KULR Technology Group, Inc.

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

Organization and Operations

KULR Technology Group, Inc. was incorporated on December 11, 2015 under the laws of the State of Delaware as KT High-Tech Marketing, Inc. Effective August 30, 2018, KT High-Tech Marketing, Inc. changed its name to KULR Technology Group, Inc.

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 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.

Risks and Uncertainties

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.

The “Tariff War”, especially with China, Canada and Mexico, could have an adverse effect on the Company’s supply chain potentially causing financial difficulty for the Company’s direct or indirect customers and reduced demand of the Company’s products. A continuation of these conflicts could have adverse changes in international trade policies and relations. Tariffs could increase the cost of the Company’s products and the components that go into making them. These increased costs could adversely impact the gross margin that the Company earns on its products. Tariffs could also make the Company’s products more expensive for customers, which could make the Company’s products less competitive and reduce consumer demand. Changing the Company’s operations in accordance with new or changed trade restrictions can be expensive, time-consuming and disruptive to the Company’s operations.

In addition, the Company has invested in Bitcoin, which is a digital asset. Digital assets are loosely regulated and there is no central marketplace for asset exchange. Supply is determined by a computer code, not by a central bank, and prices have been extremely volatile. Certain digital asset exchanges have been closed due to fraud, failure or security breaches. Any of the Company’s digital assets that reside on an exchange that shuts down may be lost. Several factors may affect the price of digital assets, including, but not limited to: supply and demand, investors’ expectations with respect to the rate of inflation, interest rates, currency exchange rates or future regulatory measures (if any) that restrict the trading of digital assets, and the use of digital assets as a form of payment. There is no assurance that digital assets will maintain their long-term value in terms of purchasing power in the future, or that acceptance of digital asset payments by mainstream retail merchants and commercial businesses will continue to grow.

As digital assets have grown in popularity and market size, various countries and jurisdictions have begun to develop regulations governing the digital asset industry. To the extent future regulatory actions or policies limit the ability to exchange digital assets or utilize them for payments, the demand for digital assets could be reduced. Furthermore, regulatory actions may limit the ability of end-users to convert digital assets into fiat currency (e.g., U.S. dollars) or use digital assets to pay for goods and services. Such regulatory actions or policies could result in a reduction of demand, and in turn, a decline in the underlying digital asset unit prices.

The effect of any future regulatory change on digital assets in general is impossible to predict, but such change could be substantial and adverse to the Company and the value of the Company’s investments in digital assets.

Digital assets are not insured or protected under the Federal Deposit Insurance Corporation (“FDIC”) or the Securities Investor Protection Company (“SIPC”). Accordingly, with respect to its Bitcoin investment, the Company does not enjoy the same protection as other assets covered by the FDIC or SIPC.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The consolidated financial statements of the Company include the accounts of KULR Technology Group, Inc. and its wholly-owned subsidiary, KULR Technology Corporation. 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. GAAP”).

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 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 assets that potentially subject the Company to significant concentrations of credit risk consisted primarily of cash, accounts receivable and Bitcoin held at Coinbase. The Company’s concentrations of credit risk also include concentrations from key customers and vendors.

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 FDIC up to $250,000 at each institution. There were uninsured balances of $29,331,858 and $694,763 as of December 31, 2024 and 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:

• Less than 10%

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. During the year ended December 31, 2024, the Company had two customers that made up 100% of its license revenue. 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.

Custody of Bitcoin

The Company currently holds and intends to continue to hold all of its bitcoin in a custodial account at a U.S. based, institutional-grade custodian (who may hold the Company’s bitcoin in the United States or other territories) that has demonstrated records of regulatory compliance and information security. The custodian may also serve as a liquidity provider.

If the Company’s custodially-held bitcoin were considered to be the property of the custodian’s estates in the event that the custodian were to enter bankruptcy, receivership or similar insolvency proceedings, the Company could be treated as a general unsecured creditor of the custodian, inhibiting the Company’s ability to exercise ownership rights with respect to such bitcoin and this may ultimately result in the loss of the value related to some or all of such bitcoin.

Additionally, the bitcoin the Company holds with our custodian and transact with our trade execution partners does not enjoy the same protections as are available to cash or securities deposited with or transacted by institutions subject to regulation by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation.

Vendor Concentrations

During the year ended December 31, 2023, the Company had vendors whose purchases individually represented 23% and 15% of the Company’s total purchases of inventory. There were no vendors whose purchases represented more than 10% of the Company’s total purchases of inventory during the year ended December 31, 2024.

Accounts Receivable

Accounts receivable are carried at their contractual amounts, less an estimate for credit losses. As of December 31, 2024 and 2023, no allowances for credit losses 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. 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.

Digital Assets

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-08, Intangibles - Goodwill and Other - Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”), which provides an update to existing digital asset guidance and requires an entity to measure certain digital assets at fair value. In addition, this guidance requires disclosures related to digital assets once it is adopted. As of January 1, 2024, the Company has adopted ASU 2023-08.

The Company reflects digital assets held at fair value on the consolidated balance sheets and consolidated statements of cash flows, the activity from the remeasurement of digital assets at fair value on the consolidated statements of operations, and the required expanded disclosures in Note 3, Digital Assets. There was no cumulative effect adjustment to the Company’s retained earnings balance as a result of the adoption of ASU 2023-08.

Digital assets are generally valued using prices as reported on reputable and liquid exchanges and may involve using an average of bid and ask quotes using closing prices provided by such exchanges as of the date and time of determination. Since the digital assets are traded on a 24-hour period, the Company uses the price at 4:00pm Eastern Standard Time (“EST”) to value its digital assets.

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 revenue 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 sheets. As of December 31, 2024 and 2023, inventory deposits were $0 and $27,500, respectively.

