, 2023 and December 31,2022, the Company had outstanding inventory deposits of $ 27,500 and $ 285,260 , respectively.

NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

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As of December 31,

Vendor receivables

Deferred labor costs

Professional fees

Research and development

Dues and subscriptions

Compensation costs

Deferred expenses

Security deposits

Dues and subscriptions

Professional fees

Conferences and seminars

Vendor receivables

Marketing and sponsorships

Total prepaid expenses

Research and development

Total prepaid expenses and other current assets

Prepaid marketing and sponsorship costs as of December 31, 2022, primarily consist of two sponsorship agreements with a marketing partner whereby the Company is required to make upfront payments which were amortized over the respective service periods of the agreements.

As of December 31, 2023, the sponsorship costs were fully amortized.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – PROPERTY AND EQUIPMENT

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Research and development equipment

Research and development laboratory

Furniture and fixtures

accumulated depreciation

accumulated deprecation

( 2,420,699 )

Property and equipment, net

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

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

Depreciation expense amounted to $ 2,077,722 and $ 219,643 for the years ended December 31, 2023 and 2022, respectively, which is included in cost of revenue, selling, general and administrative and research and development expenses in the consolidated statements of operations.

NOTE 7 – INTANGIBLE ASSETS

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Intellectual property

Technology license

accumulated amortization

Intangible assets, net

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

This long-lived intangible asset has a useful life of 5 years and is being amortized on a straight-line basis and tested for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.

In February 2023, the Company entered into an agreement and paid $ 60,000 for exclusive use of a technology license.

This long-lived asset has a useful life of ten years and is being amortized on a straight-line basis and tested for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.

On May 4, 2023, the Company acquired intellectual property with an aggregate cost of $ 75,000 (see Note 3 – Asset Purchase).

During the years ended December 31, 2023 and 2022, the Company recognized amortization expense related to intangible assets of $ 136,373 and $ 39,756 , respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

The weighted average remaining amortization period of the Company’s intangible assets is 7.3 years.

Future amortization of intangible asset is as follows:

For the Years Ended December 31, 2022

Future amortization of intangible assets is as follows:

For the Years Ending December 31,

NOTE 8 – EQUIPMENT DEPOSITS

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

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

As of December 31, 2023 and 2022, the Company had outstanding deposits of $ 1,332,436 and $ 3,514,937 , respectively, in connection with these agreements.

1 unchanged sentence

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

As of December 31,

Professional fees

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Research and development

Subscriptions

Accrued cost of sales

Refund due to customer

Tools and supplies

Board compensation

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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – ACCRUED ISSUABLE EQUITY

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

A summary of the accrued issuable equity activity during the years ended December 31, 2023 and 2022, is presented below:

For the Years Ended

As of December 31,

Beginning balance

Grant date value of share obligations

Fair value at January 1

Cancellation of accrued issuable equity

Shares issued in satisfaction of accrued issuable equity

Mark-to-market

Ending balance

Shares issued in satisfaction of accrued issuable equity

Fair value at December 31

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AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the years ended December 31, 2023 and 2022, the Company entered into certain contractual arrangements for consulting services in exchange for a fixed number of shares of common stock of the Company.

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

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

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

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

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

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

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

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

On the respective dates the contracts were entered into, the estimated fair value of the shares to be issued was an aggregate of $ 158,133 and $ 176,270 , respectively, based on the quoted market prices of the shares.

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

During the year ended December 31, 2023, the Company settled certain of its accrued issuable equity obligations through the issuance of an aggregate of 409,723 of its shares with an aggregate fair value of $ 206,047 , remeasured as of the date of settlement based on the quoted market prices of the shares.

During the years ended December 31, 2023 and 2022, the Company recorded gains (losses) in the aggregate amount of $ 167,040 and $ 147,035 , respectively, related to the changes in fair value of accrued issuable equity (see Note 16 – Stockholders’ (Deficit) Equity, Stock-Based Compensation for additional details).

