10-Q 1 tmb-20240331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                   

Commission File Number:

001-40454

KULR TECHNOLOGY GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

81-1004273

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

4863 Shawline Street, San Diego, California

    

92111

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: 408-663-5247

(Former name, former address and former fiscal year, if changed since last report) N/A

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock

KULR

NYSE American LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b- 2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer 

Smaller reporting company

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

As of May 13, 2024, there were 182,677,224 shares outstanding.

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024

TABLE OF CONTENTS

    

Page

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

3

Condensed Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023

3

Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023

4

Unaudited Condensed Consolidated Statement of Changes in Stockholders’ (Deficit) Equity for the Three Months Ended March 31, 2024

5

Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2023

6

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023

7

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

25

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

35

Item 4. Controls and Procedures.

35

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

36

Item 1A. Risk Factors.

36

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

36

Item 3. Defaults Upon Senior Securities.

36

Item 4. Mine Safety Disclosures.

36

Item 5. Other Information.

36

Item 6. Exhibits.

37

SIGNATURES

38

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 

December 31, 

    

2024

    

2023

(unaudited)

Assets

 

  

 

  

Current Assets:

 

  

 

  

Cash

$

798,843

$

1,194,764

Accounts receivable

 

983,310

 

901,672

Inventory

 

1,052,424

 

1,149,047

Inventory deposits

27,500

27,500

Prepaid expenses and other current assets

 

506,532

 

631,361

Total Current Assets

 

3,368,609

 

3,904,344

Property and equipment, net

 

4,178,059

 

4,698,144

Equipment deposits

1,332,436

1,332,436

Security deposits

98,371

10,228

Intangible assets, net

683,821

719,395

Right-of-use asset, net

1,590,004

129,202

Deferred financing costs, net

52,792

70,607

Total Assets

$

11,304,092

$

10,864,356

Liabilities and Stockholders’ Equity (Deficit)

 

 

  

Current Liabilities:

 

 

  

Accounts payable

$

2,376,742

$

2,769,544

Accrued expenses and other current liabilities

 

3,423,925

 

3,463,344

Accrued issuable equity

52,007

13,002

Lease liabilities, current portion

435,707

102,186

Notes payable, net of discount, current portion

744,024

Deferred revenue

243,830

551,021

Total Current Liabilities

 

7,276,235

 

6,899,097

Notes payable, non-current portion

250,000

250,000

Lease liabilities, non-current portion

1,188,259

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

5,892,056

Accrued interest, non-current portion

5,899

Total Liabilities

8,714,494

13,047,052

 

 

  

Commitments and contingencies (Note 16)

 

  

 

  

 

  

 

  

Stockholders’ Equity (Deficit)

 

  

 

  

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

 

 

Series A Preferred Stock, 1,000,000 shares designated; 730,000 and 0 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

73

Series B Convertible Preferred Stock, 31,000 shares designated; none issued and outstanding at March 31, 2024 and December 31, 2023

 

 

Series C Preferred Stock, 400 shares designated; none issued and outstanding at March 31, 2024 and December 31, 2023

Series D Preferred Stock, 650 shares designated; none issued and outstanding at March 31, 2024 and December 31, 2023

Common stock, $0.0001 par value, 500,000,000 shares authorized; 173,310,469 and 173,179,307 shares issued and outstanding at March 31, 2024, respectively; 134,031,669 and 133,900,507 shares issued and outstanding at December 31, 2023, respectively

 

17,331

 

13,403

Additional paid-in capital

74,164,886

64,387,717

Treasury stock, at cost; 131,162 shares held at March 31, 2024 and December 31, 2023

(296,222)

(296,222)

Accumulated deficit

 

(71,296,470)

 

(66,287,594)

Total Stockholders’ Equity (Deficit)

 

2,589,598

 

(2,182,696)

Total Liabilities and Stockholders’ Equity (Deficit)

$

11,304,092

$

10,864,356

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

3

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

For the Three Months Ended

March 31, 

    

2024

    

2023

Revenue

$

1,749,104

$

1,759,802

Cost of revenue

 

1,238,315

 

1,116,414

Gross Profit

 

510,789

 

643,388

 

 

Operating Expenses

 

 

Research and development

 

954,625

 

1,805,015

Selling, general, and administrative

 

4,212,898

 

5,099,091

Total Operating Expenses

 

5,167,523

 

6,904,106

Loss From Operations

 

(4,656,734)

 

(6,260,718)

 

 

Other (Expense) Income

 

 

Interest expense

 

(132,702)

 

(159,931)

Amortization of debt discount

(175,080)

