UNITED STATES  

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): June 19, 2017 (June 19, 2017)

 

KT HIGH-TECH MARKETING, INC.

(Exact name of the registrant as specified in its charter)

 

Delaware   000-55564   81-1004273
(State or other jurisdiction of   (Commission   (IRS Employer
of incorporation)   File Number)   Identification No.)

 

14440 Big Basin Way, #12, Saratoga, CA 95070

(Address of principle executive offices) (Zip code)

 

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

 

______________________________________________________

(Former name or address if changed since last report)

 

Copies to:

Darrin M. Ocasio, Esq.

Jay K. Yamamoto, Esq.

Sichenzia Ross Ference Kesner LLP

61 Broadway

New York, New York 10006

Phone: (212) 930-9700

Fax: (212) 930-9725

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2).

 

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. ¨

 

 

 

  

Item 1.01            Entry into a Material Definitive Agreement.

 

On June 19, 2017 (the “Closing Date”), KT High-Tech Marketing, Inc. (the “Company” or “KT High-Tech”) closed a share exchange agreement (the “Share Exchange Agreement”) with KULR Technology Corporation, a Delaware corporation (“KULR”), and 100% of the shareholders of KULR (the “KULR Shareholders”) whereby KULR Shareholders, holding all of the 25,000,000 common stock or common stock equivalents issued and outstanding of KULR, transferred an aggregate of 25,000,000 shares of KULR to the Company in exchange for an aggregate of 50,000,000 newly issued shares of common stock, par value $0.0001 per share, of the Company (the “Company Common Stock”). The aggregate of 50,000,000 newly issued Company Common Stock represents approximately 64.57% of the outstanding shares of common stock of the Company following the Closing Date. Upon the closing of the Share Exchange Agreement, KULR became a wholly owned subsidiary of the Company. Accordingly, the Company, through its subsidiary KULR, will primarily focus its operations on KULR’s thermal management business. In addition, the Company plans to continue to develop opportunities in marketing and distributing products targeted at the internet of things (IoT), mobile and energy storage industries.

 

On June 8, 2017, the date that the Company, KULR and KULR Shareholders entered into the Share Exchange Agreement, the Company loaned KULR $500,000 and, concurrently therewith, KULR issued to the Company a promissory note in the principal amount of $500,000.

 

Effective on the Closing Date, the following persons constitute the executive officers and directors of the Company:

 

Name   Title(s)
Michael Mo   Chairman of the Board and Chief Executive Officer
Dr. Timothy Knowles*   Director, Chief Technical Officer and Secretary
George Henschke*   Treasurer and Interim Principal Financial Officer
Michael Carpenter*   Vice President of Engineering

* newly appointed as of the Closing Date

 

The foregoing descriptions of the Share Exchange Agreement and related transactions do not purport to be complete and are qualified in their entirety by reference to the complete text of the Share Exchange Agreement, which is filed as Exhibit 2.1 hereto and incorporated herein by reference.

 

Item 2.01            Completion of Acquisition or Disposition of Assets.

 

Information in response to this Item 2.01 is keyed to the Item numbers of Form 10.

 

Item 1. Description of Business.

 

Effective on the Closing Date, pursuant to the Share Exchange Agreement, KULR became a wholly-owned subsidiary of KT High-Tech Marketing Inc. The acquisition of KULR is treated as a reverse acquisition, and the business of KULR was integrated into the Company (the transaction, the “Reverse Acquisition”). References to “we,” “us,” “our” and similar words refer to the Company and its subsidiaries after giving effect to the Reverse Acquisition. References to “KTHT” refer to the Company prior to the Reverse Acquisition. KULR’s corporate headquarters are located at 1999 S. Bascom Ave., Suite 700, Campbell, CA 95008, and the telephone number at such address is 408-675-7002.

 

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Summary

 

Prior to the Reverse Acquisition, the Company was an early-stage company planning to market and distribute technology products and components targeting the energy and consumer electronics industries. The Company intended to market and sell the products to both the end user and supply chain markets and to seek partnerships in developing and distributing such products.

 

After the Reverse Acquisition, the Company integrated its existing business operations with those of its subsidiary, KULR. KULR owns proprietary carbon fiber based (Carbon Fiber Velvet or “CFV”) thermal management solutions that it believes are more effective at conducting, dissipating and storing heat generated by an electronic system’s internal components (i.e. semiconductor, integrated circuits “chips”) in comparison to traditional materials, such as copper and aluminum. KULR’s technologies can be applied inside a wide array of electronic applications, such as mobile devices, cloud computing, virtual reality platforms, satellites, internet of things, drones, and connected cars.

 

Thermal Management Solutions

 

 

 

Three key vectors have driven advancements in semiconductors and electronics systems – performance, power, and size. These vectors, however, often counteract one another. As chip performance increases, power consumption increases and more heat is generated as a byproduct. When chip size reduces, there is an increased potential for a hot spot on the chip, which can degrade system performance. Electronic system components must operate within a specific temperature range on both the high and low end to operate properly. KULR resolves many of the tradeoffs associated with other thermal management materials. KULR’s products improve heat storage and dissipation, rigidity problems and durability. Its products are lightweight and reduce manufacturing complexity associated with traditional thermal management materials.

 

In addition to thermal management of electronic systems, KULR has developed, in partnership with NASA JSC, a highly effective, lightweight and passive thermal protection technology. Thermal Runaway Shield (TRS) for lithium ion batteries. KULR’s lithium ion battery (Li-B) TRS product prevents a potentially dangerous combustible condition known as thermal runaway from occurring in neighboring Li-B cells by acting as a shield or barrier in between individual Li-B cells in a battery pack. Although rare, incidents of thermal runaway occurring spontaneously in Li-B cargo shipments and inside electronics, including smartphones, hover boards and electric vehicles, are a cause of public concern.

 

Corporate History

 

The Company was incorporated in the State of Delaware in December 2015, and was formerly known as Grant Hill Acquisition Corporation. In April 2016, the Company implemented a change of control by issuing shares to new shareholders, redeeming shares of existing shareholders, electing new officers and directors and accepting the resignations of its then existing officers and directors. In connection with the change of control, the shareholders of the Company and its board of directors unanimously approved the change of the Company’s name from Grant Hill Acquisition Corporation to KT High-Tech Marketing, Inc. in April 2016.

 

KULR was formed in 2013 and is based in Santa Clara, California. Since its inception, KULR primarily focused on developing and commercializing its thermal management technologies, which it acquired through assignment from and license with KULR’s co-founder Dr. Timothy Knowles, in the high value, high-performance consumer electronic and energy storage applications. Prior to 2013, the Company’s technologies were used in numerous advanced space and industrial applications for NASA, Boeing, and Raytheon. A few notable achievements were the use of KULR’s technologies in: the Mars Lander/Rover (battery heat sink), X-31 Battery Heat Sink, Mercury Messenger (battery heat sink), and X-51 Scramjet (heat exchanger).

 

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As described in Item 1.01 above, on June 19, 2017, we acquired all the issued and outstanding shares of KULR pursuant to the Share Exchange Agreement in exchange for 50,000,000 Company Common Stock and KULR became the Company’s wholly owned subsidiary.

 

Market Opportunity and Strategy

 

Market

 

The world of electronics continues to become more and more demanding and performance driven. Newer applications such as VR/AR gear, mobile devices, Internet of Things (IoT) devices and cloud computing infrastructure equipment require great amounts of processing power, as well as having strict size, weight, and design requirements. Widespread handheld devices such as smartphones and tablets continue to stretch the boundaries of performance and miniaturization.

 

According to a BCC Research Report in 2016, the global thermal management market will grow from $11.2 billion in 2016 to total $USD14.6 Billion by the year 2021. According to the report, in recent years, electronics devices and systems have undergone tremendous technological growth. Advancements in the electronics industry have led to an increased need for innovative thermal management technologies, which serve to improve performance and reliability. The report states that technological progress has come on two fronts: increased functionality on a single device unit and miniaturization of each unit. As a result, there has been an increased demand for thermal management technologies. The report analyzes the thermal market by four segments including hardware, software, interfaces, and substrates.

 

The hardware segment is responsible for about 80% of the market total. Thermal interface materials (“TIM”) have the highest projected growth rate with a five-year CAGR of 7.6% and will be the main type of thermal solution for compact and portable electronic devices. The TIM market is projected to grow from $762 million in 2015 to nearly $1.2 billion in 2021. KULR’s product line offers an excellent cross-section of solutions addressing not only the hardware segment but the interface and substrate segments as well.

 

The increasing demand and reliability of microelectronics has pushed thermal management to the forefront of many industries. Major end-users of thermal management products include computer, telecommunications, automotive, consumer products, medical/office equipment, industrial/office equipment, light-emitting diodes, and renewable energy industries

 

We believe KULR’s technology solution excels in a number of categories important in the world of thermal management. KULR’s proprietary carbon fiber based solutions are generally more thermally conductive, lighter weight, require less contact pressure, and offer greater design flexibility and durability compared to traditional solutions. As a result, we believe KULR has real potential to offer unique value proposition to customers in the multibillion-dollar thermal management industry. KULR aims to provide cost-effective, superior thermal management solutions for a group of electronic manufacturers.

 

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Marketing Strategy

 

Our management team plays an important role in securing customers necessary to achieve the Company’s growth targets. Management believes that it has close ties with a group of world-class tech companies in China, Japan, and the US and through those ties the Company believes it has an opportunity to obtain early customers. Although no assurance can be made that a revenue producing relationship will ever solidify, we are currently working to commercialize our products with companies and organization such as NASA, Jabil Circuits, Sanmina, Lumentum, NTTDoCoMo of Japan, Meig Smart Technology and other tier-one electronics OEM and ODM’s. We believe we can offer unique and competitive solutions for these and other electronics companies as they face serious thermal management and design challenges with future product lines.

 

The Company targets two general types of customers:

 

1) Obtain commercial customers that have immediate high performance thermal management needs to fulfill with next generation or new consumer based product launches. We seek early adoption of our technologies in the smartphone, IoT, cloud computing, and VR/AR devices.

 

2) Provide thermal management solutions for aerospace and industrial customers including NASA, Boeing, Raytheon and others. We seek continued adoption of its technologies in satellite, military, and other space applications.

 

We will promote our position of providing superior, cost effective thermal solutions for world-class customers when engaging new potential customers. Marketing will be done via multiple channels:

 

· Commissioning unbiased white papers and technical papers.
· Attending, sponsoring, and guest speaking at industry events, conferences, and symposiums.
· Hiring public relations consultants to oversee our press releases and media relations interface with newspapers, magazines, and blogs.
· Hiring SEO specialists for all social media endeavors.
· Relying on the company’s technical pedigree within the thermal management community to spread high praise via word of mouth.
· Leverage Company’s existing relationships with world-class tech companies.
· Exploit halo effect generated by successful product launches with world-class companies and affiliation with top-tier organizations for new customer acquisitions.

  

In revenue timing terms, the Company will obtain three kinds of customers from short-term (quick ramp up) revenue providers in the consumer electronics and computing space to long-term, aerospace and industrial revenue:

 

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· Near/Short term customers: Consumer Electronics and Computing. These customers take 6-9 months to design-in and business forecast is usually no more than 12 months out because their businesses move very fast with 12-18 month product cycles. .
· Mid-term customers: Industrial and Energy Storage customers that take 9-18 months for design-in and the order can last 2-5 years. Order visibility is good and forecast may be conservative.
· Long-term customers: Aerospace and Military Customers where design-in can take 18-24 months or longer depending on the product cycle, government budget and policy changes. Product cycle can last up to 10 years with solid visibility.

 

Sales Strategy

 

The Company plans to market and sell KULR thermal management products (component products) and finished end-products (OEM products) that the Company develops with its partners into its sales and distribution channels. For the component products, the Company will market it directly to its customers and utilize distributor partners and agents into Japan, China and EU countries. For its OEM products, the Company will sell into distributor channels primarily as a B2B business.

 

Advertising and Communications Strategy

 

We plan to utilize all forms of advertising and communications tools at our disposal. This includes commissioning unbiased white papers and technical papers, attending, sponsoring, and guest speaking at industry events, conferences, and symposiums. We have hired a public relations consultant who will oversee our press releases and media relations interface with newspapers, magazines, and blogs. We have also hired a SEO specialist for social media outreach activities and will also rely on the company’s pedigree within the thermal management community to spread high praise via word of mouth. To date, as a result of these efforts, we have been mentioned in the following media outlets:

 

· CNBC – article entitled “The No.1 reason Uber's flying car is just a fantasy” – May 18, 2017
· Forbes – article entitled “KULR Carbon Velvet Enables Cooler Digital Gear” – October 21, 2016
· EETimes – article entitled “Batteries Get Safer Enclosures” – February 3, 2017
· USA Today – article entitled “Midair firestorm: Lithium-ion batteries in airplane cargo spark fear” – March 22, 2017
· Quartz – article entitled “Moore’s Law can’t last forever—but two small changes might mean your phone battery will” – March 8, 2017
· Business Insider – article entitled “A fire onboard a JetBlue flight exposes why Trump's laptop ban could be so dangerous” – May 31, 2017
· HP Enterprise – article entitled “Three batteries that could power our future” – May 23, 2017
· Yahoo News – article entitled “KULR Technology to debut new space-ready carbon fiber cooling solutions” – May 23, 2017

 

Goals and Objectives

 

We aim to produce a high-quality line of products to meet the ever-increasing demands of the various markets in which we plan to compete. We believe our thermal solutions will make the world of electronics cooler, lighter, and safer.

 

Our goal is to offer unique value proposition to our customers with our high-performance carbon fiber thermal management technology by specifically targeting high growth and high performance applications in the overall $14 billion thermal management market ( Source: 2016 BCC Research ). As new and exciting applications such as VR/AR, AI Robots, cloud computing infrastructure equipment and energy storage proliferate in the market place, these applications demand new thermal management solutions to make them cool, lighter and safer. These new application requirements present opportunities for KULR solutions to compete and capture market share.

 

Product and Services

 

Our products can be divided into three distinct categories and subcategories with the following functionalities:

 

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1) Lithium-Ion Battery (Li-B) Thermal Runaway Shield : KULR has developed a vaporizing heatsink aimed at passive resistance to thermal runaway propagation in lithium ion batteries in partnership with NASA Johnson Space Center (NASA JSC). The heatsink shield designed for NASA JSC is a novel configuration, thin and lightweight, for use in conjunction with 18650 cells. The heatsink shield has proven to keep neighboring cells safe from thermal runaway propagation after a trigger cell was intentionally overheated. This lightweight solution can achieve 220 Wh/kg in battery energy density and can be used in energy storage and industrial and consumer electronics applications that require a lightweight and passive solution for battery safety.

 

 

 

2) Fiber Thermal Interface Material (FTI) : KULR thermal interface materials (TIMs) consist of sparse carbon fiber velvets attached to a film of polymer or metal. The fiber packing density and orientation are selected to serve a wide range of applications, including hostile thermal and chemical environments, sliding interfaces, and interfaces with widely varying gaps. They can be coated for electrical isolation. They require low contact pressure and provide high thermal conductivity. Their light weight and high compliance make them uniquely suited for aerospace, industrial and high performance commercial devices.

 

3) Phase Change Material (PCM) Heat Sink : KULR phase change material (PCM) composite heatsinks consisting of a conductive carbon fiber velvet embedded with a suitable alkane (“paraffin”) having high latent heat at its melting point.  Such heatsinks offer passive thermal control for instruments that would otherwise overheat or undercool during periodic operations. A typical application involves lasers that dissipate heat but need tight thermal control where active cooling is unavailable.

 

KULR’s Proprietary Next Generation Thermal Management Solutions

 

 

 

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Recent Development

 

One product we are particularly excited about is our TRS (thermal runaway shield) product that we developed for NASA. It prevents lithium-ion battery thermal runaway propagation in multi-cell battery packs containing 18,650 cells. We have been testing it with NASA Johnson Space Control for their battery applications. It’s a lightweight and passive solution that’s ideally suited for space applications. We will leverage our existing relationship with NASA to further develop the product’s evolution and development. In the most recent NASA test, the lastest version of TRS successfully prevented thermal runaway propagation from the trigger cell to its neighboring cells even as the trigger cell temperature reached over 800C. TRS kept all the neighboring cells at under 100C, well below the 140C trigger temperature for thermal runaway.

 

 

 

(Source: NASA JSC April 26, 2017)

 

Competition

 

Devices have to deliver greater functionality within a higher-density, lower-profile package. Boards have to accommodate a larger number of components and are subjected to finer spacing rules. From a thermal management perspective, there is a significant price to pay for this increase in functionality. Device operating frequency and gate count are increasing rapidly, dissipating greater amounts of power as heat. The buildup of excess heat is a major cause of failure in electronic systems. 

 

Competition in thermal management technology is fierce and fragmented. As the devices become more compact and higher performance, their thermal management requirements are unique and often conflicting. For example, a Smartphone needs efficient heat spreading inside the device to remove the heat from its processors, while it also needs to keep the outside temperature below 40C.

 

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KULR FTI offers the following advantages over other thermal interface materials (TIM) such as thermal grease and gap pads.

 

· Low Contact Pressure. FTI requires as low as 1 psi to be an effective TIM. This is valuable for aerospace and wearable IoT applications where mechanical stress on components needs to be minimized.
· Light weight. FTI typically weights less than 300g per square meter.
· Wide Gap Range. FTI can be configured to fit between 0.3mm to over 4mm.
· Electrical Insulation: Optional. FTI can be configured to be both electrically conductive and insulating based on application needs.

 

Here is the comparison table of FTI with other TIM materials:

 

Features KULR’s FTI Thermal Grease Thermal Pad PCM
Low Thermal Resistance (°C.in 2 /W) 0.3 to 2.0 ~1 0.1-3.0 2.0-3.0
Wide Gap Range (mm) 0.3 to 4.0 0.10 0.1 to 2 <1.0
Low Contact Pressure (psi) 1 to 20 20+ 20+ 20+
Compressibility High No Yes No
Silicone No Yes Yes No
Sliding Interface Yes No No No

 

MACINTOSH HD:USERS:THOMASSALK:DESKTOP:SCREEN SHOT 2016-08-21 AT 1.48.59 PM.PNG

KULR TRS is a light weight passive cooling solution that combines carbon fiber structure with water and polycarbonate enclosure. Tesla separates the Li+ batteries into banks with each cell within a battery separated into liquid-cooled chambers creating both a physical separation and an active method of maintaining the optimal operating temperature for the batteries during discharging and charging. Other automotive manufacturers have since followed suit with similar liquid-cooled solutions. A liquid-cooled solution is efficient at managing temperature but it adds complexity and weight to a system. In many applications, such as aerospace and consumer electronics, the weight of a liquid-cooled solution is unacceptable.

  

Tesla Liquid-Cooled Battery System

 

For the Powerwall home storage solution, Tesla is reportedly using a liquid-cooled solution similar to the company’s automotive solutions.

 

NASA developed a prototype passive cooling solution called the LLBR2, which is a machined aluminum casing with 0.5mm cell spacing. Each cell has a mica lining and a ceramic bushing on the cell vent opening. The design allows venting of any smoke or flame while preventing TRP by distributing the 500 ° C heat from a fire through the mass of the aluminum casing to keep the temperature of adjacent cells below critical levels. While this is an efficient design to minimize the potential for TRP to adjoining cells, the design is still rather heavy and very expensive to build.

 

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NASA Passive Li+ Battery Pack Design – LLBR2 Brick

 

  

KULR TRS solution is a fully passive solution that can enable a battery pack to exceed the 200Wh/kg energy density. Applied to larger battery packs like those in energy storage systems, LiB-TRS technology could reduce the weight of an active liquid-cooled battery platform by up to 25% by eliminating the pump, heat exchanger, and liquid. The result is a smaller, lighter, and more compact solution.

 

 

Governmental Regulation and Environmental Compliance

 

Certain substances we use in our manufacturing process are subject to federal governmental regulations (such as EPA regulations). We believe we are in material compliance with all applicable governmental regulations, and that the cost and effect of compliance with environmental laws is not material. As a small generator of hazardous substances, we are subject to local governmental regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances, such as acetone that is used in very small quantities to manufacture our products. We are currently in compliance with these regulations. Most new materials sold in the U.S or in many other countries require regulation by government authorities. In most other countries, there are no specific regulations that require additional regulation but some countries do have registration requirements with which we comply to the best our ability.

 

Employees

 

As of June 19, 2017, we had 10 employees and 5 consultants.

 

We believe that we maintain a good working relationship with our employees and we have not experienced any significant labor disputes.

 

Intellectual Property

 

Patents

 

We believe that our portfolio of intellectual property (“IP”) is an important asset to the development of our business. Set forth below is a detailed description of our patents:

 

Patent #   Status   Grant Date   Title   Abstract:
14572761   Pending       Carbon Fiber Heat Exchangers   A heat sink comprises a base for receiving heat, a cover having at least one exhaust channel, and carbon fibers.  The carbon fibers are disposed between the base and the cover in a predefined pattern.  The patterned carbon fibers form at least one inlet channel, where the at least one inlet channel allows for receiving a coolant into the patterned carbon fibers.  The at least one exhaust channel allows for expelling of the coolant from the patterned carbon fibers.

 

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62243624   Pending       Carbon Fiber Thermal Interface   A method for manufacturing a carbon fiber thermal interface, comprises the steps of: electroflocking carbon fibers onto a temporary substrate; coating parylene onto the electroflocked carbon fibers; and removing the temporary substrate.  The carbon fiber thermal interface comprises: carbon fibers, wherein exposed areas of the carbon fibers have a layer of a coating agent, and wherein the carbon fibers are coupled together by the coating agent.
                 
15203748   Pending       System, Method, and Apparatus for Battery Protection   A battery protection system comprises sleeves, carbon fibers, a case, and liquid. The sleeves are hollow for insertion of battery cells. The carbon fibers are disposed on outer surfaces of the sleeves. The case houses the sleeves and has an inner cavity. The liquid and the carbon fibers are disposed in the inner cavity, where the carbon fibers are exposed to the liquid.
                 
15203757   Pending       Flame Arrestor   A flame arrester comprises: carbon fiber layers; and one or more connecting layers. The carbon fiber layers are separated from each other by the one or more connecting layers. Carbon fibers of the carbon fiber layers are substantially perpendicular to the plane of the one or more connecting layers.
                 
6913075   Granted   7/6/09   Dendritic Fiber Material   A thermal interface includes nanofibrils. The nanofibrils may be attached to a flat base or membrane, or may be attached to the tip portions of larger diameter fibers. The nanofibrils have a diameter of less than about 1 micron, and may advantageously be formed from single walled and/or multi-walled nanotubes.
                 
7144624   Granted   12/6/10   Dendritic Fiber Material   A thermal interface includes nanofibrils. The nanofibrils may be attached to a flat base or membrane, or may be attached to the tip portions of larger diameter fibers. The nanofibrils have a diameter of less than about 1 micron, and may advantageously be formed from single walled and/or multi-walled nanotubes.

 

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7132161   Granted   11/8/10   Fiber Adhesive Material   A fiber velvet comprising nano-size fibers or nanofibrils attached to micro-size fibers is disclosed. Methods of manufacturing the velvet as well as various uses of the velvet are also described. For example, the fiber velvet can be used as a thermal interface or as an adhesive material. The nanofibrils may be attached to a flat base or membrane, or may be attached to the tip portions of the micro-size or larger diameter fibers. Various attributes of the micro-size fibers and of the nano-size fibers, for example, geometry (e.g. size, length, packing density) material type (e.g. carbon, metal, polymer, or ceramic) and properties (e.g. conductivity, modulus, surface energy, dielectric constant, surface roughness) can be selected depending on the desired attributes of the fiber velvet. The nanofibrils have a diameter of less than about 1 micron, and may advantageously be formed from single walled and/or multi-walled carbon nanotubes.

 

Acquired IP

 

On April 15, 2013, Energy Science Laboratories, Inc. (“ESLI”) and KULR entered into a License and Development Agreement (the “License Agreement”) pursuant to which ESLI granted an irrevocable, exclusive, fully paid, royalty free, sublicensable, world-wide license to use, make, have made, develop, create derivative works, sell, offer to sell, import products and/or services which use all or a portion of the technology, related knowhow, and the business and industry relationships in thermal management, thermal storage, heat dissipation and related technologies, whether tangible or intangible and any and all technology, processes, know-how, inventions and other intellectual property related for all markets other than military, aerospace, and defense applications (the “Licensed Technologies”).

 

Simultaneously with the License Agreement, ESLI and KULR entered into a Consulting Agreement, pursuant to which KULR engaged ESLI to assist in developing the Licensed Technologies, which relationship resulted the filing of four patent applications, which patent applications and, if granted, resultant patents are the sole property of KULR.

 

On November 10, 2016, ESLI assigned three granted patents (U.S. Patent Nos. 6,913,075, 7,132,161 and 7,144,624) to KULR. As a result of this assignment, KULR gained the right to develop the Licensed Technologies in all market applications.

 

Trademarks

 

Our business is also dependent on trademarks and trademark application in order to protect our intellectual property rights. Set forth below is a detailed description of our trademarks under application.

 

Country   Trademark   Application Number   Classes*   Status

the United States

   

 87362099

 

009; 017

In process

 

* Classes

 

Class 009: (Electrical and scientific apparatus) Scientific, nautical, surveying, electric, photographic, cinematographic, optical, weighing, measuring, signaling, checking (supervision), lifesaving and teaching apparatus and instruments; apparatus for recording, transmission or reproduction of sound or images; magnetic data carriers, recording discs; automatic vending machines and mechanisms for coin operated apparatus; cash registers, calculating machines, data processing equipment and computers; fire-extinguishing apparatus.

 

Class 017: (Rubber goods) Rubber, gutta-percha, gum, asbestos, mica and goods made from these materials and not included in other classes; plastics in extruded form for use in manufacture; packing, stopping and insulating materials; flexible pipes, not of metal.

 

Item 1A. Risk Factors

 

An investment in the Company’s common stock involves a high degree of risk. In determining whether to purchase the Company’s common stock, an investor should carefully consider all of the material risks described below, together with the other information contained in this report before making a decision to purchase the Company’s securities. An investor should only purchase the Company’s securities if he or she can afford to suffer the loss of his or her entire investment.

 

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Risks Related to Our Business and Our Industry

 

We are a young company with a limited operating history, making it difficult for you to evaluate our business and your investment

 

 The Company was formed in 2015 and KULR was formed in 2013. The Company, as a whole, has limited operating history. We have not yet demonstrated sales of products at a level capable of covering our fixed expenses. Since inception, we have not demonstrated the capability to produce sufficient materials to generate the ongoing revenues necessary to sustain our operations in the long-term. Nor have we demonstrated the ability to generate sufficient sales to sustain the business. There can be no assurance that the Company will ever produce a profit.