Inventory at December 31, 2024 and 2023 consisted of the following:

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.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation, which is recorded commencing at the in-service date using the straight-line method at rates sufficient to charge the cost of depreciable assets to operations over their estimated useful lives, which range from 3 to 7 years (see Note 7 – Property and Equipment for additional details). Leasehold improvements are amortized over the shorter of (a) the useful life of the asset; or (b) the remaining lease term. Maintenance and repairs are charged to operations as incurred. 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 (See Note 9 - Equipment Deposits).

The Company reviews long-lived 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. There wasno impairment charge during the years December 31, 2024 and 2023, respectively.

Intangibles

Intangible assets are stated at fair value as of the date acquired, less accumulated amortization for finite-lived intangible assets. 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:

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. In the event that the estimate of an intangible asset’s remaining useful life has changed, the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life.

The Company’s finite-lived intangible assets are tested for impairment based on undiscounted cash flows when triggering events occur. Indefinite-lived intangible assets are subject to impairment testing annually or whenever events or circumstances indicate that its carrying value may not, based on future undiscounted cash flows or market factors, be recoverable. An impairment loss, the recorded amount of which would be based on the fair value of the intangible asset at the measurement date, is recorded in the period in which an impairment determination is made. There wasno impairment charge during the years ended December 31, 2024 and 2023, respectively.

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 Measurements and Disclosures” (“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. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1 — quoted prices in active markets for identical assets or liabilities

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

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

The carrying amounts of the Company’s financial assets, 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.

The carrying amount of the Company’s digital assets are recorded at fair value in accordance with ASC 820, Fair Value Measurement (“ASC 820”), based on quoted prices on the active exchange(s) that the Company has determined is the principal market for such assets (Level I inputs). The cost basis of digital assets is determined using the specific identification of each unit received. Realized and unrealized gains and losses are now recorded to other (expense) income, net in our consolidated statement of operations.

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.

Accrued Issuable Equity

The Company records accrued issuable equity when it is contractually obligated to issue shares and there has been a delay in the issuance of such shares. 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.

Deferred Financing Costs

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 financing costs would be charged to general and administrative expense in the consolidated financial statements.

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:

For sales contracts with terms of more than one year, the Company recognizes any significant financing component as revenue over the contractual period using the effective interest method, and the associated interest income is reflected accordingly on the consolidated statements of operations and included in other income.

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

IP license agreements (“License Agreements”) have payment terms of 3-5 years. As a result, the License Agreements contain a significant financing component. Accordingly, a portion of the consideration in connection with the License Agreements is recognized as interest income.

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

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and deferred revenues (contract liabilities) on the Consolidated Balance Sheet. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, we sometimes receive advances or deposits from our customers resulting in contract liabilities (SeeDeferred Revenue, below). As of December 31, 2024, the Company had billed accounts receivable of $1,984,518 and unbilled accounts receivables of $660,672. As of December 31, 2023, the Company had billed accounts receivable of $901,672 andno unbilled accounts receivable. Deferred revenues were $32,768 and $551,021 as of December 31, 2024 and 2023, respectively.

IP License Agreements

On September 29, 2024, the Company entered into athree-year licensing agreement (the “KULR VIBE Agreement”) with a customer located in Japan to use its KULR VIBE software to measure and reduce fan vibration levels. The Agreement gives the customer the exclusive license to use the software in Japan (for Japanese customers) for the sole purpose of operating the Balancer. The Balancer is a hardware device used to measure vibration levels. Pursuant to this Agreement, the Company received a one-time, non-refundable license fee for the right to use the IP of $500,000 for which revenue was recognized immediately. The customer will pay royalty fees to the Company of $0.20 per unit of any rotational system balanced by a Balancer, and 3% of gross sales of all Balancers the customer manufactures and sells to a third party. The customer will make quarterly royalty payments to the company which may vary from period to period, but the minimum payment of $50,000 per quarter ($600,000 over thethree-year life of the Agreement) is guaranteed. Since the payment of the minimum royalty occurs significantly after performance, this indicates a significant financing component. Therefore, the Company immediately recognized revenue in an amount equal to the present value ($528,767) of the $600,000 minimum royalty to be received, using the prevailing interest rate in the relevant market (prime rate) of 8.0%. Royalty fees above the minimum amount will be recognized when and if amounts become probable and estimable.

While the Agreement contains a software maintenance provision, the Company expects the resources that will be dedicated to the software maintenance services to be negligible and determined an amount to be allocated to this software maintenance performance obligation to be de minimis.

On December 29, 2024, the Company entered into aten-year licensing agreement (the “CF Cathode Agreement”) with a different customer located in Japan, for the use of intellectual property in connection with its CF Cathode Design technology (including the specifications, diagrams, schematics and instructions (together the “KULR CF Intellectual Property”) for the production of the CF Cathode. The Agreement provides an exclusive license to use the KULR CF Intellectual Property to manufacture and sell CF Cathodes in Japan, and a non-exclusive license to manufacture and sell CF Cathodes in several other countries, including Taiwan, China, India and Korea. The license fee is $1.8 million to be paid over 5 years as follows:

Then $150,000 on each of 6/15 and 12/15 in 2026 through 2029 (the last $150,000 payment is due 12/15/2029). The CF Cathode Agreement contains a significant financing component. Therefore, the Company immediately recognized revenue in an amount equal to the present value ($1,658,451) of the $1,800,000 license fee, using the prevailing interest rate in the relevant market (prime rate) of 7.5%.