The fair value of the accrued but unissued shares as of December 31, 2023 was $ 13,002 , based on Level 1 inputs, which consist of quoted prices for the Company’s common stock in active markets.

NOTE 11 – PREPAID ADVANCE LIABILITY

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

Original Issue

Gross Amount of

Prepaid Advance

Debt Discount

Current portion

Non-current portion

Total prepaid advance liability

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

Prepaid Advance

net of discount

Balance, January 1, 2022

Proceeds from prepaid advance

Original issue discount on prepaid advance

Repayments in cash

Repayments pursuant to Investor Notices

( 6,315,843 )

Amortization of debt discount

Balance, December 31, 2022

Proceeds from prepaid advance

Original issue discount on prepaid advance

Repayments in cash

( 1,575,000 )

Repayments pursuant to Advance Notices

Repayments pursuant to Investor Notices

( 4,032,658 )

Amortization of debt discount

Balance, December 31, 2023

The current portion of this liability was $ 5,655,612 as of December 31, 2022.

The current portion of this liability was $ 0 as of December 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.

(“Yorkville”).

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

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

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

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

At any time that there is a balance outstanding under a Prepaid Advance, the Company is not permitted to deliver Advance Notices (as defined in Note 16, Stockholders’ (Deficit) Equity) under the SEPA, without prior consent from Yorkville.

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

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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.

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

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

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

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

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

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

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

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

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.

On September 18, 2023, the Company repaid an aggregate amount of $ 1,839,731 , consisting of a principal amount of $ 1,500,000 , accrued interest in the amount of $ 264,731 and a payment premium in the amount of $ 75,000 .

During the year ended December 31, 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 $ 4,466,627 .

The proceeds were applied against the principal and interest due for the Prepaid Advance Liability in the aggregate amounts of $ 4,032,657 and $ 433,970 , respectively.

During the year ended December 31, 2023, the Company recorded interest expense in the amount of $ 728,318 and recorded amortization of debt discount in the amount of $ 730,230 in connection with the Prepaid Advance liability.

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

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

On August 16, 2023, as amended on August 23, 2023, August 30, 2023, November 6, 2023 and December 19, 2023, the Company and Yorkville entered into letter agreements (the “Letter Agreement”), intended to supplement and modify the Supplemental Agreement to extend the repayment date of the Prepaid Advance Liability balance as follows:

(i) an initial payment of $ 1,000,000 plus accrued interest as well as a 5 % cash payment premium on or before December 31, 2023 or the date of the closing of any financing conducted by the Company (the “December Payment”);

(ii) $ 2,000,000 on or before February 29, 2024 plus accrued interest as well as a 5 % cash payment premium (the “February Payment”);

(iii) the remaining principal amount of the Prepaid Advance Liability of $ 2,597,194 plus accrued interest as well as a 5 % cash payment premium on or before April 30, 2024 (the “April Payment”).

On January 9, 2024, the Company entered into a letter agreement with Yorkville to defer the Company’s December 31, 2023 (the “December Payment”) payment of $ 2,000,000 plus accrued interest and a 5 % cash payment premium until February 29, 2024.

On February 13, 2024, the Company and Yorkville entered into another agreement to extend all payment due dates and defer all payment obligations to December 31, 2024.

See Note 18 – Subsequent Events – Prepaid Advance Liability for additional details.

As of March 27, 2024, all remaining principal and accrued interest balances related to the Prepaid Advance Liability were repaid in full through the issuance of common stock (see Note 18 – Subsequent Events – Prepaid Advance Liability).

Consequently, the outstanding balance as of December 31, 2023 is classified as non-current.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 – LEASES

The Company leases office space in San Diego, California.

The lease, as amended, provided for monthly rental payments of $ 5,127 , and the lease term expired on June 30, 2021.

Subsequent to the expiration of the lease term, the Company entered into a verbal agreement with the landlord to continue occupying the space on a month-to-month basis until the Company eventually moved out in October 2021.

The Company evaluated this operating lease and determined that the short-term exemption available under ASC 842 applied since the lease term is less than 12 months and the lease does not include a purchase option whose exercise is reasonably certain.