(246,320)

Loss on debt extinguishment

(31,358)

Change in fair value of accrued issuable equity

(13,002)

64,108

Total Other Expense, net

 

(352,142)

 

(342,143)

Net Loss

$

(5,008,876)

$

(6,602,861)

Net Loss Per Share

 

 

- Basic and Diluted

$

(0.04)

$

(0.06)

 

 

Weighted Average Number of Common Shares Outstanding

 

 

- Basic and Diluted

 

142,361,999

 

112,877,236

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

4

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2024

Series A

Additional

Total

Preferred Stock

Common Stock

Paid-In

Treasury Stock

Accumulated

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Shares

    

Amount

    

Deficit

    

Equity (Deficit)

Balance - January 1, 2024

$

 

134,031,669

$

13,403

$

64,387,717

131,162

$

(296,222)

$

(66,287,594)

$

(2,182,696)

Preferred stock issued for no consideration

730,000

73

(73)

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

21,798,830

2,180

6,052,650

6,054,830

Common stock issued for cash pursuant to Advance Notices (2)

19,228,351

1,923

2,904,490

2,906,413

Stock-based compensation:

Restricted stock awards exchanged for restricted stock units

(2,168,508)

(217)

217

Restricted stock units vested

384,627

38

(38)

Common stock issued for services

35,500

4

6,386

6,390

Amortization of restricted common stock

781,496

781,496

Amortization of stock options

32,041

32,041

Net loss

(5,008,876)

(5,008,876)

Balance - March 31, 2024

730,000

$

73

173,310,469

$

17,331

$

74,164,886

131,162

$

(296,222)

$

(71,296,470)

$

2,589,598

(1) Equity financing gross proceeds of $6,068,407 less issuance costs of $13,577.

(2) Equity financing gross proceeds of $2,910,651 less issuance costs of $4,238.

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

5

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2023

Additional

Total

Common Stock

Paid-In

Treasury Stock

Accumulated

Stockholders’

    

Shares

    

Amount

   

Capital

    

Shares

    

Amount

    

Deficit

    

Equity

Balance - January 1, 2023

 

113,202,749

$

11,320

$

53,372,673

131,162

$

(296,222)

$

(42,594,038)

$

10,493,733

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

 

3,153,036

 

315

3,750,653

 

 

3,750,968

Shares repurchased for payroll taxes and canceled

(175,000)

(17)

(229,232)

(229,249)

Stock-based compensation:

 

 

 

 

Restricted stock awards granted

1,848,508

185

(185)

Unvested restricted stock awards canceled

 

(75,000)

 

(8)

8

 

 

Common stock issued for services

5,500

1

6,819

6,820

Amortization of restricted common stock

765,100

765,100

Amortization of stock options

 

40,605

 

 

40,605

Net loss

(6,602,861)

(6,602,861)

Balance - March 31, 2023

117,959,793

$

11,796

$

57,706,441

131,162

$

(296,222)

$

(49,196,899)

$

8,225,116

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

6

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

For the Three Months Ended

March 31, 

    

2024

    

2023

Cash Flows From Operating Activities:

  

 

  

Net loss

$

(5,008,876)

$

(6,602,861)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Amortization of debt discount

175,080

246,320

Non-cash lease expense

115,117

61,467

Loss on debt extinguishment

31,358

Depreciation and amortization expense

672,867

250,189

Change in fair value of accrued issuable equity

 

13,002

 

(64,108)

Stock-based compensation

845,930

920,155

Changes in operating assets and liabilities:

 

 

Accounts receivable

(81,638)

(112,582)

Inventory

96,623

292,401

Inventory deposits

20,876

Prepaid expenses and other current assets

 

124,829

 

474,677

Security deposits

 

(88,143)

 

(5,095)

Accounts payable

 

(425,563)

 

(715,200)

Accrued expenses and other current liabilities

(16,662)

559,944

Lease liability

 

(54,139)

 

(63,363)

Deferred revenue

 

(307,191)

 

(21,859)

Total Adjustments

 

1,101,470

 

1,843,822

Net Cash Used In Operating Activities

(3,907,406)

(4,759,039)

Cash Flows From Investing Activities:

Purchases of property and equipment

(13,400)

(298,490)

Acquisition of intangible assets

(60,000)

Net Cash Used In Investing Activities

 

(13,400)

 

(358,490)

Cash Flows from Financing Activities:

Proceeds from the SEPA

2,910,651

Proceeds from prepaid advance liability

2,000,000

Issuance costs on prepaid advance liability

(30,000)

Net proceeds from notes payable (1)

1,080,000

Issuance costs on notes payable

(116,100)

Repayments of notes payable

(349,666)

Net Cash Provided By Financing Activities

3,524,885

1,970,000

Net Decrease In Cash

(395,921)

(3,147,529)

Cash - Beginning of Period

 

1,194,764

 

10,333,563

Cash - End of Period

$

798,843

$

7,186,034

(1) Face value of $1,609,200, less $529,200 original issue discount.