Deferred Revenue

As of December 31, 2024 and 2023, the Company had $32,768 and $551,021 of deferred revenue, respectively, from contracts with customers. 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, 2024 and 2023, the Company recognized$529,880 and$3,000 of revenue that was deferred at the previous year end. The Company did not recognize revenue from performance obligations satisfied in prior periods during the years ended December 31, 2024 or 2023.

Deferred Labor Costs

As of December 31, 2024 and 2023, the Company had $356,030 and $41,625, 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 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

The Company has elected to treat shipping and handling activities as fulfillment costs. Accordingly, 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 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 and 3D engineering for a rechargeable battery. 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, 2024 and 2023 were $2,825,351 and $1,801,144, respectively, and are included in selling, general and administrative expense 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 amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Upon the exercise of an award, the Company generally issues new shares of common stock out of its authorized shares, but may issue treasury stock when available.

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:

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

Operating and Finance Leases

The Company determines if an arrangement is a lease or contains a lease at inception. 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 either (1) the rate implicit in the lease, if available, or (2) 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.

Classification criteria in Topic 842 is applied in order to determine whether the lease is a finance lease or an operating lease. Operating lease expense is recorded on a straight-line basis over the life of the lease and is included in research and development and general and administrative expenses on the accompanying statements of operations. Finance lease right-of-use assets are depreciated on a straight-line base over the estimated useful life of the asset; the depreciation expense is included in research and development expense on the accompanying statements of operations. Finance lease liabilities are subsequently remeasured by increasing the liability to reflect interest accrued during a period and decreasing the liability to reflect payments made during the period. Interest expense incurred on finance leases is included in interest expense on the statements of operations.

Income Taxes

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.

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, 2024 and 2023. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date.

The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as selling, general and administrative expenses in the consolidated statements of operations.

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 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. See Note 20 – Subsequent Events.

Recently Issued Accounting Pronouncements

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 does not expect the adoption of this ASU to have any material impact 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 2023–09.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) - Disaggregation of Income Statement Expenses. The ASU requires, among other items, additional disaggregated disclosures in the notes to financial statements for certain categories of expenses that are included on the consolidated Statements of Operations. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted, and may be applied either prospectively or retrospectively. The Company is currently evaluating the effect of adopting the ASU on its disclosures.

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 the Company’s consolidated financial statements.

In November 2023, the 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. The Company adopted this ASU as of December 31, 2024. Since this new ASU addresses only disclosures, the adoption of this ASU did not have a material effect on the Company’s financial position, results of operations or cash flows.

In December 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-08, Intangibles - Goodwill and Other - Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”), which provides an update to existing crypto asset guidance and requires (1) crypto assets measured at fair value separately from other intangible assets in the balance sheet and (2) changes from the remeasurement of crypto assets separately from changes in the carrying amounts of other intangible assets in the income statement and (3) specific presentation of cash receipts arising from crypto assets that are received as noncash consideration in the ordinary course of business and are converted nearly immediately into cash. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued (or made available for issuance). The Company adopted ASU 2023-08 as of January 1, 2024.

NOTE 3 – DIGITAL ASSETS

The Company’s digital assets are comprised solely of Bitcoin. In accordance with ASC Topic 820, Fair Value Measurement, the Company measures the fair value of its Bitcoin based on the quoted price at 4:00pm EST on the measurement date for a single Bitcoin on an active trading platform, Coinbase. Management has determined that Coinbase, an active exchange market, represents a principal market for Bitcoin and at 4:00pm EST, the price is both readily available and representative of fair value (Level 1 inputs). The following table sets forth the units held, cost basis, and fair value of Bitcoin held, as shown on the consolidated balance sheet as of December 31, 2024. There wasno Bitcoin held as of December 31, 2023.

The following table presents a reconciliation of the fair values of the Company’s Bitcoin as of December 31, 2024:

Additions are the result of the Company acquiring Bitcoin with cash, while dispositions are the result of sales of Bitcoin. During the year ended December 31, 2024, the Company had no Bitcoin dispositions. Bitcoin is included in non-current assets in the consolidated balance sheet due to the Company’s intent to not liquidate its Bitcoin to support operations in the next twelve to fifteen months. The Company has ownership and control over its Bitcoin and uses third-party custodial services at Coinbase.

NOTE 4 – ASSET ACQUISITION

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 5 – 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, 2024 and December 31,2023, the Company had outstanding inventory deposits of $0 and $27,500, respectively.

**NOTE 6 –**PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

NOTE 7** –**PROPERTY AND EQUIPMENT

As of December 31, 2024 and 2023, property and equipment consisted of the following:

Depreciation expense amounted to $1,656,988 and $2,077,722, respectively, for the years ended December 31, 2024 and 2023, respectively, which is included in selling, general and administrative, cost of revenue, and research and development expenses in the consolidated statements of operations.

NOTE 8 –** INTANGIBLE ASSETS**

The Company’s intangible assets consist of the following:

In February 2023, the Company entered into an agreement and paid $60,000 for exclusive use of a technology license. The technology license asset is being amortized on a straight-line basis over its useful life often years.

On May 4, 2023, the Company acquired intellectual property with an aggregate cost of $75,000 (see Note 4 - Asset Acquisition). The intellectual property is being amortized on a straight-line basis over its useful life offive years.

During the years ended December 31, 2024 and 2023, the Company recognized amortization expense related to intangible assets of $142,296 and $136,373, respectively. During the years ended December 31, 2024 and 2023, the Company hadno impairments of its intangible assets.

The weighted average remaining amortization period of the Company’s intangible assets is 6.83 years. Future amortization of intangible assets is as follows:

NOTE 9–** EQUIPMENT DEPOSITS**

The Company entered into an agreement with a third party contractor for the design and construction of an automated manufacturing system. To date, this equipment has not been delivered. The Company is involved in continuing discussions with the vendor regarding delivery of this equipment. As of December 31, 2024 and 2023, the Company had outstanding deposits of $1,355,174 and $1,332,436, respectively, in connection with these agreements. See Note 19 – Commitment and Contingencies – Contingent Loss.