Since the short-term exemption applies, lease payments are recognized as an expense and no right of use asset or lease liability was recorded related to this lease.

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

The initial lease term is twelve months and thirteen days.

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

The Company determined that the value of the lease liability and the related right-of-use asset at inception was $ 51,154 , using an estimated incremental borrowing rate of 5 % (see Note 18 – Subsequent Events – Leases for information related to the new lease entered into subsequent to December 31, 2023).

On April 5, 2021, the Company entered into a new lease agreement for office space in San Diego, California, effective June 1, 2021.

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Management does not expect to exercise its option to renew.

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

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Monthly rental payments under the new lease begin at $ 23,787 , which is comprised of $ 18,518 of base rent plus $ 5,268 of common area maintenance fees, with annual escalation of 3.5 % (see Note 18 – Subsequent Events – Leases for information related to the lease extension entered into subsequent to December 31, 2023).

The Company determined that the value of the lease liability and the related right-of-use asset at inception was $ 814,817 , using an estimated incremental borrowing rate of 5 % based on information available at the commencement date of the lease.

During the years ended December 31, 2023 and 2022, operating lease expense was $ 265,457 and $ 231,116 respectively.

As of December 31, 2022, the Company does not have any financing leases.

Maturities of lease liabilities as of December 31, 2022 were as follows:

Maturity Year

Total lease payments

Imputed interest

As of December 31, 2023, the Company did not have any financing leases.

Lease liabilities mature during the year ended December 31, 2024, as follows:

Total future minimum lease payments

amount representing 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 San Diego lease agreement which is recorded within the prepaid expenses and other current assets section of the balance sheet as of December 31, 2023.

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

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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 12 – NOTES PAYABLE

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

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

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

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

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

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

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

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

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

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

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 13 – 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 years ended December 31, 2023 and 2022, expense recognized for services provided by the Related Consultant were $ 32,055 and $ 16,290 , respectively, and is included within selling, general and administrative expenses in the consolidated statements of operations.

On July 24, 2023, the Related Consultant accepted an employment offer by the Company, which became effective on August 7, 2023.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Balance, January 1, 2022

Proceeds from promissory note

Debt discount

Repayments in cash

( 4,850,000 )

Repayments in shares of common stock

Amortization of debt discount

Loss on debt extinguishment

Outstanding, December 31, 2022

NOTE 13 – LOAN PAYABLE

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

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

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

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

NOTE 14 – NOTES PAYABLE

On November 29, 2023, the Company entered into an agreement (the “Promissory Note 1”) with an individual investor (the “Investor 1”), pursuant to which the Investor purchased a five-year Promissory Note with a principal amount of $ 150,000 .

The Promissory Note carries an interest rate of 15 % per annum, with the first interest payment due on the one-year anniversary of the Promissory Note, and then every six months thereafter.

The Company is required to repay the principal amount by the maturity date of November 29, 2028.

There were no legal fees or issue discount associated with this Promissory Note.

On December 6, 2023, the Company entered into an agreement (the “Promissory Note 2”) with an individual investor (the “Investor 2”), pursuant to which the Investor purchased a five-year Promissory Note with a principal amount of $ 100,000 .

The Promissory Note carries an interest rate of 15 % per annum, with the first interest payment due on the one-year anniversary of the Promissory Note, and then every six months thereafter.

The Company is required to repay the principal amount by the maturity date of December 6, 2028.

There were no legal fees or issue discount associated with this Promissory Note.

See Note 18 – Subsequent Events – Promissory Notes for information related to notes payable issued subsequent to December 31, 2023.

NOTE 15 – INCOME TAXES

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

The income tax provision (benefit) for the years ended December 31, 2023 and 2022 consists of the following:

For The Years Ended

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Other and prior year true-ups

Rate and apportionment changes

Change in valuation allowance

Effective income tax rate

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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After consideration of all the evidence, management has determined that a full valuation allowance is necessary to reduce the deferred tax asset to zero.