 

Many of the Company’s products represent new products that have not yet been fully tested in commercial product settings and for which manufacturing operations have not yet been fully scaled. This means that investors are subject to all the risks incident to the creation and development of multiple new products and their associated manufacturing processes, and each investor should be prepared to withstand a complete loss of their investment.

 

Because we are subject to these uncertainties, there may be risks that management has failed to anticipate and you may have a difficult time evaluating our business and your investment in our Company. Our ability to become profitable depends primarily on our ability to successfully commercialize our products in the future. Even if we successfully develop and market our products, we may not generate sufficient or sustainable revenue to achieve or sustain profitability, which could cause us to cease operations.

 

We have no sustainable base of products approved for commercial use by our customers, have never generated significant product revenues and may never achieve sufficient revenues for profitable operations, which could cause us to cease operations.

 

KULR primarily sells bulk materials or products made with these materials to other companies for incorporation into their products. Although KULR’s technologies were previously used in numerous advanced space and industrial applications for NASA, there has been no significant incorporation of our materials or products into customer products that are released for commercial sale as of the date of this report. Because there is no demonstrated history of large scale commercial success for our products, it is possible that such commercial success may never happen and that we will never achieve the level of revenues necessary to sustain our business.

 

We will need to raise substantial additional capital in the future to fund our operations and we may be unable to raise such funds when needed and on acceptable terms, which could have a materially adverse effect on our business.

 

We anticipate that we will incur operating losses for the foreseeable future. We may require additional funds for our anticipated operations and if we are not successful in securing additional financing, we may be required to delay significantly, reduce the scope of or eliminate one or more of our research or development programs, downsize our general and administrative infrastructure, or seek alternative measures to avoid insolvency, including arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies, product candidates or products.

 

We have limited experience in higher volume manufacturing that will be required to support profitable operations, and the risks associated with scaling to larger production quantities may be substantial.

 

We have limited experience manufacturing our products. We have established small-scale commercial or pilot-scale production facilities for our carbon based thermal management products, but these facilities do not have the existing production capacity to produce sufficient quantities of materials for us to reach sustainable sales levels. In order to develop the capacity to produce much higher volumes, it will be necessary to produce multiples of existing processes or engineer new production processes in some cases. There is no guarantee that we will be able to economically scale-up our production processes to the levels required. If we are unable to scale-up our production processes and facilities to support sustainable sales levels, the Company may be forced to curtail or cease operations.

 

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We have a long and complex sales cycle and have not demonstrated the ability to operate successfully in this environment.

 

It has been our experience since our inception that the average sales cycle for our products can range from one to five years from the time a customer begins testing our products until the time that they could be successfully used in a commercial product. We have only demonstrated a limited track record of success in completing customer development projects, which makes it difficult for you to evaluate the likelihood of our future success. The sales and development cycle for our products is subject to customer budgetary constraints, internal acceptance procedures, competitive product assessments, scientific and development resource allocations, and other factors beyond our control. If we are not able to successfully accommodate these factors to enable customer development success, we will be unable to achieve sufficient sales to reach profitability. In this case, the Company may not be able to raise additional funds and may be forced to curtail or cease operations and you could lose all or a significant part of your investment.

 

We are dependent on customers and partners to design and test our solution into new applications which may not be brought to market successfully.

 

The Company targets its thermal management solution for new applications and devices that require high performance and unique features offered by its products. Developing new applications and devices involves a lengthy and complex process, and they may not be commercialized on a timely basis, or at all. The Company’s success is directly related to the success of these new products. Furthermore, because the Company’s solutions are relatively new to mass market consumer electronics, the design and testing time is longer than traditional solutions. Moreover, in transitioning to new technologies and products, we may not achieve design wins, our customers may delay transition to these new technologies, our competitors may transition more quickly than we do, or we may experience product delays, cost overruns or performance issues that could harm our operating results and financial condition.

 

We could be adversely affected by our exposure to customer concentration risk

 

We are subject to customer concentration risk as a result of our reliance on a relatively small number of customers for a significant portion of our revenues. For 2016 we had one customer whose purchases accounted for 100% of total product revenues. In 2015, the same customer that represented 100% of total product revenues. Due to the nature of our business and the relatively large size of many of the applications our customers are developing, we anticipate that we will be dependent on a relatively small number of customers for the majority of our revenues for the next several years. It is possible that only one or two customers could place orders sufficient to utilize most or all of our existing manufacturing capacity.

 

In this case, there would be a risk of significant loss of future revenues if one or more of these customers were to stop ordering our materials, which could in turn have a material adverse effect on our business and on your investment.

 

We operate in an advanced technology arena where hypothesized properties and benefits of our products may not be achieved in practice, or in which technological change may alter the attractiveness of our products.

 

Because there is no sustained history of successful use of our products in commercial applications, there is no assurance that broad successful commercial applications may be technically feasible. Some of the scientific and engineering data related to our products has been generated in our own laboratories or in laboratory environments at our customers or third-parties. It is well known that laboratory data is not always representative of commercial applications.

 

Likewise, we operate in a market that is subject to rapid technological change. Part of our business strategy is to monitor such change and take steps to remain technologically current, but there is no assurance that such strategy will be successful. If the Company is not able to adapt to new advances in materials sciences, or if unforeseen technologies or materials emerge that are not compatible with our products and services or that could replace our products and services, our revenues and business prospects would likely be adversely affected. Such an occurrence may have severe consequences, including the potential for our investors to lose all of their investment.

 

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Competitors that are larger and better funded may cause the Company to be unsuccessful in selling its products.

 

The Company operates in a market that is expected to have significant competition in the future. Global research is being conducted by substantially larger companies who have greater financial, personnel, technical, and marketing resources. There can be no assurance that the Company’s strategy of offering better thermal management solutions based on the Company’s proprietary Carbon fiber based products will be able to compete with other companies, many of whom will have significantly greater resources, on a continuing basis. In the event that we cannot compete successfully, the Company may be forced to cease operations.

 

Because of our small size and limited operating history, we are dependent on key employees.

 

The Company’s operations and development are dependent upon the experience and knowledge of Michael Mo, our Chief Executive Officer, and Dr. Timothy Knowles, our Chief Technical Officer and Michael Carpenter, our Vice President of Engineering. If the services of any of these individuals should become unavailable, the Company’s business operations might be adversely affected. If several of these individuals became unavailable at the same time, the ability of the Company to continue normal business operations might be adversely affected to the extent that revenue or profits could be diminished and you could lose all or a significant amount of your investment.

 

Our success depends in part on our ability to protect our intellectual property rights, and our inability to enforce these rights could have a material adverse effect on our competitive position.

 

We rely on the patent, trademark, copyright and trade-secret laws of the United States and to protect our intellectual property rights. We may be unable to prevent third parties from using our intellectual property without our authorization. The unauthorized use of our intellectual property could reduce any competitive advantage we have developed, reduce our market share or otherwise harm our business. In the event of unauthorized use of our intellectual property, litigation to protect or enforce our rights could be costly, and we may not prevail.

 

Many of our technologies are not covered by any patent or patent application, and our issued and pending U.S. patents may not provide us with any competitive advantage and could be challenged by third parties. Our inability to secure issuance of our pending patent applications may limit our ability to protect the intellectual property rights these pending patent applications were intended to cover. Our competitors may attempt to design around our patents to avoid liability for infringement and, if successful, our competitors could adversely affect our market share. Furthermore, the expiration of our patents may lead to increased competition.

 

Our pending trademark applications may not be approved by the responsible governmental authorities and, even if these trademark applications are granted, third parties may seek to oppose or otherwise challenge these trademark applications. A failure to obtain trademark registrations in the United States and in other countries could limit our ability to protect our products and their associated trademarks and impede our marketing efforts in those jurisdictions.

 

In addition, effective patent, trademark, copyright and trade secret protection may be unavailable or limited in some foreign countries. We also rely on unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets to develop and maintain our competitive position. Although we generally enter into confidentiality agreements with our employees and third parties to protect our intellectual property, these confidentiality agreements are limited in duration and could be breached, and may not provide meaningful protection of our trade secrets or proprietary manufacturing expertise. Adequate remedies may not be available if there is an unauthorized use or disclosure of our trade secrets and manufacturing expertise. In addition, others may obtain knowledge about our trade secrets through independent development or by legal means. The failure to protect our processes, apparatuses, technology, trade secrets and proprietary manufacturing expertise, methods and compounds could have a material adverse effect on our business by jeopardizing critical intellectual property.

 

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Where a product formulation or process is kept as a trade secret, third parties may independently develop or invent and patent products or processes identical to our trade-secret products or processes. This could have an adverse impact on our ability to make and sell products or use such processes and could potentially result in costly litigation in which we might not prevail.

 

We could face intellectual property infringement claims that could result in significant legal costs and damages and impede our ability to produce key products, which could have a material adverse effect on our business, financial condition and results of operations.

 

If our technologies conflict with the proprietary rights of others, we may incur substantial costs as a result of litigation or other proceedings and we could face substantial monetary damages and be precluded from commercializing our products, which would materially harm our business and financial condition.

 

Patents in the thermal management solutions industry are numerous and may, at times, conflict with one another. As a result, it is not always clear to industry participants, including us, which patents cover the multitude of product types. Ultimately, the courts must determine the scope of coverage afforded by a patent and the courts do not always arrive at uniform conclusions.

 

A patent owner may claim that we are making, using, selling or offering for sale an invention covered by the owner’s patents and may go to court to stop us from engaging in such activities. Such litigation is not uncommon in our industry.

 

Patent lawsuits can be expensive and would consume time and other resources. There is a risk that a court would decide that we are infringing a third party’s patents and would order us to stop the activities covered by the patents, including the commercialization of our products. In addition, there is a risk that we would have to pay the other party damages for having violated the other party’s patents (which damages may be increased, as well as attorneys’ fees ordered paid, if infringement is found to be willful), or that we will be required to obtain a license from the other party in order to continue to commercialize the affected products, or to design our products in a manner that does not infringe a valid patent. We may not prevail in any legal action, and a required license under the patent may not be available on acceptable terms or at all, requiring cessation of activities that were found to infringe a valid patent. We also may not be able to develop a non-infringing product design on commercially reasonable terms, or at all.

 

If we fail to maintain effective internal controls over financial reporting, the value of the company and the price of our common stock may be adversely affected.

 

We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. Any failure of these controls could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial frauds. Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting, and the standards that must be met for management to assess the internal control over financial reporting as effective are new and complex, and require significant documentation, testing and possible remediation to meet the detailed standards. We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting. If we cannot assess our internal control over financial reporting as effective, investor confidence and share value may be negatively impacted.

 

In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting, disclosure of management’s assessment of our internal controls over financial reporting, or disclosure of our independent registered public accounting firm’s report on management’s assessment of our internal controls over financial reporting may have an adverse impact on the value of the Company and on the trading price of our common stock, if it ever become traded.

 

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Our directors and officers may be exposed to liability .

 

We do not currently maintain directors and officers liability insurance, also known as “D&O Insurance.” However, we plan to obtain D&O Insurance for our directors and officers in the near future.

 

We may become subject to liabilities related to risks inherent in working with hazardous materials.

 

Our development and manufacturing processes involve the controlled use of hazardous materials, such as acetone. We are subject to federal, provincial and local laws and EPA regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by such laws and regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any damages that result and any such liability could exceed our resources. We are not specifically insured with respect to this liability. Although we believe that we are in compliance in all material respects with applicable environmental laws and regulations and currently do not expect to make material capital expenditures for environmental control facilities in the near-term, if we fail to comply with these regulations substantial fines could be imposed on us and we could be required to suspend production, alter manufacturing processes or cease operations. In addition, there can be no assurance that we will not be required to incur significant costs to comply with environmental laws and regulations in the future, or that our operations, business or assets will not be materially adversely affected by current or future environmental laws or regulations.

 

Future adverse regulations could affect the viability of the business.

 

As a small generator of hazardous substances, we are subject to local governmental regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances, such as acetone that is used in very small quantities to manufacture our products. We are currently in compliance with these regulations. However, there can be no assurance that future regulations might not change or raise the compliance standards, of which the Company may become in violate or for which we may incur substantial costs to comply.

 

In most cases, as far as we are aware, there are no current regulations elsewhere in the world that prevent or prohibit the sale of the Company’s products. However, there is no assurance that any regulations will not be enacted in the future to require the Company’s products or production materials to be subject to test for toxicity or other health effects before they can be sold or used in the production process, if such regulations are enacted in the future, the Company’s business could be adversely affected because of the requirement for expensive and time-consuming tests or other regulatory compliance. There can be no assurance that future regulations might not severely limit or even prevent the sale of the Company’s products in major markets, in which case the Company’s financial prospects might be severely limited, causing investors to lose some or all of their investment.

 

Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses and will divert time and attention away from revenue generating activities.

 

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. Our management team will need to invest significant management time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities, which could have an adverse effect on our business.

 

We may not obtain U.S. Government contracts to further develop our technology.

 

We can give no assurances that we will be successful in obtaining government contracts. The process of applying for government contracts is lengthy, and we cannot be certain that we will be successful in complying with all requirements throughout such application process. Accordingly, we cannot be certain that we will be awarded any U.S. Government contracts utilizing our carbon fiber based solutions.

 

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Downturns in general economic conditions could adversely affect our profitability.

 

Downturns in general economic conditions can cause fluctuations in demand for our products, product prices, volumes and gross margins. Future economic conditions may not be favorable to our industry. A decline in the demand for our products or a shift to lower-margin products due to deteriorating economic conditions could adversely affect sales of our products and our profitability and could also result in impairments of certain of our assets.

 

Furthermore, any uncertainty in economic conditions may result in a slowdown to the global economy that could affect our business by reducing the prices that our customers may be able or willing to pay for our products or by reducing the demand for our products.

 

An increase in the cost of raw materials or electricity might affect our profits.

 

Any increase in the prices of our raw materials or energy might affect the overall cost of our products. If we are not able to raise our prices to pass on increased costs to our customers, we would be unable to maintain our existing profit margins. Our major cost components include items such as production materials and electricity, which items are normally readily available industrial commodities. During our history as a business, we have not seen any material impact (as defined by GAAP) on our cost structure from fluctuations in raw material or energy costs, but this could change in the future.

 

Our results of operations could deteriorate if our manufacturing operations were substantially disrupted for an extended period.

 

Our manufacturing operations are subject to disruption due to extreme weather conditions, floods and similar events, major industrial accidents, strikes and lockouts, adoption of new laws or regulations, changes in interpretations of existing laws or regulations or changes in governmental enforcement policies, civil disruption, riots, terrorist attacks, war, and other events. We cannot assure you that no such events will occur. If such an event occurs, it could have a material adverse effect on us.

 

Risks Related to Our Common Stock

 

Although the Company intends to apply to quote its common stock on the OTC Markets, there currently is no trading market for the Company’s common stock and the Company’s common stock does not have a trading symbol.

 

There is currently no trading market for our common stock. We intend to quote our common stock on the OTC Markets. However, an active trading market for our common stock may not develop or may not be sustained after we quote our common stock on the OTC Markets. The lack of an active market may make it more difficult for stockholders to sell our shares and could lead to our share price being depressed or volatile.

 

We cannot predict the prices at which our common stock may trade after succeeding in quoting it on the OTC Markets. The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including:

 

    actual or anticipated fluctuations in our operating results due to factors related to our business;

 

    success or failure of our business strategies;

 

    our quarterly or annual earnings, or those of other companies in our industry;

 

    our ability to obtain financing as needed;

 

    announcements by us or our competitors of significant acquisitions or dispositions;

 

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    changes in accounting standards, policies, guidance, interpretations or principles;

  

    changes in earnings estimates by securities analysts or our ability to meet those estimates;

 

    the operating and stock price performance of other comparable companies;

 

    investor perception of our company and the magazine publishing industry;

 

    overall market fluctuations;

 

    results from any material litigation or government investigation;

 

    changes in laws and regulations (including tax laws and regulations) affecting our business;

 

    changes in capital gains taxes and taxes on dividends affecting stockholders; and

 

    general economic conditions and other external factors.

 

If the Company successfully quotes its common stock on the OTC Markets, our common stock may be subject to the “penny stock” rules of the Securities and Exchange Commission, which may make it more difficult for stockholders to sell our common stock.

 

The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a person’s account for transactions in penny stocks, and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person, and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination, and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of the Company’s common stock if and when such shares are eligible for sale and may cause a decline in the market value of its stock.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

 

We may not be able to attract the attention of brokerage firms because we became a public company by means of a reverse acquisition.

 

Because we became public through a “reverse acquisition,” securities analysts of brokerage firms may not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of the Company in the future.

 

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If we become publicly traded, shares eligible for future sale may adversely affect the market price of our common stock, as the future sale of a substantial amount of outstanding stock in the public marketplace could reduce the price of our common stock.

 

Holders of a significant number of our common stock and/or their designees may become eligible to sell our shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 (“Rule 144”), promulgated under the Securities Act of 1933, as amended (the “Securities Act”) , subject to certain limitations. In general, pursuant to Rule 144, a non-affiliate stockholder (or stockholders whose shares are aggregated) who has satisfied a six-month holding period, and provided that there is current public information available, may sell all of its securities. Rule 144 also permits the sale of securities, without any limitations, by a non-affiliate that has satisfied a one-year holding period. Any substantial sale of common stock pursuant to any resale prospectus or Rule 144 may have an adverse effect on the market price of our common stock by creating an excessive supply.

   

Applicable regulatory requirements, including those contained in and issued under the Sarbanes-Oxley Act of 2002, may make it difficult for the Company to retain or attract qualified officers and directors, which could adversely affect the management of its business and its ability to obtain or retain listing of its common stock.

 

The Company may be unable to attract and retain those qualified officers, directors and members of board committees required to provide for effective management because of the rules and regulations that govern publicly held companies, including, but not limited to, certifications by principal executive officers. The enactment of the Sarbanes-Oxley Act has resulted in the issuance of a series of related rules and regulations and the strengthening of existing rules and regulations by the SEC, as well as the adoption of new and more stringent rules by the stock exchanges. The perceived increased personal risk associated with these changes may deter qualified individuals from accepting roles as directors and executive officers.

 

Further, some of these changes heighten the requirements for board or committee membership, particularly with respect to an individual’s independence from the corporation and level of experience in finance and accounting matters. The Company may have difficulty attracting and retaining directors with the requisite qualifications. If the Company is unable to attract and retain qualified officers and directors, the management of its business and its ability to obtain or retain listing of our shares of common stock on any stock exchange (assuming the Company elects to seek and are successful in obtaining such listing) could be adversely affected.

 

If the Company fails to maintain an effective system of internal controls, it may not be able to accurately report its financial results or detect fraud. Consequently, investors could lose confidence in the Company’s financial reporting and, if we become publicly traded, this may decrease the trading price of our stock.

 

The Company must maintain effective internal controls to provide reliable financial reports and detect fraud. The Company has been assessing its internal controls to identify areas that need improvement. It is in the process of implementing changes to internal controls, but has not yet completed implementing these changes. Failure to implement these changes to the Company’s internal controls or any others that it identifies as necessary to maintain an effective system of internal controls could harm its operating results and cause investors to lose confidence in the Company’s reported financial information. If we become publicly traded, any such loss of confidence would have a negative effect on the trading price of the Company’s stock.

  

Voting power of our shareholders is highly concentrated by insiders.

 

Our officers and directors and affiliates will on a pro forma basis beneficially own 54.96% of our outstanding common stock after the reverse acquisition. Such concentrated control of the Company may adversely affect the value of our common stock. If you acquire our common stock, you may have no effective voice in our management. Sales by our insiders or affiliates, along with any other market transactions, could affect the value of our common stock.

 

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We do not intend to pay dividends for the foreseeable future.

 

We have paid no dividends on our common stock to date and it is not anticipated that any dividends will be paid to holders of our common stock in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs of the business, it is currently anticipated that any earnings will be retained to finance our future expansion and for the implementation of our business plan. As an investor, you should take note of the fact that a lack of a dividend can further affect the market value of our stock, and could significantly affect the value of any investment in our Company.

 

You may experience dilution of your ownership interests because of the future issuance of additional common stock.

 

In the future, we may issue additional authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our shareholders. We may also issue additional shares of our securities that are convertible into or exercisable for common stock, as the case may be, in connection with hiring or retaining employees, future acquisitions, future sales of its securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares may create downward pressure on the value of our securities. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capital raising efforts, including at a price (or exercise prices) below the price at which our shares may be valued or, if we become publicly traded, are trading in a public market.

 

If we become publicly traded and become an issuer of “penny stock,” the protection provided by the federal securities laws relating to forward looking statements will not apply to us.

 

Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, we will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.

  

Compliance with the reporting requirements of federal securities laws can be expensive.

 

As a public reporting company in the United States, we are subject to the information and reporting requirements of the Exchange Act and other federal securities laws, and the compliance obligations of the Sarbanes-Oxley Act. The costs of preparing and filing annual and quarterly reports as well as other information with the SEC and furnishing audited reports to shareholders is significant.

 

FORWARD-LOOKING STATEMENTS

 

Statements in this current report on Form 8-K may be “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this report, including the risks described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and in other documents which we file with the Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to:

 

  · our ability to raise funds for general corporate purposes and operations, including our clinical trials;

  · the commercial feasibility and success of our technology;

  · our ability to recruit qualified management and technical personnel;

  · the success of our clinical trials;

 

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  · our ability to obtain and maintain required regulatory approvals for our products; and

  · the other factors discussed in the “Risk Factors” section and elsewhere in this report.

 

Any forward-looking statements speak only as of the date on which they are made, and except as may be required under applicable securities laws, we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this current report.  

 

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

 

The following discussion and analysis of the results of operations and financial condition of KULR for the three months ended March 31, 2017 and 2016 and for the years ended December 31, 2016 and 2015 should be read in conjunction with KULR’s financial statements and the notes to those financial statements that are included as Exhibits 99.1 and 99.2 to this Current Report on Form 8-K. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) to “us,” “we,” “our,” and similar terms refer to KULR. This discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Words such as “anticipate,” “estimate,” “plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions are used to identify forward-looking statements.

 

Overview

 

We are primarily focused on commercializing our thermal management technologies in the high value, high-performance consumer electronic and energy storage applications. We own proprietary carbon fiber based (Carbon Fiber Velvet or “CFV”) thermal management solutions that we believe are more effective at storing, conducting, and dissipating waste heat generated by an electronic system’s internal components (i.e. semiconductor, integrated circuits “chips”) in comparison to traditional materials, such as copper and aluminum.

 

Our technologies can be applied inside a wide array of electronic applications, such as mobile devices, cloud computing, virtual reality platforms, satellites, internet of things, drones, and connected cars.

 

In addition to thermal management of electronic systems, we have developed a highly effective, passive energy storage solution for lithium ion batteries that has been tested and endorsed by the National Aeronautics and Space Administration (“NASA”).

 

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Results of Operations

 

The following table presents selected items in our statements of operations for the three months ended March 31, 2017 and 2016 and for the years ended December 31, 2016 and 2015:

 

    For The Three Months Ended     For The Years Ended  
    March 31,     December 31,  
    2017     2016     2016     2015  
    (unaudited)     (unaudited)              
Selected Statement of Operations Data:                                
                                 
Revenues   $ -     $ 3,300     $ 6,900     $ 3,300  
Cost of revenues     -       2,583       7,749       2,583  
Gross Profit (Loss)     -       717       (849 )     717  
Operating Expenses:                                
Research and development     13,180       -       29,404       3,640  
Research and development - related party     131,115       109,379       395,322       379,481  
General and administrative     81,744       90,296       398,130       291,473  
Total Operating Expenses     226,039       199,675       822,856       674,594  
Loss From Operations     (226,039 )     (198,958 )     (823,705 )     (673,877 )
Total Other (Expense) Income     (1,585 )     5       2,177       114  
Income tax expense     200       200       800       800  
Net Loss   $ (227,824 )   $ (199,153 )   $ (822,328 )   $ (674,563 )

 

Revenues

 

Revenues consisted of sales of our CFV thermal management solution.

 

For the three months ended March 31, 2017, we did not generate any revenue. For the three months ended March 31, 2016, we generated $3,300 of revenues.

 

For the year ended December 31, 2016, we generated revenues of $6,900, an increase of $3,600, or 109%, as compared to $3,300 in 2015.

 

Cost of Revenues

 

Cost of revenues consisted of the cost of our CFV thermal management solution.

 

For the three months ended March 31, 2017, there were no cost of revenues. For the three months ended March 31, 2016, cost of revenues was $2,583.

 

For the year ended December 31, 2016, cost of revenues was $7,749, an increase of $5,166, or 200%, as compared to $2,583 in 2015.

 

Research and Development

 

Research and development includes expenses incurred in connection with the research and development of our CFV thermal management solution. Research and development expenses are expensed as they are incurred.

 

For the three months ended March 31, 2017, research and development expenses increased to $13,180 from $0 in the comparable 2016 period. The increase is primarily attributable to $12,500 included in the three months ended March 31, 2017 associated with a research consulting agreement which commenced in June 2016.

 

For the year ended December 31, 2016, research and development expenses increased by $25,764, or 708%, to $29,404 from $3,640 for the year ended December 31, 2015. The increase is primarily attributable to $27,083 included in 2016 associated with a research consulting agreement which commenced in June 2016.

 

We expect that our research and development expenses will continue to increase.

 

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Research and Development – Related Parties

 

Research and development – related parties includes expenses associated with the development of our CFV thermal management solutions provided by ESLI and our Chief Technology Officer. Research and development – related parties expenses are expensed as they are incurred.

 

For the three months ended March 31, 2017, research and development – related parties increased by $21,736, or 20%, to $131,115 from $109,379 in the comparable 2016 period. The increase is due to an increase in the amount of work provided by ESLI during the 2017 period.

 

For the year ended December 31, 2016, research and development – related parties increased by $15,841, or 4%, to $395,322 from $379,481 for the year ended December 31, 2015. The increase is due to a slight increase in the amount of work provided by ESLI during 2016.

 

General and Administrative

 

General and administrative expenses consist primarily of our Chief Executive Officer’s (“CEO”) salary, payroll taxes and other benefits, legal and professional fees, stock-based compensation, marketing, travel, rent and office expenses.

 

For the three months ended March 31, 2017, general and administrative expenses decreased by $8,552, or 9%, to $81,744 from $90,296 in the comparable 2016 period. The decrease was primarily attributable to approximately $20,000 of additional costs in the three months ended March 31, 2016 associated with travel and marketing and approximately $13,000 of additional rent expense in the three months ended March 31, 2016 due to the termination of our lease, partially offset by approximately $19,000 of additional legal and professional fees during the 2017 period associated with the preparation and audit of our financial statements and other corporate legal matters as well as approximately $5,000 of additional non-cash stock-based compensation expense related to non-employees.