NOTE 10–** ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES**

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

On December 16, 2024, the Company settled $241,192 of outstanding liabilities in connection with a research agreement for $200,000 and recorded a gain on extinguishment of debt in the amount of $41,192.

NOTE 11–** ACCRUED ISSUABLE EQUITY**

A summary of the accrued issuable equity activity during the years ended December 31, 2024 and 2023 is presented below:

During the years ended December 31, 2024 and 2023, 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 $565,164 and $158,133, respectively, based on the quoted market prices of the shares.

During the year ended December 31, 2024, the Company settled certain of its accrued issuable equity obligations through the issuance of an aggregate of 553,723 of its shares with an aggregate fair value of $386,516, remeasured as of the date of settlement based on the quoted market prices of the shares.

During the years ended December 31, 2024 and 2023, the Company recorded gains (losses) in the aggregate amount of $(228,777) and $167,040, respectively, related to the changes in fair value of accrued issuable equity (see Note 17 – Stockholders’ (Deficit) Equity, Stock-Based Compensation for additional details). The fair value of the accrued but unissued shares as of December 31, 2024 was $420,427, based on Level 1 inputs, which consist of quoted prices for the Company’s common stock in active markets.

NOTE 12 – PREPAID ADVANCE LIABILITY, NET OF DISCOUNT

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

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 17, 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 immediately prior the closing of the Prepaid Advance, or (b)95% of the lowest VWAP during thethree 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. Of the $15,000,000 Initial Advance amount, $3,850,000 was used to repay amounts due under a Note Purchase Agreement with Yorkville. The Company incurred $85,000 of legal and professional fees in connection with its entry into the Supplemental Agreement. The original issue discount and legal and professional fees incurred were recorded as a debt discount, which 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 $714,117 and recorded amortization of debt discount in the amount of $730,230 in connection with the Prepaid Advance liability.

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.

During the year ended December 31, 2024, the Company issued 55,659,476 shares of common stock pursuant to SEPA Advance Notices submitted by the Company to Yorkville for aggregate proceeds of $15,173,357 (see note 17 – Stockholders’ Equity (Deficit)). Of the shares issued pursuant to the SEPA Advance Notices,21,798,830 shares valued at $6,068,407 were issued in satisfaction of $5,918,430 of principal and $118,619 of accrued interest owed in connection with the Company’s prepaid advance liability. The Company recorded $31,358 in extinguishment loss and charged $13,577 of deferred financing costs to additional paid-in capital in connection with the shares issued in satisfaction of the prepaid advance liability. As of December 31, 2024, the Prepaid Advance Liability and the related accrued interest has been repaid in full and the SEPA has been terminated. See Note 17 – Stockholders’ Equity (Deficit) - Standby Equity Purchase Agreement (“SEPA”) and Supplemental SEPA for additional information.

The remaining 33,860,646 shares issued pursuant to the SEPA Advance Notices were issued for cash proceeds of $9,104,950, which was used to fund the operations of the Company. Deferred financing costs in the amount of $57,030 were charged to additional paid-in capital in connection with the shares issued for cash.

NOTE 13 – LEASES

On January 18, 2023, the Company entered into a lease agreement for office space in Webster, Texas. The initial lease term istwelve months and thirteen days. Monthly rental payments under the 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%.

On January 31, 2024, the initial lease for Webster, Texas dated January 18, 2023, expired. On January 27, 2024, the Company entered into a new lease agreement for new office space in Webster, Texas. The initial lease term is 63 months. The lease contains an option to renew for an additional 36 months, which is not reasonably certain to be exercised and therefore is not included in the measurement of the operating lease ROU asset and related lease liability. Monthly rental payments under the new lease are $33,086, 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. The Company determined that the value of the operating lease liability and related right-of-use asset at inception was $1,085,498, using an incremental borrowing rate of 10%. The Company paid a security deposit of $37,930 in connection with the Webster lease agreement which is recorded within the security deposits section of the balance sheet as of December 31, 2024.

The Company also leases office space at 4863 Shawline Street, San Diego, CA 92111, pursuant to an operating lease which originally expired May 31, 2024 (the “San Diego Lease”). 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 (the “First Renewal”). Pursuant to the amendment, the lease was extended for a period ofeighteen months commencing June 1, 2024, and terminating November 30, 2025. Monthly rental payments under the amendment are $29,337. The Company determined that the value of the modified operating lease liability and related right-of-use asset to be $449,404, using an incremental borrowing rate of 10%. 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, 2024.

During the years ended December 31, 2024 and 2023, operating lease expense was $576,332 and $265,457, respectively.

During July 2024, the Company entered into a three - year lease agreement, (the “Equipment Lease”) for the lease of a copy machine (the “Equipment”). The lease term began on July 18, 2024. The monthly fixed lease payment is $220. The Equipment Lease includes a purchase option pursuant to which the Company can purchase the Equipment at the end of the lease term for $1.

The Company recorded a finance lease ROU asset and related lease liability in the amount of $7,768 upon the commencement of the Equipment Lease. The Company recorded depreciation expense in the amount of $1,554 in connection with ROU assets held under the finance lease during the year ended December 31, 2024. The Company recorded interest expense of $118 during the year ended December 31, 2024, in connection with its finance lease liability.

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

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

NOTE 14 – 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, 2024 and 2023, expense recognized for services provided by the Related Consultant were $0 and $32,055, 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.

As of December 31, 2024 and December 31, 2023, the Company didnot have material accounts payable outstanding with related parties.