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are presented below:

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Property and equipment

Intangible assets

Debt discount

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At December 31, 2023, approximately $ 3.3 million of federal net operating losses will expire from 2033 to 2037 , and approximately $ 45.7 million will have no expiration.

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

At December 31, 2023 and 2022, the Company had state net operating loss carry forwards of approximately $ 33.3 million and $ 33.6 million, respectively, which will begin to expire in 2024.

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

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An ownership change pursuant to Section 382 may have occurred in the past or could happen in the future, such that the NOLs available for utilization could be significantly limited.

The Company files federal and state (California) tax returns which are subject to audit for the years ending on or after December 31, 2019.

No tax audits were commenced or were in process during the years ended December 31, 2023 and 2022.

NOTE 15 - STOCKHOLDERS’ EQUITY

No tax related interest or penalties were incurred during the years ended December 31, 2023 and 2022.

The Company’s federal and state income tax returns beginning with the year ended December 31, 2020 remain subject to examination.

NOTE 16 – STOCKHOLDERS’ (DEFICIT) EQUITY

Authorized Capital

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Equity Incentive Plan

On August 15 and November 5, 2018, the Board of Directors and a majority of the Company’s shareholders, respectively, approved the 2018 Equity Incentive Plan (the “2018 Plan”).

On August 15 and November 5, 2018, the Board of Directors and a majority of the Company’s stockholders, respectively, approved the 2018 Equity Incentive Plan (the “2018 Plan”).

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

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

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

As of December 31, 2023, there were 7,601,405 shares available for issuance under the 2018 Plan.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

its affiliates.

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

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

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

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

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

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

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

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

See Note 18 – Subsequent Events – Prepaid Advance Liability for additional information regarding the lifting of the 19.9 % restriction.

During the year ended December 31, 2023, the Company issued 905,833 shares of common stock pursuant to Advance Notices to repay $ 166,337 of the Prepaid Advance Liability, of which $ 113,531 was applied to accrued interest, and $ 52,806 was applied to principal.

See Note 11 – Prepaid Advance Liability, for details related to a supplemental agreement to the SEPA and Note 18 – Subsequent Events – Prepaid Advance Liability for information related to subsequent common stock issuances pursuant to Advance Notices.

Series A Preferred Stock

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In addition, holders of the Series A Preferred Stock shall not be entitled to receive dividends, nor do they have a right to distribution from the assets of the Company in the event of any liquidation, dissolution, or winding up of the Company.

On November 5, 2018, the Company received a written consent of the majority of the stockholders to issue 1,000,000 shares of the Company’s Series A Preferred Stock to Mr.

Mo, if necessary, as a measure to protect the Company from an uninvited takeover.

On November 5, 2018, the Company received a written consent of the majority of the stockholders to issue 1,000,000 shares of the Company’s Series A Preferred Stock to the Chief Executive Officer of the Company, if necessary, as a measure to protect the Company from an uninvited takeover.

As of the date of filing, the shares of Series A Preferred Stock have not been issued.

Please see Note 18 – Subsequent Events – Unregistered Sales of Equity Securities for additional information on the issuance of Series A Preferred Stock.

Series B Convertible Preferred Stock

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Each share of Series B Convertible Preferred Stock, after 181 days after issuance and without the payment of additional consideration, is convertible at the option of the holder into fifty ( 50 ) fully paid and non-assessable shares of common stock.

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

During the year ended December 31, 2021, the Company issued an aggregate of 698,600 shares of common stock upon the conversion of 13,972 shares of Series B Preferred stock, after which no Series B Convertible Preferred Stock remained outstanding.

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

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

There are no Series B Convertible shares outstanding or available to issue at December 31, 2023.

Series C Convertible Preferred Stock

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

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

Series D Convertible Preferred Stock

On May 19, 2021, the Company entered into a Securities Purchase Agreement (“SPA”) with an investor, pursuant to which the Company agreed to issue to the investor an aggregate of 650 shares of Series D convertible preferred stock (the “Series D Preferred”) pursuant to a new designation of preferred stock, and one-year warrants to purchase 2,600,000 shares of common stock (the “Warrants”) at a price of $ 2.50 per share, for aggregate gross proceeds of $ 6,500,000 (the “Offering”).