 

For the year ended December 31, 2016, general and administrative expenses increased by $106,657, or 37%, to $398,130 from $291,473 for the year ended December 31, 2015. The increase was primarily attributable to approximately $52,000 of additional legal and professional fees during 2016 associated with the preparation and audit of our financial statements and other corporate legal matters, approximately $25,000 of costs associated with marketing the business (including travel, marketing, meals and entertainment) and approximately $22,000 of office repairs and maintenance expense in 2016.

 

Interest Income

 

Interest income consists of income generated from our loan receivable from our CEO as well as interest earned from our savings bank account.

 

For the three months ended March 31, 2017, interest income increased by $729 to $734 from $5 in the comparable 2016 period. The increase was primarily attributable to interest generated from our loan receivable from our CEO.

 

For the year ended December 31, 2016, interest income increased by $2,063 to $2,177 from $114 for the year ended December 31, 2015. The increase was primarily attributable to interest generated from our loan receivable from our CEO.

 

Interest Expense

 

Interest expense is related to our note payable to KT High-Tech.

 

For the three months ended March 31, 2017, interest expense was $2,319. There was no interest expense during the three months ended March 31, 2016.

 

There was no interest expense during the years ended December 31, 2016 or 2015.

 

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Liquidity and Capital Resources

 

Operating Activities

 

For the three months ended March 31, 2017 and 2016, we used cash of $158,913 and $93,127, respectively, in operations. Our cash used for the three months ended March 31, 2017 was primarily attributable to our net loss of $227,824, adjusted for net non-cash expense in the aggregate amount of $12,164, partially offset by $56,747 of net cash provided by changes in the levels of operating assets and liabilities. Our cash used for the three months ended March 31, 2016 was primarily attributable to our net loss of $199,153, adjusted for net non-cash expense in the aggregate amount of $7,663, partially offset by $98,363 of net cash provided by changes in the levels of operating assets and liabilities.

 

For the years ended December 31, 2016 and 2015, we used cash of $594,666 and $510,590, respectively, in operations. Our cash used for the year ended December 31, 2016 was primarily attributable to our net loss of $822,328, adjusted for net non-cash expense in the aggregate amount of $36,571, partially offset by $191,091 of net cash provided by changes in the levels of operating assets and liabilities. Our cash used for the year ended December 31, 2015 was primarily attributable to our net loss of $674,563, adjusted for net non-cash expense in the aggregate amount of $30,590, partially offset by $133,383 of net cash provided by changes in the levels of operating assets and liabilities.

 

Investing Activities

 

For the three months ended March 31, 2017 and 2016, we did not have cash flows from investing activities.

 

Net cash used in investing activities for the year ended December 31, 2016 was $85,000 which related to a loan to our CEO. There were no cash flows from investing activities for the year ended December 31, 2015.

 

Financing Activities

 

Net cash provided by financing activities for the three months ended March 31, 2017 was $200,000 which was related to a loan we received from KT High-Tech. There were no cash flows from financing activities for the three months ended March 31, 2016.

 

Net cash provided by financing activities for the year ended December 31, 2016 was $550,000 which was related to the issuance of an aggregate of 1,833,334 shares of Series A1 convertible preferred stock to investors. There were no cash flows from financing activities for the year ended December 31, 2015.

 

Summary

 

As of March 31, 2017, we had a cash balance, a working capital deficiency and an accumulated deficit of $50,174, $483,283 and $2,161,634, respectively. During the three months ended March 31, 2017, we incurred a net loss of $227,824. During the years ended December 31, 2016 and 2015, we incurred net losses of $822,328 and $674,563, respectively.

 

Subsequent to March 31, 2017, we received an aggregate of $600,000 associated with the issuance of promissory notes to KT High-Tech. In addition, we closed on the share exchange agreement with KT High-Tech. As a result of the subsequent financing and the closing of the share exchange agreement, we believe we have sufficient cash to sustain our operations for at least a year from the date of this filing.

 

Recent Developments

 

Promissory Notes

 

On March 31, 2017, we issued to KT High-Tech a promissory note in the principal amount of $300,000. The note carries an interest rate equal to 8% per annum and accrued interest and principal are due and payable on March 31, 2018. We received $200,000 during the three months ended March 31, 2017 and the remaining $100,000 on April 25, 2017.

 

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On June 8, 2017, we issued to KT High-Tech a promissory note in the principal amount of $500,000 (paid in cash immediately). The note carries an interest rate equal to 8% per annum and accrued interest and principal are due and payable on March 31, 2018.

 

Share Exchange Agreement

 

On June 19, 2017 (the “Closing Date”), KT High-Tech closed a share exchange agreement (the “Share Exchange Agreement”) with KULR and 100% of the shareholders of KULR (the “KULR Shareholders”) whereby KULR Shareholders, holding all of the 25,000,000 common stock or common stock equivalents issued and outstanding of KULR, transferred those shares of KULR to KT High-Tech in exchange for an aggregate of 50,000,000 newly issued shares of common stock, par value $0.0001 per share, of KT High-Tech (the “KT High-Tech Common Stock”). The aggregate of 50,000,000 newly issued KT High-Tech Common Stock represents approximately 64.57% of the outstanding shares of common stock of KT High-Tech following the Closing Date. Upon the closing of the Share Exchange Agreement, KULR became a wholly owned subsidiary of KT High-Tech. Accordingly, KT High-Tech, through its subsidiary KULR, will primarily focus its operations on KULR’s thermal management business. In addition, KT High-Tech plans to continue to develop opportunities in marketing and distributing products targeted at the internet of things (IoT), mobile and energy storage industries.

 

Critical Accounting Policies

 

Use of Estimates

 

Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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. Our significant estimates used in these financial statements include, but are not limited to, stock-based compensation, the collectability of receivables, inventory valuations, the recoverability and useful lives of long-lived assets and the valuation allowance related to our deferred tax assets. Certain of our estimates could be affected by external conditions, including those unique to us and general economic conditions. It is reasonably possible that these external factors could have an effect on our estimates and could cause actual results to differ from those estimates.

 

Inventory

 

Inventory is comprised of CFV thermal management solutions which are available for sale. Inventories are stated at the lower of cost and net realizable value. Cost is determined by the first-in, first-out method. Inventory that is sold to third parties is included within cost of sales and inventory that is given as samples is included within operating expenses. We periodically review for slow-moving, excess or obsolete inventories. Products that are determined to be obsolete, if any, are written down to net realizable value. As of December 31, 2016 and 2015, our inventory was comprised solely of finished goods.

 

Convertible Instruments

 

We evaluate our convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with Topic 815 of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”). The accounting treatment of derivative financial instruments requires that we record embedded conversion options and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. We reassess the classification of our derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. Embedded conversion options and any related freestanding instruments are recorded as a discount to the host instrument.

 

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Fair Value of Financial Instruments

 

We measure the fair value of financial assets and liabilities based on the guidance of 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 our financial instruments, such as cash, accounts receivable and accrued expenses and other current liabilities approximate fair values due to the short-term nature of these instruments. The carrying amounts of our short–term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates, are comparable to rates of returns for instruments of similar credit risk.

 

Revenue Recognition

 

We recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. Sales are recognized upon shipment to the customer, free on board shipping point, or the point of customer acceptance.

 

During the years ended December 31, 2016 and 2015, we recognized $6,900 and $3,300, respectively, of revenue related to the sale of CFV thermal management solutions.

 

Stock-Based Compensation

 

We measure the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. 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. The fair value of our restricted equity instruments was estimated by management based on observations of the cash sales prices of both restricted shares and freely tradable shares. Awards granted to directors are treated on the same basis as awards granted to employees. Upon the exercise of an option or warrant, we issue new shares of common stock out of our authorized shares.

 

Income Taxes

 

We recognize 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.

 

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

 

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Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in our financial statements as of December 31, 2016 and 2015. We do not expect any significant changes in our unrecognized tax benefits within twelve months of the reporting date.

 

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

 

Off Balance Sheet Arrangements

 

We do not have any off balance sheet arrangements.

 

Recently Issued Accounting Standards

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ASC 605 - Revenue Recognition and most industry-specific guidance throughout the ASC. The standard requires that an entity recognizes 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. ASU 2014-09 should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. To allow entities additional time to implement systems, gather data and resolve implementation questions, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, in August 2015, to defer the effective date of ASU No. 2014-09 for one year, which is fiscal years beginning after December 15, 2017. We are currently evaluating the impact that the of adoption of this standard will have on our financial statements.

 

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 explicitly requires management to evaluate, at each annual or interim reporting period, whether there are conditions or events that exist which raise substantial doubt about an entity’s ability to continue as a going concern and to provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and annual and interim periods thereafter, with early adoption permitted. We adopted this standard effective January 1, 2015 and its adoption did not have a material impact on our financial statements.

 

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” (“ASU 2015-11”). ASU 2015-11 amends the existing guidance to require that inventory should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out or the retail inventory method. For public business entities, ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. ASU 2015-11 should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We adopted this standard effective January 1, 2015 and its adoption did not have a material impact on our financial statements.

 

In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”, or ASU 2015-17. The FASB issued ASU 2015-17 as part of its ongoing Simplification Initiative, with the objective of reducing complexity in accounting standards. The amendments in ASU 2015-17 require entities that present a classified balance sheet to classify all deferred tax liabilities and assets as a noncurrent amount. This guidance does not change the offsetting requirements for deferred tax liabilities and assets, which results in the presentation of one amount on the balance sheet. Additionally, the amendments in ASU 2015-17 align the deferred income tax presentation with the requirements in International Accounting Standards (IAS) 1, Presentation of Financial Statements.  The amendments in ASU 2015-17 are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company does not anticipate that the adoption of this standard will have a material impact on its financial statements.

 

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In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”), which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective beginning in the first quarter of 2019. Early adoption of ASU 2016-02 is permitted. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are currently evaluating the impact that the of adoption of this standard will have on our financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718)” (“ASU 2016-09”). ASU 2016-09 requires an entity to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. We adopted this standard effective January 1, 2015 and its adoption did not have a material impact on our financial statements.

 

In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”). The amendments in this update clarify the following two aspects to Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The entity first identifies the promised goods or services in the contract and reduces the cost and complexity. An entity evaluates whether promised goods and services are distinct. Topic 606 includes implementation guidance on determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). ASU 2016-10 is effective for fiscal years beginning after December 15, 2017, including interim reporting periods within that reporting period. We are currently evaluating the impact that the of adoption of this standard will have on our financial statements.

 

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). The new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017. The Company will require adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable. We are currently evaluating the impact that the of adoption of this standard will have on our financial statements.

 

In October 2016, the FASB issued ASU No. 2016-17, “Consolidation (Topic 810) – Interests Held through Related Parties That Are under Common Control” (“ASU 2016-17”). ASU 2016-17 requires, when assessing which party is the primary beneficiary in a VIE, that the decision maker considers interests held by entities under common control on a proportionate basis instead of treating those interests as if they were that of the decision maker itself, as current GAAP requires. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2016. Early application is permitted in any interim or annual period. We adopted this standard effective January 1, 2015 and its adoption did not have a material impact on our financial statements.

 

In May 2017, the FASB issued ASU 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting" ("ASU 2017-09"), which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The standard is effective for annual periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. We do not expect the adoption of ASU 2017-07 will have a material impact on our financial statements.

 

Item 3. Properties.

 

Our principal executive office is located 14440 Big Basin Way, #12, Saratoga, CA 95070, and the telephone number at such address is 408-663-5247. KULR’s corporate headquarter is located at 1999 S. Bascom Ave., Suite 700, Campbell, CA 95008, and the telephone number at such address is 408-675-7002.

 

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Item 4.  Security Ownership of Certain Beneficial Owner and Management.

 

The following table sets forth certain information, as of the date of filing of this report, with respect to the beneficial ownership of the outstanding common stock by (i) any holder of more than five (5%) percent; (ii) each of the Company’s executive officers and directors; and (iii) the Company’s directors and executive officers as a group. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially owned.

 

The address for each Beneficial Owner named is the address of the Company’s principal executive office.

 

Name of Beneficial Owner   Number of Common
Stock
Beneficially Owned
    Percentage of
Common Stock
Beneficially Owned
(1)
 
Directors and Officers:                
Michael Mo(2)     26,450,000       34.16 %
Dr. Timothy Knowles     15,600,000       20.14 %
George Henschke     10,000       *  
Michael Carpenter     500,000       *  
                 
All directors and executive officers as a group (4 persons)     42,560,000       54.96 %

*less than 1%

 

  (1) Based on 77,440,000 shares issued and outstanding.
  (2) Consists of: 20,000,000 shares held directly by Mr. Mo; 2,525,000 shares held by Mr. Mo’s son Alexander Mo; 2,525,000 shares held by Mr. Mo’s son Brandon Mo; and 1,400,000 shares held jointly by Mr. Mo and his spouse, Linda Mo.  

 

Item 5. Directors and Executive Officers.

 

Below are the names and certain information regarding the Company’s executive officers and directors following the acquisition of KULR:

 

Name   Age   Position
Michael Mo   46   Chairman of the Board and Chief Executive Officer
Dr. Timothy Knowles   70   Director, Chief Technical Officer and Secretary
George Henschke   55   Treasurer and Interim Principal Financial Officer
Michael Carpenter   53   Vice President of Engineering

 

Michael Mo , CEO and Director of the Company, is a technology entrepreneur and successful investor with over 20 years of experience in technology management, product development and marketing. In 2013, he co-founded KULR and has been serving as its CEO since then. From 2007 to 2015, Mr. Mo served as Senior Director of Business Development at Amlogic, Inc., a California high-tech company. In 2005, Mr. Mo founded Sympeer Technology and served as its CEO until 2008. In 1998, he founded Wish Solutions, and served as its CEO until 2001. Mr. Mo received his Master of Science in Electrical Engineering from the University of California at Santa Barbara in 1995.

 

Timothy R. Knowles , CTO and Director of the Company, has over 30 Years of Thermal Management R&D and product development experience for the most challenging space and industrial applications. He conducted research and built building products for various space and industrial customers such as NASA, Boeing, Raytheon, Jet Propulsion Lab, and others. Since 1983, Dr. Knowles has been working as President at ELSI. In addition, in 2013, Dr. Knowles co-founded KULR and has been serving as it CTO since then. From 1977 to 1983, he was a postdoctoral research physicist at Hamburg University. Mr. Knowles received Ph.D. in Physics from University of California San Diego in 1977 and B.S. in Physics from University of Southern California in 1969.

 

George E. Henschke serves as Treasurer and Interim Principal Financial Officer of the Company. From January 2009 to June 2017, Mr. Henschke served as Controller of Energy Science Laboratories, Inc. and from 1997 to 2003, he served as its Chief Financial Officer, Vice President of Finance and Director. Mr. Henschke has also served as Vice President of Administration of Space Micro, Inc. and as Analytic Science Manager of Fair Isaac Corporation (now FICO). Mr. Henschke received his B.S. in Mechanical & Aerospace Engineering from Princeton University in 1984.

 

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Michael G. Carpenter serves as KULR’s Vice President of Engineering. Mr. Carpenter has been employed by ESLI since December 1983, serving as Director of the PCM Heatsink Group, Quality Manager, Facility Security Officer (FSO) in the Defense Industrial Security Program from 1988 to 1995. He also has been served as Safety Officer since he joined ESLI in 1983. Mr. Carpenter received his B.S. in Applied Mechanics from the University of California, San Diego in 1983.

 

The Company’s directors are elected at the annual meeting of shareholders to hold office until the annual meeting of shareholders for the ensuing year or until their successors have been duly elected and qualified. Officers are elected annually by the Board of Directors and serve at the discretion of the Board.

 

Board Leadership Structure and Role in Risk Oversight

  

Our Board of Directors (“Board”) is primarily responsible for overseeing our risk management processes on behalf of the Company.  The Board receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. In addition, the Board focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our Company are consistent with the board’s appetite for risk. While the Board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our board leadership structure supports this approach.

 

Involvement in Certain Legal Proceedings

 

To our knowledge, our directors and executive officers have not been involved in any of the following events during the past ten years:

 

  1. any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
     
  2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
     
  3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities; 
     
  4. being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
     
  5. being subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
     
  6. being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

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Code of Ethics

 

We have not adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions because of the small number of persons involved in the management of the Company.

 

Item 6.  Executive Compensation.

 

The following table sets forth all compensation paid in respect of the Company’s principal executive officer (“PEO”) and the two (2) most highly compensated executive officers other than the PEO who received compensation in excess of $100,000 per year for 2016 and 2015.

 

Summary Compensation Table

 

Name and                     Stock     Option     All Other        
Principal Position   Year     Salary     Bonus     Awards     Awards     Compensation     Total  
Michael Mo     2016     $ 78,000     $ -     $ -     $ -     $ -     $ 78,000  
Chief Executive Officer     2015     $ 78,000     $ -     $ -     $ -     $ -     $ 78,000  
Timothy Knowles (1)     2016     $ 78,000     $ -     $ -     $ -     $ -     $ 78,000  
Chief Technical Officer     2015     $ 78,000     $ -     $ -     $ -     $ -     $ 78,000  

 

(1) Dr. Timothy Knowles, co-founder and Chief Technology Officer of KULR and newly-appointed Chief Technology Officer of the Company, through Energy Science Laboratories, Inc., an entity owned and managed by Dr. Knowles, is party to a license and development agreement and consulting agreement with KULR pursuant to which Dr. Knowles received direct and indirect compensation. See section entitled “Certain Relationships and Related Transactions.”

 

Outstanding Equity Awards at Fiscal Year-End

 

The Company had no outstanding equity awards or equity compensation plan as of June 19, 2017.

 

Director Compensation

 

No director of the Company received any compensation for services as director during its last fiscal year..

 

Risk Management

 

The Company does not believe risks arising from its compensation policies and practices for its employees are reasonably likely to have a material adverse effect on the Company.

   

Compensation Committee Interlocks and Insider Participation

 

Currently, the Board of Directors does not have any standing audit, nominating or compensation committees, or committees performing similar functions. The directors collectively perform the duties of an audit committee and nominating committee, which prior to the Acquisition were performed by the Company’s sole Director.

 

Item 7.  Certain Relationships and Related Transactions, and Director Independence

 

Certain Relationships and Related Transactions

 

During the 2013 fiscal year, KULR issued 10,000,000 founder shares of its common stock to Michael Mo of which 3,333,334 shares were subsequently surrendered for cancellation and 6,666,666 were subsequently gifted to various friends and family, including 500,000 to his mother, Baoci Mo, 250,000 to his sister, Mary Mo, and 1,000,000 shares each to his sons, Brandon Mo and Alexander Mo. In connection with the Share Exchange all 6,666,666 shares were exchange for 13,333,332 shares of Company Common Stock.

 

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During the 2013 fiscal year, KULR issued 10,000,000 founder shares of its common stock to Timothy Knowles of which 2,200,000 were subsequently gifted to various friends and family. In connection with the Share Exchange all 10,000,000 shares were exchange for 20,000,000 shares of Company Common Stock.

 

On April 15, 2013, KULR entered into a license and development agreement with Energy Science Laboratories, Inc., pursuant to which ESLI agreed to license its existing thermal technologies to KULR in exchange for a significant stake in KULR. On the same date, KULR also entered into a consulting agreement with ESLI, pursuant to which ESLI agreed to perform consulting services for KULR and KULR agreed to pay ESLI for such services at a rate as agreed by the parties from time to time. In addition, on November 10, 2016, ESLI executed a patent assignment agreement to assign certain patents to KULR. Dr. Timothy R. Knowles, the Company’s Chief Technical Officer, Secretary and member of the Company’s Board of Directors, is the President and majority owner of ESLI. Pursuant to the Consulting Agreement, KULR paid ESLI an aggregate of $301,481 in the fiscal year 2015; $317,322 in the fiscal year 2016; and $111,615 in the quarter ended March 31, 2017.

 

The foregoing description of the agreements between KULR and ESLI are not complete and each of them is qualified in its entirety by reference to the license and development agreement, the license and development agreement and the patent assignment agreement, which are filed as exhibits to this report.

 

During the 2014 fiscal year, KULR issued and sold 5,000,000 shares of its Series A Preferred Stock to nine investors and received gross proceeds of $1,000,000. Our Chief Executive Officer, Michael Mo, and his spouse, Linda Mo, jointly invested $140,000 and his sons, Brandon Mo and Alexander Mo, invested $50,000 each for the purchase of an aggregate of 1,200,000 shares of KULR’s Series A Preferred Stock, which shares were subsequently converted into common stock of KULR and exchanged for an aggregate of 2,400,000 shares of Company Common Stock in connection with the Share Exchange.

 

During the 2016 fiscal year, KULR issued and sold 1,333,334 shares of its Series A1 Preferred Stock to two investors and received gross proceeds of $400,000. Our Chief Executive Officer’s sister, Mary Mo, invested $100,000 for the purchase of 333,334 shares of KULR’s Series A1 Preferred Stock, which shares were subsequently converted into common stock of KULR and exchanged for an aggregate of 666,668 shares of Company Common Stock in connection with the Share Exchange.

 

Director Independence

 

None of our directors is independent as that term is defined under the Nasdaq Marketplace Rules.

 

Item 8.  Legal Proceedings

 

We are not party to any legal proceedings.

 

Item 9.  Market Price of and Dividends on Common Equity and Related Stockholder Matters

 

The Company’s common stock is not traded or quoted on any exchange or quotation system. The Company plans to apply for a trading symbol. However, no assurances can be made that it will successfully obtain a trading symbol or that, if obtained, there will be active trading of the Company’s common stock.

 

Our transfer agent is Island Stock Transfer, 15500 Roosevelt Boulevard, Suite 301, Clearwater, Florida 33760.

 

As of June 19, 2017, there were approximately 110 holders of record of the Company’s common stock.

  

As of June 19, 2017, there were: (i) 0 shares of common stock subject to outstanding warrants to purchase, or securities convertible into, common stock; (ii) 0 shares of common stock can be sold pursuant to Rule 144 under the Securities Act; (iii) 3,000,000 shares of common stock were publicly offered by the Company; and (iv) 800,000 share of common stock subject to public resale by certain shareholders of the Company.

 

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Dividends

 

The Company has never declared or paid any cash dividends on its common stock. The Company currently intends to retain future earnings, if any, to finance the expansion of its business. As a result, the Company does not anticipate paying any cash dividends in the foreseeable future.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

As of the date of the filing of this report, the Company does not have any equity compensation plan.

 

Item 10.  Recent Sales of Unregistered Securities

 

During the 2013 fiscal year, KULR issued 10,000,000 shares of its common stock to Michael Mo of which 3,333,334 shares were subsequently surrendered for cancellation and 6,666,666 were subsequently gifted to various friends and family, including 500,000 to his mother, Baoci Mo, 250,000 to his sister, Mary Mo, and 1,000,000 shares each to his sons, Brandon Mo and Alexander Mo. In connection with the Share Exchange all 6,666,666 shares were exchange for 13,333,332 shares of Company Common Stock.

 

During the 2013 fiscal year, KULR issued 10,000,000 shares of its common stock to Timothy Knowles of which 2,200,000 were subsequently gifted to various friends and family. In connection with the Share Exchange all 10,000,000 shares were exchange for 20,000,000 shares of Company Common Stock.

 

During the 2014 fiscal year, KULR issued 1,500,000 shares of its common stock to three consultants. In connection with the Share Exchange all 1,500,000 shares were exchange for 3,000,000 shares of Company Common Stock.

 

During the 2014 fiscal year, KULR issued and sold 5,000,000 shares of its Series A Preferred Stock to nine investors and received gross proceeds of $1,000,000. Our Chief Executive Officer, Michael Mo, and his spouse, Linda Mo, jointly invested $140,000 and his sons, Brandon Mo and Alexander Mo, invested $50,000 each for the purchase of an aggregate of 1,200,000 shares of KULR’s Series A Preferred Stock. Subsequently all 5,000,000 shares of KULR’s Series A Preferred Stock were converted into 5,000,000 of its common stock. In connection with the Share Exchange all 5,000,000 shares were exchange for 10,000,000 shares of Company Common Stock.

 

During the 2016 fiscal year, KULR issued and sold 1,333,334 shares of its Series A1 Preferred Stock to two investors and received gross proceeds of $400,000. Our Chief Executive Officer’s sister, Mary Mo, invested $100,000 for the purchase of 333,334 shares of KULR’s Series A1 Preferred Stock. Subsequently all 1,333,334 shares of KULR’s Series A1 Preferred Stock were converted into 1,333,334 of its common stock. In connection with the Share Exchange all 1,333,334 shares were exchange for 2,666,668 shares of Company Common Stock.

 

During the 2016 fiscal year, KULR issued 500,000 shares of its Series A1 Preferred Stock to one consultant in lieu of cash payment for services rendered in aggregate value of $150,000. Subsequently all 500,000 shares of KULR’s Series A1 Preferred Stock were converted into 500,000 of its common stock. In connection with the Share Exchange all 500,000 shares were exchange for 1,000,000 shares of Company Common Stock.

 

The transactions described above were exempt from securities registration provided by Section 4(a)(2) of the Securities Act and or Rule 506 as promulgated under the Securities Act for transactions not involving a public offering.

 

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Item 11.  Description of Registrant’s Securities to be Registered.

 

General

 

The Company is authorized to issue 100,000,000 shares of common stock, par value $0.0001, of which 77,440,000 shares are outstanding as of the date of this report. The Company is also authorized to issue 20,000,000 shares of preferred stock, par value $0.0001, of which 1,000,000 are designated Series A Voting Preferred Stock and no shares of Series A Voting Preferred Stock were outstanding as of the date of this report.

  

Common Stock

  

Holders of shares of our common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock do not have cumulative voting rights.

 

Subject to preferences that may be applicable to any outstanding shares of preferred stock, the holders of common stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the board of directors in its discretion from funds legally available therefor.

 

Holders of common stock have no preemptive rights to purchase the Company’s common stock. There are no conversion or redemption rights or sinking fund provisions with respect to the common stock. The Company may issue additional shares of common stock which could dilute its current shareholder's share value.

 

Preferred Stock

 

Shares of preferred stock may be issued from time to time in one or more series as may be determined by the board of directors. The board of directors may fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof without any further vote or action by the stockholders of the Company, except that no holder of preferred stock shall have preemptive rights. Any future issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of the Company without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock.