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

7

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

(unaudited)

For the Three Months Ended

 

March 31, 

    

2024

    

2023

Supplemental Disclosures of Cash Flow Information:

Cash paid during the period for:

Interest

$

314,731

$

Taxes

$

$

Non-cash investing and financing activities:

Right-of-use asset for lease liability

$

1,575,919

$

51,154

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

$

$

229,249

Restricted stock awards converted to restricted stock units

$

217

$

Restricted stock units vested

$

38

$

Original issue discount on indebtedness

$

529,200

$

105,263

Common stock issued pursuant to Investor Notices in satisfaction of prepaid advance liability and interest

$

$

3,750,968

Common stock issued pursuant to Advance Notices in satisfaction of prepaid advance liability and interest

$

6,054,830

$

Deposits applied to purchases of property and equipment

$

$

2,276,451

Additions to property and equipment included in accounts payable

$

32,765

$

202,554

Additions to property and equipment included in accrued purchases

$

71,043

$

Deferred financing costs charged to additional paid-in capital

$

17,815

$

Accrued underwriting fees for notes payable

$

18,916

$

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

8

Table of Contents

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1    ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Organization and Operations

KULR Technology Group, Inc., through its wholly-owned subsidiary, KULR Technology Corporation (collectively referred to as “KULR” or the “Company”), develops and commercializes high-performance thermal management technologies for electronics, batteries, and other components across a range of applications. Currently, the Company is focused on targeting both high performance aerospace and Department of Defense (“DOD”) applications, such as space exploration, satellite communications, and underwater vehicles, and applying them to mass market commercial applications, such as lithium-ion battery energy storage, electric vehicles, fifth generation (“5G”) communication, cloud computer infrastructure, consumer and industrial devices.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of March 31, 2024, and for the three months ended March 31, 2024 and 2023. The results of operations for the three months ended March 31, 2024, are not necessarily indicative of the operating results for the full year ending December 31, 2024 or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 2023 and for the year then ended, which were filed with the Securities and Exchange Commission (“SEC”) on Form 10-K on April 12, 2024. The accompanying condensed consolidated balance sheet as of December 31, 2023, has been derived from the audited financial statements included in the Form 10-K.

NOTE 2    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Since the date of the Annual Report on Form 10-K for the year ended December 31, 2023, there have been no material changes to the Company’s significant accounting policies, except as disclosed in this note.

Going Concern and Management’s Liquidity Plans

As of March 31, 2024, the Company had cash of $798,843 and working capital deficit of $3,907,626. For the three months ended March 31, 2024, the Company incurred a net loss of $5,008,876 and used cash in operating activities of $3,907,406.

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 condensed 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 $5,800,667 for accounts payable and accrued expenses, $1,259,534 for merchant cash advances (see Note 9 – Notes Payable), $981,371 for capital expenditures and $435,707 for future payments under operating leases. Future cash requirements for long-term liabilities include $250,000 for unsecured promissory notes.

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 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.

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KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

On March 5, 2024, the Company received a notification from the NYSE that the Company’s plan to regain compliance with Section 1003 (a) (iii) of the Company Guide was accepted and so long as the Company meets its interim objectives, the Company will have until June 20, 2025, to regain compliance with the minimum stockholders’ equity requirement. On May 1, 2024, the Company received a notification from the NYSE stating that the Company had regained compliance with Section 1003 (f) (v) of the Company Guide given the increase in the trading price of the Company’s securities.

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, and (iii) raising additional funds through future financings.

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

On April 2, 2024, the Company received cash proceeds of $440,000 related to an unsecured Promissory Note comprised of an initial principal amount of $500,000 and discount of $60,000, for cash proceeds of $440,000. 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 12 – Subsequent Events – Promissory Notes for additional information.

On April 9, 2024, the Company received cash proceeds of $200,000 related to an unsecured 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 12 – Subsequent Events – Promissory Notes for additional information.

Subsequent to March 31, 2024, and through May 13, 2024, the Company issued a total of 9,453,767 shares of common stock pursuant to SEPA Advance Notices submitted by the Company to Yorkville for aggregate proceeds of $4,321,479. See Note 12 – Subsequent Events – Standby Equity Purchase Agreement for additional information.