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

The closing of the Offering occurred on May 20, 2021.

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

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

Holders of the Series D Preferred shall be entitled to receive cumulative dividends annually at an annual rate equal to ten percent ( 10 %).

Dividends shall be payable in cash or, at the option of the holder of the Series D Preferred, converted into shares of common stock as provided in the certificate of designation for the Series D Preferred.

Provided that the shares of common stock issuable upon conversion of the Series D Preferred is registered pursuant to an effective registration statement, the Company shall have the option, but not the obligation, to redeem, in cash, all or part of the Series D Preferred.

The Company determined that the Series D Preferred was permanent equity given that there was no redemption provision at the holder’s option and it was determined that the conversion option was clearly and closely related to the equity host, so it didn’t need to be bifurcated.

The Company further determined that the $ 10,000 cash structuring fee, debt redemption costs of $ 140,000 , and the remaining notes payable obligation of $ 1,400,000 paid to the investor, would be accounted for as a reduction of the $ 6,500,000 of gross proceeds.

The remaining proceeds of $ 6,490,000 were allocated on a relative fair value basis to the Series D Preferred ($ 3,875,675 ), the commitment shares ($ 1,339,582 ) and the Warrant ($ 1,274,743 ).

The Company used the Black-Scholes option pricing model to determine the fair value of the Warrant using the following assumptions:

exercise price of $ 2.50 per share, market price of $ 2.05 per share, expected term of 1.0 year, volatility of 142 % and a risk-free interest rate of 0.05 %.

Finally, the Company determined that the Series D Preferred had a beneficial conversion feature equal to $ 2,624,326 which is a deemed dividend and represents an adjustment to the numerator in the loss per share calculation.

The cash issuance costs of $ 365,000 (inclusive of the $ 10,000 cash structuring fee) were charged to additional paid-in-capital.

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

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

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

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

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

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

There are no Series C Convertible shares outstanding or available to issue at December 31, 2023.

Series D Convertible Preferred Stock

Holders of the Series D Preferred shall vote on an as-if-converted basis and are entitled to receive cumulative dividends annually at an annual rate equal to ten percent ( 10 %).

There are no Series D Convertible shares outstanding or available at December 31, 2023.

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

During the year ended December 31, 2022, the Company issued an aggregate of 2,416,668 shares of common stock upon the exercise of warrants pursuant to which the Company received an aggregate of $ 3,020,836 of gross proceeds.

During the year ended December 31, 2023, the Company issued an aggregate of 551,323 shares of common stock valued at $ 268,820 for legal and consulting services, of which 189,963 shares valued at issuance at $ 227,956 were accrued at January 1, 2023 for services rendered in prior years.

During the year ended December 31, 2023, the Company issued an aggregate of 13,389,285 shares of common stock in public equity offerings for gross proceeds of $ 3,910,000 less issuance costs of $ 846,030 .

Treasury Stock

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

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

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

As of December 31, 2023 and 2022, the Company has 131,162 shares held in treasury recorded at their cost of $ 296,222 .

A summary of warrants activity during the year ended December 31, 2023 is presented below:

Outstanding, January 1, 2023

( 2,416,668 )

Outstanding, December 31, 2023

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Remaining Life

Stock-Based Compensation

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

KULR TECHNOLOGY GROUP, INC.

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For The Years Ended

Common stock issued for services

Accrued issuable equity (common stock)

Common stock for services (includes accrued, unissued shares)

Amortization of stock options

Amortization of restricted stock awards and units

Amortization of market-based awards

Amortization of restricted stock units

See Note 18 – Subsequent Events – Warrants for information related to warrants issued subsequent to December 31, 2023.