 

As of the date of this report, we had no shares of Series A Voting Preferred Stock issued and outstanding. The Series A Voting Preferred Stock are not convertible into any series or class of stock of the Company. In addition, holders of the Series A Voting Preferred Stock shall not be entitled to receive dividends, nor shall them have right to distribution from the assets of the Company in the event of any liquidation, dissolution, or winding up of the Company.

 

Each record holder of Series A Voting Preferred Stock 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 (1) class. Each record holder of Series A Voting Preferred Stock has that number of votes equal to one-hundred (100) votes per share of Series A Voting Preferred Stock held by such holder.

 

The record holders of the Series A Voting Preferred Stock are entitled to the same notice of any regular or special meeting of the shareholders as may or shall be given to holders of common stock entitled to vote at such meetings. No corporate actions requiring majority shareholder approval or consent may be submitted to a vote of common stock which in any way precludes the Series A Voting Preferred Stock from exercising its voting or consent rights as though it is or was a common stock holder.

 

For purposes of determining a quorum for any regular or special meeting of the shareholders, the voting rights of all outstanding shares of Series A Voting Preferred Stock shall be included with all shares of common stock represented at and entitled to vote at such meetings.

 

Item 12.  Indemnification of Directors and Officers

 

Delaware law authorizes a corporation to limit or eliminate the personal liability of its directors for monetary damages for breach of a director's fiduciary duty of care. Delaware law further enables corporations to limit available relief to equitable remedies such as injunction or rescission. Absent the limitations authorized by Delaware law, directors are accountable for monetary damages for conduct constituting gross negligence in the exercise of their duty of care. The Company’s Bylaws limit the liability of its officers, directors, employees and agents to the fullest extent permitted by Delaware law. Accordingly, the Company's officers, directors, employees and agents will not be personally liable to the Company or its stockholders for monetary damages for breach of a fiduciary duty as a director, except for liability for breach of the duty of loyalty, for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the General Corporation Law of the State of Delaware or for any transaction in which a director has derived an improper personal benefit.

 

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The Company’s Certificate of Formation requires it to indemnify to the fullest extent permitted by Delaware law such person who is or was a director, officer, employee or agent of the Company, or is serving as a director, officer, employee or agent of another enterprise at the Company's request (each a “Person” and collectively the “Persons”). In case of a suit by or in the right of the Company against a Person, the Company shall indemnify such Person for expenses (including attorney's fees) actually and reasonably incurred by him in connection with the defense or settlement of the suit if he is successful on the merits or otherwise, or he acted in good faith in the transaction which is the subject of the suit, and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company. However, he shall not be indemnified in respect of any claim, issue or matter as to which he has been adjudged liable for negligence or misconduct in the performance of his duty to the Company unless (and only to the extent that) the court in which the suit was brought shall determine, upon application, that despite the adjudication but in view of all the circumstances, he is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. In case of a suit, action or proceeding (whether civil, criminal, administrative or investigative), other than a suit by or in the right of the Company against a Person by reason of his holding a position as a director, officer, employee or agent of the Company, the Company shall indemnify him for amounts actually and reasonably incurred by him in connection with the defense or settlement of the suit as expenses (including attorneys' fees), amounts paid in settlement, judgments, and fines if he is successful on the merits or otherwise, or he acted in good faith in the transaction which is the subject of the non-derivative suit, and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and , with respect to any criminal action or proceeding, he had no reason to believe his conduct was unlawful.

 

Item 13.  Financial Statements and Supplementary Data

 

KTHT filed a Form 10-K for fiscal year end 2016 on March 30, 2017, which is incorporated herein by reference.

 

The financial statements of KULR are included as Exhibits 99.1 and 99.2.

 

Item 14.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 15. Exhibits.

 

See Item 9.01 of this Current Report on Form 8-K.

 

Item 3.02            Unregistered Sales of Equity Securities.

 

See Items 1.01 and 2.01 of this Current Report on Form 8-K.

 

Item 4.01            Change in Registrant’s Certifying Accountant.

 

Effective June 19, 2017, the Board of Directors of the Company dismissed KCCW Accountancy Corp. (“KCCW”) as its independent registered accountant and engaged Chen & Fan Accountancy Corporation (“Chen & Fan”) to serve as its independent registered accounting firm. KCCW’s audit reports on the Company’s financial statements for the fiscal years ended December 31, 2016 and 2015 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the years ended December 31, 2016 and 2015 and during the subsequent interim period preceding the date of KCCW’s dismissal, there were (i) no disagreements with KCCW on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, and (ii) no reportable events (as that term is defined in Item 304(a)(1)(v) of Regulation S-K). Prior to engaging Chen & Fan, the Company did not consult with Chen & Fan regarding the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on the Company’s financial statements.

 

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The Company has requested KCCW to furnish it with a letter addressed to the SEC stating whether it agrees with the statements made above by the Company. The Company has filed this letter as an exhibit to this report. 

  

Item 5.01            Changes in Control of Registrant.

 

See Item 2.01 of this Current Report on Form 8-K.

 

Item 5.02            Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

 

See Item 1.01 of this Current Report on Form 8-K.

   

Item 5.06            Change in Shell Company Status.

 

See Items 1.01 and 2.01 of this Current Report on Form 8-K.

     

Item 9.01            Financial Statements and Exhibits.

 

(a)  Financial statements of KULR are included as Exhibits 99.1 and 99.2.

 

The audited financial statements of KULR for the years ended December 31, 2016 and 2015, together with the report of Chen & Fan Accountancy Corporation with respect thereto, are included as Exhibit 99.1 and are incorporated by reference herein.

 

The unaudited condensed financial statements of KULR for the three months ended March 31, 2017 and 2016 are included as Exhibit 99.2 and are incorporated by reference herein.

 

(b) Pro forma financial information is included as Exhibit 99.3.

 

The unaudited pro forma condensed combined financial statements of the Company are included as Exhibit 99.3 hereto and are incorporated by reference herein. 

 

(c) Shell Company Transactions. See (a) and (b) of this Item 9.01.

 

(d) Exhibits

 

Exhibit Number   Description
2.1   Share Exchange Agreement, dated June 8, 2017 (1)
3.1   Certificate of Incorporation of KULR Technology Corporation
3.2   Amended and Restated Certificate of Incorporation of KULR Technology Corporation
3.3   By-laws of KULR Technology Corporation
10.1   Patent Assignment Agreement, dated November 10, 2016
10.2   License and Development Agreement, dated April 15, 2013
10.3   Consulting Agreement, dated April 15, 2013
10.4   Promissory Note issued by KULR Technology Corporation, dated June 8, 2017 (1)
10.5   Promissory Note issued by KULR Technology Corporation, dated March 31, 2017 (2)
16.1   Letter from KCCW Accountancy Corp.
21.1   List of subsidiaries
99.1   Audited financial statements of KULR for the years ended December 31, 2016 and 2015
99.2   Unaudited condensed financial statements of KULR for the three months ended March 31, 2017 and 2016

 

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99.3   Pro forma financial information

  

(1) Previously filed as an exhibit to Form 8-K on June 9, 2017 as exhibit number 10.1 and incorporated herein by this reference.
(2) Previously filed as an exhibit to Form 8-K on April 5, 2017 as exhibit number 99.1 and incorporated herein by this reference.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  KT HIGH-TECH MARKETING, INC.  
       
Dated: June 19, 2017 By: /s/ Michael Mo  
    Name: Michael Mo  
    Title: Chief Executive Officer  

 

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Exhibit 3.1

 

 

 

 

 

 

 

 

 

Exhibit 3.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 3.3

 

BYLAWS

 

of

 

KULR TECHNOLOGY CORPORATION

 

(the “Corporation”)

 

Article I - Stockholders

 

1.        Annual Meeting . The annual meeting of stockholders shall be held for the election of directors each year at such place, date and time as shall be designated by the Board of Directors. Any other proper business may be transacted at the annual meeting. If no date for the annual meeting is established or said meeting is not held on the date established as provided above, a special meeting in lieu thereof may be held or there may be action by written consent of the stockholders on matters to be voted on at the annual meeting, and such special meeting or written consent shall have for the purposes of these Bylaws or otherwise all the force and effect of an annual meeting.

 

2.        Special Meetings . Special meetings of stockholders may be called by the Chairman or Chief Executive Officer, if one is elected, or, if there is no Chairman or Chief Executive Officer, a President, or by the Board of Directors, but such special meetings may not be called by any other person or persons. The call for the meeting shall state the place, date, hour, and purposes of the meeting. Only the purposes specified in the notice of special meeting shall be considered or dealt with at such special meeting.

 

3.        Notice of Meetings . Whenever stockholders are required or permitted to take any action at a meeting, a notice stating the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present and vote at such meeting, and, in the case of a special meeting, the purpose or purposes of the meeting, shall be given by the Secretary (or other person authorized by these Bylaws or by law) not less than ten (10) nor more than sixty (60) days before the meeting to each stockholder entitled to vote thereat and to each stockholder who, under the Certificate of Incorporation or under these Bylaws is entitled to such notice. If mailed, notice is given when deposited in the mail, postage prepaid, directed to such stockholder at such stockholder’s address as it appears in the records of the Corporation. Without limiting the manner by which notice otherwise may be effectively given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law (the “DGCL”).

 

If a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place, if any, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken, except that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

 

 

 

 

4.        Quorum . The holders of a majority in interest of all stock issued (or as otherwise required under the Certificate of Incorporation then in effect), outstanding and entitled to vote at a meeting, present in person or represented by proxy, shall constitute a quorum. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present. The stockholders present at a duly constituted meeting may continue to transact business until adjournment notwithstanding the withdrawal of enough stockholders to reduce the voting shares below a quorum.

 

5.        Voting and Proxies . Except as otherwise provided by the Certificate of Incorporation or by law, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by either written proxy or by a transmission permitted by Section 212(c) of the DGCL, but no proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period or is irrevocable and coupled with an interest. Proxies shall be filed with the Secretary of the meeting, or of any adjournment thereof. Except as otherwise limited therein, proxies shall entitle the persons authorized thereby to vote at any adjournment of such meeting.

 

6.        Action at Meeting . When a quorum is present, any matter before the meeting shall be decided by vote of the holders of a majority of the shares of stock voting on such matter except where a larger vote is required by law, by the Certificate of Incorporation or by these Bylaws. Any election of directors by stockholders shall be determined by a plurality of the votes cast, except where a larger vote is required by law, by the Certificate of Incorporation or by these Bylaws. The Corporation shall not directly or indirectly vote any share of its own stock; provided, however, that the Corporation may vote shares which it holds in a fiduciary capacity to the extent permitted by law.

 

7.        Presiding Officer . Meetings of stockholders shall be presided over by the Chairman of the Board, if one is elected, or in his or her absence, the Vice Chairman of the Board, if one is elected, or if neither is elected or in their absence, the Chief Executive Officer or President. The Board of Directors shall have the authority to appoint a temporary presiding officer to serve at any meeting of the stockholders if the Chairman of the Board, the Vice Chairman of the Board or the President is unable to do so for any reason.

 

8.        Conduct of Meetings . The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the presiding officer of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the presiding officer of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the presiding officer of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

 

 

 

 

9.        Action without a Meeting . Unless otherwise provided in the Certificate of Incorporation, any action required or permitted by law to be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office, by hand or by certified mail, return receipt requested, or to the Corporation's principal place of business or to the officer of the Corporation having custody of the minute book. Every written consent shall bear the date of signature and no written consent shall be effective unless, within sixty (60) days of the earliest dated consent delivered pursuant to these Bylaws, written consents signed by a sufficient number of stockholders entitled to take action are delivered to the Corporation in the manner set forth in these Bylaws. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.

 

10.        Stockholder Lists . The officer who has charge of the stock ledger of the Corporation shall maintain a complete list of the stockholders, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Nothing contained in this Section 10 shall require the Corporation to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten (10) days prior to the meeting in the manner provided by law. The list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law.

 

Article II - Directors

 

1.        Powers . The business of the Corporation shall be managed by or under the direction of a Board of Directors who may exercise all the powers of the Corporation except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled and during such time, the Board of Directors should be deemed to be duly constituted not withstanding such vacancy.

 

2.        Number and Qualification . Unless the number of directors is otherwise specified in the Certificate of Incorporation: (i) the authorized number of directors of the corporation shall be not less than one (1) nor more than three (3) (which in no case shall be greater than two times the stated minimum minus one), and the exact number of directors shall be one (1) until changed, within the limits specified above, by a resolution amending such exact number, duly adopted by the Board or by the shareholders; and (ii) the minimum and maximum number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the Certificate of Incorporation or by an amendment to this Bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote.

 

 

 

 

No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires.

 

Directors need not be stockholders.

 

3.        Vacancies; Reduction of Board . A majority of the directors then in office, although less than a quorum, or a sole remaining Director, may fill vacancies in the Board of Directors occurring for any reason and newly created directorships resulting from any increase in the authorized number of directors. In lieu of filling any vacancy, the Board of Directors may reduce the number of directors.

 

4.        Tenure . Except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws, directors shall hold office until their successors are elected and qualified or until their earlier resignation or removal. Any director may resign at any time upon notice given in writing or by electronic transmission to the Corporation. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.

 

5.        Removal . To the extent permitted by law, a director may be removed from office with or without cause by vote of the holders of the requisite majority of the shares of stock entitled to vote in the election of directors, in the manner as set forth in the Certificate of Incorporation.

 

6.        Meetings . Regular meetings of the Board of Directors may be held without notice at such time, date and place as the Board of Directors may from time to time determine. Special meetings of the Board of Directors may be called, orally or in writing, by the Chairman or Chief Executive Officer, or, if there is no Chairman or Chief Executive Officer, the President, or by two or more Directors, designating the time, date and place thereof. Directors may participate in meetings of the Board of Directors by means of conference telephone or other communications equipment by means of which all directors participating in the meeting can hear each other, and participation in a meeting in accordance herewith shall constitute presence in person at such meeting.

 

7.        Notice of Meetings . Notice of the time, date and place of all special meetings of the Board of Directors shall be given to each director by the Secretary, or Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the officer or one of the directors calling the meeting. Notice shall be given to each director in person, by telephone or by facsimile, electronic mail or other form of electronic communications, sent to such director’s business or home address at least twenty-four (24) hours in advance of the meeting, or by written notice mailed to such director’s business or home address at least forty-eight (48) hours in advance of the meeting.

 

 

 

 

8.        Quorum . At any meeting of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business. Less than a quorum may adjourn any meeting from time to time and the meeting may be held as adjourned without further notice.

 

9.        Action at Meeting . At any meeting of the Board of Directors at which a quorum is present, unless otherwise provided in the following sentence, a majority of the directors present may take any action on behalf of the Board of Directors, unless a larger number is required by law, by the Certificate of Incorporation or by these Bylaws. So long as there are two (2) or fewer Directors, any action to be taken by the Board of Directors shall require the approval of all Directors.

 

10.        Action by Consent . Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the records of the meetings of the Board of Directors. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

 

11.        Committees . The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, establish one or more committees, each committee to consist of one or more directors. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

 

Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval or (ii) adopting, amending or repealing any provision of these Bylaws.

 

Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but in the absence of such rules its business shall be conducted so far as possible in the same manner as is provided in the Certificate of Incorporation or these Bylaws for the Board of Directors. All members of such committees shall hold their committee offices at the pleasure of the Board of Directors, and the Board may abolish any committee at any time.

 

 

 

 

Article III - Officers

 

1.        Enumeration . The officers of the Corporation may consist of a President, a Secretary, and such other officers, including, without limitation, a Chief Executive Officer, a Chief Financial Officer and one or more Vice Presidents (including Executive Vice Presidents, Vice President of Finance or Senior Vice Presidents), Assistant Vice Presidents, and Assistant Secretaries, as the Board of Directors may determine. The Board of Directors may elect from among its members a Chairman of the Board and a Vice Chairman of the Board.

 

2.        Election . The President, Chief Financial Officer and Secretary shall be elected annually by the Board of Directors at their first meeting following the annual meeting of stockholders. Other officers may be chosen by the Board of Directors at such meeting or at any other meeting.

 

3.        Qualification . No officer need be a stockholder or Director. Any two or more offices may be held by the same person. Any officer may be required by the Board of Directors to give bond for the faithful performance of such officer’s duties in such amount and with such sureties as the Board of Directors may determine.

 

4.        Tenure . Except as otherwise provided by the Certificate of Incorporation or by these Bylaws, each of the officers of the Corporation shall hold office until the first meeting of the Board of Directors following the next annual meeting of stockholders and until such officer’s successor is elected and qualified or until such officer’s earlier resignation or removal. Any officer may resign by delivering his or her written resignation to the Corporation, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.

 

5.        Removal . The Board of Directors may remove any officer with or without cause by a vote of a majority of the directors then in office.

 

6.        Vacancies . Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors.

 

7.        Chairman of the Board and Vice Chairman . Unless otherwise provided by the Board of Directors, the Chairman of the Board of Directors, if one is elected, shall preside, when present, at all meetings of the stockholders and the Board of Directors. The Chairman of the Board shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.

 

Unless otherwise provided by the Board of Directors, in the absence of the Chairman of the Board, the Vice Chairman of the Board, if one is elected, shall preside, when present, at all meetings of the stockholders and the Board of Directors. The Vice Chairman of the Board shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.

 

8.        Chief Executive Officer . The Chief Executive Officer, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

 

 

 

 

9.        President . The President shall, subject to the direction of the Board of Directors, have general supervision and control of the Corporation’s business. If there is no Chairman of the Board or Vice Chairman of the Board, the President shall preside, when present, at all meetings of stockholders and the Board of Directors. The President shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.

 

10.        Vice Presidents and Assistant Vice Presidents . Any Vice President (including any Executive Vice President or Senior Vice President) and any Assistant Vice President shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

 

11.        Chief Financial Officer and Vice President of Finance . The Chief Financial Officer shall, subject to the direction of the Board of Directors, have general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account. The Chief Financial Officer shall have custody of all funds, securities, and valuable documents of the Corporation, except as the Board of Directors may otherwise provide. The Chief Financial Officer shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.

 

Any Vice President of Finance shall have such powers and perform such duties as the Board of Directors may from time to time designate.

 

12.        Secretary and Assistant Secretaries . The Secretary shall record the proceedings of all meetings of the stockholders and the Board of Directors (including committees of the Board) in books kept for that purpose. In the absence of the Secretary from any such meeting an Assistant Secretary, or if such person is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. The Secretary shall have charge of the stock ledger (which may, however, be kept by any transfer or other agent of the Corporation) and shall have such other duties and powers as may be designated from time to time by the Board of Directors.

 

Any Assistant Secretary shall have such powers and perform such duties as the Board of Directors may from time to time designate.

 

13.        Other Powers and Duties . Subject to these Bylaws, each officer of the Corporation shall have in addition to the duties and powers specifically set forth in these Bylaws, such duties and powers as are customarily incident to such officer’s office, and such duties and powers as may be designated from time to time by the Board of Directors.

 

Article IV - Capital Stock

 

1.        Certificates of Stock . Each stockholder shall be entitled to a certificate of capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall be signed by the Chairman or Vice Chairman of the Board of Directors, if any, or the President or a Vice President, and by the Chief Financial Officer or the Vice President of Finance, or the Secretary or an Assistant Secretary. Such signatures may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law. Unless otherwise provided in the Certificate of Incorporation, the Corporation shall be permitted to issue fractional shares.

 

 

 

 

2.        Transfers . Unless otherwise authorized by the Board of Directors, (i) all shares of Common Stock or options to purchase Common Stock of the Corporation shall be subject to a right of repurchase at cost in favor of the Corporation upon the occurrence of certain events as the Board of Directors shall determine at its sole discretion; and (ii) all outstanding shares of Common Stock shall be subject to a right of first refusal by the Corporation prior to any transfer by any holder thereof.

 

Subject to any restrictions on transfer, shares of stock may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require.

 

3.        Record Holders . Except as may otherwise be required by law, by the Certificate of Incorporation or by these Bylaws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these Bylaws.

 

It shall be the duty of each stockholder to notify the Corporation of such stockholder’s post office address.

 

4.        Record Date . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not precede the date on which it is established, and which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, more than ten (10) days after the date on which the record date for stockholder consent without a meeting is established, nor more than sixty (60) days prior to any other action. In such case only stockholders of record on such record date shall be so entitled notwithstanding any transfer of stock on the books of the Corporation after the record date.

 

If no record date is fixed, (a) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, (b) the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in this state, to its principal place of business, or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded, and (c) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

 

 

 

 

5.        Lost Certificates . The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

 

Article V - Indemnification

 

1.        Definitions . For purposes of this Article V:

 

(a)       “Corporate Status” describes the status of a person who is serving or has served (i) as a Director of the Corporation, (ii) as an Officer of the Corporation, or (iii) as a director, partner, trustee, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Corporation. For purposes of this Section 1(a), an Officer or Director of the Corporation who is serving or has served as a director, partner, trustee, officer, employee or agent of a Subsidiary shall be deemed to be serving at the request of the Corporation. Notwithstanding the foregoing, “Corporate Status” shall not include the status of a person who is serving or has served as a director, officer, employee or agent of a constituent corporation absorbed in a merger or consolidation transaction with the Corporation with respect to such person’s activities prior to said transaction, unless specifically authorized by the Board of Directors or the stockholders of the Corporation;

 

(b)       “Director” means any person who serves or has served the Corporation as a director on the Board of Directors of the Corporation;

 

(c)       “Disinterested Director” means, with respect to each Proceeding in respect of which indemnification is sought hereunder, a Director of the Corporation who is not and was not a party to such Proceeding;

 

(d)       “Expenses” means all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of expert witnesses, private investigators and professional advisors (including, without limitation, accountants and investment bankers), travel expenses, duplicating costs, printing and binding costs, costs of preparation of demonstrative evidence and other courtroom presentation aids and devices, costs incurred in connection with document review, organization, imaging and computerization, telephone charges, postage, delivery service fees, and all other disbursements, costs or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, settling or otherwise participating in, a Proceeding;

 

 

 

 

(e)       “Non-Officer Employee” means any person who serves or has served as an employee or agent of the Corporation, but who is not or was not a Director or Officer;

 

(f)       “Officer” means any person who serves or has served the Corporation as an officer appointed by the Board of Directors of the Corporation;

 

(g)       “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, inquiry, investigation, administrative hearing or other proceeding, whether civil, criminal, administrative, arbitrative or investigative; and

 

(h)       “Subsidiary” shall mean any corporation, partnership, limited liability company, joint venture, trust or other entity of which the Corporation owns (either directly or through or together with another Subsidiary of the Corporation) either (i) a general partner, managing member or other similar interest or (ii) (A) 50% or more of the voting power of the voting capital equity interests of such corporation, partnership, limited liability company, joint venture or other entity, or (B) 50% or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other entity.

 

2.        Indemnification of Directors and Officers . Subject to the operation of Section 4 of this Article V of these Bylaws, each Director and Officer shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment) against any and all Expenses, judgments, penalties, fines and amounts reasonably paid in settlement that are incurred by such Director or Officer or on such Director’s or Officer’s behalf in connection with any threatened, pending or completed Proceeding or any claim, issue or matter therein, which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The rights of indemnification provided by this Section 2 shall continue as to a Director or Officer after he or she has ceased to be a Director or Officer and shall inure to the benefit of his or her heirs, executors, administrators and personal representatives. Notwithstanding the foregoing, the Corporation shall indemnify any Director or Officer seeking indemnification in connection with a Proceeding initiated by such Director or Officer only if such Proceeding was authorized by the Board of Directors of the Corporation, unless such Proceeding was brought to enforce an Officer or Director’s rights to indemnification or, in the case of Directors, advancement of Expenses under these Bylaws in accordance with the provisions set forth herein.

 

 

 

 

3.        Indemnification of Non-Officer Employees . Subject to the operation of Section 4 of this Article V of these Bylaws, each Non-Officer Employee may, in the discretion of the Board of Directors of the Corporation, be indemnified by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against any or all Expenses, judgments, penalties, fines and amounts reasonably paid in settlement that are incurred by such Non-Officer Employee or on such Non-Officer Employee’s behalf in connection with any threatened, pending or completed Proceeding, or any claim, issue or matter therein, which such Non-Officer Employee is, or is threatened to be made, a party to or participant in by reason of such Non-Officer Employee’s Corporate Status, if such Non-Officer Employee acted in good faith and in a manner such Non-Officer Employee reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The rights of indemnification provided by this Section 3 shall exist as to a Non-Officer Employee after he or she has ceased to be a Non-Officer Employee and shall inure to the benefit of his or her heirs, personal representatives, executors and administrators. Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer Employee seeking indemnification in connection with a Proceeding initiated by such Non-Officer Employee only if such Proceeding was authorized by the Board of Directors of the Corporation.

 

4.        Good Faith . Unless ordered by a court, no indemnification shall be provided pursuant to this Article V to a Director, to an Officer or to a Non-Officer Employee unless a determination shall have been made that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal Proceeding, such person had no reasonable cause to believe his or her conduct was unlawful. Such determination shall be made by (a) a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, (b) a committee comprised of Disinterested Directors, such committee having been designated by a majority vote of the Disinterested Directors (even though less than a quorum), (c) if there are no such Disinterested Directors, or if a majority of Disinterested Directors so directs, by independent legal counsel in a written opinion, or (d) by the stockholders of the Corporation.

 

5.        Advancement of Expenses to Directors Prior to Final Disposition .

 

(a)       The Corporation shall advance all Expenses incurred by or on behalf of any Director in connection with any Proceeding in which such Director is involved by reason of such Director’s Corporate Status within ten (10) days after the receipt by the Corporation of a written statement from such Director requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Director and shall be preceded or accompanied by an undertaking by or on behalf of such Director to repay any Expenses so advanced if it shall ultimately be determined that such Director is not entitled to be indemnified against such Expenses.

 

 

 

 

(b)       If a claim for advancement of Expenses hereunder by a Director is not paid in full by the Corporation within ten (10) days after receipt by the Corporation of documentation of Expenses and the required undertaking, such Director may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, such Director shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such advancement of Expenses under this Article V shall not be a defense to the action and shall not create a presumption that such advancement is not permissible. The burden of proving that a Director is not entitled to an advancement of Expenses shall be on the Corporation.

 

(c)       In any suit brought by the Corporation to recover an advancement of Expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such Expenses upon a final adjudication that the Director has not met any applicable standard for indemnification set forth in the DGCL.