NOTE 15 – NOTES PAYABLE

A summary of the notes payable activity during the year ended December 31, 2024 is presented below:

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 additional finder’s fees to be issued in equity, with the obligation to repay a total of $804,600 over thirty-two weekly payments of $25,144, beginning January 30, 2024. The difference between the total repayment amount and the net proceeds received was accounted for as debt discount, and along with the finder’s fees, were being amortized over thirty-two weeks using the effective interest rate method and an annualized effective interest rate of 217%. The Cash Advance Agreement was secured by the Company’s accounts receivable and related cash receipts. 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. The Company did not take advantage of the early payoff discount and continued making weekly payments over the original thirty-two week term. On July 11, 2024, the Company used proceeds from the Third Cash Advance Agreement to repay this cash advance in full.

On February 26, 2024, the Company entered into a merchant cash advance agreement (the “Second Cash Advance Agreement”) with the same 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 additional finder’s fees to be issued in equity, with the obligation to repay a total of $804,600 over thirty weekly payments of $26,820, beginning February 29, 2024. The difference between the total repayment amount and the net proceeds received was accounted for as debt discount, and along with the finder’s fees, is being amortized over thirty weeks using the effective interest rate method and an annualized effective interest rate ranging from 240% to 249%. The Second Cash Advance is secured by the Company’s accounts receivable and related cash receipts. On July 11, 2024, the terms of this agreement were revised whereby the weekly repayment amounts were reduced from $26,820 to $15,620 and the repayment period was extended from September 27, 2024, to November 15, 2024. On November 15, 2024, this merchant cash advance was repaid in full.

On April 2, 2024, the Company entered into an agreement (the “Promissory Note”), with a lender (the “Lender”), pursuant to which the Lender purchased an unsecured promissory note with an initial principal amount of $500,000, for cash proceeds of $440,000. The Company recorded a debt discount of $60,000, which consists of an original issue discount of $50,000 and cash issuance costs of $10,000. The debt discount was amortized using the effective interest rate method and an annualized effective interest rate of 26%. 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 May 28, 2024, the Company repaid the Promissory Note in full, and recognized $60,000 of amortization expense related to the debt discount.

On April 4, 2024, the Company and the finder of the First and Second Cash Advance Agreements determined that the equity compensation would be by issuance of warrants to purchase up to 81,788 shares (the “First Warrant”) and up to 108,389 shares (the “Second Warrant”), respectively, of the Company’s common stock at an exercise price of $0.1852 per share and $0.139 per share, respectively. The First Warrant and the Second Warrant (collectively the “Warrants”) were exercisable immediately and expire on January 22, 2027 and February 26, 2027, respectively. The Warrants had a grant date fair value of $112,863. The value of the Warrants was recognized as additional debt discount, which was amortized over the repayment period.

The Warrants contain a cashless exercise provision in the form of a net share settlement, whereby, if, at the time the holder exercises the Warrants, there is no effective registration statement registering the common stock subject to the Warrants, the holder may elect to receive the number of shares of the Company’s common stock determined according to a formula set forth in the warrant agreements.

The following assumptions were used in the Black-Scholes Model to measure the fair value of the warrants:

On December 27, 2024, the holder elected the cashless exercise and exercised all the Warrants and received 183,882 shares of the Company’s common stock. Pursuant to the cashless exercise,6,295 shares were withheld from the holder to cover taxes and fees.

On April 9, 2024, the Company entered into a note purchase agreement pursuant to which the Company issued an unsecured 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 instead of 16%. On October 31, 2024, this promissory note was repaid in full.

On April 9, 2024, the Company entered into a Conditional Sale Agreement (the “Agreement”) to purchase a Haas Vertical Machining Center (the “Equipment”), pursuant to which the Company issued a promissory note with an initial principal amount of $42,788. The promissory note carries an imputed interest rate of 10%. The Company will make twenty-four consecutive monthly installments of $2,003, beginning thirty days after the delivery of the Equipment. The Equipment was received on June 17, 2024.

On July 11, 2024, the Company entered into a merchant cash advance agreement (the “Third Cash Advance Agreement”) whereby the Company received $758,850 of cash (net of underwriting fees of $40,000 and $201,150 used to pay the remaining balance of the first merchant cash advance), with the obligation to repay a total of $1,350,000 over forty - three weekly payments of $31,395, beginning July 18, 2024. The difference between the total repayment amount and the net proceeds received was accounted for as debt discount and is being amortized over forty - three weeks using the effective interest rate method and an annualized effective interest rate of 86%. The Third Cash Advance Agreement is secured by the Company’s accounts receivable and related cash receipts. The agreement contains an early payoff discount whereby the Company will owe $1,230,000 if paid by August 11, 2024, or $1,310,000 if paid by September 11, 2024. The Company did not take advantage of the early payoff discount and continued making weekly payments over the original forty-three-week term. In addition, the Third Cash Advance Agreement amended the Second Cash Advance Agreement to revise the repayment terms, whereby the weekly repayment amounts were reduced from $26,820 to $15,620 and the repayment period was extended from September 27, 2024, to November 15, 2024. This Third Cash Advance was repaid in full on January 8, 2025. See Note 20 – Subsequent Event, for full repayment disclosure.

NOTE 16 – INCOME TAXES

The income tax provision (benefit) for the years ended December 31, 2024 and 2023 consists of the following:

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

The Company has determined that a valuation allowance for the entire net deferred tax asset is required. A valuation allowance is required if, based on the weight of evidence, it is more likely than not that some or the entire portion of the deferred tax asset will not be realized. After consideration of all the evidence, management has determined that a full valuation allowance is necessary to reduce the deferred tax asset to zero.