Stock Options

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$ 1.55 - $ 1.99

$ 2.05 - $ 2.44

For the years ended December 31, 2023 and 2022, the weighted average grant date fair value per share of options was $ 0.52 and $ 1.23 , respectively.

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

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

For the Years Ended

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

For The Year Ended

Risk free interest rate

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The expected term used is the estimated period of time that options granted are expected to be outstanding.

The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” employee option grants.

The Company does not yet have a trading history to support its historical volatility calculations.

Accordingly, the Company is utilizing an expected volatility figure based on a review of the historical volatility of comparable entities over a period of time equivalent to the expected life of the instrument being valued.

The Company utilizes the “simplified” method to develop an estimate of the expected term of employee option grants.

The Company utilizes an expected volatility figure based on the historical volatility of its common stock over a period of time equivalent to the expected term of the instrument being valued.

The risk-free interest rate was determined from the implied yields from U.S.

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As of December 31, 2023, there was $ 300,321 of unrecognized stock-based compensation expense related to the above stock options, which will be recognized over the weighted average remaining vesting period of 2.5 years.

Market-Based Awards and Exchange for Restricted Stock Units

Restricted Stock Awards

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

Weighted Average

Shares of Restricted

Non-vested RSAs, January 1, 2023

Non-vested RSAs, December 31, 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 with a grant date fair value of $ 5,220,000 .

The restricted shares vest in four (4) equal annual 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 vesting of 500,000 shares of restricted stock, resulting in a 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.

During the year ended December 31, 2022, the Company issued as incentive shares to its employees, an aggregate of 250,000 shares of restricted common stock, of which, 75,000 shares were cancelled.

On March 31, 2023, the Company granted 1,500,000 restricted shares of common stock with a grant date fair value of $ 1,380,000 to the Company’s Chief Financial Officer.

The restricted shares vest in five (5) equal annual installments.

During the year ended December 31, 2023, the Company granted RSAs of 668,508 restricted shares of common stock with an aggregate grant date fair value of $ 685,400 to employees which vest in four (4) equal annual installments.

During the year ended December 31, 2023, the Company issued 50,000 shares of restricted common stock for marketing services subject to a 180 -day lock-up period.

As of December 31, 2023, there was $ 3,642,659 of unrecognized stock-based compensation expense related to restricted stock that will be recognized over the weighted average remaining vesting period of 2.75 years.

Restricted Stock Units

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

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Weighted Average

Non-vested RSUs, January 1, 2023

Non-vested RSUs, December 31, 2023

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

The grant date value of this award of $ 2,911,420 was determined using a Monte Carlo valuation model for market-based vesting awards, and was amortizable over each of the tranches’ prospective derived service period.

The grant date fair value of this award of $ 2,911,420 was determined using a Monte Carlo valuation model for market-based vesting awards, and was amortizable over each of the tranches’ prospective derived service period.

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

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

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

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

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

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

Restricted Stock

Units That Vest

November 1, 2023

November 1, 2024

November 1, 2025

November 1, 2026

The RSUs will vest in four equal installments over the course of four years , the first of which vested on November 1, 2023.

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

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Expected term

As of December 31, 2023, there was $ 2,970,061 of unrecognized stock-based compensation expense related to restricted stock units that will be recognized over the weighted average remaining vesting period of 3.09 years.

Stock-Based Compensation

During the years ended December 31, 2023 and 2022, the Company recognized stock-based compensation expense of $ 3,502,736 and $ 4,175,014 , respectively, related to restricted stock awards, restricted stock units, warrants and stock options, of which $ 3,227,782 and $ 4,136,494 , respectively, are included within selling, general and administrative expenses, and $ 274,954 and $ 38,520 , respectively are included within research and development expenses in the consolidated statements of operations.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Common Stock

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

Weighted Average

Shares of Restricted

Non-vested balance, January 1, 2022

Non-vested shares, December 31, 2022

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

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

NOTE 17 – COMMITMENTS AND CONTINGENCIES

Patent License Agreement

On March 21, 2018, the Company entered into an agreement with the National Renewable Energy Laboratory (“NREL”) granting the Company an exclusive license to commercialize its patented Internal Short Circuit technology.