As of the date of the issuance of these condensed consolidated financial statements, the Company has no additional commitments to obtain additional funding through future debt or equity financings, or assurance 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.

These unaudited condensed 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.

Use of Estimates

Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial statements. The Company’s significant estimates used in these unaudited condensed consolidated financial statements include, but are not limited to, fair value calculations for intangible assets, equity securities, stock-based compensation and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. 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.

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 include concentrations from key customers and vendors.

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KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Cash Concentrations

A significant portion of the Company’s cash is held at one major financial institution. The Company has not experienced any losses in such accounts. Cash held in US bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 at each institution. There were uninsured balances of $298,843 and $694,763 as of March 31, 2024 and December 31, 2023, respectively.

Customer and Revenue Concentrations

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

Revenue

Accounts Receivable

 

For the Three Months Ended

As of

As of

 

March 31, 

March 31, 

    

December 31, 

 

    

2024

    

2023

    

2024

2023

 

Customer A

 

35

%

*

16

%

*

Customer B

 

13

%

*

23

%

52

%

Customer C

 

*

86

%

*

*

Customer D

*

*

15

%

*

Customer E

*

*

13

%

*

Customer F

*

*

12

%

*

Customer G

*

*

*

20

%

Customer H

 

*

*

*

14

%

Total

 

48

%

86

%

79

%

86

%

*

Less than 10%

There is no assurance the Company will continue to receive significant revenues from any of these customers. Any reduction or delay in operating activity from any of the Company’s significant customers, or a delay or default in payment by any significant customer, or termination of agreements with significant customers, could materially harm the Company’s business and prospects. As a result of the Company’s significant customer concentrations, its gross profit and results from operations could fluctuate significantly due to changes in political, environmental, or economic conditions, or the loss of, reduction of business from, or less favorable terms with any of the Company’s significant customers.

Vendor Concentrations

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 Three Months Ended

 

    

March 31, 

 

    

2024

    

2023

    

Vendor A

 

14

%

*

Vendor B

 

*

12

%

 

14

%

12

%

*

Less than 10%

Accounts Receivable

Accounts receivable are carried at their contractual amounts, less an estimate for credit losses. As of March 31, 2024 and December 31, 2023, no allowances for credit losses were determined to be necessary. Management estimates the allowance for credit losses based on

11

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KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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.

Inventory

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. Cost is determined by the first-in, first-out method. The cost of inventory that is sold to third parties is included within cost of sales and the cost of inventory that is given as samples is included within operating expenses. The Company periodically reviews for slow-moving, excess or obsolete inventories. Products that are determined to be obsolete, if any, are written down to net realizable value. 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 consolidated balance sheet. As of March 31, 2024 and December 31, 2023, inventory deposits were $27,500. 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 March 31, 2024 and December 31, 2023 was comprised of the following:

    

March 31, 

    

December 31, 

2024

2023

Raw materials

$

311,091

$

322,111

Finished goods

 

741,333

 

826,936

Total inventory

$

1,052,424

$

1,149,047

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.

The following five steps are applied to achieve that core principle:

Step 1: Identify the contract with the customer;
Step 2: Identify the performance obligations in the contract;
Step 3: Determine the transaction price;
Step 4: Allocate the transaction price to the performance obligations in the contract; and
Step 5: Recognize revenue when the company satisfies a performance obligation.

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KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

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

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 by type of contract in its condensed consolidated statements of operations:

For the Three Months Ended

March 31, 

    

2024

    

2023

Revenue Recognized at a Point in Time:

Product sales

$

615,093

$

1,629,258

Contract services

516,471

130,544

Total

1,131,564

1,759,802

Revenue Recognized Over Time:

Contract services

 

617,540

 

Total Revenue

$

1,749,104

$

1,759,802

Net Loss Per Common Share

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

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

    

For the Three Months Ended

March 31, 

2024

    

2023

Numerator:

 

  

    

  

Net loss

$

(5,008,876)

$

(6,602,861)

Denominator (weighted average quantities):

 

 

Common shares issued

 

143,496,225

 

115,055,115

Less: Treasury shares purchased

 

(131,162)

 

(131,162)

Less: Unvested restricted shares

 

(1,071,495)

 

(2,170,717)

Add: Accrued issuable equity

68,431

124,000

Denominator for basic and diluted net loss per share

142,361,999

112,877,236

 

 

Basic and diluted net loss per common share

$

(0.04)

$

(0.06)

13

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KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

March 31, 

    

2024

    