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

At December 31, 2024 and 2023, the Company had federal net operating loss carry forwards of approximately $61.0 million and $49.0 million, respectively. At December 31, 2024, approximately $3.3 million of federalnet operating losses will expire from 2033 to 2037, and approximately $57.7 million will have no expiration. At December 31, 2024 and 2023, the Company had state net operating loss carry forwards of approximately $34.9 million and $33.3 million, respectively, of which $33.5 million of which will expire between 2034 and 2044 and $1.3 million have no expiration.

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. The amount of the limitation would be determined based on the value of the Company immediately prior to the ownership change and subsequent ownership changes could further impact the amount of the annual limitation. 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.

No tax audits were commenced or were in process during the years ended December 31, 2024 and 2023. No tax related interest or penalties were incurred during the years ended December 31, 2024 and 2023. The Company’s federal and state income tax returns beginning with the year ended December 31, 2021 remain subject to examination.

NOTE 17 – STOCKHOLDERS’ EQUITY (DEFICIT)

Authorized Capital

The Company is authorized to issue 500,000,000 shares of common stock, par value of $0.0001 per share, and 20,000,000 shares of preferred stock, par value of $0.0001 per share. The holders of the Company’s common stock are entitled toone vote per share. The preferred stock is designated as follows:1,000,000 shares designated as Series A Preferred Stock,31,000 shares designated as Series B Convertible Preferred Stock,400 shares designated as Series C Preferred Stock, and 650 shares designated as Series D Convertible Preferred Stock.

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”). Under the 2018 Plan,15,000,000 shares of common stock of the Company are authorized for issuance. The 2018 Plan provides for the issuance of incentive stock options, non-statutory stock options, rights to purchase common stock, stock appreciation rights, restricted stock and restricted stock units to employees, directors and consultants of the Company and its affiliates. 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, 2024, there were 5,095,017 shares available for issuance under the 2018 Plan.

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

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

Each sale (an “Advance”) that the Company requests under the SEPA (via an “Advance Notice”) may be for a number of shares of common stock with an aggregate value of up to $5,000,000. Shares are sold under the SEPA at 98.0% of the average of the VWAPs during each of thethree consecutive trading days commencing on the trading day following the Company’s submission of an Advance Notice to Yorkville. Advances are subject to certain limitations, including that Yorkville will not purchase any shares that would result in it owning more than 4.99% of the Company’s outstanding common stock at the time of an Advance, or more than the amount of shares registered under the registration statement in effect at the time of the Advance. 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 (“Exchange Cap”). 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.

During the year ended December 31, 2024, the Company issued 55,659,476 shares of common stock pursuant to SEPA Advance Notices submitted by the Company to Yorkville for aggregate gross proceeds of $15,173,357. Of the shares issued pursuant to the SEPA Advance Notices,21,798,830 shares valued at $6,068,407 were issued in satisfaction of $5,918,430 of principal and $118,619 of accrued interest owed in connection with the Company’s prepaid advance liability. The Company recorded $31,358 in extinguishment loss and charged $13,577 of deferred financing costs to additional paid-in capital in connection with the shares issued in satisfaction of the prepaid advance liability. The remaining 33,860,646 shares were issued for cash proceeds of $9,104,950, which was retained by the Company to fund operations. Deferred financing costs in the amount of $57,030 were charged to additional paid-in capital in connection with the shares issued for cash. As of March 27, 2024, the Prepaid Advance Liability and the related accrued interest has been repaid in full and the SEPA terminated on June 1, 2024.

See Note 12 – Prepaid Advance Liability, for details related to a supplemental agreement to the SEPA.

At the Market Offering

On July 3, 2024, the Company entered into an At the Market Offering agreement (the “ATM Agreement”) with an agent (the “Agent”), pursuant to which the Company may, from time to time, sell shares of common stock for aggregate gross proceeds of up to $20,000,000 in “at the market” (“ATM”) offerings through or to the Agent. Sales of the shares of common stock, if any, will be made at prevailing market prices at the time of the sale, or as otherwise agreed with the Agent. The Agent will receive a commission from the Company of 3% of the gross proceeds of any shares of common stock sold pursuant to the ATM Agreement. On December 4, 2024, the Company increased the maximum aggregate offering amount of the shares of the Company’s common stock issuable under the ATM Agreement from approximately $20 million to $46 million. On December 26, 2024, the Company increased the maximum aggregate offering amount of the shares of the Company’s common stock issuable under the ATM Agreement by an additional $50 million and the Company entered into an amendment (the “Amendment”) to the ATM Agreement, to provide that the Agent’s compensation payable under the Sales Agreement shall be 2.5% of gross proceeds of any sales of shares of common stock sold under the ATM Agreement. During the year ended December 31, 2024, the Company issued a total of 74,781,217 shares of common stock pursuant to the ATM Agreement for aggregate gross proceeds of $61,912,798. (See Note 20, Subsequent Events)

Series A Preferred Stock

Each record holder of Series A Preferred Stock shall have the right to vote on any matter with holders of the Company’s common stock and other securities entitled to vote, if any, voting together as one class. Each record holder of Series A Preferred Stock is entitled to one-hundred votes per share of Series A Preferred Stock held by such holder.

The Series A Preferred Stock is not convertible into any series or class of stock of the Company. 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 the Chief Executive Officer of the Company, if necessary, as a measure to protect the Company from an uninvited takeover.

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, forno 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.

Holders of Non-Convertible Series A Voting Preferred Stock shall not be entitled to dividends, shall not convert into another series or class of stock of the Company and have no rights to distributions in the event of any liquidation. 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.