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

In consideration, the Company agreed to pay to NREL the following:

(i) a cash payment of $ 12,000 payable over one year, (ii) royalties ranging from 1.5 % to 3.75 % on the net sales price of the licensed products, as defined in the agreement, with minimum annual royalty payments ranging from $ 0 to $ 7,500 .

In addition, the Company shall use commercially reasonable efforts to bring the licensed products to market through a commercialization program that requires that certain milestones be met, as specified in the agreement.

During the years ended December 31, 2022 and 2021, the Company recorded royalty expense of $ 6,304 and $ 2,558 , respectively, which were included within cost of revenues.

Technology Development and Sponsorship Agreement

On March 31, 2021, the Company entered into a multi-year technology development and sponsorship agreement, pursuant to which the Company has committed to spend an aggregate of $ 900,000 in sponsorship fees, payable in three installments, of which $ 250,000 was paid on April 1, 2021, $ 300,000 was paid on January 31, 2022, and $ 350,000 is due during the first quarter of 2023.

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

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

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

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

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

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

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

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

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

KULR TECHNOLOGY GROUP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Research and Development Agreements

On April 5, 2021, the Company entered into a two-year research and development agreement to develop high-areal-capacity battery electrodes to increase the energy density of batteries.

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

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

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

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

Consulting Agreement

On September 30, 2020, the Company entered into a 2-year consulting agreement with a contractor to provide services as an Advisory Board Member related to government and defense acquisitions in exchange for 60,000 shares of restricted common stock.

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

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

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

See Note 15 – Stockholders’ Equity for additional details.

Election of Directors and Appointment of Certain Officers

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

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

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

During April 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 the agreement (which was capitalized as an intangible asset and is being 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 beginning in the 2024 calendar year.

Appointment of Vice President, Sales

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 is being amortized ratably over the vesting period.

In addition, the Company committed to 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.

NOTE 18 – SUBSEQUENT EVENTS

Prepaid Advance Liability

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

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

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

Subsequent to December 31, 2023, the Company issued 40,276,430 shares of common stock, at a purchase price per share ranging from $ 0.13 to $ 0.41 , pursuant to SEPA Advance Notices submitted by the Company to Yorkville for aggregate proceeds of $ 8,326,457 .

Of the gross proceeds, $ 2,610,650 was retained by the Company to fund operations.

The remaining proceeds were applied against the principal and interest owed in connection with the Prepaid Advance Liability.

As of March 27, 2024, the Prepaid Advance Liability and related accrued interest has been repaid in full.

See Note 11 – Prepaid Advance Liability for additional information.

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

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

On January 9, 2024, the Company had entered into a letter agreement with Yorkville to defer the Company’s December 31, 2023 (the “December Payment”) payment of $ 2,000,000 plus accrued interest and a 5 % cash payment premium until February 29, 2024.

On February 13, 2024, the Company entered into a letter agreement (the “Amendment Agreement”) with Yorkville to extend all payment due dates (including the December 2023, February 2024 and April 2024 payments) and to defer all payment obligations to December 31, 2024.

Under the terms of the Supplemental Agreement, the aggregate number of shares purchased under the SEPA could not initially exceed 19.9 % of the Company’s outstanding common stock as of the date of the SEPA.

Pursuant to its obligations under the agreement, on February 9, 2024, the Company obtained stockholder approval for the issuance of shares of common stock to Yorkville beyond the Exchange Cap.

Merchant Cash Advance Agreement

On January 22, 2024, the Company entered into a merchant cash advance agreement (the “Cash Advance Agreement”) whereby the Company received $ 504,900 of cash (net of underwriting fees of $ 35,100 ), and paid finder’s fees in cash of $ 21,600 and finder’s fees to be issued in equity with an aggregate value of $ 16,200 ,with the obligation to repay a total of $ 804,600 over thirty-two weekly payments of $ 25,143.75 , beginning January 30, 2024.