 

6.        Advancement of Expenses to Officers and Non-Officer Employees Prior to Final Disposition .

 

(a)       The Corporation may, at the discretion of the Board of Directors of the Corporation, advance any or all Expenses incurred by or on behalf of any Officer or Non-Officer Employee in connection with any Proceeding in which such Officer or Non-Officer Employee is involved by reason of the Corporate Status of such Officer or Non-Officer Employee upon the receipt by the Corporation of a statement or statements from such Officer or Non-Officer Employee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Officer or Non-Officer Employee and shall be preceded or accompanied by an undertaking by or on behalf of such Officer or Non-Officer Employee to repay any Expenses so advanced if it shall ultimately be determined that such Officer or Non-Officer Employee is not entitled to be indemnified against such Expenses.

 

(b)       In any suit brought by the Corporation to recover an advancement of Expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such Expenses upon a final adjudication that the Officer or Non-Officer Employee has not met any applicable standard for indemnification set forth in the DGCL.

 

7.        Contractual Nature of Rights .

 

(a)       The foregoing provisions of this Article V shall be deemed to be a contract between the Corporation and each Director and Officer entitled to the benefits hereof at any time while this Article V is in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any Proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts.

 

 

 

 

(b)       If a claim for indemnification hereunder by a Director or Officer is not paid in full by the Corporation within sixty (60) days after receipt by the Corporation of a written claim for indemnification, such Director or Officer may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, such Director or Officer shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such indemnification under this Article V shall not be a defense to the action and shall not create a presumption that such indemnification is not permissible. The burden of proving that a Director or Officer is not entitled to indemnification shall be on the Corporation.

 

(c)       In any suit brought by a Director or Officer to enforce a right to indemnification hereunder, it shall be a defense that such Director or Officer has not met any applicable standard for indemnification set forth in the DGCL.

 

8.        Non-Exclusivity of Rights . The rights to indemnification and advancement of Expenses set forth in this Article V shall not be exclusive of any other right which any Director, Officer, or Non-Officer Employee may have or hereafter acquire under any statute, provision of the Certificate of Incorporation or these Bylaws, agreement, vote of stockholders or Disinterested Directors or otherwise. To the extent of any conflict or inconsistency between these Bylaws and the Certificate of Incorporation, the relevant provisions of the Certificate of Incorporation shall control.

 

9.        Insurance . The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer or Non-Officer Employee against any liability of any character asserted against or incurred by the Corporation or any such Director, Officer or Non-Officer Employee, or arising out of any such person’s Corporate Status, whether or not the Corporation would have the power to indemnify such person against such liability under the DGCL or the provisions of this Article V.

 

10.        Other Indemnification . The Corporation’s obligation, if any, to indemnify any person under this Article V as a result of such person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, employee benefit plan or enterprise.

 

Article VI - Miscellaneous Provisions

 

1.        Fiscal Year . Except as otherwise determined by the Board of Directors, the fiscal year of the Corporation shall end on December 31 of each year.

 

2.        Seal . The Board of Directors shall have power to adopt and alter the seal of the Corporation.

 

 

 

 

3.        Execution of Instruments . Subject to any limitations which may be set forth in a resolution of the Board of Directors, all deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without director action may be executed on behalf of the Corporation by, the Chief Executive Officer, President, any Vice President, or the Chief Financial Officer, or by any other officer, employee or agent of the Corporation as the Board of Directors may authorize.

 

4.        Voting of Securities . Unless the Board of Directors otherwise provides, if one is elected, the President, any Vice President or the Chief Financial Officer may waive notice of and act on behalf of this Corporation, or appoint another person or persons to act as proxy or attorney in fact for this Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by this Corporation.

 

5.        Resident Agent . The Board of Directors may appoint a resident agent upon whom legal process may be served in any action or proceeding against the Corporation.

 

6.        Corporate Records . The original or attested copies of the Certificate of Incorporation, Bylaws and records of all meetings of the incorporators, stockholders and the Board of Directors and the stock and transfer records, which shall contain the names of all stockholders, their record addresses and the amount of stock held by each, shall be kept at the principal office of the Corporation, at the office of its counsel, or at an office of its transfer agent.

 

7.        Certificate of Incorporation . All references in these Bylaws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the Corporation, as amended and in effect from time to time.

 

8.        Amendments . These Bylaws may be altered, amended or repealed, and new Bylaws may be adopted, by the stockholders or by the Board of Directors; provided, that (a) the Board of Directors may not alter, amend or repeal any provision of these Bylaws which by law, by the Certificate of Incorporation or by these Bylaws requires action by the stockholders and (b) any alteration, amendment or repeal of these Bylaws by the Board of Directors and any new By-law adopted by the Board of Directors may be altered, amended or repealed by the stockholders.

 

9.        Waiver of Notice . Whenever notice is required to be given under any provision of these Bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting needs to be specified in any written waiver or any waiver by electronic transmission.

 

 

 

Exhibit 10.1

 

IN THE UNITED STATES

PATENT AND TRADEMARK OFFICE

 

PATENT ASSIGNMENT

 

WHEREAS , Energy Science Laboratories, Inc. a California corporation, ("Assignor") is the sole owner of the entire right, title and interest in, to and under the patents and patent applications listed on Schedule A hereto; and

 

WHEREAS , Assignor desires to sell, assign and transfer all of its right, title, and interest in, to and under said patents and patent applications to KULR Technology Corporation, a Delaware corporation, ("Assignee").

 

NOW, THEREFORE , in consideration of good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Assignor has sold, assigned, transferred and set over, and by these presents does hereby sell, assign, transfer and set over, unto said Assignee, its successors, legal representatives and assigns, the entire right, title and interest in, to and under the said patents and patent applications, as well as all divisions, renewals and continuations thereof, and all Letters Patent of the United States which may be granted thereon and all reissues and extensions thereof, and all applications for Letters Patent which may hereafter be filed for inventions embodied by said patents and patent applications in any country or countries foreign to the United States, and all Letters Patent which may be granted for said inventions embodied by said patents and patent applications in any country or countries foreign to the United States and all extensions, renewals and reissues thereof and all rights of priority in any such country or countries based upon the filing of said patents and patent applications in the United States which are created by any law, treaty or international convention; and Assignor hereby authorize and request the Commissioner of Patents of the United States, and any Official of any country or countries foreign to the United States, whose duty it is to issue patents on any such applications as aforesaid, to issue all Letters Patent for said inventions to Assignee, its successors, legal representatives and assigns, in accordance with the terms of this instrument.

 

  1  

 

 

ESLI-KULR_Assign

 

IN TESTIMONY WHEREOF , I, a duly authorized officer or agent of said Assignor, hereunto set my hand and seal this 10th day of November, 2016.

 

  ENERGY SCIENCE LABORATORIES, INC.
     
  By: /s Timothy R. Knowles
  Name: Timothy Ray Knowles
     
  Title: President

 

  2  

 

 

ESLI-KULR_Assign

 

Schedule A

 

Line
No.
  Title   U.S. Patent No.   Filing Date
1   Dendritic Fiber Material   6,913,075   June 13, 2000
2   Fiber Adhesive Material   7,132,161   June 17, 2003
3   Dendritic Fiber Material   7,144,624   February 8, 2002

 

  3  

 

 

Exhibit 10.2

 

KULR TECHNOLOGY CORPORATION

 

LICENSE AND DEVELOPMENT AGREEMENT

 

This License and Development Agreement (“ Agreement ”) is entered into as effective as of April 15th, 2013 by and between Kulr Technology Corporation, a Delaware corporation (“ Kulr ”) and Energy Science Laboratories, Inc. (“ ESLI ”).

 

BACKGROUND

 

WHEREAS, ESLI and Kulr intend Kulr to be the commercialization arm of ESLI for all of its Thermal Management Technologies (as defined below). In this effort, ESLI wishes to license its existing thermal technologies to Kulr in exchange for a significant stake in Kulr (as provided by the restricted stock purchase agreement attached hereto as Exhibit B ). Additionally, ESLI wishes to further develop the Thermal Management Technologies on behalf of Kulr to have Kulr provide products to the market; in this regard, ESLI and Kulr intends to have ESLI provide development and consulting services to Kulr as described herein and by the consulting agreement attached hereto as Exhibit A ; and

 

WHEREAS, ESLI intends to license to Kulr all of its interest in the technology, related know-how, and the business and industry relationships in thermal management, thermal storage, heat dissipation and related technologies   , whether tangible or intangible (collectively, the “ Thermal Management Technologies ”), and any and all technology, processes, know-how, inventions and other intellectual property related thereto (the “ Thermal Intellectual Property ”).

 

AGREEMENT

 

In consideration of the mutual promises contained herein, the parties agree as follows:

 

1.     License .

 

(a)   ESLI hereby grants to Kulr and its affiliates an irrevocable, exclusive (exclusive even as to ESLI), fully paid, royalty free, sublicensable, world-wide license to use, make, have made, develop, create derivative works, sell, offer to sell, import products and/or services which use all or a portion of the Thermal Management Technologies and Thermal Intellectual Property for all markets other than military, aerospace, and defense applications.

 

(b)   ESLI represents and warrants that it holds full right, title and interest to the Thermal Intellectual Property, free of any liens or encumbrances and that it has not assigned the Thermal Intellectual Property or any rights conferred thereby or any claim or cause of action it may have thereunder to any third party. ESLI further represents and warrants that it has not received notice from any party asserting or alleging that the Thermal Intellectual Property or ESLI’s use of the Thermal Intellectual Property infringes upon the rights of any other party or violates any law.

 

 

 

 

(c)   ESLI shall fully defend, indemnify and hold harmless Kulr, its officers, members, employees, agents and their respective successors and assigns, during and after the term hereof, from and against any and all liabilities, claims, causes of action, suits, damages and expenses (including costs and expenses of counsel) arising out of or resulting from (1) any breach by ESLI of the representations or warranties or (2) the sale, distribution, importation or manufacture of products incorporating Thermal Intellectual Property, or (3) the use or sublicense of the Thermal Intellectual Property.

 

2.     Services and Compensation . ESLI agrees to execute the consulting agreement attached here to as Exhibit A and perform for Kulr the services described therein (the “ Services ”), and Kulr agrees to pay ESLI the compensation described in the consulting agreement attached hereto for ESLI’s performance of the Services.

 

3.     Confidentiality .

 

(a) Definition . “ Confidential Information ” means any non-public information that relates to the actual or anticipated business or research and development of Kulr, technical data, trade secrets or know-how, including but not limited to research, product plans or other information regarding Kulr’s products or services and markets therefor, customer lists and customers (including but not limited to customers of Kulr on whom ESLI called or with whom ESLI became acquainted during the term of this Agreement), software, developments, inventions, processes, formulas, technology, designs, drawing, engineering, hardware configuration information, marketing, finances or other business information. Confidential Information does not include information that (i) is known to ESLI at the time of disclosure to ESLI by Kulr as evidenced by written records of ESLI, (ii) has become publicly known and made generally available through no wrongful act of ESLI or (iii) has been rightfully received by ESLI from a third party who is authorized to make such disclosure.

 

(b) Nonuse and Nondisclosure . ESLI will not, during or after to the term of this Agreement, (i) use Confidential Information for any purpose whatsoever other than the performance of the Services on behalf of Kulr or (ii) disclose Confidential Information to any third party. ESLI agrees that all Confidential Information will remain the sole property of Kulr. ESLI also agrees to take all reasonable precautions to prevent any unauthorized disclosure of Confidential Information, including but not limited to having each of ESLI’s employees and contractors, if any, with access to any Confidential Information execute a nondisclosure agreement in the form acceptable to Kulr. Without Kulr’s prior written approval, ESLI will not directly or indirectly disclose to anyone the existence of this Agreement or the fact that ESLI has this arrangement with Kulr.

 

  2  

 

 

(c) Former Client Confidential Information . ESLI agrees that ESLI will not, during the term of this Agreement, improperly use or disclose any proprietary information or trade secrets of any former or current client or employer of ESLI or other person or entity with which ESLI has an agreement or duty to keep in confidence information acquired by ESLI, if any. ESLI also agrees that ESLI will not bring onto Kulr’s premises any unpublished document or proprietary information belonging to any such employer, person or entity unless consented to in writing by such employer, person or entity.

 

(d) Third-Party Confidential Information . ESLI recognizes that Kulr has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on Kulr’s part to maintain the confidentiality of the information and to use it only for certain limited purposes. ESLI agrees that, during the term of this Agreement and thereafter, ESLI owes Kulr and such third parties a duty to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out the Services for Kulr consistent with Kulr’s agreement with such third party.

 

(e) Return of Materials . Upon the termination of this Agreement, or upon Kulr’s earlier request, ESLI will deliver to Kulr all of Kulr’s property, including but not limited to all electronically stored information and passwords to access such property, or Confidential Information that ESLI may have in ESLI’s possession or control.

 

4.     Ownership .

 

(a) Assignment . ESLI agrees that all copyrightable material, notes, records, drawings, designs, inventions, improvements, developments, discoveries and trade secrets conceived, discovered, developed or reduced to practice by ESLI, solely or in collaboration with Kulr or others, during the term of this Agreement that relate in any manner to thermal management, thermal storage, heat dissipation or related technologies (collectively, “ Inventions ”), are the sole property of Kulr. ESLI also agrees to assign (or cause to be assigned) and hereby assigns fully to Kulr all Inventions and any copyrights, patents, mask work rights or other intellectual property rights relating to all Inventions.

 

(b) Patent Applications and License Back of Thermal Management Technologies . Notwithstanding anything herein to the contrary, Kulr may file all such United States and foreign patent applications, amendments, supplements, continuations, and divisions, all of which may be available for public review, as it deems appropriate with respect to the Thermal Management Technologies and related technology licensed hereunder, provided, however, prior to any such filing Kulr must (i) obtain ESLI consent, which may not be unreasonably withheld, and (ii) license or assign to ESLI the rights to use all inventions disclosed in the patent applications for any Thermal Management Technologies licensed hereunder. 

 

  3  

 

 

(c) Further Assurances . ESLI agrees to assist Kulr, or its designee, at Kulr’s expense, in every proper way to secure Kulr’s rights in Inventions and any copyrights, patents, mask work rights or other intellectual property rights relating to all Inventions in any and all countries, including the disclosure to Kulr of all pertinent information and data with respect to all Inventions, the execution of all applications, specifications, oaths, assignments and all other instruments that Kulr may deem necessary in order to apply for and obtain such rights and in order to assign and convey to Kulr, its successors, assigns and nominees the sole and exclusive right, title and interest in and to all Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating to all Inventions. ESLI also agrees that ESLI’s obligation to execute or cause to be executed any such instrument or papers shall continue after the termination of this Agreement.

 

(d) Pre-Existing Materials . Subject to Section 4(a) of this Agreement, ESLI agrees that if, in the course of performing the Services, ESLI incorporates into any Invention developed under this Agreement any pre-existing invention, improvement, development, concept, discovery or other proprietary information owned by ESLI or in which ESLI has an interest, (i) ESLI will inform Kulr, in writing before incorporating such invention, improvement, development, concept, discovery or other proprietary information into any Invention, and (ii) Kulr is hereby granted a nonexclusive, royalty-free, perpetual, sublicensable, irrevocable, worldwide license to make, have made, modify, use and sell such item as part of or in connection with such Invention. ESLI will not incorporate any invention, improvement, development, concept, discovery or other proprietary information owned by any third party into any Invention without Kulr’s prior written permission.

 

(e) Attorney-in-Fact . ESLI agrees that, if Kulr is unable because of ESLI’s unavailability, dissolution, mental or physical incapacity, or for any other reason, to secure ESLI’s signature for the purpose of applying for or pursuing any application for any United States or foreign patents or mask work or copyright registrations covering the Inventions assigned to Kulr in Section 4(a) of this Agreement, then ESLI hereby irrevocably designates and appoints Kulr and its duly authorized officers and agents as ESLI’s agent and attorney-in-fact, to act for and on ESLI’s behalf to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of patents, copyright and mask work registrations with the same legal force and effect as if executed by ESLI.

 

5.     Conflicting Obligations .

 

(a) Conflicts . ESLI certifies that ESLI has no outstanding agreement or obligation that is in conflict with any of the provisions of this Agreement or that would preclude ESLI from complying with the provisions of this Agreement. ESLI will not enter into any such conflicting agreement during the term of this Agreement.

 

(b) Substantially Similar Designs . In view of ESLI’s access to Kulr’s trade secrets and proprietary know-how, ESLI agrees that ESLI will not, without Kulr’s prior written approval, assist third parties in designing lighting and illumination sources or agents during or at any time after the term of this Agreement. ESLI acknowledges that the obligations in this Section 5 are ancillary to ESLI’s nondisclosure obligations under Section 3 of this Agreement.

 

  4  

 

 

6.     Reports . ESLI agrees that ESLI will, from time to time during the term of this Agreement or any extension thereof, keep Kulr advised as to ESLI’s progress in performing the Services under this Agreement. ESLI further agrees that ESLI will, as requested by Kulr, prepare written reports with respect to such progress. Kulr and ESLI agree that the time required to prepare such written reports will be considered time devoted to the performance of the Services.

 

7.     Term and Termination .

 

(a) Term . The term of this Agreement will begin on the date of this Agreement and will continue until termination as provided in Section 7(b) of this Agreement.

 

(b) Termination . This Agreement may be terminated upon mutual agreement of the Parties. Kulr may terminate this Agreement immediately and without prior notice if ESLI refuses to or is unable to perform the Services or is in breach of any material provision of this Agreement.

 

(c) Survival . Upon such termination, all rights and duties of Kulr and ESLI toward each other shall cease except:

 

(i) Kulr will pay, within 30 days after the effective date of termination, all amounts owing to ESLI for Services completed and accepted by Kulr prior to the termination date and related expenses, if any, submitted in accordance with Kulr’s policies and in accordance with the provisions of Section 2 of this Agreement; and

 

(ii) Section 1 (License), Section 3 (Confidentiality), Section 4 (Ownership), Section 5 (Conflicting Obligations), Section 7(c) (Survival), Section 8  (Indemnification), Section 9 (Nonsolicitation) and Section 10 (Miscellaneous) will survive termination of this Agreement.

 

8.     Indemnification . ESLI agrees to indemnify and hold harmless Kulr and its directors, officers and employees from and against all taxes, losses, damages, liabilities, costs and expenses, including attorneys’ fees and other legal expenses, arising directly or indirectly from or in connection with (i) any negligent, reckless or intentionally wrongful act of ESLI or ESLI’s assistants, employees or agents, (ii) any breach by the ESLI or ESLI’s assistants, employees or agents of any of the covenants contained in this Agreement, (iii) any failure of ESLI to perform the Services in accordance with all applicable laws, rules and regulations, or (iv) any violation or claimed violation of a third party’s rights resulting in whole or in part from Kulr’s use of the work product of ESLI under this Agreement.

 

9.     Non-solicitation . From the date of this Agreement until 12 months after the termination of this Agreement (the “ Restricted Period ”), ESLI will not, without Kulr’s prior written consent, directly or indirectly, solicit or encourage any employee or contractor of Kulr or its affiliates to terminate employment with, or cease providing services to, Kulr or its affiliates. During the Restricted Period, ESLI will not, whether for ESLI’s own account or for the account of any other person, firm, corporation or other business organization, intentionally interfere with any person who is or during the period of ESLI’s engagement by Kulr was a partner, supplier, customer or client of Kulr or its affiliates.

 

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10.   Miscellaneous .

 

(a) Governing Law . This Agreement will be governed by, and its provisions construed in accordance with, the laws of the State of California, as applied to contracts between California residents entered into and to be performed entirely within California, without regard to the conflict of law principles thereof. The parties hereby consents to the personal jurisdiction of the state and state and federal courts located in Santa Clara, California.

 

(b) Assignability . Except as otherwise provided in this Agreement, ESLI may not sell, assign or delegate any rights or obligations under this Agreement. Kulr, upon a change in control, may assign this Agreement.

 

(c) Entire Agreement . This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior written and oral agreements between the parties regarding the subject matter of this Agreement.

 

(d) Availability of Injunctive Relief . In addition to the right under the Rules to petition the court for provisional relief, ESLI agrees that any party may also petition the court for injunctive relief where either party alleges or claims a violation of Section 3 (Confidentiality), Section 4 (Ownership), Section 5 (Conflicting Obligations) or Section 9 (Nonsolicitation) of this Agreement or any other agreement regarding trade secrets, confidential information or nonsolicitation. In the event either Kulr or ESLI seeks injunctive relief, the prevailing party will be entitled to recover reasonable costs and attorneys’ fees.

 

(e) Headings . Headings are used in this Agreement for reference only and shall not be considered when interpreting this Agreement.

 

(f) Notices . Any notice or other communication required or permitted by this Agreement to be given to a party shall be in writing and shall be deemed given if delivered personally or by commercial messenger or courier service, or mailed by U.S. registered or certified mail (return receipt requested), or sent via facsimile (with receipt of confirmation of complete transmission) to the party at the party's address or facsimile number written below or at such other address or facsimile number as the party may have previously specified by like notice. If by mail, delivery shall be deemed effective 3 business days after mailing in accordance with this Section 11(f) .

 

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If to Kulr, to the address for notice on the signature page to this Agreement or, if no such address is provided, to the last address of Kulr provided by Kulr to ESLI. If to ESLI, to the address for notice on the signature page to this Agreement or, if no such address is provided, to the last address of ESLI provided by ESLI to Kulr.

 

(g) Attorneys’ Fees . In any court action at law or equity that is brought by one of the parties to this Agreement to enforce or interpret the provisions of this Agreement, the prevailing party will be entitled to reasonable attorneys’ fees, in addition to any other relief to which that party may be entitled.

 

(h) Severability . If any provision of this Agreement is found to be illegal or unenforceable, the court must modify the scope and/or application of such provision to the extent necessary to make such provision legal and enforceable and the other provisions shall remain effective and enforceable to the greatest extent permitted by law.

 

[The signature page follows]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Consulting Agreement as of the date first written above.

 

ENERGY SCIENCE LABORATORIES, INC.

 

By:  
   
Name:  Timothy R. Knowles  
   
Title:  President  

 

Address:

 

6861 Nancy Ridge Dr. Suite B. San Diego. CA 92121-3214.

 

KULR TECHNOLOGY CORPORATION  
   
By:  
     
Name: Michael Mo  
     
Title: President  

 

Address:

KULR Technology

5339 Prospect Road. #180

San Jose, CA 95129USA

 

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[Signature page to License and Development Agreement]

 

  9  

 

 

EXHIBIT A

 

SERVICES AND COMPENSATION

 

CONSULTING AGREEMENT

 

  10  

 

 

EXHIBIT B

 

RESTRICTED STOCK PURCHASE AGREEMENT

 

  11  

 

 

Exhibit 10.3

 

KULR TECHNOLOGY CORPORATION

CONSULTING AGREEMENT

 

This Consulting Agreement (this "Agreement") is entered into effective as of April 15th, 2013 (the “Effective Date”), between KULR Technology Corporation, a Delaware corporation (the "Company"), and Energy Science Laboratories, Inc. (the "Consultant" or “ESLI”).

 

The parties wish to provide for the engagement of the Consultant to perform consulting services for the Company on the terms and conditions contained in this Agreement.

 

The Consultant wishes to receive compensation from the Company for the Consultant's services, and the Company desires reasonable protection of its confidential business and technical information that has been acquired and is being developed by the Company at substantial expense.

 

ACCORDINGLY, THE PARTIES HEREBY AGREE AS FOLLOWS:

 

SECTION 1. ENGAGEMENT AND TERM .

 

1.1 The Engagement . Subject to the terms and conditions hereof: (i) the Company hereby engages the Consultant to perform consulting services for the Company in accordance with provisions hereof and Exhibit A attached hereto and in exchange for the compensation provided in Exhibit A (the "Engagement"); and (ii) the Consultant hereby accepts the Engagement and agrees to perform such consulting services and its obligations as provided herein.

 

1.2 Engagement for Unspecified Term . The Engagement shall be for a term as specified in Exhibit A.

 

1.3 Independent Contractors . The relationship between the Company and the Consultant is that of independent contractors; and neither party is the legal representative, agent, joint venturer, partner, or employee of the other party for any purpose whatsoever. Neither party has any right or authority hereunder to assume or create any obligation of any kind or to make any representation or warranty on behalf of the other, whether express or implied, or to bind the other party in any respect.

 

SECTION 2. CONSULTING SERVICES .

 

2.1 Description of the Consulting Services and Duties . The Consultant shall perform the duties generally described in the Description of Duties on Exhibit A attached hereto and incorporated herein by this reference. The Consultant also shall perform such specific consulting services for the Company as the Company may reasonably request from time to time during the Engagement.

 

2.2 Standard of Care . The Consultant shall perform the consulting services hereunder and perform all of its responsibilities and obligations hereunder with at least the care, skill, prudence, and diligence that a prudent person acting in a like capacity and experienced in the industry would use under like circumstances. The Consultant shall at all times perform such services loyally and conscientiously.

 

2.3 Rules and Policies . While at the Company's offices and while performing consulting services for the Company, the Consultant shall comply with all applicable rules and policies of the Company as established from time to time.

 

Confidential Page 1 of 11

 

 

2.4 Offices . The Consultant shall perform the consulting services as directed by the Company from time to time. However, the Consultant may be required to travel from time to time in the performance of the consulting services.

 

2.5 Time and Best Efforts . During the Engagement, the Consultant will devote the Consultant's time and best efforts to the performance of the duties hereunder and to the business and affairs of the Company. During the Engagement, the Consultant shall disclose any other business activities (other than passive investment activities not prohibited by Section 5) and obtain prior written consent from the Company for such business activities.

 

2.6 Consent to Use of Name . The Consultant consents to the use of the Consultant's name, without prior written approval, in appropriate Company materials such as, but not limited to, offering memoranda related to financing activities of the Company.

 

SECTION 3. COMPENSATION . The compensation for the consulting services to be performed hereunder by the Consultant shall be as follows:

 

3.1 Compensation . The Company shall pay the Consultant a fee as described in Exhibit A for services requested by the Company under this Agreement.

 

3.2 Hours per Week . The Consultant shall perform consulting services for the number of hours per week as requested from time to time by the Company or as specified in Exhibit A.

 

3.3 Timecards; Payment of Compensation . If the Company so requires, for each week of the Engagement, the Consultant shall submit to the Company a timecard and invoice for such week. Such timecard and invoice shall be submitted to the Company on the day specified by the Company immediately following such week.

 

3.4 Benefits . The Consultant shall not be entitled to any of the Company's employee benefits, including without limitation, medical, dental, vision, vacation pay, sick leave, group insurance, and other fringe benefits. The Consultant acknowledges that it is the Consultant's responsibility (financial and otherwise) to obtain its own medical, dental, vision, and liability insurance. The Consultant shall not be compensated for any holidays or vacation days.

 

SECTION 4. EXPENSES .

 

4.1 Reimbursement of Business Expenses . Subject to the conditions hereof and the expense reimbursement policies of the Company in effect from time to time, the Company will reimburse the Consultant for pre-approved, actual reasonable business expenses incurred by the Consultant in the course of performing the services hereunder.