Series B Convertible Preferred Stock

Holders of shares of Series B Convertible Preferred Stock are not entitled to voting rights or dividend rights. The Series B Convertible Preferred Stock does not contain any redemption provisions or other provisions requiring cash settlement within control of the holder. Series B Convertible Preferred Stock is senior in liquidation preference to common stock. 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.

There areno Series B Convertible shares outstanding or available to issue at December 31, 2024.

Series C Convertible Preferred Stock

Series C Convertible Preferred Stock is senior in liquidation preference to the Company’s common stock for an amount equal to the stated value per share of $10,000 (“Stated Value”). Holders of shares of Series C Convertible Preferred Stock shall vote on an as-if-converted-to-common-stock basis with the common stockholders. Holders of shares of Series C Convertible Preferred Stock are entitled to receive dividends when, as and if declared by the Board of Directors, at an annual rate of twelve percent (12)% beginning one year after each share’s issuance. The Company may elect to redeem all or part of each share of Series C Convertible Preferred Stock for the Stated Value.

There areno Series C Convertible shares outstanding or available to issue at December 31, 2024.

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 areno Series D Convertible shares outstanding or available at December 31, 2024.

Common Stock

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.

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.

During the year ended December 31, 2024, the Company issued an aggregate of 795,373 shares of common stock valued at $447,677 for legal and consulting services, of which 68,431 shares valued at issuance at $13,002 were accrued at January 1, 2024 for services rendered in prior years.

During the year ended December 31, 2024, the Company issued 30,000 shares of immediately vested common stock with a grant date value of $17,400 as equity compensation to its independent members of the Board of Directors.

During the year ended December 31, 2024, the Company issued 1,472,460 shares of common stock upon the cashless exercise of 2,003,368 warrants with a weighted average exercise price of $0.92.

During the year ended December 31, 2024, the Company issued 25,841 shares of common stock upon the exercise of stock options.

During the year ended December 31, 2024, the Company issued 1,102,127 shares of common stock upon the vesting of restricted stock units previously granted.

SeeAt The Market Offering, above, and Note 12 - Prepaid Advance Liability for details related to additional share issuances.

During the year ended December 31, 2024, the Company repurchased and cancelled 875,000 shares issued in connection with vested equity awards held by the Company’s Former COO in exchange for a cash payment of $500,000. In addition,3,005 shares withheld for payroll taxes were cancelled by the Company.

As of December 31, 2024 and 2023, the Company has 131,162 shares held in treasury recorded at their cost of $296,222.

Warrants

A summary of warrants activity during the year ended December 31, 2024 is presented below:

A summary of outstanding and exercisable warrants as of December 31, 2024 is presented below:

Stock-Based Compensation

The following table presents information related to stock-based compensation expense for the years ended December 31, 2024 and 2023:

During the years ended December 31, 2024 and 2023, the Company recognized stock-based compensation expense of$2,692,687 and$3,502,736, respectively, of which$2,319,207 and$3,227,782, respectively, are included within selling, general and administrative expenses, and$373,480 and$274,954, respectively are included within research and development expenses in the consolidated statements of operations.

Stock Options

A summary of options activity during the year ended December 31, 2024 is presented below:

The following table presents information related to stock options as of December 31, 2024:

For the years ended December 31, 2024 and 2023, the weighted average grant date fair value per share of options was $0.20 and $0.52, 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:

Option forfeitures are accounted for at the time of occurrence. 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 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. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.

As of December 31, 2024, there was $115,741 of unrecognized stock-based compensation expense related to the above stock options, which will be recognized over the weighted average remaining vesting period of 1.7 years.

Restricted Stock Awards

The following table presents information related to restricted stock awards as of December 31, 2024:

On March 31, 2023, the Company granted 1,500,000 restricted shares of common stock with a grant date value of $1,380,000 to the Company’s Chief Financial Officer. The restricted shares vest infive (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 value of $685,400 to employees which vest infour (4) equal annual installments.

As of August 20, 2024, the President and Chief Operating Officer (the “Former COO”) resigned from all positions held with the Company, and the Company agreed to provide the Former COO with certain separation benefits, which include accelerated vesting of the final tranche of his restricted stock award (“RSA”), consisting of 500,000 unvested shares, previously granted. The Company recorded a credit in the amount of $325,000 to stock-based compensation as a result of this modification, consisting of reversal of $435,000 of amortization related to the unvested award, net of $110,000 equal to the fair value of shares vested on an accelerated basis. See Note - 19 Commitment and Contingencies - Separation and General Release Agreement.

During the year ended December 31, 2024, the Company issued 2,168,508 restricted stock units (“RSUs”) in exchange for the same quantity of restricted stock awards. The exchange of RSAs for RSUs did not result in a modification of any other terms, such as the grant date fair value or vesting period.

As of December 31, 2024, there was $127,958 of unrecognized stock-based compensation expense related to restricted stock that will be recognized over the weighted average remaining vesting period of 1.69 years.

Restricted Stock Units

The following table presents information related to RSUs as of December 31, 2024:

During the year ended December 31, 2024, the Company granted RSUs of 3,441,230 restricted shares of common stock with an aggregate grant date value of $4,382,643 to employees and consultants which vest infour (4) equal annual installments.

During the year ended December 31, 2024, the Company granted RSUs of 100,000 restricted shares of common stock with an aggregate grant date value of $118,000 to employees which vest intwo (2) biannual installments.

During the year ended December 31, 2024, the Company cancelled 1,125,000 of unvested restricted stock units, upon the resignation of the Former COO. See Note 19 – Commitments and Contingencies –Separation and General Release Agreement.

To date, RSUs have only been granted to employees in accordance with the Company’s 2018 Equity Incentive Plan. Pursuant to the terms of the restricted stock unit agreements, the vested but undelivered units are to be settled on January 1, 2026.