On February 26, 2024, the parties added an addendum to the agreement for an early payoff discount whereby the Company will owe $ 756,000 if paid by March 22, 2024, or $ 783,000 if paid by April 22, 2024.

On February 26, 2024, the Company entered into a merchant cash advance agreement (the “Second Cash Advance Agreement”) with the lender mentioned above whereby the Company received $ 502,200 of cash (net of underwriting fees of $ 37,800 ), and paid finder’s fees in cash of $ 21,600 and finder’s fees to be issued in equity with an aggregate value of $ 16,200 , with the obligation to repay a total of $ 804,600 over thirty weekly payments of $ 26,820 , beginning February 29, 2024.

KULR TECHNOLOGY GROUP, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operating Lease

Unregistered Sales of Equity Securities

On January 26, 2024, the Board of Directors (“Board”), approved, authorized, and ratified the issuance of 730,000 shares of previously designated Non-convertible Series A Voting Preferred Stock to the Chairman and Chief Executive Officer of the Company, Michael Mo, for no consideration, subject to the Board reserving the full and unequivocal right to revoke, rescind, transfer or otherwise cancel the issued Non-convertible Series A Voting Preferred Stock in the event Michael Mo is removed from any position with the Company or resigns from all positions with the Company.

The issuance of up to 1,000,000 shares of Non-convertible Series A Voting Preferred Stock was previously approved and authorized by a vote of the majority stockholders of the Company and reinforces and enhances the Company’s flexibility to optimize the Company’s negotiating position in any potential current and/or future engagements with commercial, financial, and/or strategic parties, and to provide defenses against potential hostile third-party actions.

On January 25, 2024, the Company entered into an amendment to the lease dated April 5, 2021 for the facility located at 4863 Shawline Street, San Diego, CA 92111.

Pursuant to the amendment, the lease is extended for a period of eighteen months commencing June 1, 2024, and terminating November 30, 2025.

Monthly rental payments under the amendment are $ 29,337.30 .

On January 27, 2024, the Company entered into a new lease agreement for office space in Webster, Texas.

The initial lease term is twelve months and thirteen days .

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

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

Patent License Agreement

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

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

In consideration, the Company agreed to pay the following:

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

In addition, the Company shall establish:

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

(b) that it is being utilized;

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

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

The initial lease term is 63 months .

Monthly rental payments under the new lease are $ 30,086 , which is comprised of $ 21,950 of base rent and $ 11,136 of common area maintenance fees.

No cash payments are due for the first three months of the lease.

Promissory Notes

On April 2, 2024, the Company entered into an agreement (the “Promissory Note”), with a lender (the “Lender”), pursuant to which the Lender purchased a promissory note with an initial principal amount of $ 500,000 .

The Company received cash proceeds of $ 440,000 , resulting in a discount of $ 60,000 , made up of an original issue discount of $ 50,000 and debt issuance costs of $ 10,000 .

The Promissory Note carries an annual interest rate of 0 %, which shall increase to 15 % in the event of default, and has a maturity date of October 2, 2024, after which all outstanding principal and accrued interest will become immediately due.

On April 9, 2024, the Company entered into a note purchase agreement pursuant to which the Company issued a promissory note with an initial principal amount of $ 200,000 and which matures on the first anniversary of its issuance.

The Company received cash proceeds of $ 200,000 .

The promissory note carries an annual interest rate of 16 %.

In the event the promissory note is prepaid within 9 months of its issuance, the holder is entitled to the repayment of principal and cash payment of interest equal to 12 % of the prepayment amount.

As part of the January 2024 and February 2024 Merchant Cash Advance Agreements (see Merchant Cash Advance Agreement above), on April 9, 2024, the Company issued and delivered a total of 190,177 warrants to the FINRA-registered financial advisor that assisted with arranging the facility.

The warrants grant the advisor the right to purchase one share of common stock for each warrant, at prices ranging from $ 0.14 per share to $ 0.19 per share, with a final expiration date of February 26, 2027 .

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

What changed 10-K

Item 9A. Controls and Procedures