 

4.2 Adequate Records . No such expenditure will be reimbursable unless the Consultant furnishes to the Company adequate records and other documentary evidence required under the tax laws for substantiation of such expenditure as an income tax deduction.

 

4.3 Repayment of Disallowed Expenses . In the event that any expenses paid for the Consultant or any reimbursement of expenses paid to the Consultant are disallowed as an income tax deduction on an income tax return of the Company, the Consultant will immediately repay to the Company the amount of such disallowed expenses.

 

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SECTION 5. CONFLICT OF INTEREST .

 

5.1 Activities . During the Engagement, the Consultant shall not: (i) directly or indirectly, engage, participate, or assist in any business which competes with, or is preparing to compete with, the Company in any manner whatsoever in any line of business engaged in or for which the Company is preparing to engage; or (ii) entice, induce, or encourage, directly or indirectly, any of the Company's employees or consultants to engage in any activity which, were it done by the Consultant, would violate this Agreement.

 

5.2 Capacities . This Section 5 applies to any activity as an employee, employer, consultant, agent, principal, partner, shareholder (other than as a holder of less than 1% of the stock of a public corporation), officer, director, or any other individual or representative capacity.

 

SECTION 6. TERMINATION OF ENGAGEMENT .

 

6.1 Termination Without Cause . Either party may terminate the Engagement without cause by giving the other party a written notice of termination as specified in Exhibit A.

 

6.2 Termination With Cause . In the event that either party commits any material breach of any of the terms of this Agreement, then the other party may terminate the Engagement immediately upon written notice to the breaching party specifying the cause.

 

6.3 Death or Disability . The Engagement will terminate immediately upon the Consultant's death or in the event of the Consultant's disability that prevents the Consultant from performing the consulting services under this Agreement.

 

SECTION 7. CONFIDENTIAL INFORMATION .

 

7.1 Company Information . The Consultant shall at all times during the term of the Consultant's engagement with the Company and thereafter hold in strictest confidence, and shall not use or disclose to any person, firm, or corporation without written authorization of an Officer of the Company (the "Officer"), any trade secrets, confidential knowledge, data, or other proprietary information relating to products, services, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information, or other subject matter pertaining to any business of the Company or any of its clients, consultants, or licensees.

 

7.2 Former Employer Information . The Consultant represents that the Consultant’s engagement by the Company does not and will not breach any agreement with any former employer, including any noncompete agreement or any agreement to keep in confidence information acquired by the Consultant in confidence or trust prior to the Consultant’s engagement by the Company. The Consultant further represent that the Consultant has not entered into, and will not enter into, any agreement, either written or oral, in conflict with this Agreement. During the Consultant’s engagement by the Company, the Consultant will not improperly use or disclose any confidential information or trade secrets of any former employer or other third party to whom the Consultant has an obligation of confidentiality, and the Consultant will not bring onto the premises of the Company or use any unpublished documents or any property belonging to any former employer or other third party to whom the Consultant has an obligation of confidentiality, unless consented to in writing by that former employer or person. The Consultant will use in the performance of his or her duties only information that is generally known and is common knowledge in the industry or otherwise legally in the public domain, or is otherwise provided or developed by the Company. The Consultant shall not, during the Engagement, improperly use or disclose any proprietary information or trade secrets of former or concurrent employers or companies, if any.

 

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7.3 Third Party Information . The Consultant recognizes that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. The Consultant agrees that the Consultant owes the Company and such third parties, during the Engagement and thereafter, a duty to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm, or corporation (except as necessary in carrying out the Consultant's work for the Company consistent with the Company's agreement with such third party) or to use it for the benefit of anyone other than for the Company or such third party (consistent with the Company's agreement with such third party) without the express written authorization of an Officer.

 

7.4 Incorporation of Open Source Code . In addition, the Consultant agrees that the Consultant will not, without Company’s prior written consent, incorporate into any Company products or technologies, or otherwise deliver to the Company any software code licensed under the GNU, GPL, or LGPL or any other license that, by its terms, requires or conditions the use or distribution of such code on the disclosure, licensing, or distribution of any source code owned or licensed by the Company.

 

SECTION 8. RETAINING AND ASSIGNING INVENTIONS .

 

8.1 Inventions and Intellectual Property Rights . As used in this Agreement, the term "Invention" means any ideas, concepts, information, materials, processes, data, programs, know-how, improvements, discoveries, developments, designs, artwork, formulae, copyrightable works, and techniques and all Intellectual Property Rights therein. The term "Intellectual Property Rights" means all trade secrets, copyrights, trademarks, mask work rights, patents and other intellectual property rights recognized by the laws of any jurisdiction or country.

 

8.2 Inventions and Original Works Assigned to the Company . The Consultant shall promptly make full written disclosure to the Company, shall hold in trust for the sole right and benefit of the Company, and hereby assigns, and agrees to have any and all Invention upon creation be automatically assigned to the Company all of the Consultant's rights, title, and interest in and to any and all Inventions and Intellectual Property Rights which the Consultant may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the Engagement.

 

The Consultant acknowledges that all original works of authorship which are made by the Consultant (solely or jointly with others) within the scope of the Consultant's Engagement and which are protectable by copyright are "works made for hire", as that term is defined in the United States Copyright Act (17 USCA, Section 101).

 

8.3 Maintenance of Records . The Consultant agrees to keep and maintain adequate and current written records of all Inventions and original works of authorship (assigned or assignable under Section 2.2) made by the Consultant (solely or jointly with others) during the Engagement. The records shall be in the form of notes, sketches, drawings, and any other format that may be specified by the Company. The records shall be available to and remain the sole property of the Company at all times.

 

8.4 Inventions Assigned to the United States . The Consultant hereby assigns to the United States government all of the Consultant’s right, title, and interest in and to any and all Inventions, original works of authorship, developments, improvements, or trade secrets whenever such full title is required to be in the United States by a contract between the Company and the United States or any of its agencies.

 

Confidential Page 4 of 11

 

 

8.5 Enforcement of Intellectual Property Rights and Assistance . The Consultant agrees that the Consultant's obligation to assist the Company to obtain and enforce United States or foreign letters patent and copyright registrations covering inventions and original works of authorship assigned hereunder to the Company shall continue beyond the termination of the Engagement, but the Company shall compensate the Consultant at a reasonable rate for time actually spent by the Consultant at the Company's request on such assistance. If the Company is unable because of the Consultant's mental or physical incapacity, the Consultant's unwillingness, or for any other reason to secure the Consultant's signature to apply for or to pursue any application for any United States or foreign letters patent or copyright registrations covering inventions or original works of authorship assigned to the Company as above, then the Consultant hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as the Consultant's agent and attorney in fact, to act for and in the Consultant's behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by the Consultant. The Consultant hereby waives and quitclaims to the Company any and all claims, of any nature whatsoever, which the Consultant now or may hereafter have for infringement of any patents or copyright resulting from any such application for letters patent or copyright registrations assigned hereunder to the Company.

 

SECTION 9. CONFLICTING ENGAGEMENT OR CONSULTING, ETC . The Consultant agrees that, during the Engagement, the Consultant shall not engage in any other employment, occupation, consulting, or other business activity directly related to the business in which the Company is involved or planned to be involved, and the Consultant shall not engage in any other activities that conflict with the Consultant's obligations to the Company. The Consultant agrees that prior to engaging in any other employment, occupation, consulting, or other business activity, the Consultant shall notify the Company in writing of such planned activity.

 

SECTION 10. COMPANY DOCUMENTS AND PROPERTY . The Consultant agrees that, at the time of termination of the Engagement, the Consultant shall deliver to the Company (and shall not keep in the Consultant's possession or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any of these items belonging to the Company, its subsidiaries, affiliates, successors, or assigns.

 

SECTION 11. REPRESENTATIONS . The Consultant agrees to execute any proper oath or verify any proper document necessary or appropriate to carry out the terms of this Agreement. The Consultant represents that the Consultant’s performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by the Consultant in confidence or in trust prior to the Consultant’s Engagement. The Consultant has not entered into, and the Consultant shall not enter into, any oral or written agreement in conflict herewith.

 

SECTION 12. POST-EMPLOYMENT ACTIVITIES .

 

12.1 Conflict of Interest . During the one year period following Termination, the Consultant will not:

 

a.          solicit any of the Company’s employees for a competing business or otherwise induce or attempt to induce such employees to terminate their employment with the Company;

b.          contact or communicate with any customer of the Company for the purpose of offering for sale any products or services that are the same as or similar to those offered by the Company or assist any other person or business to do so;

c.          solicit, divert or take away from the Company any customer of the Company or suppliers of the Company or assist any other person or business to do so; or

d.          provide services or otherwise enter into contractual relations with, any customer of the Company or assist any other person or business to do so.

 

Confidential Page 5 of 11

 

 

SECTION 13. GENERAL PROVISIONS .

 

13.1 Governing Law, Jurisdiction, and Venue . This Agreement shall be governed by and construed according to the laws of the State of California, excluding its conflict of laws rules to the extent such rules would apply the law of another jurisdiction. The parties hereto consent to the jurisdiction of all federal and state courts in California, and agree that venue shall lie exclusively in Santa Clara County, California.

 

13.2 Entire Agreement; Amendment . This Agreement and the Proprietary Information Agreement constitute the entire agreement between the parties with respect to the Consultant's engagement with the Company. Such agreements supersede all prior agreements, understandings, and communications between the parties with respect to such subject matter. Any amendment of this Agreement shall be effective only if in writing and signed by the party to be charged.

 

13.3 Assignment . This Agreement and the rights and obligations hereof may be assigned by the Company to a successor entity. Except as provided in the preceding sentence, this Agreement and the rights and obligations hereof may not be assigned by either party.

 

13.4 Construction . In the event that any of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, then such invalidity, illegality, or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. If any of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the then applicable law.

 

13.5 Notices . Any notice which a party is required or permitted to give to another party shall be given by personal delivery or registered or certified mail, return receipt requested, addressed to the other party at the appropriate address set forth at the end of this Agreement, or at such other address as the other party may from time to time designate in writing. The date of personal delivery or the date of mailing of any such notice shall be deemed to be the date of delivery thereof.

 

13.6 Waivers . No failure or delay on the part of either party in the exercise of any right hereunder shall operate as a waiver thereof. Any waiver of any right hereunder shall be effective only if in writing. Any single or partial waiver of any right hereunder shall not operate as a waiver of any preceding or succeeding such right or any other right.

 

13.7 Attorneys' Fees . If any party brings any suit, action, counterclaim, or arbitration to enforce or interpret the provisions of this Agreement, then the prevailing party therein shall be entitled to recover a reasonable allowance for attorneys' fees and litigation expenses in addition to court costs (and in addition to any other rights and remedies it may have). The term "prevailing party" as used in this Section includes without limitation a party who agrees to dismiss an action or proceeding upon the other's payment of the sums allegedly due or performance of the obligation allegedly breached, or who obtains substantially the relief it seeks.

 

Confidential Page 6 of 11

 

 

13.8 Specific Performance; Remedies Cumulative . The Consultant acknowledges that a breach of this Agreement cannot be adequately compensated for by money damages, and agrees that specific performance is an appropriate remedy for any breach or threatened breach hereof. The Consultant acknowledges that compliance with the provisions of this Agreement is necessary in order to protect the proprietary rights of the Company. The Consultant further acknowledges that any unauthorized use or disclosure to any third party in breach of this Agreement will result in irreparable and continuing damage to the Company. Accordingly, the Consultant hereby: (i) consents to the issuance of any injunctive relief or the enforcement of other equitable remedies against it at the suit of the Company (without bond or other security), to compel performance of any of the terms of this Agreement; and (ii) waives any defenses thereto, including without limitation the defenses of failure of consideration, breach of any other provision of this Agreement, and availability of relief in damages. All remedies, whether under this Agreement, provided by law, or otherwise, shall be cumulative and not alternative.

 

13.9 Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one instrument.

 

13.10 Survival . Sections 1.3, 4, 5, 6, 8, 10, 11, 12 and 13 shall survive the termination of the Engagement and the assignment of this Agreement by the Company to any successor-in-interest or other assignee and be binding upon the heirs and legal representatives of the Consultant.

 

[Remainder of the page intentionally left blank.]

 

Confidential Page 7 of 11

 

 

Executed effective as of the date first set forth above.

 

THE COMPANY: KULR Technology Corporation
     
  By:  
  Name: Michael Mo
  Title: President
  Address: 5339 Prospect Road. #180
    San Jose, CA 95129. USA
     
THE CONSULTANT: Energy Science Laboratories, Inc.
     
  By:  
  Name: Timothy R. Knowles
  Title: President
  Address: 6861 Nancy Ridge Dr. Suite B.
    San Diego, CA 92121-3214

 

Confidential Page 8 of 11

 

 

CONSULTING AGREEMENT

EXHIBIT A

 

1. Description of the Consulting Services and Duties .

 

  1.1 The Consultant shall perform consulting services for the Company generally relating to  

 

  See Exhibit B

 

  1.2 Specific Results to be Achieved:   

 

  See Exhibit B

 

2. Engagement for Term .

 

2.1 The term of the Engagement shall commence effective as of the Effective Date.

 

2.2 The term of the Engagement shall continue until terminated by Kulr upon 30 days written notice to ESLI.

 

2.3 After such term and if agreed in writing: (i) the Engagement may continue for an unspecified term, and (ii) either party may terminate the Engagement with or without cause by giving the other party written notice of termination at least one (1) day prior to the date of termination.

 

3. Compensation .

 

3.1 Consulting Rate: As agreed to by the parties from time to time.

 

3.2 Maximum Number of Hours/Days: As agreed to by the parties from time to time.

 

3.3 Maximum Consulting Fee: As agreed to by the parties from time to time.

 

Confidential Page 9 of 11

 

 

EXHIBIT B

DESCRIPTION OF SERVICES TO BE PROVIDED BY ESLI

 

MHX Development

· Complete MHX-03 prototype for demo
· Dynatron Blower as the fan source
· Performance R < 0.33 C/W
· MHX with non-metalic enclosure
· Development plan to optimize for MHX customizaton
· Total Cost: $50K

 

MHX Customization

· Description: Customize MHX size and configuration for customers and partners.
· Work Scope:
o MHX for Sony Projector
o MHX for Intel CPU
o MHX for Nvidia GPU
o MHX for AMD CPU
o MHX for AMD GPU
· Development Cost: TBD from ESLI

 

PA-MHX

· Description: Next-generation non-metalic fiber-based air-cooled MHX device
· Work Scope and schedule:
o Design: Oct'13
o Prototyping: Nov-'13-Jan'14.
o Testing and Tuning
o Sample product: Mar'14.
o Performance Target: 
§ R < 0.3 C/W
§ Area: 2"x2" - 4"x4"
§ Height: <10mm
§ Weight: <100g
· Development Cost: TBD from ESLI

 

PL-MHX

· Description: Next-generation non-metalic fiber-based liquid-cooled MHX device. PL-MHX for chip interface and air-cooled Radiator
· Work Scope and schedule:
o Design: Based on PA-MHX. 
o Prototyping: Need to make PA-MHX water sealed. March'14
o Testing and Tuning
o Sample product: June'14.
· Performance Target: 
o R < 0.15 C/W
o Area: Any size
o Height: 
o Weight: <100g without liquid
· Development Cost: TBD from ESLI

 

Confidential Page 10 of 11

 

 

Carbon Fiber Vapor Chamber (FVC)

· Description: Non-metalic fiber based Vapor Chamber heat spreader
· Work Scope
o Design and prototyping: based on PL-MHX to make it air-tight to make VC
o Testing and Tuning
o Sample Product
· Application:

o PV-VC + PA/L-MHX for high perform heat sink application
· Performance Target: TBC
· Development Cost: TBD from ESLI

 

PV-PCM

· Description: Non-metalic fiber based PCM device
· Work Scope
o Design and prototyping: based on PL-MHX to hold paraffin for PCM.
o Testing and Tuning
o Sample Product
· Application:
o PV-PCM + VC + MHX
· Performance Target: TBD
· Development Cost: TBD from ESLI

Carbon Fiber Thermal Interface Material (FTI)

· Description: Fiber-based TIM that goes through adhesive
· Performance Target: TBD
· Development Cost: TBD from ESLI

 

Confidential Page 11 of 11

 

 

 

 

A udit • T ax • C onsulting • F inancial A dvisory

Registered with Public Company Accounting Oversight Board (PCAOB)

 

 

 

June 19, 2017

 

 

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

 

 

We have read Item 4.01 of the Current Report on Form 8-K dated June 19, 2017 of KT High-Tech Marketing, Inc. and are in agreement with the statements regarding our firm. We have no basis to agree or disagree with the other statements contained therein.

 

 

Very truly yours,

 

 

/s/ KCCW Accountancy Corp.

 

KCCW Accountancy Corp.

Alhambra, California

 

 

KCCW Accountancy Corp.

430 S. Garfield Ave., #489, Alhambra, CA 91801, USA

Tel: +1 626 282 4101 • Fax: +1 626 529 1580 • info@kccwcpa.com

 

 

 

Exhibit 21.1

 

 

List of Subsidiaries

 

Name of Subsidiaries   Jurisdiction
     
KULR Technology Corporation   Delaware

 

 

 

 

Exhibit 99.1

 

KULR TECHNOLOGY CORPORATION

 

FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

  Page
Report of Independent Registered Public Accounting Firm 1
   
Balance Sheets as of December 31, 2016 and 2015 2
   
Statements of Operations for the Years Ended December 31, 2016 and 2015 3
   
Statements of Changes in Stockholders' Equity (Deficiency) for the Years Ended December 31, 2016 and 2015 4
   
Statements of Cash Flows for the Years Ended December 31, 2016 and 2015 5
   
Notes to Financial Statements 6

 

 

 

   

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

KULR TECHNOLOGY CORPORATION

 

We have audited the accompanying balance sheets of KULR TECHNOLOGY CORPORATION (the “Company”) as of December 31, 2016 and 2015, and the related statements of operations, changes in stockholders’ deficiency and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of KULR TECHNOLOGY CORPORATION as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Chen & Fan Accountancy Corporation

 

Chen & Fan Accountancy Corporation

San Jose, California

May 3, 2017, except for Note 11, as to which the date is June 19, 2017

 

  1  

 

  

KULR TECHNOLOGY CORPORATION

 

Balance Sheets

 

    December 31,  
    2016     2015  
             
Assets                
                 
Current Assets:                
Cash   $ 9,087     $ 138,753  
Account receivable     6,900       3,300  
Note receivable - related party     85,000       -  
Interest receivable - related party     2,152       -  
Other current receivable     30,000       30,000  
Other current receivable - related parties     2,000       2,000  
Inventory     12,932       20,337  
Prepaid expenses and other current assets     15,992       8,474  
                 
Total Current Assets     164,063       202,864  
                 
Property and equipment, net     462       1,118  
                 
Total Assets   $ 164,525     $ 203,982  
                 
Liabilities and Stockholders' Deficiency                
                 
Current Liabilities:                
Accrued expenses and other current liabilities   $ 72,445     $ 117,121  
Accrued expenses and other current liabilities - related parties     359,241       117,609  
                 
Total Current Liabilities     431,686       234,730  
                 
Commitments and contingencies                
                 
Stockholders' Deficiency:                
Preferred stock, $0.0001 par value, 8,400,000 shares authorized;                
Series A Convertible Preferred Stock, 5,000,000 shares designated; 5,000,000 shares issued and outstanding     500       500  
Series A1 Convertible Preferred Stock, 3,400,000 shares designated; 1,833,334 and 0 shares issued and outstanding in 2016 and 2015, respectively     183       -  
Common stock, $0.0001 par value, 33,400,000 shares authorized; 21,500,000 shares issued and outstanding     2,150       2,150  
Additional paid-in capital     1,663,816       1,078,084  
Accumulated deficit     (1,933,810 )     (1,111,482 )
                 
Total Stockholders' Deficiency     (267,161 )     (30,748 )
                 
Total Liabilities and Stockholders' Deficiency   $ 164,525     $ 203,982  

 

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

 

  2  

 

  

KULR TECHNOLOGY CORPORATION

 

Statements of Operations

 

    For the Years Ended,  
    December 31,  
    2016     2015  
             
Revenues   $ 6,900     $ 3,300  
                 
Cost of revenues     7,749       2,583  
                 
Gross (Loss) Profit     (849 )     717  
                 
Operating Expenses:                
Research and development     29,404       3,640  
Research and development - related parties     395,322       379,481  
General and administrative     398,130       291,473  
                 
Total Operating Expenses     822,856       674,594  
                 
Loss From Operations     (823,705 )     (673,877 )
                 
Other Income:                
Interest income     25       114  
Interest income - related party     2,152       -  
                 
Total Other Income     2,177       114  
                 
Loss Before Income Taxes     (821,528 )     (673,763 )
                 
Income tax expense     800       800  
                 
Net Loss   $ (822,328 )   $ (674,563 )
                 
Net Loss Per Share                
- Basic and Diluted   $ (0.04 )   $ (0.05 )
                 
Weighted Average Number of Common Shares Outstanding                
- Basic and Diluted     19,492,059       12,814,117  

 

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

 

  3  

 

  

KULR TECHNOLOGY CORPORATION

 

Statements of Changes in Stockholders’ Equity (Deficiency)

For the Years Ended December 31, 2016 and 2015

 

                                                    Total  
    Convertible Preferred Stock                 Additional           Stockholders'  
    Series A     Series A1     Common Stock     Paid-In     Accumulated     Equity  
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     (Deficiency)  
                                                       
Balance - December 31, 2014     5,000,000     $ 500       -     $ -       21,500,000     $ 2,150     $ 1,048,104     $ (436,919 )   $ 613,835  
                                                                         
Stock-based compensation     -       -       -       -       -       -       29,980       -       29,980  
                                                                         
Net loss     -       -       -       -       -       -       -       (674,563 )     (674,563 )
                                                                         
Balance - December 31, 2015     5,000,000     $ 500       -     $ -       21,500,000     $ 2,150     $ 1,078,084     $ (1,111,482 )   $ (30,748 )
                                                                         
Issuance of Series A1 convertible preferred stock     -       -       1,833,334       183       -       -       549,817       -       550,000  
                                                                         
Stock-based compensation     -       -       -       -       -       -       35,915       -       35,915  
                                                                         
Net loss     -       -       -       -       -       -       -       (822,328 )     (822,328 )
                                                                         
Balance - December 31, 2016     5,000,000     $ 500       1,833,334     $ 183       21,500,000     $ 2,150     $ 1,663,816     $ (1,933,810 )   $ (267,161 )

 

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

 

  4  

 

   

KULR TECHNOLOGY CORPORATION

 

Statements of Cash Flows

 

    For the Years Ended  
    December 31,  
    2016     2015  
             
Cash Flows From Operating Activities                
Net loss   $ (822,328 )   $ (674,563 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     656       610  
Stock-based compensation     35,915       29,980  
Changes in operating assets and liabilities:                
Account receivable     (3,600 )     (3,300 )
Inventory     7,405       3,874  
Interest receivable - related party     (2,152 )     -  
Prepaid expenses and other current assets     (7,518 )     4,000  
Accrued expenses and other current liabilities     (44,676 )     71,408  
Accrued expenses and other current liabilities - related parties     241,632       57,401  
                 
Net Cash Used In Operating Activities     (594,666 )     (510,590 )
                 
Cash Flows From Investing Activities                
Issuance of note receivable - related party     (85,000 )     -  
                 
Net Cash Used In Investing Activities     (85,000 )     -  
                 
Cash Flows From Financing Activities                
Proceeds from issuance of Series A1 convertible preferred stock     550,000       -  
                 
Net Cash Provided By Financing Activities     550,000       -  
                 
Net Decrease in Cash     (129,666 )     (510,590 )
                 
Cash - Beginning of Year     138,753       649,343  
                 
Cash - End of Year   $ 9,087     $ 138,753  

 

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

 

  5  

 

  

KULR TECHNOLOGY CORPORATION

 

NOTES TO FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 1 – Business Organization and Nature of Operations

 

KULR Technology Corporation, a Delaware corporation (“KULR” or the “Company”), was formed in 2013 and is based in Santa Clara, California. KULR is primarily focused on commercializing its thermal management technologies in the high value, high-performance consumer electronic and energy storage applications. KULR owns proprietary carbon fiber based (Carbon Fiber Velvet or “CFV”) thermal management solutions that it believes are more effective at storing, conducting, and dissipating waste heat generated by an electronic system’s internal components (i.e. semiconductor, integrated circuits “chips”) in comparison to traditional materials, such as copper and aluminum. KULR’s technologies can be applied inside a wide array of electronic applications, such as mobile devices, cloud computing, virtual reality platforms, satellites, internet of things, drones, and connected cars. In addition to thermal management of electronic systems, KULR has developed a highly effective, passive energy storage solution for lithium ion batteries that has been tested and endorsed by the National Aeronautics and Space Administration (“NASA”).

 

Note 2 – Summary of Significant Accounting Policies

 

Use of Estimates

 

Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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, stock-based compensation, the collectability of receivables, inventory valuations, the recoverability and useful lives of long-lived assets 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 reasonably 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

 

The Company maintains cash in bank accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts, periodically evaluates the creditworthiness of the financial institutions and has determined the credit exposure to be negligible.

 

During the years ended December 31, 2016 and 2015, 100% of the Company’s revenues were generated from the same customer. As of December 31, 2016 and 2015, a receivable from the same customer comprised 100% of the Company’s total account receivable.

 

Accounts Receivable

 

Accounts receivable are carried at their contractual amounts, less an estimate for uncollectible amounts. As of December 31, 2016 and 2015, there were no allowances for uncollectable amounts. 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.

 

Loan and Other Receivables

 

The Company carries receivables from certain related and non-related parties. The receivables are carried at their contractual amounts. Management evaluates the collectability of the receivables at least quarterly. Management estimates the reserve for uncollectibility based on existing economic conditions, the financial conditions of the counterparties, and the amount and age of past due receivables. Receivables are considered past due if full payment is not received by the contractual due date. Past due amounts are generally written off against the reserve for uncollectibility only after all collection attempts have been exhausted. See Note 3 – Note Receivable – Related Party and Note 10 – Stockholders’ Deficiency – Common Stock for additional details.

 

Inventory

 

Inventory is comprised of CFV thermal management solutions which are available for sale. Inventories are stated at the lower of cost and net realizable value. Cost is determined by the first-in, first-out method. Inventory that is sold to third parties is included within cost of sales and 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. As of December 31, 2016 and 2015, the Company’s inventory was comprised solely of finished goods.