As of December 31, 2024, there was $6,543,446 of unrecognized stock-based compensation expense related to restricted stock units that will be recognized over the weighted average remaining vesting period of 3.35 years.

NOTE 18 – SEGMENT REPORTING

The Company hasone operating andreporting segment (energy management platform), namely, the development and commercialization of energy management technologies, batteries and other components across a range of applications. The accounting policies of the segment are the same as those described in the summary of significant accounting policies. The chief operating decision maker (“CODM”), who is the Company’s chief executive officer, reviews profit and loss information on a consolidated basis in order to assess performance, make decisions about the allocation of operating and capital resources, and evaluate pricing strategies. The CODM is not regularly provided disaggregated expense information, other than the expense information included in the consolidated statements of operations. The measure of segment assets is reported on the balance sheet as total assets. The Company does not have intra-entity sales or transfers.

Effective December 2024, digital assets became a primary asset of the Company’s treasury program. The CODM does not consider gains and losses associated with digital assets when reviewing the results of, or allocating resources to, the energy management platform segment. Gains and losses associated with the Company’s digital assets (which is not considered an operating segment) are presented separately from segment net income.

Geographic Information

As of December 31, 2024, all the Company’s license revenue is generated from Japan.

As of December 31, 2024, the Company’s long-lived assets are located in the U.S.

NOTE 19 – COMMITMENTS AND CONTINGENCIES

Patent License Agreement

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 will be amortized over its useful life), and (ii) royalties of 5.5% on the net sales price of royalty-based products and services for each accounting period, as defined in the agreement, with minimum annual royalty payments of $20,000 beginning in the 2024 calendar year. As of December 31, 2024, the Company owed a total of $20,000 pursuant to this agreement.

Legal Matters

The Company may be involved in litigation and arbitrations from time to time in the ordinary course of business. As of December 31, 2024, the Company was not involved in any ongoing litigation. The Company records legal costs associated with loss contingencies as incurred. Settlements are accrued when, and if, they become probable and estimable.

Separation and General Release Agreement

On August 20, 2024, the Company entered into a Separation and General Release Agreement (“Separation Agreement”) with the Former COO of the Company, and resignation from all other appointments and positions held with the Company and any of its affiliated entities. The Former COO released the Company from any and all claims he may have against the Company, and the Company agreed to provide certain separation benefits, including (i) a one-time payment of $99,551, subject to legally required payroll withholdings/deductions, (ii) early settlement of 375,000 of vested RSUs previously granted and (iii) accelerated vesting of the final tranche of a restricted stock award (“RSA”), consisting of 500,000 unvested shares, previously granted. On November 27, 2024, the Company and Former COO amended the Separation Agreement and agreed to settle the equity component with a cash payment of $500,000 in lieu of the 875,000 shares of common stock and these shares are deemed canceled.

Contingent Loss

Equipment deposits at December 31, 2024, represent amounts paid to a vendor as a downpayment for the manufacture of an automated manufacturing system (the “System”). To date, the System has not been delivered and the Company and the vendor are in continuing discussions. There can be no assurance that the Company will recover the full amount of the equipment deposit. At this time, a loss is not considered probable. Even if a loss were to occur, at this time the Company is not able to estimate the dollar amount of a potential loss.

NOTE 20 – SUBSEQUENT EVENTS

Repayment of Merchant Cash Advances

During January 2025, the remaining $577,675 balance on the third merchant cash advance was paid in full.

At the Market Offering

On January 24, 2025, the Company increased the maximum aggregate offering amount of the shares of the Company’s common stock, issuable under the ATM by an additional $50 million. During the period from January 1, 2025 through March 27, 2025, the Company issued 19,387,610 shares of common stock for gross proceeds of $51,122,190 pursuant to the ATM.

Digital Assets

During the period from January 1, 2025 through March 27, 2025, the Company purchased 449.45 Bitcoin, at an average cost of $99,008 per Bitcoin. As of March 27, 2025, the Company owns 666.63 Bitcoin with a current market value of approximately $58.1 million.

Adjustments to Executive Cash Compensation and RSU Grants

On January 16, 2025, the Board of Directors approved certain adjustments to the cash compensation, and the grant of restricted stock units to the executive officers of the Company. The following Restricted Stock Units (“RSUs”) grants were approved; (i) the Chief Executive Officer, Chief Financial Officer and Chief Technology Officer were granted an aggregate of 4,700,000 RSUs that vest over four years; and (ii) the VP of Engineering was granted 200,000 RSU’s that vest on June 30, 2025.

Issuance of Non-Convertible Series A Voting Preferred Stock

On January 16, 2025, the Board of Directors approved the issuance of an additional 270,000 shares of Non-convertible Series A Voting Preferred Stock (“Series A Preferred”) to the Chief Executive Officer, bringing his total holdings up to 1,000,000 shares of Series A Preferred Stock.

Bitcoin Mining

On March 7, 2025, the Company entered into a sixty-day Machine Lease Agreement with a bitcoin mining services company to operate 2,500 S-19 bitcoin mining machines on KULR’s behalf, at a total lease cost of $850,000.

As of March 27, 2025, the Company has earned a total of 2.48 Bitcoin from mining services.

The Company’s equity-based compensation plan allows for the grant of non-vested stock options, RSUs and RSAs to its employees pursuant to the terms of its equity incentive plan. Under the provision of the plan, unless otherwise elected, participants fulfill their related income tax withholding obligation by having shares withheld at the time of vesting. The shares withheld are then transferred to the Company’s treasury stock. On January 16, 2025, the Company withheld 27,536 shares in connection with the vesting of restricted common stock units. As of March 27, 2025, the Company holds 158,698 treasury shares.