2023

Unvested restricted stock awards

712,500

3,276,008

Restricted stock units

4,268,881

3,000,000

Options

 

670,216

 

765,216

Warrants

2,524,410

2,524,410

Total

 

8,176,007

 

9,565,634

Operating Leases

The Company leases properties under operating leases. For leases in effect upon adoption of Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” at January 1, 2020, and for any leases commencing thereafter, the Company recognizes a liability to make lease payments, the “lease liability”, and an asset representing the right to use the underlying asset during the lease term, the “right-of-use asset”. The lease liability is measured at the present value of the remaining lease payments, discounted at the Company’s incremental borrowing rate. The right-of-use asset is measured at the amount of the lease liability adjusted for the remaining balance of any lease incentives received, any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term, any unamortized initial direct costs, and any impairment of the right-of-use-asset. 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 elected the accounting policy to include both the lease and non-lease components of the agreements as a single component and account for them as a lease.

Reclassifications

Certain prior period balances have been reclassified in order to conform to the current period presentation. These reclassifications have no effect on previously reported results of operations or loss per share.

Subsequent Events

The Company has evaluated subsequent events through the date on which these unaudited condensed 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 condensed consolidated financial statements, except as disclosed in Note 12 – Subsequent Events.

Recently Issued Accounting Pronouncements

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 annual periods beginning after December 15, 2024, with early adoption permitted. Since this new ASU addresses only disclosures, the Company

14

Table of Contents

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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.

Recently Adopted Accounting Pronouncements

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 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. The Company adopted this ASU on January 1, 2024, and the adoption did not have a material impact on its condensed consolidated financial statements.

NOTE 3 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

As of March 31, 2024 and December 31, 2023, prepaid expenses and other current assets consisted of the following:

    

March 31, 

    

December 31, 

    

2024

    

2023

Compensation costs

250,000

$

375,000

Deferred expenses

132,846

59,089

Security deposits

5,095

55,308

Professional fees

33,752

24,125

Insurance

32,584

32,606

Dues and subscriptions

16,572

50,689

Vendor receivables

8,794

1,995

Conferences and seminars

335

19,338

Investor relationships

1,512

Other

26,554

11,699

Total prepaid expenses and other current assets

$

506,532

$

631,361

15

Table of Contents

KULR TECHNOLOGY GROUP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 4  –  ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

As of March 31, 2024 and December 31, 2023, accrued expenses and other current liabilities consisted of the following:

March 31, 

December 31, 

    

2024

    

2023

Professional fees

$

2,003,611

$

1,875,000

Payroll and vacation

454,599

504,748

Research and development

441,192

441,192

Refund due to customer

 

171,960

Inventory purchases

217,694

145,949

Legal fees

 

74,638

117,640

Tools and supplies

13,455

28,663

Board compensation

 

47,500

23,750

Royalties

 

9,706

17,505

Other

 

161,530

136,937

Total accrued expenses and other current liabilities

 

3,423,925

3,463,344

Add: Accrued interest, non-current

5,899

Total accrued expenses and other liabilities

$

3,423,925

$

3,469,243

NOTE 5 – ACCRUED ISSUABLE EQUITY

A summary of the accrued issuable equity activity during the three months ended March 31, 2024 is presented below:

For the Three Months Ended

    

March 31, 2024

Beginning balance at January 1, 2024

$

13,002

Additions

26,003

Mark-to-market

13,002

Fair value at March 31, 2024

$

52,007

During the three months ended March 31, 2024, the Company entered into and settled certain contractual arrangements for services in exchange for a fixed number of shares of common stock of the Company. On the respective dates the contracts were entered into, the estimated fair value of the shares to be issued was an aggregate of $26,003 based on the quoted market prices of the shares.

During the three months ended March 31, 2024 and 2023, the Company recorded gains (losses) in the aggregate amount of $(13,002) and $64,108, respectively, related to changes in the fair value of accrued issuable equity (see Note 10 – Stockholders’ Equity, Stock-Based Compensation for additional details). The fair value of the accrued but unissued shares as of March 31, 2024, was $52,007, based on Level 1 inputs, which consist of quoted prices for the Company’s common stock in active markets.

NOTE 6 – PREPAID ADVANCE LIABILITY

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

    

Gross Amount of

    

Less:

    

Prepaid Advance

Prepaid Advance

Debt

Liability,

Liability

Discount

net of discount

Balance, January 1, 2024

$

5,918,430

$

(26,374)

$

5,892,056

Repayments pursuant to Advance Notices

 

(5,918,430)

 

 

(5,918,430)

Amortization of debt discount