 

  6  

 

 

KULR TECHNOLOGY CORPORATION

 

NOTES TO FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

  

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. The Company’s property and equipment is comprised of computer equipment that has a useful life of three (3) years.

 

The Company reviews for the impairment of long-lived assets 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 estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.

 

Convertible Instruments

 

The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with Topic 815 of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”). The accounting treatment of derivative financial instruments requires that the Company record embedded conversion options and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. Embedded conversion options and any related freestanding instruments are recorded as a discount to the host instrument.

 

Fair Value of Financial Instruments

 

The Company measures the fair value of financial assets and liabilities based on the guidance of 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 instruments, such as cash, accounts receivable and accrued expenses and other current liabilities approximate fair values due to the short-term nature of these instruments. The carrying amounts of the Company’s short–term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates, are comparable to rates of returns for instruments of similar credit risk.

 

Revenue Recognition

 

The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. Sales are recognized upon shipment to the customer, free on board shipping point, or the point of customer acceptance.

 

During the years ended December 31, 2016 and 2015, the Company recognized $6,900 and $3,300, respectively, of revenue related to the sale of CFV thermal management solutions.

 

  7  

 

 

KULR TECHNOLOGY CORPORATION

 

NOTES TO FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

  

Research and Development

 

Research and development expenses are charged to operations as incurred. During the years ended December 31, 2016 and 2015, the Company incurred $424,726 and $383,121, respectively, of research and development expenses.

 

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. For employees, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. 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. The fair value of the Company’s restricted equity instruments was estimated by management based on observations of the cash sales prices of both restricted shares and freely tradable shares. Awards granted to directors are treated on the same basis as awards granted to employees. Upon the exercise of an option or warrant, the Company issues new shares of common stock out of its authorized shares.

 

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. During the years ended December 31, 2016 and 2015, 2,007,941 and 8,685,883 weighted average shares of unvested common stock, respectively, were excluded from weighted average common stock outstanding. Diluted net loss per common share is computed by dividing net loss by the weighted average number of vested common shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the conversion of preferred stock.

 

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

 

    December 31,  
    2016     2015  
Preferred stock     6,833,334       5,000,000  
Total potentially dilutive shares     6,833,334       5,000,000  

 

Subsequent Events

 

The Company has evaluated subsequent events through June 19, 2017, the date which the financial statements were available to be issued.

 

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, 2016 and 2015. 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 general and administrative expenses in the statements of operations.

 

  8  

 

 

KULR TECHNOLOGY CORPORATION

 

NOTES TO FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

  

Recently Issued Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ASC 605 - Revenue Recognition and most industry-specific guidance throughout the ASC. The standard requires that an entity recognizes 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. ASU 2014-09 should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. To allow entities additional time to implement systems, gather data and resolve implementation questions, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, in August 2015, to defer the effective date of ASU No. 2014-09 for one year, which is fiscal years beginning after December 15, 2017. The Company is currently evaluating the impact that the of adoption of this standard will have on its financial statements.

 

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 explicitly requires management to evaluate, at each annual or interim reporting period, whether there are conditions or events that exist which raise substantial doubt about an entity’s ability to continue as a going concern and to provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and annual and interim periods thereafter, with early adoption permitted. The Company adopted this standard effective January 1, 2015 and its adoption did not have a material impact on its financial statements.

 

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” (“ASU 2015-11”). ASU 2015-11 amends the existing guidance to require that inventory should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out or the retail inventory method. For public business entities, ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. ASU 2015-11 should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company adopted this standard effective January 1, 2015 and its adoption did not have a material impact on its financial statements.

 

In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”, or ASU 2015-17. The FASB issued ASU 2015-17 as part of its ongoing Simplification Initiative, with the objective of reducing complexity in accounting standards. The amendments in ASU 2015-17 require entities that present a classified balance sheet to classify all deferred tax liabilities and assets as a noncurrent amount. This guidance does not change the offsetting requirements for deferred tax liabilities and assets, which results in the presentation of one amount on the balance sheet. Additionally, the amendments in ASU 2015-17 align the deferred income tax presentation with the requirements in International Accounting Standards (IAS) 1, Presentation of Financial Statements.  The amendments in ASU 2015-17 are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company does not anticipate that the adoption of this standard will have a material impact on its financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”), which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective beginning in the first quarter of 2019. Early adoption of ASU 2016-02 is permitted. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact that the of adoption of this standard will have on its financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718)” (“ASU 2016-09”). ASU 2016-09 requires an entity to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company adopted this standard effective January 1, 2015 and its adoption did not have a material impact on its financial statements.

 

In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”). The amendments in this update clarify the following two aspects to Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The entity first identifies the promised goods or services in the contract and reduces the cost and complexity. An entity evaluates whether promised goods and services are distinct. Topic 606 includes implementation guidance on determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). ASU 2016-10 is effective for fiscal years beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company is currently evaluating the impact that the of adoption of this standard will have on its financial statements.

 

  9  

 

 

KULR TECHNOLOGY CORPORATION

 

NOTES TO FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

  

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). The new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017. The Company will require adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently evaluating the impact that the of adoption of this standard will have on its financial statements.

 

In October 2016, the FASB issued ASU No. 2016-17, “Consolidation (Topic 810) – Interests Held through Related Parties That Are under Common Control” (“ASU 2016-17”). ASU 2016-17 requires, when assessing which party is the primary beneficiary in a VIE, that the decision maker considers interests held by entities under common control on a proportionate basis instead of treating those interests as if they were that of the decision maker itself, as current GAAP requires. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2016. Early application is permitted in any interim or annual period. The Company adopted this standard effective January 1, 2015 and its adoption did not have a material impact on its financial statements.

 

In May 2017, the FASB issued ASU 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting" ("ASU 2017-09"), which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The standard is effective for annual periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company does not expect the adoption of ASU 2017-07 will have a material impact on its financial statements.

 

Liquidity and Management’s Plans

 

As of December 31, 2016, the Company had a cash balance, a working capital deficiency and an accumulated deficit of $9,087, $267,623 and $1,933,810, respectively. During the years ended December 31, 2016 and 2015, the Company incurred net losses of $822,328 and $674,563, respectively.

 

Subsequent to December 31, 2016, the Company received an aggregate of $800,000 associated with the issuance of promissory notes to a related party. In addition, the Company closed on a share exchange agreement with KT High-Tech Marketing, Inc. As a result of the subsequent financing and the closing of the share exchange agreement, the Company believes it has sufficient cash to sustain its operations for at least a year from the date of this filing. See Note 11 – Subsequent Events – Promissory Notes – Related Party and Note 11 – Subsequent Events – Share Exchange Agreement for additional details.

 

Note 3 – Note Receivable – Related Party

 

On April 11, 2016, the Company issued a one-year note receivable from its Chief Executive Officer (“CEO”) with a principal amount of $85,000 and an interest rate of 3.5% per year. As of December 31, 2016, the interest receivable in connection with the note was $2,152 which is included in current assets on the balance sheet. Subsequent to December 31, 2016, the Company’s CEO repaid the note and interest in full.

 

Note 4 – Prepaid Expenses and Other Current Assets

 

As of December 31, 2016 and 2015, prepaid expenses and other current assets consisted of the following:

 

    December 31,  
    2016     2015  
Prepaid conference fees   $ 4,844     $ -  
Prepaid salary     7,500       -  
Security deposit     3,648       8,474  
Total prepaid expenses and other current assets   $ 15,992     $ 8,474  

 

  10  

 

   

KULR TECHNOLOGY CORPORATION

 

NOTES TO FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 5 – Property and Equipment

 

As of December 31, 2016 and 2015, property and equipment consisted of the following:

  

    December 31,  
    2016     2015  
Computer equipment   $ 1,829     $ 1,829  
Less: accumulated deprecation     (1,367 )     (711 )
Property and equipment, net   $ 462     $ 1,118  

 

Depreciation expense amounted to $656 and $610 for the years ended December 31, 2016 and 2015, respectively, which is included in general and administrative expenses in the statements of operations.

 

Note 6 – Accrued Expenses and Other Current Liabilities

 

As of December 31, 2016, and 2015, accrued expenses and other current liabilities consisted of the following:

 

    December 31,  
    2016     2015  
Payroll tax payable   $ 36,422     $ 22,258  
Accrued professional fees     18,000       90,000  
Credit card payable     9,521       -  
Accrued research and development expenses     6,250       -  
Other     2,252       4,863  
Total accrued expenses and other current liabilities   $ 72,445     $ 117,121  

   

Note 7 – Accrued Expenses and Other Current Liabilities – Related Parties

 

As of December 31, 2016, and 2015, accrued expenses and other current liabilities – related parties consisted of the following:

 

    December 31,  
    2016     2015  
Accrued research and development expenses - related parties   $ 351,540     $ 108,719  
Accrued travel and other expenses - related party     -       1,390  
Due to related party     7,701       -  
Due to CEO     -       7,500  
Total accrued expenses and other current liabilities - related parties   $ 359,241     $ 117,609  

 

Accrued research and development expenses – related parties consists of (a) a liability of $77,500 and $32,000 as of December 31, 2016 and 2015, respectively, to the Company’s Chief Technology Officer (“CTO”) in connection with consulting services provided to the Company (See Note 9 – Commitments and Contingencies – License and Development Agreement); and (b) a liability of $274,040 and $76,718 as of December 31, 2016 and 2015, respectively, to Energy Science Laboratories, Inc. (“ESLI”), a company controlled by the Company’s CTO, in connection with consulting services provided to the Company associated with the development of the Company’s CFV thermal management solutions.

 

Due to related party consists of amounts owed to KT High-Tech Marketing, Inc., a Delaware corporation (“KT High-Tech”). The Company’s CEO is the President, CEO, director and controlling shareholder of KT High-Tech.

 

  11  

 

 

KULR TECHNOLOGY CORPORATION

 

NOTES TO FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

Note 8 – Income Taxes

 

The income tax provision (benefit) for the years ended December 31, 2016 and 2015 consists of the following:

 

    For The Years Ended  
    December 31,  
    2016     2015  
Federal:                
Current   $ -     $ -  
Deferred     (277,950 )     (228,225 )
                 
State and local:                
Current     800       800  
Deferred     (49,850 )     (41,075 )
      (327,000 )     (268,500 )
Change in valuation allowance     327,800       269,300  
Income tax provision (benefit)   $ 800     $ 800  

 

Only minimum state income tax obligations have been recorded for the years ended December 31, 2016 and 2015 because the Company had net operating losses for federal and state tax purposes. 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. The Company will perform a Section 382 analysis in the future. The related increase in the deferred tax asset was offset by the valuation allowance.

 

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

 

    For The Years Ended  
    December 31,  
    2016     2015  
Tax benefit at federal statutory rate     (34.0 )%     (34.0 )%
State income taxes, net of federal benefit     (5.9 )%     (5.9 )%
Permanent differences     0.1 %     0.1 %
Change in valuation allowance     39.9 %     39.9 %
Effective income tax rate     0.1 %     0.1 %

 

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, both positive and negative, management has determined that a full valuation allowance is necessary to reduce the deferred tax asset to zero, the amount that will more likely not be realized.

 

  12  

 

   

KULR TECHNOLOGY CORPORATION

 

NOTES TO FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

 

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

 

    For The Years Ended  
    December 31,  
    2016     2015  
Deferred Tax Assets:                
Net operating loss carryforward   $ 722,500     $ 407,500  
Stock-based compensation     33,900       19,500  
Accruals     -       1,600  
Gross deferred tax assets     756,400       428,600  
                 
Valuation allowance     (756,400 )     (428,600 )
                 
Deferred tax asset, net of valuation allowance   $ -     $ -  
                 
Changes in valuation allowance   $ 327,800     $ 269,300  

 

At December 31, 2016 and 2015, the Company had net operating loss carry forwards for federal and state income tax purposes of approximately $1.8 million and $1.0 million, respectively, which may be used to offset future taxable income through 2036, subject to the Company filing delinquent tax returns for 2015 and 2014. Accordingly, most of the federal and state NOLs described herein will not be available to offset future taxable income until the outstanding tax returns are filed with the respective federal and state tax authorities.

 

The Company’s tax returns are subject to examination by tax authorities beginning with the year ended December 31, 2013.

 

Note 9 – Commitments and Contingencies

 

Operating Lease

 

On September 2, 2014, the Company entered into a lease agreement to lease 5,296 square feet of space located in San Diego, California with respect to its research and development activities. The monthly base rent ranged from $4,237 to $4,364 per month over the term of the lease. In connection with the lease, the Company paid the landlord a security deposit of $8,474. The aggregate base rent payable over the lease term was recognized on a straight-line basis. During the years ended December 31, 2016 and 2015, the Company recognized rent expense of $53,822 and $52,831, respectively. The lease expired on November 30, 2016.

 

In November 2016, the Company declined to extend the lease, however, the parties agreed to transfer the property, under a new lease agreement, to KT High-Tech beginning in January of 2017. Under this new agreement, KULR agreed to pay rent for the month of December in the amount of $4,825, which reduced the security deposit on hand. The landlord returned the remaining security deposit of $3,647 to KULR in January 2017.

 

Consulting Agreements

 

On June 2, 2014, the Company entered into consulting agreements with its CEO and CTO. The agreements provide for a monthly retainer of $6,250 for June 2014 through November 2014 and $6,500 thereafter. The term of each agreement is twelve months and provide for automatic extensions, in the absence of termination. The consulting agreements were terminated in connection with the closing of the share exchange agreement discussed in Note 11 – Subsequent Events – Share Exchange Agreement.

 

On June 16, 2016, the Company entered into a one-year agreement with a consultant to provide research and development consulting services to the Company. The agreement provides for an annual retainer of $50,000 payable monthly or quarterly.

 

License and Development Agreement

 

On April 15, 2013, the Company entered into a license and development agreement with ESLI, whereby ESLI agreed to grant to the Company and its affiliates an irrevocable, exclusive, fully paid, royalty free, sublicensable, world-wide license to use, make, have made, develop, create derivative works, sell, offer to sell, import products and/or services which use all or a portion of the thermal management technologies and thermal intellectual property for all markets other than military, aerospace and defense applications. On April 15, 2015, the Company and ESLI entered into a consulting agreement, whereby the parties agreed that ESLI would provide certain research and development services to the Company. Either party may terminate the engagement without cause by providing the other party with a written notice of termination. See Note 7 – Accrued Expenses and Other Current Liabilities – Related Parties for additional details.

 

  13  

 

 

KULR TECHNOLOGY CORPORATION

 

NOTES TO FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

  

Note 10 – Stockholders’ Deficiency

 

Authorized Capital

 

The Company is authorized to issue 33,400,000 shares of common stock, par value of $0.0001 per share, and 8,400,000 shares of preferred stock, par value of $0.0001 per share. The preferred stock is designated as follows: 5,000,000 shares designated as Series A Convertible Preferred Stock and 3,400,000 shares designated as Series A1 Convertible Preferred Stock.

 

Preferred Stock

 

Series A Convertible Preferred Stock

 

On August 22, 2014, the Company sold an aggregate of 5,000,000 shares of Series A Convertible Preferred Stock to investors at a price of $0.20 per share for aggregate proceeds of $1,000,000.

 

The Series A Convertible Preferred Stock is convertible, at the option of the holder, at any time into such number of shares of common stock determined by dividing $0.20 (subject to adjustment as defined in the Certificate of Incorporation) (the “Series A Original Issue Price”) by the then applicable conversion price, which is defined as $0.20 per share (subject to adjustment as defined in the Certificate of Incorporation) (the “Series A Conversion Price”) (such number of shares of common stock into which each share of Series A Convertible Preferred Stock may be converted is defined as the “Series A Conversion Rate”). In the event of any issuances by the Company less than the in-force Series A Conversion Price (excluding certain specified issuance as defined in the Certificate of Incorporation), the Series A Conversion Price shall be reduced on a weighted average basis.

 

Each share of Series A Convertible Preferred Stock shall automatically be converted into shares of common stock at the Series A Conversion Rate upon: (i) the closing of a firm underwritten public offering pursuant to an effective registration statement covering the offer and sale of common stock at a price per share equal to three times the Series A Original Issue Price and for a total offering of at least $15,000,000; or (ii) the receipt by the Company of a written request for such conversion from the holders of a majority of the shares of the Series A Convertible Preferred Stock then outstanding. See Note 11 – Subsequent Events – Preferred Stock for additional details.

 

In the event of the Company’s liquidation, dissolution or winding up, holders of Series A Convertible Preferred Stock will be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of common stock, an amount per share for each share of the Series A Convertible Preferred Stock held by them equal to the sum of (i) $0.20 per share (subject to adjustment as defined in the Certificate of Incorporation) and (ii) all declared but unpaid dividends. Except as otherwise required by law, the holders of shares of Series A Convertible Preferred Stock shall vote on an as-if-converted-to-common-stock basis with the common stock. In any calendar year, the holders of shares of Series A Convertible Preferred Stock shall be entitled to receive non-cumulative dividends, when, as and if declared by the Company’s Board of Directors. at an annual rate of 5%. As of the date of filing, no dividends have been declared by the Company’s Board of Directors.

 

Series A1 Preferred Stock

 

On September 30, 2016, the Company sold an aggregate of 1,333,334 shares of Series A1 Convertible Preferred Stock to investors at a price of $0.30 per share for aggregate cash consideration of $550,000; plus another 500,000 shares of Series A1 Convertible Preferred Stock that were exchanged for $150,000 of legal services provided to the Company.

 

The Series A1 Convertible Preferred Stock is convertible, at the option of the holder, at any time into such number of shares of common stock determined by dividing $0.30 (subject to adjustment as defined in the Certificate of Incorporation) (the “Series A1 Original Issue Price”) by the then applicable conversion price, which is defined as $0.30 per share (subject to adjustment as defined in the Certificate of Incorporation) (the “Series A1 Conversion Price”) (such number of shares of common stock into which each share of Series A1 Convertible Preferred Stock by be converted is defined as the “Series A1 Conversion Rate”). In the event of any issuances by the Company less than the in-force Series A1 Conversion Price (excluding certain specified issuance as defined in the Certificate of Incorporation), the Series A1 Conversion Price shall be reduced on a weighted average basis.

 

  14  

 

 

KULR TECHNOLOGY CORPORATION

 

NOTES TO FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

  

Each share of Series A1 Convertible Preferred Stock shall automatically be converted into shares of common stock at the Series A1 Conversion Rate upon: (i) the closing of a firm underwritten public offering pursuant to an effective registration statement covering the offer and sale of common stock at a price per share equal to three times the Series A1 Original Issue Price and for a total offering of at least $15,000,000; or (ii) the receipt by the Company of a written request for such conversion from the holders of a majority of the shares of the Series A1 Convertible Preferred Stock then outstanding. See Note 11 – Subsequent Events – Preferred Stock for additional details.

 

In the event of the Company’s liquidation, dissolution or winding up, holders of Series A1 Convertible Preferred Stock will be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of common stock, an amount per share for each share of the Series A1 Convertible Preferred Stock held by them equal to the sum of (i) $0.30 per share (subject to adjustment as defined in the Certificate of Incorporation) and (ii) all declared but unpaid dividends. Except as otherwise required by law, the holders of shares of Series A1 Convertible Preferred Stock shall vote on an as-if-converted-to-common-stock basis with the common stock. In any calendar year, the holders of shares of Series A1 Convertible Preferred Stock shall be entitled to receive non-cumulative dividends, when, as and if declared by the Company’s Board of Directors at an annual rate of 5%. As of the date of filing, no dividends have been declared by the Company’s Board of Directors.

 

Common Stock

 

During 2013, the Company issued an aggregate of 20,000,000 shares of restricted common stock to the two founding officers of the Company for aggregate consideration of $2,000. As of December 31, 2016 and 2015, the consideration had not been received and was included within other current receivable – related parties on the balance sheets. The shares are subject to the right of the Company to repurchase the shares (the “Repurchase Option”) according to the following schedule: (a) one-third (1/3 rd ) of the total number of shares shall be released from the Repurchase Option on July 31, 2014; thereafter, (b) one-thirty-sixth (1/36 th ) of the total number of shares shall be released from the Repurchase Option on the corresponding day of each following month.

 

During 2014, the Company issued an aggregate of 1,500,000 shares of restricted common stock to certain consultants of the Company for aggregate consideration of $30,000. As of December 31, 2016 and 2015, the consideration had not been received and was included within other current receivable on the balance sheets. The shares are subject to the Company’s Repurchase Option according to the following schedule: (a) one-fourth (1/4 th ) of the total number of shares shall be released from the Repurchase Option on the anniversary of the issuance date; thereafter, (b) one-forty-eighth (1/48 th ) of the total number of shares shall be released from the Repurchase Option on the corresponding day of each following month. The Company will recognize stock-based compensation expense ratably over the term of the Repurchase Option based upon the difference between the fair value the award (re-measured on vesting dates and interim financial reporting dates until the service period is complete) and the consideration of each award. During the years ended December 31, 2016 and 2015, the Company recognized stock-based compensation expense of $35,915 and $29,980, respectively, which is included within general and administrative expenses on the statements of operations. As of December 31, 2016, there was $66,958 of unrecognized stock-based compensation expense, subject to re-measurement, that will be recognized over the weighted average remaining vesting period of 1.38 years.

 

Subsequent to December 31, 2016, aggregate consideration of $32,000 related to the above was received by the Company.

 

Note 11 – Subsequent Events

 

Promissory Notes

 

On March 31, 2017, the Company issued to KT High-Tech a promissory note in the principal amount of $300,000. The note carries an interest rate equal to 8% per annum and accrued interest and principal are due and payable on March 31, 2018. The Company received $200,000 during the three months ended March 31, 2017 and the remaining $100,000 on April 25, 2017.

 

On June 8, 2017, the Company issued to KT High-Tech a promissory note in the principal amount of $500,000 (paid in cash immediately). The note carries an interest rate equal to 8% per annum and accrued interest and principal are due and payable on March 31, 2018.

 

Common Stock

 

On May 16, 2017, the Company cancelled an aggregate of 3,333,334 shares of the Company’s common stock.

 

  15  

 

 

KULR TECHNOLOGY CORPORATION

 

NOTES TO FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

  

Preferred Stock

 

On May 25, 2017, the holders of the Company’s Series A Convertible Preferred Stock and Series A1 Convertible Preferred Stock provided notice to the Company of their election to convert 100% of the outstanding shares of preferred stock into an aggregate of 6,833,334 shares of common stock.

 

Share Exchange Agreement

 

On June 19, 2017 (the “Closing Date”), KT High-Tech closed a share exchange agreement (the “Share Exchange Agreement”) with KULR and 100% of the shareholders of KULR (the “KULR Shareholders”) whereby KULR Shareholders, holding all of the 25,000,000 common stock or common stock equivalents issued and outstanding of KULR, transferred those shares of KULR to KT High-Tech in exchange for an aggregate of 50,000,000 newly issued shares of common stock, par value $0.0001 per share, of KT High-Tech (the “KT High-Tech Common Stock”). The aggregate of 50,000,000 newly issued KT High-Tech Common Stock represents approximately 64.57% of the outstanding shares of common stock of KT High-Tech following the Closing Date. Upon the closing of the Share Exchange Agreement, KULR became a wholly owned subsidiary of KT High-Tech. Accordingly, KT High-Tech, through its subsidiary KULR, will primarily focus its operations on KULR’s thermal management business. In addition, KT High-Tech plans to continue to develop opportunities in marketing and distributing products targeted at the internet of things (IoT), mobile and energy storage industries.

 

Based on these facts, the closing of the Share Exchange Agreement was accounted for as a reverse recapitalization under the provisions of ASC 805-40 Business Combinations – Reverse Acquisitions, with KULR being the acquirer for accounting purposes and KT High-Tech being the accounting acquiree.

 

  16  

 

Exhibit 99.2 

 

KULR TECHNOLOGY CORPORATION

 

FINANCIAL STATEMENTS

 

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016

 

  Page
Condensed Balance Sheets as of March 31, 2017 (unaudited) and December 31, 2016 1
   
Unaudited Condensed Statements of Operations for the Three Months Ended March 31, 2017 and 2016 2
   

Unaudited Condensed Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016

3
   
Notes to Unaudited Condensed Financial Statements 4

 

 

 

 

KULR TECHNOLOGY CORPORATION

 

Condensed Balance Sheets

 

    March 31,     December 31,  
    2017     2016  
    (unaudited)        
Assets                
                 
Current Assets:                
Cash   $ 50,174     $ 9,087  
Account receivable     -       6,900  
Inventory     12,932       12,932  
Note receivable - related party     85,000       85,000  
Interest receivable - related party     2,885       2,152  
Other current receivable     30,000       30,000  
Other current receivable - related parties     2,000       2,000  
Prepaid expenses and other current assets     8,000       15,992  
                 
Total Current Assets     190,991       164,063  
                 
Property and equipment, net     309       462  
                 
Total Assets   $ 191,300     $ 164,525  
                 
Liabilities and Stockholders' Deficiency                
                 
Current Liabilities:                
Accrued expenses and other current liabilities   $ 98,998     $ 72,445  
Accrued expenses and other current liabilities - related parties     375,276       359,241  
Note payable - related party     200,000       -  
                 
Total Current Liabilities     674,274       431,686  
                 
Commitments and contingencies                
                 
Stockholders' Deficiency:                
Preferred stock, $0.0001 par value, 8,400,000 shares authorized;                
Series A Convertible Preferred Stock, 5,000,000 shares designated; 5,000,000 shares issued and outstanding     500       500  
Series A1 Convertible Preferred Stock, 3,400,000 shares designated; 1,833,334 shares issued and outstanding     183       183  
Common stock, $0.0001 par value, 33,400,000 shares authorized; 21,500,000 shares issued and outstanding     2,150       2,150  
Additional paid-in capital     1,675,827       1,663,816  
Accumulated deficit     (2,161,634 )     (1,933,810 )
                 
Total Stockholders' Deficiency     (482,974 )     (267,161 )
                 
Total Liabilities and Stockholders' Deficiency   $ 191,300     $ 164,525  

 

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

 

  1  

 

  

KULR TECHNOLOGY CORPORATION

 

Condensed Statements of Operations

 

(unaudited)

 

    For the Three Months Ended,  
    March 31,  
    2017     2016  
             
Revenues   $ -     $ 3,300  
                 
Cost of revenues     -       2,583  
                 
Gross Profit     -       717  
                 
Operating Expenses:                
Research and development     13,180       -  
Research and development - related parties     131,115       109,379  
General and administrative     81,744       90,296  
                 
Total Operating Expenses     226,039       199,675  
                 
Loss From Operations     (226,039 )     (198,958 )
                 
Other Income (Expense):                
Interest income     -       5  
Interest income - related party     734       -  
Interest expense - related party     (2,319 )     -  
                 
Total Other (Expense) Income     (1,585 )     5  
                 
Loss Before Income Taxes     (227,624 )     (198,953 )
                 
Income tax expense     200       200  
                 
Net Loss   $ (227,824 )   $ (199,153 )
                 
Net Loss Per Share                
- Basic and Diluted   $ (0.01 )   $ (0.01 )
                 
Weighted Average Number of Common Shares Outstanding                
- Basic and Diluted     21,014,583       17,312,538  

 

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

 

  2  

 

  

KULR TECHNOLOGY CORPORATION

 

Condensed Statements of Cash Flows

 

(unaudited)

 

    For the Three Months Ended  
    March 31,  
    2017     2016  
             
Cash Flows From Operating Activities                
Net loss   $ (227,824 )   $ (199,153 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     153       189  
Stock-based compensation     12,011       7,474  
Changes in operating assets and liabilities:                
Account receivable     6,900       -  
Inventory     -       2,583  
Interest receivable - related party     (733 )     -  
Prepaid expenses and other current assets     7,992       -  
Accrued expenses and other current liabilities     26,553       21,379  
Accrued expenses and other current liabilities - related parties     16,035       74,401  
                 
Net Cash Used In Operating Activities     (158,913 )     (93,127 )
                 
Cash Flows From Financing Activities                
Proceeds from loan from related party     200,000       -  
                 
Net Cash Provided By Financing Activities     200,000       -  
                 
Net Increase (Decrease) in Cash     41,087       (93,127 )
                 
Cash - Beginning of Period     9,087       138,753  
                 
Cash - End of Period   $ 50,174     $ 45,626  

 

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

 

3  

 

  

KULR TECHNOLOGY CORPORATION

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016

 

(UNAUDITED)

 

Note 1 – Business Organization, Nature of Operations and Basis of Presentation

 

Organization and Operations

 

KULR Technology Corporation, a Delaware corporation (“KULR” or the “Company”), was formed in 2013 and is based in Santa Clara, California. KULR is primarily focused on commercializing its thermal management technologies in the high value, high-performance consumer electronic and energy storage applications. KULR owns proprietary carbon fiber based (Carbon Fiber Velvet or “CFV”) thermal management solutions that it believes are more effective at storing, conducting, and dissipating waste heat generated by an electronic system’s internal components (i.e. semiconductor, integrated circuits “chips”) in comparison to traditional materials, such as copper and aluminum. KULR’s technologies can be applied inside a wide array of electronic applications, such as mobile devices, cloud computing, virtual reality platforms, satellites, internet of things, drones, and connected cars. In addition to thermal management of electronic systems, KULR has developed a highly effective, passive energy storage solution for lithium ion batteries that has been tested and endorsed by the National Aeronautics and Space Administration (“NASA”).

 

Basis of Presentation

 

The accompanying unaudited condensed 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. 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 condensed financial statements of the Company as of March 31, 2017 and for the three months ended March 31, 2017 and 2016. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the operating results for the full year ending December 31, 2017 or any other period. These condensed financial statements should be read in conjunction with the audited financial statements and related disclosures of the Company as of December 31, 2016 and for the year then ended, which are included within Exhibit 99.1 of this Current Report on Form 8-K.

 

Note 2 – Summary of Significant Accounting Policies

 

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, stock-based compensation, the collectability of receivables, inventory valuations, the recoverability and useful lives of long-lived assets 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 reasonably 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

 

The Company maintains cash in bank accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts, periodically evaluates the creditworthiness of the financial institutions and has determined the credit exposure to be negligible.

 

During the three months ended March 31, 2016, 100% of the Company’s revenues were generated from the same customer. As of December 31, 2016, a receivable from the same customer comprised 100% of the Company’s total account receivable.

 

Inventory

 

Inventory is comprised of CFV thermal management solutions which are available for sale. Inventories are stated at the lower of cost and net realizable value. Cost is determined by the first-in, first-out method. Inventory that is sold to third parties is included within cost of sales and 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. As of March 31, 2017 and December 31, 2016, the Company’s inventory was comprised solely of finished goods.

 

4  

 

   

KULR TECHNOLOGY CORPORATION

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016

 

(UNAUDITED)

 

Convertible Instruments

 

The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with Topic 815 of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”). The accounting treatment of derivative financial instruments requires that the Company record embedded conversion options and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. Embedded conversion options and any related freestanding instruments are recorded as a discount to the host instrument.

 

Fair Value of Financial Instruments

 

The Company measures the fair value of financial assets and liabilities based on the guidance of 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 instruments, such as cash, accounts receivable and accrued expenses and other current liabilities approximate fair values due to the short-term nature of these instruments. The carrying amounts of the Company’s short–term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates, are comparable to rates of returns for instruments of similar credit risk.

 

Revenue Recognition

 

The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. Sales are recognized upon shipment to the customer, free on board shipping point, or the point of customer acceptance.

 

During the three months ended March 31, 2017 and 2016, the Company recognized $0 and $3,300, respectively, of revenue related to the sale of CFV thermal management solutions.

 

Research and Development

 

Research and development expenses are charged to operations as incurred. During the three months ended March 31, 2017 and 2016, the Company incurred $144,295 and $109,379, respectively, of research and development expenses

 

5  

 

   

KULR TECHNOLOGY CORPORATION

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016

 

(UNAUDITED)

 

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. For employees, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. 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. The fair value of the Company’s restricted equity instruments was estimated by management based on observations of the cash sales prices of both restricted shares and freely tradable shares. Awards granted to directors are treated on the same basis as awards granted to employees. Upon the exercise of an option or warrant, the Company issues new shares of common stock out of its authorized shares.

 

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. During the three months ended March 31, 2017 and 2016, 485,417 and 4,187,462 shares of unvested common stock, respectively, were excluded from weighted average common stock outstanding. Diluted net loss per common share is computed by dividing net loss by the weighted average number vested of common shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the conversion of preferred stock.

 

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

 

    March 31,  
    2017     2016  
Preferred stock     6,833,334       5,000,000  
Total potentially dilutive shares     6,833,334       5,000,000  

 

Subsequent Events

 

The Company has evaluated subsequent events through June 19, 2017, the date which the financial statements were available to be issued.

 

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 March 31, 2017 and December 31, 2016. 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 general and administrative expenses in the condensed statements of operations.

 

Liquidity and Management’s Plans

 

As of March 31, 2017, the Company had a cash balance, a working capital deficiency and an accumulated deficit of $50,174, $483,283 and $2,161,634, respectively. During the three months ended March 31, 2017, the Company incurred a net loss of $227,824.

 

6  

 

   

KULR TECHNOLOGY CORPORATION

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016

 

(UNAUDITED)

 

Subsequent to March 31, 2017, the Company received an aggregate of $600,000 associated with the issuance of promissory notes to a related party. In addition, the Company closed on a share exchange agreement with KT High-Tech Marketing, Inc. As a result of the subsequent financing and the closing of the share exchange agreement, the Company believes it has sufficient cash to sustain its operations for at least a year from the date of this filing. See Note 6 – Note Payable – Related Party, Note 10 – Subsequent Events – Promissory Note – Related Party and Note 10 – Subsequent Events – Share Exchange Agreement for additional details.

 

Note 3 – Prepaid Expenses and Other Current Assets

 

As of March 31, 2017 and December 31, 2016, prepaid expenses and other current assets consisted of the following:

 

    March 31, 2017     December 31, 2016  
    (unaudited)        
Prepaid conference fees   $ -     $ 4,844  
Prepaid legal fees     8,000       -  
Prepaid salary     -       7,500  
Security deposit     -       3,648  
Total prepaid expenses and other current assets   $ 8,000     $ 15,992  

 

Note 4 – Accrued Expenses and Other Current Liabilities

 

As of March 31, 2017 and December 31, 2016, accrued expenses and other current liabilities consisted of the following:

 

    March 31, 2017     December 31, 2016  
    (unaudited)        
Payroll tax payable   $ 39,963     $ 36,422  
Accrued professional fees     39,000       18,000  
Credit card payable     7,168       9,521  
Accrued research and development expenses     10,416       6,250  
Other     2,452       2,252  
Total accrued expenses and other current liabilities   $ 98,998     $ 72,445  

  

Note 5 – Accrued Expenses and Other Current Liabilities – Related Parties

 

As of March 31, 2017 and December 31, 2016, accrued expenses and other current liabilities – related parties consisted of the following:

 

    March 31, 2017     December 31, 2016  
    (unaudited)        
Accrued research and development expenses - related parties   $ 332,656     $ 351,540  
Due to related party     40,301       7,701  
Interest payable - related party     2,319       -  
Total accrued expenses and other current liabilities - related parties   $ 375,276     $ 359,241  

 

Accrued research and development expenses – related parties consists of (a) a liability of $97,000 and $77,500 as of March 31, 2017 and December 31, 2016, respectively, to the Company’s Chief Technology Officer (“CTO”) in connection with consulting services provided to the Company; and (b) a liability of $235,656 and $274,040 as of March 31, 2017 and December 31, 2016, respectively, to Energy Science Laboratories, Inc. (“ESLI”), a company controlled by the Company’s CTO, in connection with consulting services provided to the Company associated with the development of the Company’s CFV thermal management solutions.

 

7  

 

   

KULR TECHNOLOGY CORPORATION

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016

 

(UNAUDITED)

 

Due to related party consists of amounts owed to KT High-Tech Marketing, Inc., a Delaware corporation (“KT High-Tech”). The Company’s CEO is the President, CEO, director and controlling shareholder of KT High-Tech.

 

Note 6 – Note Payable – Related Party

 

On March 31, 2017, the Company issued to KT High-Tech a promissory note in principal amount of $300,000, of which, $100,000 was received on each of January 17, 2017, February 27, 2017 and April 25, 2017. The note carries an interest rate equal to 8% per annum and accrued interest and principal are due and payable on March 31, 2018. Interest accrues from the date on which the Company receives the loans. As of March 31, 2017, accrued interest was $2,319.

 

Note 7 – Stockholders’ Deficiency

 

Common Stock

 

During the years ended March 31, 2017 and 2016, the Company recognized stock-based compensation expense of $12,011 and $7,474, respectively, which is included within general and administrative expenses on the condensed statements of operations. As of March 31, 2017, there was $54,945 of unrecognized stock-based compensation expense, subject to re-measurement, that will be recognized over the weighted average remaining vesting period of 1.14 years.

 

Note 8 – Subsequent Events

 

Promissory Note

 

On June 8, 2017, the Company issued to KT High-Tech a promissory note in the principal amount of $500,000. The note carries an interest rate equal to 8% per annum and accrued interest and principal are due and payable on March 31, 2018. The Company received $500,000 on June 8, 2017.

 

Note Receivable – Related Party

 

On June 13, 2017, the Company’s CEO repaid the $85,000 note receivable as well as accrued interest in the amount of $3,488.

 

Common Stock

 

On May 16, 2017, the Company cancelled an aggregate of 3,333,334 shares of the Company’s common stock.

 

Preferred Stock

 

On May 25, 2017, the holders of the Company’s Series A Convertible Preferred Stock and Series A1 Convertible Preferred Stock provided notice to the Company of their election to convert 100% of the outstanding shares of preferred stock into an aggregate of 6,833,334 shares of common stock.

 

Share Exchange Agreement

 

On June 19, 2017 (the “Closing Date”), KT High-Tech closed a share exchange agreement (the “Share Exchange Agreement”) with KULR and 100% of the shareholders of KULR (the “KULR Shareholders”) whereby KULR Shareholders, holding all of the 25,000,000 common stock or common stock equivalents issued and outstanding of KULR, transferred those shares of KULR to KT High-Tech in exchange for an aggregate of 50,000,000 newly issued shares of common stock, par value $0.0001 per share, of KT High-Tech (the “KT High-Tech Common Stock”). The aggregate of 50,000,000 newly issued KT High-Tech Common Stock represents approximately 64.57% of the outstanding shares of common stock of KT High-Tech following the Closing Date. Upon the closing of the Share Exchange Agreement, KULR became a wholly owned subsidiary of KT High-Tech. Accordingly, KT High-Tech, through its subsidiary KULR, will primarily focus its operations on KULR’s thermal management business. In addition, KT High-Tech plans to continue to develop opportunities in marketing and distributing products targeted at the internet of things (IoT), mobile and energy storage industries.

 

Based on these facts, the closing of the Share Exchange Agreement was accounted for as a reverse recapitalization under the provisions of ASC 805-40 Business Combinations – Reverse Acquisitions, with KULR being the acquirer for accounting purposes and KT High-Tech being the accounting acquiree.

 

8  

   

 

Exhibit 99.3

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

On June 19, 2017, the stockholders of KULR Technology Corporation (“KULR” and the “KULR Stockholders”) sold all of their common stock holdings in KULR in exchange for KT High-Tech Marketing Inc. (“KT High-Tech” or the “Company”) common stock. KT High-Tech’s issuance of an aggregate of 50,000,000 shares of the Company’s common stock to the KULR Stockholders was pursuant to a Share Exchange Agreement dated June 8, 2017.

 

The unaudited pro forma condensed combined balance sheet as of March 31, 2017 assumes that the Share Exchange Agreement closing date took place on March 31, 2017 and combines the historical balance sheets of KULR and KT High-Tech as of March 31, 2017. The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2017 and the year ended December 31, 2016 assumes that the Share Exchange Agreement closing date took place on January 1, 2016, and combines the historical results of KULR and KT High-Tech for those periods.

 

The following unaudited pro forma condensed combined financial statements give effect to the reverse recapitalization between KULR and KT High-Tech pursuant to the Share Exchange Agreement, and are presented herein for illustrative purposes and are not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had KULR and KT High-Tech been a combined company during the specified periods. The unaudited pro forma condensed combined financial statements do not give effect to the potential impact of any cost savings or operating efficiencies that may result from the transaction or the costs to achieve such cost savings or operating efficiencies.

 

These unaudited pro forma condensed combined financial statements were prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and are based on assumptions and adjustments described in the accompanying notes. The historical results of operations of KULR will be reflected as the results of operations of the Company following the Share Exchange closing date.

 

KULR was determined to be the accounting acquirer based upon the terms of the Share Exchange Agreement and other factors including:

 

(i) The KULR Stockholders beneficially own approximately 64.57% of KULR’s common stock on a fully-diluted basis following the Share Exchange. 

 

(ii) In connection with the closing of the Share Exchange Agreement, KULR representatives share in the director and officer responsibilities of the combined company.

 

KT High-Tech’s historical financial information was derived from, and should be read in conjunction with, its audited financial statements for the year ended December 31, 2016 (as filed in its Annual Report on Form 10-K with the Securities and Exchange Commission (the “SEC”) on March 30, 2017) and its unaudited financial statements for the three months ended March 31, 2017 (as filed in its Quarterly Report on Form 10-Q with the SEC on May 22, 2017). KULR’s financial information for the year ended December 31, 2016 was derived from, and should be read in conjunction with, its audited financial statements for the year ended December 31, 2016, as filed as exhibit 99.1 to this filing. KULR’s financial information for the three months ended March 31, 2017 was derived from, and should be read in conjunction with, its unaudited financial statements for the three months ended March 31, 2017, filed as exhibit 99.2 to this filing. The foregoing financial information should be read in conjunction with KT High-Tech’s previously filed Current Report on Form 8-K, dated June 12, 2017 as filed with the SEC.

 

  1  

 

  

KT HIGH-TECH MARKETING, INC.

Unaudited Pro Forma Condensed Combined Balance Sheet

March 31, 2017

 

                Pro Forma         Pro Forma  
    KT High-Tech     KULR     Adjustments     Notes   Combined  
                             
Assets                                    
Current Assets:                                    
                    $ 89,885     A        
Cash   $ 2,068,924     $ 50,174       496,000     B   $ 2,704,983  
Inventory     -       12,932       -           12,932  
                      (85,000 )   A        
Loans receivable from related party     200,000       85,000       (200,000 )   E     -  
                      (2,885 )   A        
Interest receivable - related party     2,139       2,885       (2,139 )   F     -  
Other receivable     -       30,000       -           30,000  
                      (2,000 )   A        
Other receivable - related party     35,634       2,000       (35,634 )   G     -  
Prepaid expenses and other current assets     65,511       8,000       -           73,511  
Total Current Assets     2,372,208       190,991       258,227           2,821,426  
Property and equipment, net     -       309       -           309  
Total Assets   $ 2,372,208     $ 191,300     $ 258,227         $ 2,821,735  
                                     
Liabilities and Stockholders' Equity (Deficiency)                                    
                                     
Current Liabilities:                                    
Accrued expenses and other current liabilities   $ 9,984     $ 98,998     $ -         $ 108,982  
                      (2,139 )   F        
Accrued expenses and other current liabilities - related party     -       375,276       (35,634 )   G     337,503  
Loan payable - related party     -       200,000       (200,000 )   E     -  
Total Liabilities     9,984       674,274       (237,773 )         446,485  
Commitments and contingencies                                    
Stockholders' Equity (Deficiency):                                    
Preferred stock, Series A convertible, $0.0001 par value     -       500       (500 )   C     -  
Preferred stock, Series A1 convertible, $0.0001 par value     -       183       (183 )   C     -  
                      50     B        
                      683     C        
                      (333 )   D        
Common stock, $0.0001 par value     2,694       2,150       2,500     I     7,744  
Discount on common stock     (2,060 )     -       -           (2,060 )
                      495,950     B        
                      333     D        
                      (191,575 )   H        
Additional paid-in-capital     2,553,165       1,675,827       (2,500 )   I     4,531,200  
Accumulated deficit     (191,575 )     (2,161,634 )     191,575     H     (2,161,634 )
Total Stockholders' Equity (Deficiency)     2,362,224       (482,974 )     496,000           2,375,250  
Total Liabilities and Stockholders' Equity (Deficiency)   $ 2,372,208     $ 191,300     $ 258,227         $ 2,821,735  

 

See notes to these unaudited pro forma condensed combined financial statements

 

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KT HIGH-TECH MARKETING, INC.

Unaudited Pro Forma Condensed Combined Statement of Operations

Three Months Ended March 31, 2017

 

                Pro Forma         Pro Forma  
    KT High-Tech     KULR     Adjustments     Notes   Combined  
                             
Revenues   $ -     $ -     $ -         $ -  
Cost of revenues     -       -       -           -  
Gross Profit     -       -       -           -  
Operating Expenses:                                    
Research and development     -       13,180       -           13,180  
Research and development - related parties     -       131,115       -           131,115  
General and administrative     154,660       81,744       -           236,404  
Total Operating Expenses     154,660       226,039       -           380,699  
Loss From Operations     (154,660 )     (226,039 )     -           (380,699 )
                                     
Other Income (Expense):                                    
Interest income     24       -       -           24  
Interest income (expense) - related parties     2,139       (1,585 )     -           554  
Total Other Income (Expense)     2,163       (1,585 )     -           578  
Loss Before Income Taxes     (152,497 )     (227,624 )     -           (380,121 )
Income tax expense     -       200       -           200  
Net Loss   $ (152,497 )   $ (227,824 )   $ -         $ (380,321 )
                                     
Net Loss Per Share                                    
- Basic and Diluted   $ (0.01 )                       $ (0.00 )
Weighted Average Number of Common Shares Outstanding                     1,657,711     J        
- Basic and Diluted     25,782,289               50,000,000     L     77,440,000  

 

See notes to these unaudited pro forma condensed combined financial statements

 

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KT HIGH-TECH MARKETING, INC.

Unaudited Pro Forma Condensed Combined Statement of Operations

Year Ended December 31, 2016

 

                Pro Forma         Pro Forma  
    KT High-Tech     KULR     Adjustments     Notes   Combined  
                             
Revenues   $ -     $ 6,900     $ -         $ 6,900  
Cost of revenues     -       7,749       -           7,749  
Gross Loss     -       (849 )     -           (849 )
Operating Expenses:                                    
Research and development     -       29,404       -           29,404  
Research and development - related party     -       395,322       -           395,322  
General and administrative     35,020       398,130       -           433,150  
Total Operating Expenses     35,020       822,856       -           857,876  
Loss From Operations     (35,020 )     (823,705 )     -           (858,725 )
                                     
Other Income:                                    
Interest income     4       25       -           29  
Interest income - related party     -       2,152       -           2,152  
Total Other Income     4       2,177       -           2,181  
Loss Before Income Taxes     (35,016 )     (821,528 )     -           (856,544 )
Income tax expense     -       800       -           800  
Net Loss   $ (35,016 )   $ (822,328 )   $ -         $ (857,344 )
                                     
Net Loss Per Share                                    
- Basic and Diluted   $ (0.00 )                       $ (0.01 )
Weighted Average Number of Common Shares Outstanding                     2,997,487     K        
- Basic and Diluted     22,967,265               50,000,000     L     75,964,752  

 

See notes to these unaudited pro forma condensed combined financial statements

 

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NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

1. Description of Transaction and Basis of Presentation

 

Basis of Presentation

 

The unaudited pro forma condensed combined financial statements were prepared in accordance with the regulations of the SEC. The unaudited pro forma condensed combined balance sheet as of March 31, 2017 is presented as if the Share Exchange had been completed on March 31, 2017.

 

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016 combines the unaudited historical statements of operations of KULR and KT High-Tech for their respective periods ended December 31, 2016 and gives pro forma effect to the Share Exchange as if it had been completed on January 1, 2016.

 

The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2017 combines the unaudited historical statements of operations of KULR and KT High-Tech for their respective periods ended March 31, 2017, and gives pro forma effect to the Share Exchange as if it had been completed on January 1, 2016.

 

Based on the terms of the Share Exchange Agreement, KULR is deemed to be the acquiring company for accounting purposes and the transaction.

 

Description of Transaction

 

On June 8, 2017, the Company entered into a Share Exchange Agreement with KULR and the KULR Stockholders which held all of the outstanding common stock of KULR. On June 19, 2017, (the “Closing Date”), the Company closed the transaction contemplated by the Share Exchange Agreement. Pursuant to the Share Exchange Agreement, the KULR Stockholders agreed to transfer an aggregate of 25,000,000 shares of KULR’s common stock to the Company in exchange for the Company’s issuance of an aggregate 50,000,000 shares of the Company’s common stock to the KULR Stockholders (the “Share Exchange”). KULR became a wholly-owned subsidiary of KT High-Tech and the KULR Stockholders now beneficially own approximately 64.57% of KT High-Tech’s common stock on a fully-diluted basis. Upon the closing of the Share Exchange Agreement, a representative of the KULR Stockholders was appointed to be the Company’s second Board Director. Based on these facts, the closing of the Share Exchange Agreement was accounted for as a reverse recapitalization under the provisions of ASC 805-40 Business Combinations – Reverse Acquisitions, with KULR being the acquirer for accounting purposes and KT High-Tech being the accounting acquiree.

 

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2. Pro Forma Adjustments

 

The following pro forma adjustments give effect to the reverse recapitalization:

 

Condensed Combined Balance Sheet – as of March 31, 2017

 

Subsequent Event Adjustments

 

The following are adjustments to reflect the impact of events that occurred subsequent to March 31, 2017, which are directly attributable to the pro forma transaction.

 

Note A To record the proceeds received by KULR in connection with the repayment of KULR related party receivables subsequent to March 31, 2017.

 

    Debit     Credit  
Cash   $ 89,885          
Loans receivable from related party           $ 85,000  
Interest receivable - related party             2,885  
Other receivable - related party             2,000  

 

Note B To record the proceeds received by KT High-Tech subsequent to March 31, 2017 in connection with the sale of its common stock, which represents the last tranche of funding in an offering whereby KT High-Tech issued an aggregate of 3,000,000 shares of common stock for aggregate proceeds of $3,000,000 (“KT Offering”).

 

    Debit     Credit  
Cash   $ 496,000          
Common stock           $ 50  
Additional paid-in-capital             495,950  

 

Note C To record the conversion subsequent to March 31, 2017 of 5,000,000 shares of KULR Series A convertible preferred stock and 1,833,334 shares of KULR Series A1 convertible preferred stock.

 

    Debit     Credit  
Series A convertible preferred stock   $ 500          
Series A1 convertible preferred stock     183          
Common stock           $ 683  

 

Note D To record the cancellation subsequent to March 31, 2017 of 3,333,334 shares of KULR common stock.

 

    Debit     Credit  
Common stock   $ 333          
Additional paid-in-capital           $ 333  

 

Elimination Adjustments

 

The following are adjustments that solely eliminate the impact of intercompany balances.

 

Note E To eliminate the intercompany principal balance associated with KT High-Tech’s loan to KULR in the amount of $200,000.

 

    Debit     Credit  
Loan payable - related party   $ 200,000          
Loans receivable from related party           $ 200,000  

 

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Note F To eliminate the intercompany interest balance associated with KT High-Tech’s loan to KULR.

 

    Debit     Credit  
Accrued expenses and other current liabilities - related party   $ 2,139          
Interest receivable - related party           $ 2,139  

 

Note G To eliminate certain other intercompany balances associated with amounts due to KT High-Tech by KULR.

 

    Debit     Credit  
Accrued expenses and other current liabilities - related party   $ 35,634          
Other receivable - related party           $ 35,634  

 

Pro Forma Adjustments

 

The following are adjustments to reflect the pro forma impact of the reverse recapitalization.

 

Note H To capitalize the accumulated deficit of KT High-Tech in conjunction with the recapitalization.

 

    Debit     Credit  
Additional paid-in-capital   $ 191,575          
Accumulated deficit           $ 191,575  

 

Note I

To record the exchange of 25,000,000 shares of KULR common stock for 50,000,000 shares of KT High-Tech common stock in connection with the Share Exchange.

 

    Debit     Credit  
Additional paid-in-capital   $ 2,500          
Common stock           $ 2,500  

 

Condensed Combined Statement of Operations – Three Months Ended March 31, 2017

 

Subsequent Event Adjustments

 

Note J

To record additional 1,657,711 shares of common stock to true-up weighted average common shares outstanding to 3,000,000 to present the shares issued pursuant to the KT Offering as if it took place on January 1, 2016.

 

Pro Forma Adjustments

 

Note L

To record the issuance of 50,000,000 shares of KT High-Tech common stock to the KULR Stockholders related to the Share Exchange.

 

Condensed Combined Statement of Operations – Year Ended December 31, 2016

 

Subsequent Event Adjustments

 

Note K

To record an additional 2,997,487 shares of common stock to true-up weighted average common shares outstanding to 3,000,000 to present the shares issued pursuant to the KT Offering as if it took place on January 1, 2016.

 

Pro Forma Adjustments

 

Note L

To record the issuance of 50,000,000 shares of KT High-Tech common stock to the KULR Stockholders related to the Share Exchange.

 

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